1
OPTION AGREEMENT
THIS AGREEMENT is made this 27th day of March, 2000,
between GOTHIC ENERGY CORPORATION, an Oklahoma corporation ("GEC"), GOTHIC
PRODUCTION COMPANY, an Oklahoma corporation ("GPC"and, jointly and severally
with GEC, "Gothic"), and CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP, an
Oklahoma limited partnership, successor in interest by merger to Chesapeake
Gothic Corp. ("Chesapeake").
R E C I T A L S :
WHEREAS, Chesapeake owns (a) 61,007.474 shares of GEC's
Senior Redeemable Preferred Stock, Series B, $0.05 par value per share, (b) the
right to receive accrued and unpaid dividends on such Preferred Stock payable
in kind, and (c) 2,394,125 shares of GEC's Common Stock, $0.01 par value per
share (collectively, the "GEC Securities");
WHEREAS, Chesapeake or one or more of the wholly owned
subsidiaries of Chesapeake Energy Corporation (collectively, the "CEC
Parties"), and Gothic and its affiliated entities (collectively, the "Gothic
Parties") are parties to that certain Sale and Participation Agreement dated as
of March 31, 1998, as amended (the "Participation Agreement") pursuant to
which: (a) Chesapeake acquired an undivided fifty percent (50%) interest in
certain oil, gas and related assets from the Gothic Parties, (b) the CEC
Parties and the Gothic Parties provided for the maintenance, joint development
and operation of the Existing Acreage, the Related Interests and the
Acquisition Acreage (as those terms are defined in the Participation
Agreement), and (c) an area of mutual interest was created among the CEC
Parties and the Gothic Parties covering lands located in whole or in part in
the States of Arkansas, Kansas, New Mexico (excluding the Pecos Slope Acreage),
Oklahoma and Texas; and
WHEREAS, Gothic has purchased an option to acquire all of
Chesapeake's GEC Securities which Chesapeake has granted, such option to be
evidenced by and subject to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of receipt of the
consideration set forth in that certain Option Purchase Agreement of even date
herewith, the mutual covenants herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
1. Option Agreement. Chesapeake hereby grants to Gothic the right and
option to purchase all of the GEC Securities owned by Chesapeake (the "Option")
in strict accordance with the terms and conditions of this Agreement.
2. Term. Unless Fully Exercised in strict accordance with all of the
terms and conditions set forth in this Agreement, unless extended in writing by
Chesapeake, the Option will expire on the earlier of: (i) January 31, 2001, at
5:00 p.m. Oklahoma City, Oklahoma time; or (ii) thirty (30) days after the
confirmation order of the plan of bankruptcy for Gothic (the "Option Period"),
and all rights and obligations of Chesapeake and the Gothic Parties under this
Agreement will expire and terminate
Exhibit "99.3"
Page 1 of 17 Pages
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without any further notice or action. The Option will be deemed "Fully
Exercised" if, and only if, each of the following actions is completed before
the expiration of the Option Period: (a) receipt by Chesapeake of the exercise
notice under paragraph of this Agreement; (b) satisfaction in full by the
Gothic Parties of all conditions precedent set forth in this Agreement; and (c)
full and complete performance by the Gothic Parties of the Exercise
Consideration (as defined below) including, without implied limitation, the
execution, delivery and recordation (where appropriate) of the Conveyance
Documents and the Restated Participation Agreement (as those terms are defined
below).
3. Exercise. Gothic may exercise the Option at any time prior to the
expiration of the Option Period by delivery to Chesapeake of a written notice
advising Chesapeake of Gothic's intent to exercise the Option. On receipt of
such notice of intent to exercise: (a) this Agreement will be deemed a legally
binding agreement by Gothic to purchase the GEC Securities from Chesapeake
prior to the expiration of the Option Period on the terms and conditions stated
in this Agreement; and (b) this Agreement will be deemed to be a legally
binding agreement by Chesapeake to sell the GEC Securities to Gothic prior to
the expiration of the Option Period under the terms and conditions stated in
this Agreement. Notwithstanding the foregoing, Chesapeake will have no
obligation to assign or deliver any interest in the GEC Securities to Gothic
until the Option is Fully Exercised.
4. Exercise Consideration. The payment of the "Exercise Consideration"
means the performance by Gothic of all of the following agreements in
accordance herewith:
4.1 Sale and Conveyance. As a portion of the Exercise
Consideration the Gothic Parties will convey and assign to
the CEC Parties all of the Gothic Parties' right, title and
interest in and to the Properties (as defined below) free and
clear of any and all liens, claims and encumbrances. The
Properties assigned to the CEC Parties will be assigned
pursuant to the form of assignment at Schedule "(a)" attached
as a part hereof with appropriate schedules attached to
describe the Properties as set forth in Schedule "4.1(b)"
attached hereto as a part hereof (the "Property Schedules")
and the Properties located within the CHK Area (as
hereinafter defined) will be released from the terms of the
Participation Agreement in all respects.
4.2 Participation Agreement. The Gothic Parties and the CEC
Parties will enter into the Amended and Restated
Participation Agreement in the form of Schedule "4.2" attached
as a part hereof (the "Restated Participation Agreement")
which will amend and replace the Participation Agreement to
the extent set forth in the Restated Participation Agreement.
4.3 Definitions. For purposes of this Agreement the term
"Properties" means the following: (a) any right to any
reconveyance in favor of the Gothic Parties under paragraph
1.3 of the Participation Agreement, any reversion or any
other interest owned by the Gothic Parties under the
Participation Agreement in the fifty percent (50%) interest
in the Existing Acreage, the Related Interests and the
Acquisition Acreage (as those terms are defined in the
Participation Agreement) previously
Exhibit "99.3"
Page 2 of 17 Pages
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conveyed to the CEC Parties together with any related
interests or property rights acquired by the CEC Parties so
that the CEC Parties own such interest in any and all
acreage, interests and property rights acquired in connection
with the Participation Agreement free and clear of all
re-assignment obligations, reversionary interests or any
other terms or obligations under the Participation Agreement;
(b) except for the Gothic Wellbore Interests (as defined
below) but specifically including any other ▇▇▇▇▇
participated in by the Gothic Parties pursuant to paragraph
5.8 of this Agreement, all of the Gothic Parties' right,
title and interest in all oil, gas and mineral interests of
every kind and character within the CHK Area (as defined
below) together with any related interests and property
rights including, without limitation, any interest in farmout
agreements, contribution agreements, exploration agreements,
access agreements, the Existing Acreage, the Related
Interests, the Acquisition Acreage and other agreements to
acquire such interests which are owned by the Gothic Parties
in the CHK Area; and (c) the right to operations of all ▇▇▇▇▇
in the CHK Area including, without limitation, any well
containing the Gothic Wellbore Interests. For purposes of
this Agreement: (y) the term "CHK Area" means: (i) ▇▇▇▇▇ and
▇▇▇▇▇ Counties, Kansas, and (ii) Texas, Beaver, Harper,
Ellis, Woods, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇, Major, ▇▇▇▇▇▇ (Townships in
19N only), ▇▇▇▇▇▇, ▇▇▇▇▇ (Townships in 7N, 8N and 9N only),
Pittsburg, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ (excluding Sections 25, 34, 35
and 36 in Township 3 North, Range 19 East, Sections 19, 22,
23, 24, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 and 36 in
Township 3 North, Range 20 East and Sections 19, 20, 27, 28,
31, 32, 33, and 34 in Township 3 North, Range 21 East) and
LeFlore Counties, Oklahoma; and (z) the term "Gothic Wellbore
Interests" means the Gothic Parties' interests in the
following wellbores (but excluding any interest in any
acreage within the applicable governmental production unit):
(i) any wellbores in the CHK Area which were producing in
paying quantities as of February 1, 2000, and (ii) the next
wellbores to be drilled in the designated quarter section of
the governmental spacing units as described in Schedule "4.3"
attached hereto as a part hereof which includes four (4)
locations in ▇▇▇▇▇▇ County, Oklahoma, six (6) locations in
Pittsburg County, Oklahoma, four (4) locations in ▇▇▇▇▇▇▇
County, Oklahoma and one (1) location in Major County,
Oklahoma.
5. Conditions Precedent to Exercise. Unless waived in writing by
Chesapeake in Chesapeake's sole discretion, the right of Gothic to exercise the
Option is subject to the satisfaction of all of the following conditions
precedent:
5.1 Plan of Reorganization. A plan of reorganization for Gothic
will have been confirmed under the United States Bankruptcy
Code, as amended, on terms and conditions which approve,
without modification, this Agreement, the Restated
Participation Agreement and all of the other instruments,
agreements, conveyances, certificates, memoranda and other
documents to be entered into upon the exercise of the Option
and the consummation of the provisions of this Agreement (the
"Conveyance Documents").
Exhibit "99.3"
Page 3 of 17 Pages
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5.2 Approvals. Chesapeake and Gothic will have received written
consents and approvals to the terms and conditions of this
Agreement and the Conveyance Documents in form and substance
satisfactory to Chesapeake from the holders of the Gothic's
14 1/8% Senior Secured Discount Notes, the holders of the
Gothic's Senior Notes, Bank One, Texas, N.A., and any other
necessary parties deemed necessary or prudent by Chesapeake.
5.3 Lien Releases. Chesapeake will have received lien releases
and other documents required to assure Chesapeake that the
Properties and the other interests to be acquired by the CEC
Parties under the Conveyance Documents will be free and clear
of all liens, claims and encumbrances.
5.4 Conveyance Documents. The Conveyance Documents will have been
duly executed, acknowledged (where appropriate) and delivered
by the Gothic Parties and the CEC Parties, the Conveyance
Documents will include a certificate making and reaffirming
each of the representations, warranties, covenants and
agreements set forth in this Agreement, and the covenants and
conditions precedent set forth therein will have been
satisfied.
5.5 Litigation. No actions, suits or litigation will have been
threatened or filed seeking to prevent the consummation of
the transactions contemplated by the Conveyance Documents or
seeking damages or other relief as a result of the Conveyance
Documents or the consummation of the transactions
contemplated thereby and: (a) no preliminary or permanent
injunction or other order will have been issued by any court
of competent jurisdiction or any regulatory body preventing
consummation of the transactions contemplated by this
Agreement or the Conveyance Documents; (b) no action will
have been commenced or threatened against Chesapeake, Gothic
or any of their respective affiliates, associates, officers
or directors seeking damages arising from, to prevent or
challenge the transactions contemplated by this Agreement and
the Conveyance Documents; (c) all representations and
warranties of Gothic contained herein will be true and
correct in all material respects on and as of the date of the
exercise of the Option; and (d) the Gothic Parties will have
performed or satisfied on and as of the date of the exercise
of the Option, all obligations, covenants, agreements and
conditions contained in this Agreement and the Conveyance
Documents to be performed or complied with by the Gothic
Parties.
5.6 Lease Maintenance. The Gothic Parties will have maintained in
full force and effect all of the oil, gas and mineral leases,
farmout agreements, joint development agreements, joint
operating agreements and other oil and gas related interests
covered by the Participation Agreement in full force and
effect and will not have rejected or terminated any of such
interests or breached any of the terms or conditions
applicable thereto.
Exhibit "99.3"
Page 4 of 17 Pages
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5.7 No Default. The Gothic Parties will have not defaulted under
this Agreement, the Participation Agreement or the Option
Purchase Agreement, each of the Gothic Parties'
representations and warranties will be true and correct in
all material respects and there will not have occurred any
event that would constitute an event of default with the
passage of time.
5.8 Participation. The Gothic Parties will not have proposed any
▇▇▇▇▇ to be drilled in or on any governmental production unit
(as defined in the Participation Agreement) containing any of
the Properties in the CHK Area as to which drilling
operations had not commenced prior to February 1, 2000 and,
with respect to any ▇▇▇▇▇ (other than the Gothic Wellbore
Interests) proposed by the Chesapeake Parties or third
parties spudded after February 1, 2000 ("Interim ▇▇▇▇▇"), in
the event the Gothic Parties elect to participate therein,
all of the interests of the Gothic Parties in such Interim
▇▇▇▇▇ and the governmental spacing units with respect thereto
will, at Chesapeake's election, be included in the Properties
to be conveyed to Chesapeake pursuant to paragraph 10.2.1 of
this Agreement. In the event the Gothic Parties elect not to
participate in any such Interim ▇▇▇▇▇, the Gothic Parties
will have farmed out, assigned or otherwise conveyed to the
Chesapeake Parties, the Gothic Parties' interests in any such
Interim ▇▇▇▇▇ and the governmental spacing units pursuant to
the Participation Agreement.
5.9 JIB Payments. The Gothic Parties will have paid current all
joint interest ▇▇▇▇▇▇▇▇ owing to the CEC Parties as required
by the Joint Operating Agreements attached to the
Participation Agreement.
5.10 Motion to Affirm. Within forty-five (45) days after the
filing of the petition in bankruptcy for one or more of the
Gothic Parties, the Gothic Parties will have filed a motion
and will thereafter diligently pursue entry of an order in
such bankruptcy proceeding to irrevocably affirm this
Agreement, the Option, the Conveyance Documents, the
Participation Agreement and the Restated Participation
Agreement in all respects.
6. Chesapeake Representations and Warranties. Chesapeake hereby
represents and warrants to Gothic that as of the date of this Agreement and
until the Option is exercised in accordance with the terms and conditions of
this Agreement or the Option Period has expired without the Option being
exercised:
6.1 Ownership. Chesapeake has and will have good and valid title
to the GEC Securities, free and clear of all liens, claims
and encumbrances. No person or entity other than the CEC
Parties has or will have any interest in the GEC Securities
either of record or beneficially.
6.2 Authority. Chesapeake has taken all necessary action to
authorize the execution, delivery and performance of this
Agreement and has adequate corporate power,
Exhibit "99.3"
Page 5 of 17 Pages
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authority and legal right to enter into, execute, deliver and
perform this Agreement and to consummate the transactions
contemplated hereby.
6.3 Absence of Liabilities. Except as approved by Gothic in
writing prior to the Closing Date: (a) Chesapeake has no
debt, liability, obligation or commitment, absolute or
contingent, known or unknown, relating to or connected with
the GEC Securities; (b) the GEC Securities will not be
subject to or liable for any claim, debt, liability, lien,
encumbrance, obligation, guaranty or commitment of Chesapeake
on the Closing Date; and (c) any such claims, debts,
liabilities, obligations or commitments will be the sole
responsibility of Chesapeake and Chesapeake hereby agrees to
indemnify and hold harmless Gothic from all such matters.
6.4 Consents and Approvals. No notice to, filing with, or
authorization, consent or approval of any governmental
entity, person or other entity is necessary for the
consummation of the transactions contemplated by this
Agreement. The execution, delivery, performance and
consummation of this Agreement does not and will not: (a)
violate, conflict with or constitute a default or an event
that, with notice or lapse of time or both, would be a
default, breach or violation under any term or provision of
any instrument, agreement, contract, commitment, license,
promissory note, conditional sales contract, indenture,
mortgage, deed of trust, lease or other agreement, instrument
or arrangement to which Chesapeake is a party or by which
Chesapeake or, to the best of Chesapeake's knowledge, the GEC
Securities are bound; (b) violate, conflict or constitute a
breach of any statute, regulation or judicial or
administrative order, award, judgment or decree to which
Chesapeake is a party or to which Chesapeake or, to the best
of Chesapeake's knowledge the GEC Securities are bound; or
(c) result in the creation or imposition of any adverse claim
or interest, lien, encumbrance, charge, equity or restriction
of any nature whatever, upon or affecting Chesapeake, or to
the best of Chesapeake's knowledge, the GEC Securities or
Gothic.
7. Gothic Representations and Warranties. Gothic hereby represents and
warrants to Chesapeake that as of the date of this Agreement and as of the
Closing Date:
7.1 Authority and Reliance. Gothic has taken all necessary action
to authorize the execution, delivery and performance of this
Agreement and has all requisite corporate power, authority
and legal right to enter into, execute, deliver and perform
this Agreement and to consummate the transactions
contemplated hereby and to own, lease, and operate its
properties and to conduct its business as now being
conducted. Gothic represents and warrants that Gothic is
experienced in the oil and gas business and has knowledge and
experience in business and financial matters and, with
respect to investments generally and, in particular,
investments generally comparable to the Option and the GEC
Securities, Gothic is competent to evaluate the value of each
of the GEC Securities and the Exercise Price and the benefits
and risks relating to this Agreement and Gothic has
determined that the
Exhibit "99.3"
Page 6 of 17 Pages
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consideration being given by Gothic is the fair value
equivalent of the consideration being received by Gothic for
the purchase and exercise of the Option. If Gothic exercises
the Option, Gothic's representations and warranties hereunder
will extend fully to the exercise of the Option as if made on
the date the Option is exercised.
7.2 Consents. Gothic has obtained and provided to Chesapeake all
consents, approvals or waivers necessary or appropriate for
Gothic to enter into this Agreement and to consummate the
transactions contemplated hereby. No other authorization,
consent, approval, license, qualification or formal exemption
from, nor any filing, declaration or registration with, any
court, governmental agency or regulatory authority or any
securities exchange is required in connection with the
execution, delivery or performance by the Gothic Parties of
this Agreement.
7.3 Litigation. There is no action, suit, investigation or
proceeding, governmental or otherwise, pending or, to the
best of Gothic's knowledge, threatened to which any of the
Gothic Parties is or would be a party or of which the
Properties, the Properties or other assets of the Gothic
Parties is or would be subject.
7.4 Properties. All of the oil, gas and related interests of
every kind and character owned by the Gothic Parties or any
of the Gothic Parties' direct or indirect subsidiaries which
are located in the CHK Area are described in Schedule "7.4"
attached as a part hereof.
8. Covenants. Unless waived in writing, the parties agree to the
following during the Option Period:
8.1 Conduct of Businesses. Prior to the exercise of the Option or
expiration of the Option Period, the Gothic Parties will
operate in a businesslike manner in accordance with prior
practices and will maintain and preserve all of the assets
and businesses of the Gothic Parties including the
Properties.
8.2 Properties. The Gothic Parties have not and will not: (a)
transfer, sell, mortgage, pledge, encumber or dispose of any
assets covered by this Agreement or the Restated
Participation Agreement, except for the existing mortgages
which have been subordinated to the interests of Chesapeake
pursuant to the Participation Agreement; or (b) except in the
ordinary course of business consistent with past business
practices, make or permit any amendment or termination of any
material contract, agreement or commitment affecting the
assets covered by this Agreement or the Restated
Participation Agreement.
8.3 Consents. The parties will use their best efforts to obtain,
all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and
parties to contracts with the Gothic Parties as are necessary
for the
Exhibit "99.3"
Page 7 of 17 Pages
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consummation of the transactions contemplated by this
Agreement or are reasonably requested by Chesapeake.
8.4 Litigation. Promptly on learning thereof, each party to this
Agreement will notify the other party of any litigation, suit
or administrative proceeding that could reasonably be
expected to have a material adverse affect on the ability of
the parties to consummate the transactions contemplated by
this Agreement or the Conveyance Documents, or otherwise
adversely affect any of the businesses, affairs, assets,
prospects, operations or conditions, financial or otherwise,
of the parties, whether or not the claim is considered to be
covered by insurance. Gothic and Chesapeake each agree to not
to agree to or join in the pursuit of any injunctive relief
prohibiting the transactions contemplated by this Agreement.
8.5 Plan of Reorganization. Gothic will not propose or consent to
any plan of reorganization which materially conflicts with
any of the terms and conditions of this Agreement, the
Conveyance Documents or the Restated Participation Agreement
and will not dispute or seek to modify or rescind this
Agreement in any bankruptcy proceeding or other action
affecting Gothic. The Gothic Parties will simultaneously
provide to Chesapeake copies of all notices, filings and
other documents relating to the Gothic Parties bankruptcy,
reorganization or any proposed plan of reorganization
including, without limitation, all communications to, from or
among any of the Gothic Parties, any formal or informal
committees of creditors or security holders or any creditors
of the Gothic Parties, whether before or after the filing of
bankruptcy.
8.6 GEC Securities. Chesapeake will not transfer, sell, pledge,
encumber or dispose of any of the GEC Securities.
9. Representations and Warranties for the Properties. As an inducement to
Chesapeake to enter into this Agreement and accept the assignment of the
interests in the Properties, Gothic represents and warrants to Chesapeake that
as of the date of this Agreement and the Closing Date:
9.1 No Assumption of Obligations. Except as approved by
Chesapeake in writing prior to the Closing Date, the
execution and consummation of this Agreement will not
obligate Chesapeake with respect to (or result in the
assumption by Chesapeake of) any obligation of Gothic arising
prior to the Closing Date under or with respect to, any
liability, agreement or commitment relating to the Properties
including, without implied limitation, to pay to or share
with any third party any portion of the Hydrocarbons
attributable to the Properties. The term "Hydrocarbons" means
and includes oil, gas, casinghead gas, condensate, natural
gas liquids and all components of the foregoing.
9.2 Absence of Liabilities. Except as approved by Chesapeake in
writing prior to the Closing Date: (a) Gothic has no debt,
liability, obligation or commitment, absolute or contingent,
known or unknown, relating to or connected with the
Properties;
Exhibit "99.3"
Page 8 of 17 Pages
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(b) neither Chesapeake nor the Properties will be subject to
or liable for any claim, debt, liability, lien, encumbrance,
obligation, guaranty or commitment on the Closing Date; and
(c) any such claims, debts, liabilities, obligations or
commitments will be the sole responsibility of Gothic and
Gothic hereby agrees to indemnify and hold harmless
Chesapeake from all such matters. Gothic has complied and
will continue to comply with all applicable federal, state or
local statutes, laws and regulations.
9.3 Contracts. Gothic has delivered to Chesapeake true copies (or
descriptions, in the case of oral agreements) of all of the
contracts and agreements relating to the Properties
including, without limitation, all marketing and production
sales contracts. Except as approved by Chesapeake in writing
prior to the Closing Date, no such marketing or production
sales contracts will in any way prevent or hinder Chesapeake
in taking in kind Chesapeake's share of production from the
Properties. There are no other material contracts,
commitments or agreements in effect related to the Properties
that have not been disclosed to Chesapeake in writing. To the
best of Gothic's knowledge: (a) such contracts and agreements
are in full force and effect; (b) no event of default or
event which would become an event of default with the giving
of notice or passage of time has occurred; and (c) no
condition presently exists which would give any party to any
such contract the right to terminate such contract. There are
no other material contracts, commitments or agreements in
effect related to the Properties.
9.4 Consents and Approvals. No notice to, filing with, or
authorization, consent or approval of any governmental
entity, person or other entity is necessary for the
consummation of the transactions contemplated by this
Agreement. The execution, delivery, performance and
consummation of this Agreement does not and will not:
violate, conflict with or constitute a default or an event
that, with notice or lapse of time or both, would be a
default, breach or violation under any term or provision of
any instrument, agreement, contract, commitment, license,
promissory note, conditional sales contract, indenture,
mortgage, deed of trust, lease or other agreement, instrument
or arrangement to which Gothic is a party or by which Gothic
or, to the best of Gothic's knowledge, the Properties are
bound; violate, conflict or constitute a breach of any
statute, regulation or judicial or administrative order,
award, judgment or decree to which Gothic is a party or to
which Gothic or, to the best of Gothic's knowledge the
Properties are bound; or result in the creation or imposition
of any adverse claim or interest, lien, encumbrance, charge,
equity or restriction of any nature whatever, upon or
affecting Gothic, or to the best of Gothic's knowledge, the
Properties or Chesapeake.
9.5 Litigation. To the best of Gothic's knowledge there is: (a)
no action, suit or proceeding pending, threatened or
contemplated against Gothic or the Properties; and (b) no
proceeding, investigation, charge, audit or inquiry
threatened or pending before or by any federal, state,
municipal or other governmental court,
Exhibit "99.3"
Page 9 of 17 Pages
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department, commission, board, bureau, agency or
instrumentality which might result in an adverse effect on
Gothic or the Properties. Gothic hereby agrees to indemnify
and hold harmless Chesapeake with respect to any and all
litigation and proceedings.
9.6 Title. Gothic owns, possesses and holds good and defensible
title beneficially and of record in and to the respective
Properties free and clear of all claims, liens, encumbrances,
conditions, restrictions, calls on production, obligations to
pay to or share with third parties any revenue or other
matter adversely affecting the value or ownership of the
Properties. All of the oil, gas and related interests of
every kind and character owned by Gothic or any of Gothic's
affiliates which are located in the CHK Area are described in
the Conveyance Documents. Gothic is entitled to receive not
less than the "Net Revenue Interest" set forth in the
Conveyance Documents of all Hydrocarbons produced, saved and
marketed from the Properties without reduction, suspension or
termination of such interest throughout the duration of the
productive life of such Properties and is in no event
obligated to bear any of the costs and expenses related to
the maintenance, development or operation (including, without
limitation, the costs and expenses of plugging and abandoning
any ▇▇▇▇▇ and removal and salvage of any equipment and
facilities) of the Properties throughout the productive life
of the Properties in excess of the "Working Interest" set
forth in Conveyance Documents. To the best of Gothic's
knowledge, there are no suspended revenues or any basis to
suspend revenues from the Properties. To the best of Gothic's
knowledge, there does not exist any lien, claim, encumbrance,
restriction or other matter which might cause Chesapeake to
not receive for its own account free and clear of all liens,
claims and encumbrances the percentage of the fair market
value of all Hydrocarbons produced, saved or used from each
of the Properties after the Closing Date equal to the Net
Revenue Interest designated in the Conveyance Documents.
9.7 Foreign Person. Gothic is not a "foreign person" as that term
is defined under the Internal Revenue Code of 1986.
9.8 Oil and Gas Leases in Good Standing. Except as approved by
Chesapeake in writing prior to the Closing Date, to the best
of Gothic's knowledge all oil and gas leases which are
material singly or in the aggregate are in full force and
effect, and Gothic is not in default thereunder.
9.9 Taxes. All ad valorem, property, production, severance and
similar taxes and assessments based on or measured by the
ownership of property comprising the Properties or the
production or removal of hydrocarbons or the receipt of
proceeds therefrom have been timely paid when due and are not
in arrears.
9.10 Contracts, Consents and Preferential Rights. Gothic has
disclosed to Chesapeake in writing after the date hereof by
reference to this paragraph: (a) all partnership, joint
venture, farmin/farmout, dry hole, bottom hole, acreage
contribution, area
Exhibit "99.3"
Page 10 of 17 Pages
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of mutual interest, purchase and/or acquisition agreements of
which any terms remain executory which materially affect the
Properties; (b) all other executory contracts to which Gothic
is a party which materially affect any item of the
Properties; (c) all governmental or court approvals and third
party contractual consents required in order to consummate
the transactions contemplated by this Agreement; (d) all
agreements pursuant to which third parties have preferential
rights or similar rights to acquire any portion of the
Properties upon the sale contemplated by this Agreement; and
(e) all other contracts and agreements which are in any
single case of material importance to the Properties.
9.11 Tax Partnerships. None of the Properties is treated for
income tax purposes as being owned by a partnership.
9.12 Environmental Conditions. Gothic is not aware, and has not
received notice from any person, entity or governmental body,
agency or commission, of any release, disposal, event,
condition, circumstance, activity, practice or incident
concerning any land, facility, asset or property that: (a)
interferes with or prevents compliance or continued
compliance by Gothic (or by Chesapeake after the Closing
Date) with any federal, state or local law, regulation, code
or ordinance or the terms of any license or permit issued
pursuant thereto; or (b) gives rise to or results in any
common law or other liability of Gothic to any person, entity
or governmental body, agency or commission for damage or
injury to natural resources, wildlife, human health or the
environment which would have a material adverse effect on
Gothic in each case. Gothic is not aware of any civil,
criminal or administrative action, lawsuit, demand,
litigation, claim, hearing, notice of violation,
investigation or proceeding, pending or threatened, against
Gothic or operator of any of the lands, facilities, assets
and properties owned or formerly owned, operated, leased or
used by Gothic as a result of the violation or breach of any
federal, state, or local law, regulation, code or ordinance
or any duty arising at common law to any person, entity or
governmental body, singly or in the aggregate, which if
determined adversely would have a material adverse effect on
Gothic.
9.13 Plugging Status. To the best of Gothic's knowledge, all ▇▇▇▇▇
on the Properties that have been permanently plugged and
abandoned have been so plugged and abandoned in accordance in
all material respects with all applicable requirements of
each governmental authority having jurisdiction over Gothic
and the Properties.
9.14 Affiliate Transactions. There are no transactions affecting
any of the Properties between Gothic and any of Gothic's
affiliates. As used in this Agreement, "affiliate" means,
with respect to any person or entity, each other person or
entity directly or indirectly controlling, controlled by or
under common control with such person.
Exhibit "99.3"
Page 11 of 17 Pages
12
9.15 Full Disclosure. This Agreement, any schedule referenced in
or attached to this Agreement, any document furnished to
Chesapeake under this Agreement and any certification
furnished to Chesapeake under this Agreement does not contain
any untrue statement of a material fact and does not omit to
state a material fact necessary to make the statements made,
in the circumstances under which they were made, not
misleading. All of the representations, warranties and
covenants in this Agreement: (a) are true and correct as of
the date made; (b) will be true and correct as of the Closing
Date; and (c) will survive and not be waived, discharged,
released, modified, terminated or affected by any due
diligence by Chesapeake.
10. Closing. Unless the Option Period has expired or the closing is
extended in writing by Gothic and Chesapeake, the transactions contemplated by
this Agreement will be consummated on the date (the "Closing Date") which is
five (5) business days after the later of: (a) the notice of intent to exercise
under paragraph of this Agreement; or (b) the date all of the conditions under
this Agreement have been satisfied in full.
10.1 Chesapeake's Deliveries. Subject to the terms and conditions
of this Agreement, on the Closing Date Chesapeake will
deliver or cause to be delivered to Gothic the following
items (all documents will be duly executed and acknowledged
where required):
10.1.1 GEC Securities. Conditioned on the Option being
Fully Exercised, the GEC Securities due under
paragraph of this Agreement together with stock
powers with all signatures guaranteed in the form
attached hereto as Schedule "10.1.1";
10.1.2 Evidence of Authority. Such resolutions,
certificates of good standing, incumbency
certificates and other evidence of authority with
respect to Chesapeake as might be reasonably
requested by Gothic;
10.1.3 JIB Payments. Current payment of all joint interest
▇▇▇▇▇▇▇▇ owing to the Gothic Parties as required by
the Joint Operating Agreements attached to the
Participation Agreement;
10.1.4 Closing Memorandum. A memorandum setting forth the
items delivered and accounting for the payments made
on the Closing Date;
10.1.5 Additional Documents. Such additional documents as
might be reasonably requested by Gothic to
consummate this Agreement; and
10.1.6 Interim ▇▇▇▇▇. In the event Chesapeake elects to
include the Gothic Parties' interests in the Interim
▇▇▇▇▇ in the Properties pursuant to paragraph 5.8
hereof, Chesapeake will pay to the Gothic Parties an
Exhibit "99.3"
Page 12 of 17 Pages
13
amount equal to the Gothic Parties' unrecovered
drilling costs for such Interim ▇▇▇▇▇.
10.2 Gothic's Deliveries. On the Closing Date, Gothic will deliver
or cause to be delivered to Chesapeake the following items
(all documents will be duly executed and acknowledged where
required):
10.2.1 Assignments. The Conveyance Documents in
substantially the form and substance satisfactory to
Chesapeake conveying to Chesapeake all of Gothic
Parties' right, title and interest in and to the
Properties including, without limitation, all of the
right, title and interest in and to the Interim
▇▇▇▇▇ in the event Chesapeake elects to include the
Interim ▇▇▇▇▇ in the Properties pursuant to
paragraph 5.8 hereof;
10.2.2 Releases. Releases and termination statements with
respect to any and all liens, claims, security
interests and other encumbrances covering any of the
Properties including a release of any reconveyance
rights in favor of the Gothic Parties under the
Participation Agreement;
10.2.3 Evidence of Authority. Such corporate resolutions,
certificates of good standing, incumbency
certificates and other evidence of authority with
respect to each of the Gothic Parties as might be
reasonably requested by Chesapeake;
10.2.4 Closing Memorandum. A memorandum setting forth the
items delivered and accounting for the payments made
on the Closing Date;
10.2.5 Additional Documents. Such additional documents as
might be reasonably requested by Chesapeake to
consummate this Agreement.
10.3 Costs. Gothic will pay the following closing costs: (a)
Gothic's attorneys' fees, investment banker's fees and bank
fees; (b) the cost of recording all mortgage or other lien
releases and the cost of documentary stamps to be affixed to
any deeds conveying title to the Properties to Chesapeake;
and (c) any other charge imposed by any governmental
authority for the transfer of any item comprising the
Properties. Chesapeake will pay only Chesapeake's attorneys'
fees and the cost of recording the Conveyance Documents.
Chesapeake and the Gothic Parties each agree to use their
respective best efforts to take any and all reasonable action
to minimize the recording costs and other charges associated
with the consummation of the transactions contemplated by
this Agreement.
10.4 Files and Data. As of the Closing Date and at all times
thereafter during the term of the Restated Participation
Agreement, Gothic will make available to
Exhibit "99.3"
Page 13 of 17 Pages
14
Chesapeake for copying, at Chesapeake's expense, all files,
records, reports and other data relating to the Properties.
11. Default. In the event either party fails to perform such party's
obligations hereunder (except as excused by another party's default) (the
"Defaulting Party") such failure will constitute an event of default under this
Agreement and the other party (the "Other Party") will have the right to
exercise any and all remedies available at law or in equity including, without
limitation, specific performance of this Agreement or any one or more of the
provisions herein contained, unless such default is waived by the Other Party
or cured by the Defaulting Party within five (5) business days after receipt of
notice of such default. The remedies provided by this Agreement are cumulative
and will not exclude any other remedy to which the Other Party might be
entitled under this Agreement or applicable law. In the event the Other Party
elects to selectively and successfully enforce the Other Party's rights under
this Agreement, such action will not be deemed a waiver or discharge of any
other remedy. During the pendency of any default or disputes, this Agreement
will be deemed to be in full force and effect. Notwithstanding anything herein
to the contrary, on the occurrence of a default or other breach of this
Agreement by Gothic, Chesapeake may terminate the Option in the sole and
absolute discretion of Chesapeake.
12. Miscellaneous. It is further agreed as follows:
12.1 Time. Time is of the essence of this Agreement.
12.2 Notices. Any notice, demand or communication required or
permitted to be given by any provision of this Agreement will
be in writing and will be deemed to have been given and
received when delivered personally or by telefacsimile to the
party designated to receive such notice, or on the date
following the day sent by overnight courier, or on the third
(3rd) business day after the same is sent by certified mail,
postage and charges prepaid, directed to the following
addresses or to such other or additional addresses as any
party might designate by written notice to the other parties:
To Gothic: Gothic Energy Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone (▇▇▇) ▇▇▇-▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Pray, Walker, Jackman, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
Telephone (▇▇▇) ▇▇▇-▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
Exhibit "99.3"
Page 14 of 17 Pages
15
To Chesapeake: Chesapeake Energy Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Telephone (▇▇▇) ▇▇▇-▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Self, ▇▇▇▇▇▇▇ & Lees, Inc.
2725 Oklahoma Tower
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇
Telephone (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
12.3 Cooperation. At all times during the Option Period the
parties agree to execute and deliver, or cause to be executed
and delivered, such documents and do, or cause to be done,
such other acts and things as might reasonably be requested
by the other party to this Agreement to assure that the
benefits of this Agreement are realized by the parties.
12.4 Press Release. Except to the extent required by applicable
disclosure requirements, all press releases relating to this
Agreement and the transactions contemplated by this Agreement
and the Conveyance Documents will be approved by Gothic and
Chesapeake prior to dissemination.
12.5 Choice of Law. This Agreement will be interpreted, construed
and enforced in accordance with the laws of the State of
Oklahoma and will be deemed for such purposes to have been
made, executed and performed in Oklahoma County, Oklahoma.
All claims, disputes and other matters in question arising
out of or relating to this Agreement will be decided by
proceedings instituted and litigated in the District Court of
Oklahoma County, Oklahoma or the United States District Court
for the Western District of Oklahoma.
12.6 Headings. The paragraph headings contained in this Agreement
are for reference purposes only and are not intended to
affect in any way the meaning or interpretation of this
Agreement.
12.7 Entire Agreement. This Agreement and any document executed in
connection herewith on or after the date of this Agreement
constitute the entire agreement between the parties with
respect to the subject matter hereof and there are no
agreements, understandings, warranties or representations
except as set forth herein.
Exhibit "99.3"
Page 15 of 17 Pages
16
12.8 Assignment. It is agreed that the parties may not assign such
party's rights nor delegate such party's duties under this
Agreement without the express written consent of the other
parties to this Agreement.
12.9 Amendment. Neither this Agreement, nor any of the provisions
hereof can be changed, waived, discharged or terminated,
except by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge or
termination is sought.
12.10 Severability. If any clause or provision of this Agreement is
illegal, invalid or unenforceable under any present or future
law, the remainder of this Agreement will not be affected
thereby. It is the intention of the parties that if any such
provision is held to be illegal, invalid or unenforceable,
there will be added in lieu thereof a provision as similar in
terms to such provisions as is possible to cause such
provision to be legal, valid and enforceable.
12.11 Attorney Fees. If any party institutes an action or
proceeding against any other party relating to the provisions
of this Agreement, the party to such action or proceeding
which does not prevail will reimburse the prevailing party
therein for the reasonable expenses of attorneys' fees and
disbursements incurred by the prevailing party.
12.12 Waiver. Waiver of performance of any obligation or term
contained in this Agreement by any party, or waiver by one
party of the other's default hereunder will not operate as a
waiver of performance of any other obligation or term of this
Agreement or a future waiver of the same obligation or a
waiver of any future default.
Exhibit "99.3"
Page 16 of 17 Pages
17
IN WITNESS WHEREOF, Chesapeake and Gothic have executed this
Agreement as of the date first above written.
GOTHIC ENERGY CORPORATION, an Oklahoma corporation
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
GOTHIC PRODUCTION COMPANY,
an Oklahoma corporation
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
(jointly and severally referred to herein
as "Gothic")
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP, an
Oklahoma limited partnership
By: Chesapeake Operating, Inc., General Partner
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
Chief Executive Officer
("Chesapeake")
Exhibit "99.3"
Page 17 of 17 Pages