-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KImcS4mV6Z2l4eMAKlYPapggUtT1yjQBFq5F8yFD8nXG2BPFgxBMc3iWMM7kcQvH 8rLCuEMXOSzp5vKNP3oRog== 0000930661-98-000816.txt : 19980416 0000930661-98-000816.hdr.sgml : 19980416 ACCESSION NUMBER: 0000930661-98-000816 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980415 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOTHIC ENERGY CORP CENTRAL INDEX KEY: 0000878482 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 222663839 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-19753 FILM NUMBER: 98594020 BUSINESS ADDRESS: STREET 1: 5727 S LEWIS AVE STE 700 STREET 2: P O BOX 186 CITY: TULSA STATE: OK ZIP: 74105 BUSINESS PHONE: 9187495666 FORMER COMPANY: FORMER CONFORMED NAME: TNC MEDIA INC DATE OF NAME CHANGE: 19930328 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (date of earliest event reported): MARCH 31, 1998 Gothic Energy Corporation (Exact name of Registrant as specified in its Charter) OKLAHOMA 0-19753 22-2663839 - ------------------------------------------------------------------------------- (State of incorporation (Commission File Number) (IRS Employer ID No.) or organization) 5727 SOUTH LEWIS AVENUE - SUITE 700 - TULSA, OKLAHOMA 74105 - ------------------------------------------------------------------------------- (Address of principal executive offices) (918) 749-5666 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - ------------------------------------------------------------------------------- (Former name or former address, if changed since last report) ITEM 5. OTHER EVENTS On March 31, 1998, Gothic Energy Corporation ("Gothic") entered into agreements with Chesapeake Gothic Corp and Chesapeake Acquisition Corporation, wholly owned subsidiaries of Chesapeake Energy Corporation ("Chesapeake"), with an expected closing date of April 27, 1998, pursuant to which Gothic will (i) execute a participation agreement granting a 50% interest in substantially all of Gothic's undeveloped acreage, (ii) sell for $20.0 million, subject to closing adjustments, a 50% interest in Gothic's natural gas and oil properties in the Arkoma basin, and (iii) sell 50,000 shares of Series B Preferred Stock, having a liquidation value of $50.0 million, and ten-year warrants to purchase, at an exercise price of $0.01 per share, 2,439,246 shares of Gothic's Common Stock. The transactions with Chesapeake are part of a series of transactions that are intended to recapitalize Gothic through (i) the creation of Gothic Production Corporation ("GPC"), a wholly owned subsisiary of Gothic, and the transfer of all of Gothic's natural gas and oil assets to GPC, (ii) the issuance by Gothic of the shares of Series B Preferred Stock, (iii) the sale of the Arkoma basin properties, (iv) the execution of the participation agreement, (v) the issuance by GPC of $235.0 million principal amount of Senior Secured Notes, (vi) the issuance by Gothic of Senior Secured Discount Notes intended to result in net proceeds of approximately $60.0 million, and (vii) the repayment and/or redemption of substantially all of Gothic's outstanding debt and preferred securities (together, the "Recapitalization"). All of such transactions will be consummated simultaneously and each transaction will be conditioned on the consummation of all the other transactions. The Recapitalization transactions are expected to result in proceeds to Gothic of approximately $365.0 million. - 2 - ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS: (c) Exhibits. EXHIBIT NUMBER DESCRIPTION 10.1 Press Release dated March 31, 1998 10.2 Securities Purchase Agreement dated as of March 31, 1998 by and among Gothic Energy Corporation, Chesapeake Gothic Corp. and Chesapeake Acquisition Corporation 10.3 Sale and Participation Agreement dated March 31, 1998 between Chesapeake Gothic Corporation, Gothic Energy of Texas, Inc. and Gothic Production Corporation 10.4 Oil and Gas Asset Purchase Agreement dated March 31, 1998 among Chesapeake Gothic Corp., Chesapeake Acquisition Corporation and Gothic Energy Corporation - 3 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GOTHIC ENERGY CORPORATION Dated: April 14, 1998 By: /s/ Michael K. Paulk -------------------------------------- Michael K. Paulk, President - 4 - EX-10.1 2 PRESS RELEASE DATED MARCH 31, 1998 EXHIBIT 10.1 March 31, 1998 NEWS FOR IMMEDIATE RELEASE Gothic Energy Corporation Announces Recapitalization Plan and Hiring of New Senior Officers Tulsa, Oklahoma - Gothic Energy Corporation announced today a plan of recapitalization for its existing debt and preferred securities. The plan includes (i) the reorganization of Gothic through the creation of a wholly-owned subsidiary, Gothic Production Company ("Gothic Production"), to hold Gothic's oil and gas assets, (ii) a series of transactions with Chesapeake Energy Corporation ("Chesapeake") which include the sale of certain of the Company's Arkoma assets for $20 million, the formation of a five year participation agreement involving the development of all of the Company's existing acreage in the Mid-Continent, and the issuance by Gothic of $50 million of Series B Preferred Stock to Chesapeake (together, the "Chesapeake Transactions"), (iii) the issuance by Gothic and Gothic Production of approximately $295 million of new senior notes, and (iv) the repayment and/or refinancing of substantially all of Gothic's currently existing debt and preferred securities (together, the "Recapitalization"). The Recapitalization is expected to be completed by late April. In addition, Gothic announced that it had successfully completed a consent solicitation with holders of its 12 1/4% Senior Notes due 2004 and its Series A Preferred Stock whereby those holders agreed to certain amendments that will facilitate the Recapitalization. The Company also announced that it had hired Steven P. Ensz as Vice President - Finance and Chief Financial Officer and John P. Coughlon as Senior Geologist. Mr. Ensz, who was most recently with Anglo-Suisse, Inc. ("Anglo-Suisse"), has extensive experience in the oil and gas business and is a certified public accountant. Mr. Coughlon, most recently with Amoco Production Company ("Amoco"), was actively involved in the exploitation of the assets recently acquired by Gothic from Amoco and has extensive knowledge of the Company's Mid- Continent area oil and gas producing properties. The Recapitalization - -------------------- In connection with the Recapitalization, Gothic and Gothic Production currently intend to issue approximately $295 million of new senior notes in private placement transactions subject to rule 144A. Such securities will not be registered under the Securities Act of 1933, as amended, and will not be able to be resold in the United States by the purchasers absent such registration or an applicable exemption. The proceeds from this intended issuance, when combined with the $70 million of proceeds from the Chesapeake Transactions, is expected to allow Gothic to repay and/or refinance all of its currently outstanding bank and other debt and preferred securities. Chesapeake Transactions - ----------------------- The Chesapeake Transactions, which are contingent upon the completion of the Recapitalization, provide for the following: . the formation of a participation agreement which provides Chesapeake the right, for a five year period, to participate in up to 50% of the Company's development and exploration projects on all of its existing acreage and to act as operator during the drilling and completion in any well which Gothic operates and in which Chesapeake chooses to participate; . the sale of 50% of Gothic's oil and gas assets in the Arkoma Basin for $20 million; . the purchase by Chesapeake of $50 million of Gothic's newly-issued Series B Preferred Stock due 2008, with related warrants to purchase 2,439,246 shares of Gothic's common stock with an exercise price of $0.01 per share; and . the right for Chesapeake to designate for election one member to Gothic's Board of Directors. Page Two 3/31/98 News Release Chesapeake is an independent oil and natural gas producer headquartered in Oklahoma City, Oklahoma. Chesapeake's operations are focused on exploratory and development drilling and producing property and corporate acquisitions in major onshore producing areas of the United States and Canada. New Senior Officers - ------------------- Steven P. Ensz joined the Company in March from a position as Vice President - Finance at Anglo-Suisse, a Houston-based developer of international oil and natural gas projects. Prior to joining Anglo-Suisse in 1991, Mr. Ensz acted as an independent financial consultant to the oil and gas industry and was President of Waterford Energy, a privately-held oil and natural gas company with operations in the Mid-Continent, from 1983 to 1990. Prior to joining Waterford, Mr. Ensz was a partner at Oak, Simon & Ott, a public accounting firm. Mr. Ensz received a Bachelor of Business Adminstration degree in accounting from Wichita State University and is a certified public accountant. John P. Coughlon also joined the Company in March. Previously, Mr. Coughlon was a senior staff geologist at Amoco and was actively involved in the development of the assets purchased by Gothic in January. Prior to joining Amoco in 1994, Mr. Coughlon worked as a geologist with Tower Energy, NICOR Oil and Gas and Mobil Oil Corporation. Mr. Coughlon has over 14 years of experience in the Mid- Continent region and extensive knowledge of many of the areas in which the Company is actively involved. He received a Bachelor of Science in Geology from the University of Iowa and a Master of Science in Geology from the University of Texas at El Paso. Management Comments - ------------------- Mike Paulk, President and founder of Gothic, stated, "We believe the Recapitalization will provide Gothic with the long-term capital it needs to provide a foundation for its continued growth. We believe that the Recapitalization will allow the Company to direct its resources fully to our two main objectives - developing our existing asset base and maintaining our low production cost. The Chesapeake Transactions create for Gothic a partnership with an active and knowledgeable drilling partner that should provide support for the successful implementation of the Company's Mid-Continent drilling program. Further, the Chesapeake Transactions provide the base investment for the Recapitalization, which should provide the Company with the financial flexibility to pursue its objectives." "The addition of two new members to the management team of the quality of Steve Ensz and John Coughlon will provide the Company with the additional skills needed to appropriately exploit an asset base that has grown by over 300% since mid-1997. Gothic now has the necessary group of employees, all with significant experience in the areas in which the Company's assets are concentrated, to fully exploit the opportunities before it." This Press Release may contain statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the plans, intentions, beliefs and current expectations of the Company, its directors, or its officers with respect to the future business activities and operating performance of the Company. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward-looking statements as a result of various factors. Important factors that could cause such differences are described in the Company's periodic filings with the Securities and Exchange Commission, including the Company's annual report on Form 10-KSB and quarterly reports on Form 10-QSB. Gothic Energy Corporation is an oil and natural gas acquisition, exploitation, development and production company headquartered in Tulsa, Oklahoma. Additional information may be obtained by contacting Michael Paulk or Steven Ensz at (918) 749-5666. EX-10.2 3 SECURITIES PURCHASE AGREEMENT EXHIBIT 10.2 =============================================================================== SECURITIES PURCHASE AGREEMENT DATED AS OF MARCH 31, 1998 BY AND AMONG GOTHIC ENERGY CORPORATION, CHESAPEAKE GOTHIC CORP. AND CHESAPEAKE ACQUISITION CORPORATION =============================================================================== TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS Section 1.1 Definitions.................................... 1 Section 1.2. Accounting Terms; Financial Statements......... 3 ARTICLE II ISSUE OF SECURITIES; PURCHASE AND SALE OF SECURITIES; RIGHTS OF HOLDERS OF SECURITIES Section 2.1. Issue of Securities............................ 4 Section 2.2. Purchase and Sale of Securities................ 4 ARTICLE III REPRESENTATIONS AND WARRANTIES Section 3.1. Representations and Warranties of the Company.. 5 Section 3.2. Representations and Warranties of the Purchaser and Purchaser's Parent............... 9 ARTICLE IV CONDITIONS PRECEDENT TO CLOSING Section 4.1. Conditions Precedent to Obligations of the Purchaser......................................11 Section 4.2. Conditions Precedent to Obligations of the Company........................................12 ARTICLE V COVENANTS Section 5.1. Furnishing of Information......................13 Section 5.2. Use of Proceeds................................13 Section 5.3. Board Representation...........................13 Section 5.4. Standstill Agreement...........................14 Section 5.5. Confidentiality................................14 Section 5.6. Conduct and Preservation of Business...........14 Section 5.7. Preferential Right.............................15 Section 5.8. Execution of Basic Documents...................15 ARTICLE VI MISCELLANEOUS Section 6.1. Termination....................................16 Section 6.2. No Waiver; Modifications in Writing............16 Section 6.3. Communications.................................16 Section 6.4. Costs, Expenses and Taxes......................16 Section 6.5. Determinations.................................17 Section 6.6. Execution in Counterparts......................17 Section 6.7. Binding Effect; Assignment.....................17 Section 6.8. GOVERNING LAW..................................17 Section 6.9. Severability of Provisions.....................17 Section 6.10. Headings.......................................17 Section 6.11. Public Announcements...........................17 Schedule 3.1(d)(A) Subsidiaries Schedule 3.1(d)(B) Options, Warrants, Convertible Securities, etc. Schedule 3.1(d)(C) Registration Rights Exhibit 1 Certificate of Designation Exhibit 2 Form of Common Stock Warrant Exhibit 3 Participation Agreement Exhibit 4 Arkoma Agreement Exhibit 5 Registration Rights Agreement Exhibit 6 Form of Opinion of Company Counsel This Securities Purchase Agreement (this "Agreement"), dated as of March 31, 1998, is made by and among Gothic Energy Corporation, an Oklahoma corporation (the "Company"), Chesapeake Gothic Corp., an Oklahoma corporation (the "Purchaser"), and Chesapeake Acquisition Corporation, an Oklahoma corporation ("Purchaser's Parent"). In consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS ----------- Section 1.1 Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder. "Affiliate" of any specified Person means any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that, beneficial ownership of at least 10% of the voting securities of a Person shall be deemed to be control. "Agreement" means this Agreement, as the same may be amended, supplemented or modified in accordance with the terms hereof and in effect. "Basic Documents" means, collectively, the Certificate of Designation, the Common Stock Warrant, the Participation Agreement, the Arkoma Agreement, the Registration Rights Agreement and this Agreement. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York City are authorized or obligated by law to close. "Capitalized Lease Obligation" means an obligation to pay rent or other amounts under a lease of property, real or personal, that is required to be capitalized for financial reporting -1- purposes in accordance with GAAP, and the amount of such obligation shall be the capitalized amount thereof determined in accordance with GAAP. "Certificate of Designation" means the Certificate of Designation duly adopted by the Board of Directors of the Company setting forth the rights, preferences and priorities of the Preferred Stock and filed with, and accepted for filing, so as to be effective, by the Secretary of the State of Oklahoma prior to the Closing hereunder and which is in the form of Exhibit 1 attached hereto. "Closing" has the meaning provided therefor in Section 2.2 of this Agreement. "Commission" means the Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Act. "Common Stock" means the Common Stock of the Company, $.01 par value per share. "Common Stock Warrant" means the warrant to be issued to the Purchaser to purchase shares of Common Stock of the Company. "Company" has the meaning provided therefor in the preamble of this Agreement. "Default" means any event, act or condition which, with notice or lapse of time or both, would constitute an Event of Default. "ERISA" has the meaning provided therefor in Section 3.1 of this Agreement. "Event of Default" means a material breach of any representation, warranty or covenant of any of the Basic Documents that has not been remedied within 30 days of receipt of notice of such breach by the defaulting party. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder. "Exchange Act Filings" means the Company's Form 10-KSB for the year ended December 31, 1997 filed under the Exchange Act, a draft copy of which has been provided to Purchaser and a filed copy of which shall be provided to Purchaser prior to the Closing. "Information" has the meaning provided therefor in Section 2.1 of this Agreement. -2- "Lien" means, with respect to any property or assets of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement, encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including without limitation, any Capitalized Lease Obligation, conditional sales, or other title retention agreement having substantially the same economic effect as any of the foregoing). "Material Adverse Effect" means, with respect to the Company and its Subsidiaries, a material adverse effect on the business, condition (financial or otherwise), results of operations or prospects of the Company and its Subsidiaries, taken as a whole. "Memorandum" means the Gothic Energy Corporation Confidential Private Placement Memorandum, dated February 20, 1998. "Notes" means some combination of senior notes, senior secured notes or zero coupon notes to be issued by the Company in an aggregate principal amount not less than $285 million. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or other legal entity. "Preferred Stock" means the Senior Redeemable Preferred Stock, Series B, of the Company, $.05 par value per share. "Purchaser" has the meaning provided therefor in the preamble of this Agreement. "Registration Rights Agreement" means that certain Registration Rights Agreement to be entered into by and between the Company and the Purchaser in the form attached hereto as Exhibit 5. "Securities" has the meaning provided therefor in Section 2.1 of this Agreement. "State" means each of the states of the United States of America, the District of Columbia and the Commonwealth of Puerto Rico. "State Commission" means any agency of any State having jurisdiction to enforce such State's securities laws. -3- "Subsidiaries" means of any specified Person, any corporation, partnership, limited liability company, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (i) in the case of a corporation, of which more than 50% of the total voting power of the capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, officers or trustees thereof is held by such first-named Person or any of its Subsidiaries; or (ii) in the case of a partnership, limited liability company, joint venture, association or other business entity, with respect to which such first-named Person or any of its subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise or if in accordance with generally accepted accounting principles such entity is consolidated with the first-named Person for financial statement purposes. "Time of Purchase" has the meaning provided therefor in Section 2.2 of this Agreement. "Warrant Shares" has the meaning provided therefor in Section 2.1 of this Agreement. Section 1.2. Accounting Terms; Financial Statements. All accounting terms used herein not expressly defined in this Agreement shall have the respective meanings given to them in accordance with sound accounting practice. The term "sound accounting practice, shall mean such accounting practice as, in the opinion of the independent accountants regularly retained by the Company, conforms at the time to generally accepted accounting principles in the United States applied on a consistent basis except for changes with which such accountants concur. All determinations to which accounting principles apply shall be made in accordance with sound accounting practice. ARTICLE II ISSUE OF SECURITIES; PURCHASE AND SALE OF SECURITIES; RIGHTS OF HOLDERS OF SECURITIES ------------------------------------------- Section 2.1. Issue of Securities. The Company has authorized (i) the issuance of up to $50,000,000 aggregate liquidation value of the Preferred Stock (the "Preferred Shares"), (ii) the issuance of a Common Stock Warrant to purchase 2,439,246 shares of Common Stock at an exercise price of $.01 per share (the "Warrant Shares") in the form attached hereto as Exhibit 2, (iii) the execution, delivery and performance of that certain Sale and Participation Agreement to be entered into between the Company and the Purchaser (the "Participation Agreement") in the form attached hereto as Exhibit 3 and (iv) the execution, delivery and performance of that certain -4- Oil and Gas Asset Purchase Agreement to be entered into between the Company and the Purchaser (the "Arkoma Agreement") in the form attached hereto as Exhibit 4. The Preferred Stock will have the rights, preferences and priorities set forth in the Certificate of Designation. The aggregate liquidation value of the Preferred Stock will increase to the extent of accrued dividends paid in additional shares of Preferred Stock. The Common Stock Warrant will be substantially in the form as set out as Exhibit 2 attached hereto. The Preferred Stock, the Common Stock Warrants and the Warrant Shares are collectively referred to herein as the "Securities." The Securities will be offered without being registered under the Act, in reliance on exemptions therefrom, including the exemption provided by Section 4(2) of the Act. In connection with the sale of the Securities, the Company has provided the Purchaser with certain information including the Memorandum, the Exchange Act Filings and a summary of the terms of the Preferred Stock (the "Information.") Section 2.2. Purchase and Sale of Securities . Subject to the terms and conditions herein set forth, the Company agrees that it will sell to the Purchaser, and the Purchaser and Purchaser's Parent agree that Purchaser will purchase from the Company at the Time of Purchase the Securities. The Securities shall have the terms set forth herein, in the Certificate of Designation and the Common Stock Warrant, respectively. The purchase and sale of $50,000,000 liquidation value of Preferred Stock and Common Stock Warrant pursuant to this Agreement will take place at a closing (the "Closing") at the offices of the Company, or at such other location as the parties may agree, on or before 10:00 A.M., New York City time, on April 27, 1998. The time at which the Closing is concluded is referred to herein as the "Time of Purchase." Delivery of the Securities to be purchased by the Purchaser pursuant to this Agreement shall be made at the Closing by the Company delivering definitive certificates representing the Securities to the Purchaser, in either case, against payment therefor in immediately available same-day funds to an account previously specified by the Company in writing. Any tax on the issuance of the Securities will be paid by the Company at the Time of Purchase pursuant to Section 6.4 hereof. -5- ARTICLE III REPRESENTATIONS AND WARRANTIES ------------------------------ Section 3.1. Representations and Warranties of the Company. The Company represents and warrants to the Purchaser and Purchaser's Parent as of the date hereof and as of the Time of Purchase as follows: (a) The Information provided to the Purchaser will not, at the Time of Purchase, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) The audited consolidated financial statements of the Company and its Subsidiaries, together with related notes and schedules thereto, included in the Exchange Act Filings fairly represent in all material respects the financial condition of the Company and its Subsidiaries as of the dates indicated and the results of operations and cash flows for the periods therein specified in conformity with generally accepted accounting principles consistently applied throughout the periods involved (except as otherwise stated therein). Coopers & Lybrand, which reported upon the audited financial statements and schedules included in the Exchange Act Filings, is an independent public accounting firm as required by the Act and the rules and regulations thereunder. (c) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma. Each of the Company's Subsidiaries, including Gothic Production Corporation, a wholly-owned Subsidiary of the Company formed for the purpose of becoming the primary operating Subsidiary of the Company and owning substantially all of the Company's assets, is a corporation duly incorporated or organized, validly existing and in good standing under the laws of their respective jurisdictions of incorporation. Each of the Company and its Subsidiaries is duly qualified and in good standing as a foreign corporation, and is authorized to do business, in each jurisdiction in which the ownership or leasing of any property or the nature of its business makes such qualification necessary and in which the failure so to qualify would have a Material Adverse Effect. (d) The authorized capital stock of the Company consists of 100,500,000 shares, of which 100,000,000 shares, par value $.01 per share, are designated "Common Stock" and 500,000 shares, par value $.05 per share, are designated "Preferred Stock." The Company has 16,261,640 shares of Common Stock issued and outstanding and 37,000 shares of Senior Redeemable Preferred Stock, Series A, issued and outstanding. All of the issued and outstanding shares of capital stock of the Company and its Subsidiaries are validly issued, fully paid and non- -6- assessable and were not issued in violation of any preemptive or similar rights. The Company has no Subsidiaries other than those listed on Schedule 3.1(d)(A) attached hereto. All of the capital stock of the Company's subsidiaries is owned by the Company, free and clear of any Liens. Except as described on Schedule 3.1(d)(B) attached hereto, there are no outstanding securities, subscriptions, options, warrants, rights, convertible securities or other binding agreements or commitments of any character obligating the Company or its Subsidiaries to issue any securities other than the Common Stock Warrant. Except as described in the Information, no Person other than the Purchaser has any rights to the registration of capital stock or other securities of the Company, under the Act or otherwise. Except as disclosed in the Information, there is no agreement, understanding or arrangement among the Company or its Subsidiaries and its respective stockholders or any other person relating to (i) the ownership or disposition of any capital stock of the Company or any of its Subsidiaries, (ii) the election of directors of the Company or any of its Subsidiaries or (iii) the governance of the Company's or any such Subsidiary's affairs; and no such agreements, arrangements or understandings will be breached or violated as a result of the execution and delivery of, or the consummation of the transactions contemplated by, this Agreement or the other Basic Documents. The Company has reserved for issuance upon exercise of the Common Stock Warrant shares of Common Stock sufficient in number for the full exercise thereof at the initial exercise price, and the Warrant Shares will, upon issuance, be fully paid, non-assessable and free of preemptive rights and will not be subject to any restrictions on the transfer thereof, except for such restrictions set forth herein and in the Warrant Agreement and under the Act. Except as set forth on Schedule 3.1(d)(C) attached hereto, there are no outstanding registration rights with respect to any shares of capital stock of the Company. (e) The Certificate of Designation has been duly authorized by the Company, its board of directors and all required stockholder action and when executed and delivered by the Company and filed with the Secretary of State of the State of Oklahoma will constitute a valid and legally binding agreement of the Company, enforceable against it in accordance with its terms, except that the enforcement thereof may be subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws now or hereafter in effect relating to creditors' rights and remedies generally and general principles of equity and the discretion of the court before which any proceeding therefor may be brought. The Certificate of Incorporation of the Company, by virtue of the filing of the Certificate of Designation, sets forth the rights, preferences and priorities of the Preferred Stock. (f) This Agreement has been duly authorized by the Company and, when executed and delivered by the Company (assuming the due authorization, execution and delivery by the Purchaser), will constitute a valid and legally binding agreement of the Company, enforceable against it in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws -7- now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general equitable principles whether asserted in an action at law or in equity, and that such enforceability may be subject to the discretion of the court before which any proceedings therefor may be brought. (g) The Common Stock Warrant and the Warrant Shares have been duly authorized by the Company and, when the Common Stock Warrant is executed by the Company and issued by the Company to the Purchaser in accordance with the terms of this Agreement, the Common Stock Warrant will constitute the valid and legally binding obligation of the Company enforceable in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general equitable principles, whether asserted in an action at law or in equity, and that such enforceability may be subject to the discretion of the court before which any proceedings therefor may be brought. (h) The Company has all requisite corporate power and authority to (i) execute, deliver and perform its obligations under this Agreement and each of the other Basic Documents, (ii) execute, deliver and perform its obligations under all other agreements and instruments executed and delivered by the Company pursuant to or in connection with this Agreement and each of the other Basic Documents and (iii) issue the Securities pursuant hereto in the manner and for the purpose contemplated by this Agreement. The execution and delivery by the Company of this Agreement and each of the other Basic Documents, and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by the Company. (i) Except as set forth in the Memorandum and the Exchange Act Filings, subsequent to the date as of which information is given in the Exchange Act Filings and immediately prior to the Time of Purchase, there has not been (i) any event or condition that has had or that would reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole, (ii) any transaction entered into by the Company or any Subsidiary, other than in the ordinary course of business, that is material to the Company and its Subsidiaries, taken as a whole, or (iii) any dividend or distribution of any kind declared, paid or made by the Company on its Common Stock that has not been approved by the Purchaser in writing. (j) There is no action, suit, investigation or proceeding, governmental or otherwise, pending or, to the best knowledge of the Company, threatened to which the Company or any of its Subsidiaries is or would be a party or of which the properties of the Company or its Subsidiaries are or may be subject, that (i) seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance and sale of the Securities by the Company or any of the other -8- transactions contemplated by this Agreement, (ii) questions the legality or validity of any such transactions or seeks to recover damages or obtain other relief in connection with any such transactions or (iii) would have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole. (k) The execution, delivery and performance by the Company of this Agreement and the other Basic Documents, and the issuance and sale by the Company of the Securities and the execution, delivery and performance by the Company of all other agreements and instruments to be executed and delivered by the Company pursuant hereto or thereto or in connection herewith or therewith, and compliance by the Company with the terms and provisions hereof and thereof, do not and will not (i) violate any provision of any law, rule or regulation (including, without limitation, Regulation G, T, U or X of the Board of Governors of the Federal Reserve System), order, writ, judgment, decree, determination or award presently in effect or in effect at the Time of Purchase having applicability to the Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute a default under the certificate of incorporation or by-laws of the Company or any of its Subsidiaries, or, as of the Time of Purchase, any indenture or loan or credit agreement, or any other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their respective properties may be bound or affected, or (iii) except as contemplated by this Agreement and the other Basic Documents, result in, or require the creation or imposition of, any Lien upon or with respect to any of the properties now owned or hereafter acquired by the Company or any of its Subsidiaries, except, in the case of clause (i), (ii) or (iii) of this Section 3.1(k), where such violation, conflict, default or creation or imposition of any Lien would not (individually or in the aggregate) have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole. (l) Each agreement or instrument executed and delivered by the Company in connection with this Agreement has been duly and validly authorized, executed and delivered by the Company and constitutes or will constitute a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general equitable principles, whether asserted in an action at law or in equity, and that such enforceability may be subject to the discretion of the court before which any proceedings therefor may be brought. (m) Immediately after giving effect to the consummation of the transactions contemplated by this Agreement, neither the Company nor any of its Subsidiaries (i) will be in violation of its respective certificate of incorporation or by-laws, (ii) will be in default (nor will an event occur which with notice or passage of time or both would constitute such a default) -9- under or in violation of any indenture or loan or credit agreement or any other material agreement or instrument to which it is a party or by which it or any of its properties may be bound or affected, (iii) will be in violation of any order of any court, arbitrator or governmental body or subject to or party to any order of any court or governmental authority arising out of any action, suit or proceeding under any statute or other law respecting antitrust, monopoly, restraint of trade, unfair competition or similar matters or (iv) will have violated or be in violation of any such statute, rule or regulation of any governmental authority, which default or violation (individually or in the aggregate) would (x) affect the legality, validity or enforceability of this Agreement or any of the other Basic Documents or (y) have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole. (n) No 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 Company or any of its Subsidiaries (to the extent they are a party thereto) of this Agreement or any of the other Basic Documents, except (i) as may be required under state securities or "blue sky" laws or the laws of any foreign jurisdiction in connection with the offer and sale of the Securities or (ii) as would not (individually or in the aggregate) have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole or (iii) as would not have a material adverse effect on the value of the Purchaser's rights under the Basic Documents. All such authorizations, consents, approvals, licenses, qualifications, exemptions, filings, declarations and registrations which are required to have been obtained or made as of the Time of Purchase have been obtained or made, as the case may be, and are in full force and effect and not the subject of any pending or, to the knowledge of the Company, threatened attack by appeal, direct proceeding or otherwise. (o) The Company and each of its Subsidiaries has good and valid title to, or valid and enforceable leasehold interests in, all properties and assets identified in the Memorandum or the Exchange Act Filings as owned by each of them which are material to the business of the Company and its Subsidiaries, taken as a whole, free and clear of all Liens, except such Liens as are described in the Memorandum or the Exchange Act Filings or on Schedule 3.1(o) hereto. All of the leases material to the business of the Company and the Subsidiaries, taken as a whole, and under which the Company or any Subsidiary holds properties described in the Memorandum or the Exchange Act Filings, are valid and binding as leased by them, with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such properties by the Company and its Subsidiaries. (p) All tax returns required to be filed by the Company or any of its Subsidiaries in any jurisdiction (including foreign jurisdictions) have been so filed and all taxes, assessments, fees and other charges including, without limitation, withholding taxes, penalties, -10- and interest ("Taxes") due or claimed to be due have been paid, other than those Taxes being contested in good faith and those Taxes for which adequate reserves or accruals have been established in accordance with generally accepted accounting principles, except where the failure to file such returns or to pay such Taxes is not reasonably likely to have, singly or in the aggregate, a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole. The Company knows of no actual or proposed additional tax assessments for any fiscal period against the Company or any of its Subsidiaries that, individually or in the aggregate, would have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole. (q) Each of the Company and its Subsidiaries is in substantial compliance with all laws, rules and regulations applicable to the Company, and each such Subsidiary, and the Company and its Subsidiaries own or possess and are operating in compliance in all material respects with the terms, provisions, conditions, restrictions and limitations contained in all licenses, franchises, approvals, certificates and permits from all Federal, State, territorial, foreign and local governmental and regulatory authorities which are necessary to own or lease and operate their respective properties and assets and to conduct their respective businesses, except where the failure to comply with any of the foregoing would not have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole. (r) Assuming the accuracy of the Purchaser's representations and warranties set forth in Section 3.2 hereof and the due performance by the Purchaser of the covenants and agreements set forth in Section 3.2 hereof, the sale of the Securities to the Purchaser in the manner contemplated by this Agreement does not require registration of the Securities under the Act. Section 3.2. Representations and Warranties of the Purchaser and Purchaser's Parent. (a) Each of the Purchaser and Purchaser's Parent represents and warrants to, and covenants and agrees with, the Company that: (1) the Securities to be acquired by the Purchaser hereunder are being acquired for its own account or an account with respect to which it exercises sole investment discretion and it or any such account is a "qualified institutional buyer" as defined in Rule 144A promulgated under the Act ("QIB") or an "Accredited Investor" as defined under Regulation D promulgated under the Act and has no intention of distributing or reselling such Securities or any part thereof in any transaction which would be in violation of the securities laws of the United States of America or any state; (2) each of the Purchaser and Purchaser's Parent acknowledges that the Securities have not been or will not be registered under the Act and that the Securities may not be offered or sold within the United States or to, or for the account or benefit of, United States persons, except as set forth below; (3) Purchaser shall not resell or otherwise transfer any of such Securities within two (2) years after the original issuance of the Securities, except (A) to the Company or any of its Subsidiaries, (B) inside the United -11- States to a QIB in compliance with Rule 144A promulgated under the Act, (C) inside the United States to an "Accredited Investor" that, prior to such transfer, furnishes (or has furnished on its behalf by a United States broker- dealer) to the Company a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Securities, (D) outside the United States in compliance with Rule 904 promulgated under the Act, (E) pursuant to any other exemption from registration provided under the Act (if available) including Rule 144 promulgated thereunder or (F) pursuant to an effective registration statement under the Act, and (4) Purchaser will give to each person to whom it transfers the Securities notice of any restrictions on transfer of such Securities; and subject, nevertheless, to the disposition of the Purchaser's property being at all times within its control. If the Purchaser should in the future decide to dispose of any of the Securities, the Purchaser understands and agrees that it may do so only in compliance with the Act, as then in effect, and that stop-transfer instructions to that effect will be in effect with respect to the Securities. If the Purchaser should decide to transfer or otherwise dispose of the Securities, the Purchaser shall comply with the requirements set forth in the relevant Basic Documents. The Purchaser agrees to the imprinting, so long as required by the terms of the relevant Basic Document, of the applicable legends contained in the Common Stock Warrant on each certificate representing the Common Stock Warrant or Warrant Shares. (b) Each of the Purchaser and Purchaser's Parent also represents that no part of the funds to be used to purchase the Securities to be purchased by the Purchaser constitutes assets of any employee benefit plan, except as otherwise disclosed in writing to the Company on or prior to the Closing Date. As used in this Section 3.2(b), the term "employee benefit plan" shall have the meaning assigned to such term in Section 3 of ERISA. (c) Each of the Purchaser and Purchaser's Parent also represents and warrants to the Company that (i) the Purchaser is a wholly-owned subsidiary of Purchaser's Parent, (ii) each of the Purchaser and Purchaser's Parent has received and reviewed the Information; (iii) each of Purchaser and Purchaser's Parent has authorized the purchase of the Securities; and (iv) the purchase of Securities does not violate the Purchaser's charter, by-laws, or other organizational documents or any law or regulation to which it is subject. ARTICLE IV CONDITIONS PRECEDENT TO CLOSING ------------------------------- Section 4.1. Conditions Precedent to Obligations of the Purchaser. The obligation of the Purchaser to purchase the Securities to be purchased by it hereunder is subject, at the Time of Purchase, to the satisfaction of the following conditions: -12- (a) The Purchaser shall have received an opinion, addressed to it in form and substance reasonably satisfactory to the Purchaser and dated the Time of Purchase, of William S. Clarke, P.A., counsel to the Company, substantially in the form of Exhibit 5 attached hereto. (b) In rendering such opinion in accordance with Section 4.1(a) hereof, such counsel may rely as to factual matters upon certificates or other documents furnished by officers and directors of the Company and its Subsidiaries as well as representations of the Purchaser and by government officials, and upon such other documents as such counsel deems appropriate as a basis for its opinion. Such counsel may specify the jurisdictions in which it is admitted to practice and that it is not admitted to practice in any other jurisdiction and is not an expert in the law of any other jurisdictions. To the extent such opinion concerns the laws of any other such jurisdiction, such counsel may rely upon the opinion of counsel (reasonably satisfactory to the Purchaser) admitted to practice in such jurisdiction. Any opinion relied upon by such counsel as aforesaid shall be delivered to the Purchaser together with the opinion of such counsel, which opinion shall state that such counsel believes that it and the Purchaser's reliance thereon is justified. (c) The representations and warranties made by the Company herein shall be true and correct in all material respects (except for changes expressly provided for in this Agreement) on and as of the Time of Purchase, with the same effect as though such representations and warranties had been made on and as of the Time of Purchase, and the Company shall have complied in all material respects with all agreements as set forth in or contemplated hereunder and in the other Basic Documents required to be performed by it at or prior to the Time of Purchase. (d) Except as set forth in the Information, subsequent to the date of the Exchange Act Filings and immediately prior to the Time of Purchase, (i) there shall not have been any change, or any development involving a prospective change, which has affected or may affect materially and adversely the businesses, properties or prospects or the financial condition or the results of operations of the Company and its Subsidiaries, taken as a whole; and (ii) the Company and its Subsidiaries shall have conducted their respective businesses only in the ordinary course. (e) At the Time of Purchase and after giving effect to the consummation of the transactions contemplated by this Agreement and the other Basic Documents, there shall exist no Default or Event of Default. (f) As to the Purchaser, the purchase of and payment for the Securities by the Purchaser hereunder or under the Common Stock Warrant (i) shall not be prohibited or enjoined temporarily or permanently by any applicable law or governmental regulation (including, without -13- limitation, Regulation G, T, U or X of the Board of Governors of such Federal Reserve System), (ii) shall not subject the Purchaser to any penalty, or in its reasonable judgment, other onerous condition under or pursuant to any applicable law or governmental regulation (provided, however, that such regulation, law or onerous condition was not in effect as of the date of this Agreement), and (iii) shall be permitted by the laws and regulations of the jurisdictions to which it is subject. (g) At the Time of Purchase, the Purchaser shall have received a certificate, dated as of the Time of Purchase, from the Company stating that the conditions specified in Sections 4.1(a), (b) and (c) hereof have been satisfied or duly waived at the Time of Purchase. (h) Each of the Basic Documents shall be substantially in the form attached hereto and the Basic Documents shall have been executed and delivered by all the respective parties thereto and shall be in full force and effect. (i) The issuance and sale by the Company, or a Subsidiary, of an aggregate of $285 million principal amount of notes. (j) The redemption by the Company of its $100,000,000 12 1/4% Series A and Series B Senior Notes due 2004 at 101% of the aggregate principal amount thereof. (k) The redemption by the Company of its Senior Redeemable Preferred Stock, Series A at 101% of the aggregate principal amount thereof. (l) The execution of a new credit facility providing the Company sufficient resources to participate under the terms of the Participation Agreement. (m) The Time of Purchase shall not be later than 5:00 P.M., New York City time, on April 27, 1998, subject to extension if the Purchaser agrees to extend the Time of Purchase upon request to do so by the Company. (n) All proceedings taken in connection with the issuance of the Securities and the transactions contemplated by this Agreement and the other Basic Documents, and all documents and papers relating thereto, shall be reasonably satisfactory to the Company and the Purchaser. The Purchaser shall have received copies of such papers and documents as it may reasonably request in connection therewith, all in form and substance reasonably satisfactory to it. (o) The Certificate of Designation shall have been duly filed with the Secretary of State of the State of Oklahoma. -14- Section 4.2. Conditions Precedent to Obligations of the Company. The obligations of the Company to issue and sell the Securities pursuant to this Agreement are subject, at the Time of Purchase, to the satisfaction of the following conditions: (a) The representations and warranties made by the Purchaser and Purchaser's Parent herein shall be true and correct in all material respects at and as of the Time of Purchase, with the same effect as though such representations and warranties had been made on and as of the Time of Purchase. (b) The issuance or sale of the Securities by the Company shall not be enjoined under the laws of any jurisdiction to which the Company is subject (temporarily or permanently) at the Time of Purchase. (c) Each of the Basic Documents shall be satisfactory in form and substance to the Company and shall have been duly authorized, executed and delivered by all respective parties thereto and shall be in full force and effect and counsel to the Company shall have received a copy of each of such documents duly executed and delivered by such parties. (d) The issuance and sale by the Company, or a Subsidiary, of an aggregate of $285 million principal amount of notes. (e) The redemption by the Company of its $100,000,000 12 1/4% Series A and Series B Senior Notes due 2004 at 101% of the aggregate principal amount thereof. (f) The redemption by the Company of its Senior Redeemable Preferred Stock, Series A at 101% of the aggregate principal amount thereof. (g) The execution of a new credit facility providing the Company sufficient resources to participate under the terms of the Participation Agreement. ARTICLE V COVENANTS --------- Section 5.1. Furnishing of Information. The Company will furnish to the Purchaser, as long as the Purchaser owns any Preferred Stock, the information required by the Certificate of Designation. -15- Section 5.2. Use of Proceeds. The Company will use the proceeds from the issuance and sale of the Securities to redeem the Senior Redeemable Preferred Stock, Series A, of the Company, $.05 par value per share, to pay fees and expenses related thereto and to the issuance of the Securities and the Notes and to reduce bank debt. Section 5.3. Board Representation. (a) So long as the Purchaser owns 50% or more of the outstanding shares of Preferred Stock, such party shall be entitled to designate that number of members for election to the Board of Directors of the Company so that Purchaser or Purchaser's Parent, as the case may be, shall be able to designate not less than 20% of the members of the Board of Directors of the Company. (b) In lieu of the right to designate members to the Company's Board of Directors and (i) so long as Purchaser or Purchaser's Parent, as the case may be, owns at least 20% of the outstanding shares of Preferred Stock or (ii) during the term of the Participation Agreement, Purchaser may appoint an observer who will be entitled to receive notice of, and will have the right to attend, all meetings of the Board of Directors of the Company and all committees thereof. Copies of all written information delivered to members of the Board of Directors of the Company or any committee thereof shall be concurrently delivered to any such observer. During the time that an observer has been and continues to be appointed under this paragraph, the Purchaser agrees that any confidential information disclosed to the observer in the course of such person's service as an observer will be subject to the limitations on use and disclosure that would apply if the observer were a director of the Company. All reasonable expenses of any such observer will be paid by the Company. Section 5.4. Standstill Agreement. Until March 1, 2000, except as contemplated by the Basic Agreements or unless such shall have been specifically invited in writing by the Board of Directors of the Company, neither the Purchaser or Purchaser's Parent nor any of the Purchaser's or Purchaser's Parent's Representatives, as defined below, will in any manner, directly or indirectly, (a) effect or seek, offer or propose (whether publicly or otherwise) to effect, or cause or participate in or in any way assist any other person to effect or seek, offer or propose (whether publicly or otherwise) to effect or participate in, (i) any acquisition of any securities (or beneficial ownership thereof) or assets of the Company or any of its subsidiaries; (ii) any tender or exchange offer or merger or other business combination involving the Company or any of its subsidiaries; (iii) any recapitalization, restructuring, liquidation, dissolution or other extraordinary transaction with respect to the Company or any of its subsidiaries; or (iv) any "solicitation" of "proxies" (as such terms are used in the proxy rules of the Securities and Exchange Commission) or consents to vote any voting securities of the Company, (b) form, join or in any way participate in a "group" (as defined under the Securities Exchange Act of 1934, as amended), (c) otherwise act, alone or in concert with others, to seek to control or influence the management, Board of Directors or policies of the Company, (d) take any action which might -16- force the Company to make a public announcement regarding any of the types of matters set forth in (a) above, or (e) enter into any arrangements with any third party with respect to any of the foregoing. The Purchaser, Purchaser's Parent, their Representatives and Affiliates shall not during any such period request the Company (or its directors, officers, employees or agents), directly or indirectly, to amend or waive any provision of this paragraph (including this sentence). "Representatives" shall mean Purchaser's or Purchaser's Parent's directors, officers, employees, partners, Affiliates, agents, advisors or representatives. Section 5.5. Confidentiality. Following the Closing, the Purchaser, Purchaser's Parent and their Affiliates shall maintain the confidentiality of all information received from the Company, except (i) information in the public domain or independently received from a third party with a right to disclose such information or (ii) to the extent that disclosure is required by law. Section 5.6. Conduct and Preservation of Business. Except as provided in this Agreement, during the period from the date hereof to the Closing, the Company (i) shall conduct its operations according to its ordinary course of business consistent with past practice; (ii) shall use its reasonable best efforts to preserve, maintain and protect its properties; and (iii) shall use its reasonable best efforts to preserve intact its business organization. Section 5.7. Preferential Right. So long as the Purchaser or the Purchaser's Parent owns 50% or more of the outstanding shares of Preferred Stock, in the event the Company proposes to issue any of its securities (other than debt securities with no equity feature), the Purchaser shall have the preferential right to subscribe for and purchase such securities in a proportion equal to the greater of (i) the number of shares of Common Stock, together with the Warrant Shares issuable upon exercise of the Warrant, owned by Purchaser to the total number of outstanding shares of Common Stock and (ii) 20% of the Common Stock; provided, however, that this right shall not apply to securities issued: (a) as a stock dividend or upon any subdivision of shares of Common Stock, provided that the securities pursuant to such stock dividend or subdivision are limited to additional shares of Common Stock; (b) pursuant to subscriptions, warrants, options, convertible securities or other rights which are listed in Schedule 3.1(d)(B) as being outstanding on the date of this Agreement; (c) solely in consideration for the acquisition (whether by merger or otherwise) by the Company or any of its subsidiaries of stock or assets of any other entity; (d) pursuant to a firm commitment underwritten public offering and (e) pursuant to the exercise of newly-issued options to purchase Common Stock granted to directors, officers, employees or consultants of the Company in connection with their service to the Company, not to exceed in the aggregate 2.5 million shares (appropriately adjusted to reflect stock splits, stock dividends, combinations of shares and the like with respect to the Common Stock). The Company's written notice to the Purchaser shall describe the securities proposed to be issued by the Company and specify the number, price and payment terms. The Purchaser may accept the -17- Company's offer as to the full number of securities offered to it or any lesser number, by written notice thereof given by it to the Company prior to the expiration of 15 days, in which event the Company shall promptly sell and the Purchaser shall buy, upon the terms specified, the number of securities agreed to be purchased by the Purchaser; provided, notwithstanding the other provisions of this Section, in connection with a Rule 144A offering, the Company may sell the entire amount offered to one or more initial purchasers (the "Initial Purchaser") so long as the company causes the Initial Purchaser to offer the same number of securities to the Purchaser that the Company would otherwise be required to offer the Purchaser and on the same terms and in the same manner as the Initial Purchaser offers such securities to other investors. The Company shall be free at any time prior to 90 days after the date of its notice of offer to the Purchaser, to offer and sell to any third party or parties the number of such securities not agreed by the Purchaser to be purchased by the Purchaser, at a price and on payment terms no less favorable to the Company than those specified in such notice of offer to the Purchaser. However, if such third party sale or sales are not consummated within such 90-day period, the Company shall not sell such securities as shall not have been purchased within such period without again complying with this Section 5.7. Section 5.8. Execution of Basic Documents. At the Closing, the parties shall execute and deliver to one another the Basic Documents. ARTICLE VI MISCELLANEOUS ------------- Section 6.1. Termination. This Agreement may be terminated (as to the party electing to so terminate it) at any time prior to the Time of Purchase: (a) by the Company if any of the conditions specified in Section 4.2 hereof have not been met or waived by the Company pursuant to the terms of this Agreement; (b) by the Purchaser or Purchaser's Parent if any of the conditions specified in Section 4.1 hereof have not been met or waived pursuant to the terms of this Agreement. Section 6.2. No Waiver; Modifications in Writing. No failure or delay on the part of the Company or the Purchaser in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company or the Purchaser at law or in equity or otherwise. Prior to the Time -18- of Purchase, no amendment, modification, termination of any provision or waiver of or consent to any departure by the Company from any provision of the Basic Documents shall be effective unless signed in writing by the party entitled to the benefit thereof. Except as otherwise provided herein, after the Time of Purchase, no amendment, modification, termination of any provision or waiver of or consent to any departure by the Company from any provision of the Basic Documents shall be effective unless signed in writing by or on behalf of the holders of a majority of shares of Preferred Stock outstanding. Any amendment, supplement or modification of or to any provision of the Basic Documents, any waiver of any provision of the Basic Documents, and any consent to any departure by the Company from the terms of any provision of the Basic Documents, shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, no notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances. Section 6.3. Communications. Unless otherwise provided herein, any notice or other communications herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by mail and shall be deemed to have been given when delivered in person upon receipt of telecopy or telex against receipt of answer back or four Business Days after depositing it in the mail registered or certified, with postage prepaid and properly addressed. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Section 6.3) shall be set forth under each party's name on the signature pages hereto. Section 6.4. Costs, Expenses and Taxes. Each of the Company and the Purchaser agrees to pay all costs and expenses incurred by them, respectively, in connection with the negotiation, preparation, printing, typing, reproduction, execution and delivery of this Agreement and each of the other Basic Documents, any amendment or supplement to or modification of any of the foregoing and any and all other documents furnished pursuant hereto or thereto or in connection herewith or therewith. In addition, the Company shall pay any and all stamp, transfer and other similar taxes payable or determined to be payable in connection with the execution and delivery of this Agreement or any other Basic Document or the issuance of the Securities, and shall save and hold the Purchaser harmless from and against any and all liabilities with respect to or resulting from any delay in paying, or omission to pay, such taxes. Section 6.5. Determinations. All determinations to be made by the Company or the Purchaser hereunder in its opinion or judgment or with its approval or otherwise shall be made by it in its sole discretion. Section 6.6. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which -19- counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. Section 6.7. Binding Effect; Assignment. The rights and obligations of the Purchaser under this Agreement may not be assigned to any other Person except with the prior consent of the Company. Except as expressly provided in this Agreement, this Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement, and their respective successors and assigns. This Agreement shall be binding upon the Company and the Purchaser, and their successors and assigns; provided, however, that the Company's rights under Section 5.4 shall not be assignable. SECTION 6.8. GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF OKLAHOMA, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Section 6.9. Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. Section 6.10. Headings. The Article and Section headings and Table of Contents used or contained in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. Section 6.11. Public Announcements. The Purchaser and the Company will each prepare and issue their own press releases related to this Agreement; however, each party will have the right to approve the other party's press release. -20- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. GOTHIC ENERGY CORPORATION By: __________________________________________ Michael K. Paulk, President Notice Address: 5727 South Lewis Avenue, Suite 700 Tulsa, Oklahoma 74105 Telephone: (918) 749-5666 Telecopy: (918) 749-5882 CHESAPEAKE GOTHIC CORP., as Purchaser By: __________________________________________ Aubrey K. McClendon, President Notice Address: CHESAPEAKE ACQUISITION CORPORATION, as Purchaser's Parent By: __________________________________________ Aubrey K. McClendon, President Notice Address: CHESAPEAKE\AGREEMENTS\Securities Purchase.April98 -21- CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF SENIOR REDEEMABLE PREFERRED STOCK, SERIES B (par value $.05 per share) OF GOTHIC ENERGY CORPORATION ____________________ Pursuant to Section 1032G of the Oklahoma General Corporation Act ____________________ GOTHIC ENERGY CORPORATION, a corporation organized and existing under the Oklahoma General Corporation Act (the "Corporation"), does hereby certify that, pursuant to authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, and pursuant to the provisions of Section 1032G of the Oklahoma General Corporation Act, said Board of Directors duly adopted a resolution on March _____, 1998, which approved the filing of this Certificate of Designation and which resolution remains in full force and effect as of the date hereof. Pursuant to such resolution and the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, there is hereby created a series of preferred stock of the Corporation, which series shall have the following powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, in addition to those set forth in the Certificate of Incorporation of the Corporation: 1. Certain Definitions. As used herein, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "Business Day" means a day that is not a Saturday, a Sunday or a day on which banking institutions in the State of New York are not required to be open. "Common Stock" of any Person means all capital stock of such Person that is generally entitled to (i) vote in the election of directors of such Person if such Person is a corporation or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management and policies of such Person. "Corporation" means Gothic Energy Corporation, an Oklahoma corporation. "Dividend Payment Date" means April 1, July 1, October 1 and January 1, commencing July 1, 1998, unless such day is not a Business Day, in which case the Dividend Payment Date shall be the immediately succeeding Business Day. "Dividend Rate" has the meaning specified in Section 3 hereof. "Dividend Record Date" means a day 15 days preceding the Dividend Payment Date. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and all rules and regulations promulgated thereunder. "Fair Market Value" means with respect to the Corporation's Common Stock the average of the closing prices of such security's sales on all domestic securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of ten days consisting of the day as of which "Fair Market Value" is being determined and the nine consecutive business days prior to such day; provided, that if such security is listed on any domestic securities exchange, the term "business days" as used in this sentence means business days on which such exchange is open for trading. If at any time such security is not listed on any domestic securities exchange or quoted in the NASDAQ System or the domestic over-the-counter market, the "Fair Market Value" shall be the fair value thereof determined jointly by the Corporation and the Holders of a majority of the Series B Preferred Stock then outstanding; provided, that if such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an appraiser jointly selected by the Corporation and the Holders of a majority of the Series B Preferred Stock then outstanding. The determination of such appraiser shall be final and binding on the Corporation and the Holders, and the fees and expenses of such appraiser shall be paid jointly by the Corporation and the Holders. "Holder" means a registered holder of shares of Series B Preferred Stock. "Liquidation Preference" means $1,000 per share of Series B Preferred Stock plus, for purposes of Section 8 hereof, depending on whether such share is issued or accrued, in each case, accrued and unpaid dividends, whether or not declared, if any, thereon through the date such Liquidation Preference is paid. - 2 - "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or other legal entity. "Preferred Stock" means any capital stock of a Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of other classes of capital stock issued by such Person. "Redemption Date" when used with respect to any shares of Series B Preferred Stock means the date fixed for such redemption of such shares of Series B Preferred Stock pursuant to Section 6 hereof. "Redemption Notice" has the meaning specified in Section 7(C) hereof. "SEC" means the United States Securities and Exchange Commission as constituted from time to time or any successor performing substantially the same functions. "Securities Act" means the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder. "Series B Preferred Stock" means the Senior Redeemable Preferred Stock, Series B, par value $.05 per share, of the Corporation. 2. Designation. The series of preferred stock established hereby shall be designated the "Senior Redeemable Preferred Stock, Series B" (and shall be referred to herein as the "Series B Preferred Stock") and the authorized number of shares of Series B Preferred Stock shall be 165,000 shares. 3. Dividends. Holders will be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, dividends payable at a rate per annum (the "Dividend Rate") of 12% of the aggregate Liquidation Preference of the Series B Preferred Stock payable in additional shares of Series B Preferred Stock having an aggregate Liquidation Preference equal to the amount of such dividends due on any Dividend Payment Date ("PIK" Stock"); provided, however, that after April 1, 2000, at the Corporation's option, the dividends payable on any Dividend Payment Date on each share of Series B Preferred Stock may be paid in cash. Dividends will be cumulative and will accrue from the date of issuance and be payable quarterly in arrears as provided in the immediately preceding sentence on each Dividend Payment Date, commencing on July 1, 1998. Dividends, whether or not declared, will cumulate until declared and paid, when declaration and payment may be for all or part of the then-accumulated dividends. Each dividend shall be payable to Holders of record as they appear on the stock books of the Corporation on each Dividend Record Date. Accumulated and unpaid dividends payable in Series B Preferred Stock will accrue dividends from the relevant Dividend - 3 - Payment Date and be payable quarterly to the same extent as issued shares of Series B Preferred Stock. Dividends shall cease to accrue with respect to shares of the Series B Preferred Stock on any Redemption Date with respect to such shares of Series B Preferred Stock redeemed on any such date. No dividends shall be declared or paid or set apart for payment on any Junior Stock (as defined) (other than dividends payable in Common Stock) for any period unless (the "Junior Distribution Condition") the Corporation has declared and paid in cash dividends on the Series B Preferred Stock for eight (8) consecutive quarters. When dividends are not paid in full upon the Preferred Stock, all dividends declared upon shares of the Preferred Stock shall be declared pro rata. Unless the Junior Distribution Conditions have been satisfied, no dividends (other than dividends payable in Common Stock) shall be declared or paid or set apart for payment or other distribution upon any Junior Stock, nor shall any Junior Stock be redeemed, purchased or otherwise acquired by the Corporation for any consideration (or any payment made to or available for a sinking fund for the redemption of any shares of such stock) by the Corporation. 4. Ranking. The Series B Preferred Stock shall, with respect to dividend rights and rights on liquidation, winding-up and dissolution, rank senior to all classes of Common Stock of the Corporation and senior to all other classes or series of any class of Preferred Stock of the Corporation, whether currently outstanding or issued hereafter (collectively, the "Junior Stock"). 5. Conversion. The Preferred Stock shall be convertible as follows: (A) Optional Conversion. The Series B Preferred Stock shall be convertible, without the payment of any additional consideration by the Holders, at the option of the Holders upon 90 days' prior written notice to the Corporation, on or after April 30, 2000 at the office of the Corporation or any transfer agent for the Series B Preferred Stock, into the number of fully paid and non-assessable shares of Common Stock determined by dividing the Liquidation Preference by the greater of [the lesser of (i) the average closing price for the Common Stock on the three trading days up to and including the date of signing and (ii) the average closing price for the Common Stock on the three trading days prior to the Closing Date] and the Fair Market Value of the Corporation's Common Stock in effect at the time of conversion. Notwithstanding the foregoing, no Holder or "group" (as defined under the Exchange Act) of Holders shall be able to convert any shares of Series B Preferred Stock pursuant to this Section 5(A) to the extent that the conversion of such shares would cause such Holder or "group" of Holders to own or be deemed to own by The Nasdaq Stock Market more than 19.9% of the outstanding Common Stock of the Corporation prior to such conversion. (B) Merger, Consolidation or Disposition of Assets. Notwithstanding anything to the contrary contained in Section 5(A) in case a third party makes a tender offer for in excess of 50% of the outstanding Common Stock, or the Corporation shall merge or - 4 - consolidate into another corporation, or shall sell, transfer or otherwise dispose of all or substantially all of its property, assets or business to another corporation and pursuant to the terms of such tender merger, consolidation or disposition, cash or shares of common stock of the successor or acquiring corporation are to be received by or distributed to the holders of all or part of the Common Stock of the Corporation, then each Holder of a share of the Series B Preferred Stock shall have the right thereafter to receive, upon conversion of such share of Series B Preferred Stock at Fair Market Value conditional upon the consummation of such transaction, such cash or shares of Common Stock constituting the cash or number of shares of common stock of the successor or acquiring corporation, as the case may be, receivable upon or as a result of such merger, consolidation or disposition of assets by a holder of the number shares of Common Stock into which one (1) share of the Series B Preferred Stock could be converted immediately prior to such event. (C) Mechanisms of Conversion. Before any Holder of the Series B Preferred Stock shall be entitled to convert the same into Common Stock, the Holder shall give 90 days' prior written notice to the Corporation and shall surrender to the Corporation at the office of the Corporation or of any transfer agent for the Series B Preferred Stock, the certificate or certificates representing such Series B Preferred Stock, accompanied by written notice to the Corporation that the Holder elects to convert all or a specified number of such shares and stating therein his name or the name or names of his nominees in which he wishes the certificate or certificates for Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such Holder of the Series B Preferred Stock or to his nominee or nominees a certificate representing the number of shares of Common Stock to which such Holder shall be entitled as aforesaid and, if less than the full number of shares of the Series B Preferred Stock evidenced by such surrendered certificate or certificates are being converted, a new certificate or certificates, of like tenor, for the number of shares of the Series B Preferred Stock evidenced by such surrendered certificates less the number of such shares being converted. Dividends shall continue to accrue on shares of Series B Preferred Stock from the date of the notice of conversion through the date of conversion. (D) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon conversion of any Series B Preferred Stock. If the conversion of any shares of Series B Preferred Stock results in a fraction of a share of Common Stock, an amount equal to such fraction multiplied by the Fair Market Value per share of Common Stock on the day of delivery to the Corporation of notice of conversion of such shares or dividends, as applicable, shall be promptly paid by the Corporation to the Holder of such shares in immediately available funds. 6. Voting Rights. Except as required by the Oklahoma General Corporation Act, or as set forth herein, the Holders shall not be entitled to vote on any matter submitted to a vote of stockholders of the Corporation. On any matters on which the Holders shall be so entitled to vote, they shall be entitled to one vote for each share held. Except for the issuance of 50,000 - 5 - shares of the Series B Preferred Stock to Chesapeake Gothic Corp., an Oklahoma corporation, pursuant to that certain Securities Purchase Agreement dated March 31, 1998, any remaining shares of Series B Preferred Stock can only be issued as PIK Stock and may not be issued for any other purpose or in any other manner without the prior approval of Holders of 75% of the Series B Preferred Stock. 7. Redemption. (A) Optional Redemption. (i) At any time prior to April 30, 2000, the Series B Preferred Stock may be redeemed (subject to contractual and other restrictions with respect thereto and the legal availability of funds therefor) at the option of the Corporation in whole or, from time to time, in part, in the manner provided in Section 7(C) hereof at 105% of the Liquidation Preference of the Series B Preferred Stock so redeemed, payable in cash out of the net proceeds from a public or private offering of any equity security (as defined in the Exchange Act), plus accrued and unpaid dividends (whether or not declared), which shall also be paid in cash (whether or not otherwise payable in cash) to the Redemption Date. (ii) At any time on or after April 30, 2000, the Series B Preferred Stock may be redeemed (subject to contractual and other restrictions with respect thereto and the legal availability of funds therefor) at the option of the Corporation in whole or, from time to time, in part, in the manner provided in Section 7(C) hereof at any time at a redemption price equal to the Liquidation Preference of the Series B Preferred Stock so redeemed, payable in cash, plus accrued and unpaid dividends (whether or not declared), which shall also be paid in cash (whether or not otherwise payable in cash) to the Redemption Date. (B) Mandatory Redemption. The Corporation shall redeem all outstanding shares of Series B Preferred Stock on June 30, 2008 at a redemption price equal to the Liquidation Preference thereof, payable in cash or, at the option of the Corporation, in shares of Common Stock of the Corporation at Fair Market Value, plus accrued and unpaid dividends (whether or not declared). (C) Procedure for Redemption. (i) In the event of a redemption of less than all of the Series B Preferred Stock, the shares so redeemed will be determined by the Corporation pro rata according to the number of shares held by each Holder. (ii) The Corporation shall send a written notice of redemption (the "Redemption Notice") by first-class mail, postage prepaid, not fewer than 3 days nor more than 30 days prior to the applicable Redemption Date to each Holder as of the record date fixed for such redemption of Series B Preferred Stock at such Holder's address as the same appears on the stock books of the Corporation; provided, however, that no failure to give such notice to any - 6 - Holder or Holders nor any deficiency therein shall affect the validity of the procedure for the redemption of any shares of Series B Preferred Stock to be redeemed except as to the Holder or Holders to whom the Corporation has failed to give said notice or except as to the Holder or Holders whose notice was defective. The Redemption Notice shall state: (A) whether all or less than all the outstanding shares of Series B Preferred Stock are to be redeemed and the total number of shares of Series B Preferred Stock being redeemed; (B) the number of shares of Series B Preferred Stock held of record by that specific Holder that the Corporation intends to redeem; (C) the applicable Redemption Date; (D) the manner and place or places at which payment for the shares called for redemption will, upon presentation and surrender to the Corporation of the Series B Preferred Stock Certificates evidencing the shares being redeemed, be made; and (E) that dividends on the shares of Series B Preferred Stock being redeemed shall cease to accrue on the applicable Redemption Date. (iii) On the applicable Redemption Date, the full applicable redemption price shall become payable for the shares of Series B Preferred Stock being redeemed on the applicable Redemption Date. As a condition of payment of the applicable redemption price, each Holder of Series B Preferred Stock must surrender a Series B Preferred Stock Certificate or Certificates representing the shares of Series B Preferred Stock being redeemed by the Corporation in the manner and at the place designated in the applicable Redemption Notice. The full applicable redemption price for such shares properly tendered for payment shall be paid to the person whose name appears on such certificate or certificates as the owner thereof, on and after the applicable Redemption Date when and as certificates for the shares being redeemed are properly tendered for payment. Each surrendered Series B Preferred Stock Certificate shall be canceled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (iv) On the applicable Redemption Date, unless the Corporation defaults in the payment of the applicable redemption price, dividends will cease to accrue with respect to the shares of Series B Preferred Stock called for redemption, regardless of whether the Holder has surrendered the Series B Preferred Stock certificate representing same. All rights of Holders of such redeemed shares will terminate except for the right to receive the applicable redemption price. - 7 - 8. Information. So long as any of the Series B Preferred Stock remains outstanding, the Corporation shall provide to each Holder, within ten (10) days of filing, such periodic and other reports as the Corporation is required to file under the Exchange Act. Such reports shall be mailed to the Holder at its address as it appears on the stock records of the Corporation or such other address as the Holder may have provided. 9. Payment on Liquidation. (A) Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, Holders of Series B Preferred Stock will be entitled to receive an amount in cash equal to the Liquidation Preference, before any distribution is made on any Common Stock or other Preferred Stock of the Corporation. After payment of the full amount of the Liquidation Preference to which they are entitled, Holders of Series B Preferred Stock will not be entitled to any further participation in any distribution of assets of the Corporation. (B) For the purposes of this Section 9, neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the property or assets of the Corporation nor the consolidation or merger of the Corporation with one or more corporations shall be deemed a voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, unless such sale, conveyance, exchange or transfer shall be in connection with a dissolution or winding-up of the business of the Corporation. 10. Exclusion of Other Rights. Except as may otherwise be required by the Oklahoma General Corporation Act, shares of the Series B Preferred Stock shall not have any preferences or relative, participating, optional or other special rights, other than those specifically set forth in this Certificate of Designation (as such Certificate may be amended from time to time) and in the Corporation's Certificate of Incorporation, as amended. Except as otherwise provided in writing, no shares of Series B Preferred Stock shall have any preemptive or subscription rights whatsoever as to any securities of the Corporation. 11. Reissuance of Preferred Stock. Shares of Series B Preferred Stock that have been issued and reacquired by the Corporation in any manner, including shares purchased or redeemed, shall (upon compliance with any applicable provisions of the Oklahoma General Corporation Act) have the status of authorized and unissued shares of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of Preferred Stock, except the Series B Preferred Stock. - 8 - 12. Business Day. If any payment or redemption shall be required by the terms hereof to be made on a day that is not a Business Day, such payment, redemption or exchange shall be made on the immediately succeeding Business Day. 13. Headings of Subdivisions. The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 14. Severability of Provisions. If any right, preference or limitation of the Series B Preferred Stock set forth in this Certificate of Designation (as such Certificate may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule or law or public policy, all other rights, preferences and limitations set forth in this Certificate of Designation (as so amended) which can be given effect without the invalid, unlawful or unenforceable right, preference or limitation shall, nevertheless, remain in full force and effect, and no right, preference or limitation herein set forth shall be deemed dependent upon any other such right, preference or limitation unless so expressed herein. 15. Notice. All notices and other communications provided for or permitted to be given to the Corporation hereunder shall be made by hand delivery, next-day air courier or certified, first-class mail to the Corporation at its principal executive offices (currently located at 5727 South Lewis Avenue, Suite 700, Tulsa Oklahoma 74105). 16. Amendments. Any provisions of this Certificate of Designation may be amended by the Corporation, or waived by the Holders, in each case with the written consent of Holders representing a majority of the outstanding shares of Series B Preferred Stock. - 9 - IN WITNESS WHEREOF, Gothic Energy Corporation has caused this Certificate of Designation of Preferences and Rights of its Series B Preferred Stock to be signed and attested by its duly authorized officers, this _____ day of March, 1998. Attest: GOTHIC ENERGY CORPORATION By: - ----------------------------------- ------------------------------------ Name: Michael Paulk, President Secretary CHESAPEAKE\AGREEMENTS\CertificateOfDesignation.April98 - 10 - THE SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE THEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER APPLICABLE SECURITIES LAWS AND, ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS WARRANT MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY STATE OR OTHER APPLICABLE SECURITIES LAWS. WARRANT to Purchase Common Stock of GOTHIC ENERGY CORPORATION Expiring on April ___, 2008 Date of Issuance: April ___, 1998 Certificate No. W-CHE-1 This Warrant to purchase Common Stock (the "Warrant") certifies that for value received, Chesapeake Gothic Corp., an Oklahoma corporation, or its registered assigns (the "Holder"), is entitled to subscribe for and purchase from the Company (as hereinafter defined), in whole or in part, 2,439,246 duly authorized, validly issued, fully paid and non-assessable shares of Common Stock (as hereinafter defined) at the Exercise Price (as hereinafter defined), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. This Warrant and all rights hereunder shall expire at 5:00 PM, Tulsa, Oklahoma time, on April ___, 2008. As used herein, the following terms shall have the meanings set forth below: "Company" shall mean Gothic Energy Corporation, an Oklahoma corporation, and shall also include any successor thereto with respect to the obligations hereunder, by merger, consolidation or otherwise. "Common Stock" shall mean and include the Company's Common Stock, par value $0.01 per share, irrespective of class unless otherwise specified, authorized on the date of the original issue of this Warrant and shall also include (i) in case of any reorganization, reclassification, consolidation, merger, share exchange or sale, transfer or other disposition of assets of the character referred to in Section 3.2 hereof, the stock or securities provided for in such Section 3.2, and (ii) any other shares of common stock of the Company into which such shares of Common Stock may be converted. "Convertible Securities" shall mean any stock or securities (directly or indirectly) convertible into or exchangeable for Common Stock. "Exercise Price" shall mean the purchase price of $.01 per share of Common Stock payable upon exercise of the Warrant. "Options" means any rights or options to subscribe for or purchase Common Stock or Convertible Securities. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Securities Act" means the Securities Act of 1933, as amended. "Warrant" shall mean this Warrant, and any one or more Warrants into which this Warrant may be exchanged or converted ("Warrants"), representing the right to purchase up to 2,439,246 Warrant Shares, or such greater or lesser amounts as may result pursuant to the adjustments provided for herein. "Warrant Shares" shall mean the shares of Common Stock or other securities purchased or purchasable by the holder hereof upon the exercise of the Warrants, taking into account all adjustments provided for herein. ARTICLE I EXERCISE OF WARRANTS 1.1 Exercise Period. The Warrant represented hereby may be exercised by the Holder hereof, in whole or in part, at any time and from time to time on or after the date hereof until 5:00 PM, Tulsa, Oklahoma time, on April ___, 2008. -2- 1.2 Method of Exercise. To exercise the Warrants, the Holder hereof shall deliver to the Company, at the Warrant Office designated in Section 2.1 hereof, (i) a written notice in the form of the Subscription Notice attached as Exhibit I hereto, stating therein the election of such holder to exercise the Warrant in the manner provided in the Subscription Notice; (ii) payment in full of the Exercise Price in cash or by bank check or wire transfer for all Warrant Shares purchased hereunder, or a written notice (a "Cashless Exercise" notice) to the Company that such Holder is exercising the Warrant (or a portion thereof) by authorizing the Company to withhold from issuance a number of Warrant Shares issuable upon such exercise of the Warrant which, when multiplied by the Exercise Price, is equal to the Exercise Price for the total number of Warrant Shares to which such exercise relates (and such withheld shares shall no longer be issuable under this Warrant); (iii) if this Warrant is not registered in the name of the Holder, an Assignment or Assignments in the form set forth in Exhibit II hereto evidencing the assignment of this Warrant to the current Holder; and (iv) this Warrant. The Warrants shall be deemed to be exercised on the date of receipt by the Company of the Subscription Notice, accompanied by payment for the Warrant Shares and surrender of this Warrant, as aforesaid, and such date is referred to herein as the "Exercise Date". Upon such exercise, the Company shall, as promptly as practicable and in any event within five (5) business days, issue and deliver to such holder a certificate or certificates for the full number of the Warrant Shares purchased by such holder hereunder, and shall, unless the Warrant has expired, deliver to the holder hereof (within such five (5) day period) a new Warrant representing the right to purchase the number of Warrant Shares, if any, with respect to which the Warrant shall not have been previously exercised, but in all other respects identical to this Warrant. As permitted by applicable law, the Person in whose name the certificates for Common Stock are to be issued shall be deemed to have become a holder of record of such Common Stock on the Exercise Date and shall be entitled to all of the benefits of such holder on the Exercise Date, including without limitation, the right to receive dividends and other distributions for which the record date falls on or after the Exercise Date and the right to exercise voting rights. 1.3 Expenses and Taxes. The Company shall pay all expenses and taxes (including, without limitation, all documentary, stamp, transfer or other transactional taxes), other than income taxes payable by the Holder, attributable to the preparation, issuance or delivery of the Warrant and of the issuance of the Warrant Shares. 1.4 Reservation of Shares. The Company shall reserve at all times so long as the Warrant remains outstanding, free from preemptive rights, out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the exercise of the Warrant, a sufficient number of shares of Common Stock to provide for the exercise of the Warrant. The Company shall take all such actions as may be necessary to assure that all such Warrant Shares -3- may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange or automated quotation system upon which shares of Common Stock may be listed or quoted (except for official notice of issuance, which shall be immediately delivered by the Company upon each such issuance). The Company shall take all such actions as may be necessary to assure that all such Warrant Shares shall be authorized, approved for and listed on any national securities exchange or quotation system on which the Company's Common Stock is listed or quoted. The Company shall not take any action which would cause the number of authorized but unissued shares of Common Stock to be less than the number of such shares required to be reserved hereunder for issuance upon exercise of the Warrant. The Company will from time to time take all action as may be necessary to assure that the par value of the Common Stock is at all times equal to or less than the Exercise Price. 1.5 Valid Issuance. All Warrant Shares that may be issued upon any exercise of the Warrant will, upon issuance by the Company, be duly and validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issuance thereof and, without limiting the generality of the foregoing, the Company shall take no action or fail to take any action which will cause a contrary result (including, without limitation, any action that would cause the Exercise Price then in effect to be less than the par value, if any, of the Common Stock). 1.6 Purchase Agreement. The Warrant represented hereby is part of a duly authorized issuance and sale of warrants to purchase Common Stock pursuant to that certain Securities Purchase Agreement dated March 31, 1998 (the "Agreement"), between the Company and the Holder. 1.7 Acknowledgment of Rights. At the time of the exercise of the Warrants in accordance with the terms hereof and upon the written request of the Holder hereof, the Company will acknowledge in writing its continuing obligation to afford to such Holder any rights (including, without limitation, any right to registration of the Warrant Shares) to which such Holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant; provided, however, that if the holder hereof shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such Holder any such rights. 1.8 No Fractional Shares. The Company shall not be required to issue fractional shares of Common Stock (or other securities) on the exercise of this Warrant. If more than one Warrant shall be presented for exercise at the same time by the same Holder, the number of full Warrant Shares which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of whole Warrant Shares purchasable on exercise of the Warrants so presented. -4- 1.9 Assistance and Cooperation. The Company shall not close its books against the transfer of this Warrant or of any Warrant Share in any manner which interferes with the timely exercise of this Warrant. The Company shall assist and cooperate with any Holder required to make any governmental filings or obtain any governmental approvals prior to or in connection with any exercise of this Warrant (including, without limitation, making any filings required to be made by the Company). 1.10 Delayed Exercise. Notwithstanding any other provision hereof, if an exercise of any portion of this Warrant is to be made in connection with a registered public offering or the sale of the Company, the exercise of any portion of this Warrant may, at the election of the Holder hereof, be conditioned upon the consummation of the public offering or sale of the Company in which case such exercise shall not be deemed to be effective until the consummation of such transaction. ARTICLE II TRANSFER 2.1 Warrant Office. The Company shall maintain an office for certain purposes specified herein (the "Warrant Office"), which office shall initially be the Company's offices at 5727 South Lewis Avenue, Suite 8700, Tulsa, Oklahoma 74105, and may subsequently be such other office of the Company or of any transfer agent of the Common Stock in the continental United States as to which written notice has previously been given to the holder hereof. The Company shall maintain, at the Warrant Office, a register for the Warrants in which the Company shall record the name and address of the Person in whose name this Warrant has been issued, as well as the name and address of each permitted assignee of the rights of the registered owner hereof. 2.2 Ownership of Warrants. The Company may deem and treat the Person in whose name the Warrant is registered as the Holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by anyone other than the Company) for all purposes and shall not be affected by any notice to the contrary until presentation of this Warrant for registration of transfer as provided in this Article II. Notwithstanding the foregoing, the Warrants represented hereby, if otherwise properly assigned in compliance with this Article II (i.e., but for registration of the transfer at the Warrant Office), may be exercised by an assignee for the purchase of Warrant Shares without having a new Warrant issued. -5- 2.3 Restrictions on Transferability of Warrant. Subject to the transfer conditions referred to herein, this Warrant and all rights hereunder (including, but not limited to, Registration Rights under Article VI) are transferable, in whole or in part, without charge to the Holder, upon surrender of this Warrant with a properly executed Assignment (in the form of Exhibit II hereto) at the Warrant Office of the Company. The Company agrees to maintain at the Warrant Office books for the registration and transfer of the Warrants. The Company shall, from time to time, register the transfer of the Warrants in such books upon surrender of any such Warrant at the Warrant Office accompanied by a properly executed Assignment and written instructions for transfer satisfactory to the Company. Upon any such transfer and upon payment by the holder or its transferee of any applicable transfer taxes, a new Warrant shall be issued to the transferee and the surrendered Warrant shall be canceled by the Company. The Company shall pay all taxes (other than securities transfer taxes or income taxes) and all other expenses and charges payable in connection with the transfer of the Warrants pursuant to this Section 2.3. Prior to any transfer as provided herein, the transferor shall provide written notice to the Company. 2.4 Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof, by the Holder at the Warrant Office of the Company, for new Warrants of like tenor representing in the aggregate the purchase rights hereunder, and each of such new Warrants shall represent such portion of such rights as is designated by the Holder at the time of such surrender. The date the Company initially issues this Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the number of times new certificates representing the unexpired and unexercised rights formerly represented by this Warrant shall be issued. All Warrants representing portions of the rights hereunder are referred to herein as the "Warrants." 2.5 Compliance with Securities Laws. Notwithstanding any other provisions contained in this Warrant, the Holder hereof understands and agrees that the following restrictions and limitations shall be applicable to all Warrant Shares and to all resales or other transfers thereof pursuant to the Securities Act: 2.5.1 The holder hereof agrees that the Warrant and Warrant Shares shall not be sold or otherwise transferred unless the Warrant or Warrant Shares are registered under the Securities Act and applicable state securities or blue sky laws or are sold in a transaction that is exempt therefrom. -6- 2.5.2 A legend in substantially the following form will be placed on the certificate(s) evidencing the Warrant Shares: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER APPLICABLE SECURITIES LAWS AND, ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY STATE OR OTHER APPLICABLE SECURITIES LAWS." 2.5.3 Stop transfer instructions will be imposed with respect to the Warrant Shares so as to restrict resale or other transfer thereof not in accordance with this Section 2.5. ARTICLE III ANTI-DILUTION 3. Adjustment Effectuating Anti-Dilution. The number of shares of Common Stock (i.e., Warrant Shares) obtainable upon exercise of this Warrant shall be subject to adjustment from time to time as provided in this Article III. 3.1. Adjustment of Warrant Number of Shares. The number of Warrant Shares purchasable upon the exercise of the Warrant shall be subject to adjustment as follows: (a) In the case the Company shall issue rights, options or warrants entitling recipients thereof to subscribe for or purchase shares of Common Stock at a price per share which is lower than the Fair Market Value per share of Common Stock (as defined in paragraph (c) of this Section 3.1) as of the date of issuance, the number of Warrant Shares thereafter purchasable upon the exercise of each Warrant shall be determined by multiplying the number of Warrant Shares theretofore purchasable upon exercise of each Warrant by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of additional shares of Common Stock offered for subscription or purchase or pursuant to such rights, options or warrants, and of which the -7- denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at such Fair Market Value. Such adjustment shall be made whenever such rights, options or warrants are issued, and shall become effective retroactively immediately after the date of such issuance. (b) In the case the Company shall issue evidences of its indebtedness or assets (excluding cash dividends or distributions out of earnings) or rights, options or warrants or convertible securities containing the right to subscribe for or purchase shares of Common Stock (excluding those referred to in paragraph (a) of this Section 3.1) then in each case the number of Warrant Shares thereafter purchasable upon the exercise of each Warrant shall be determined by multiplying the number of Warrant Shares theretofore purchasable upon exercise of the Warrant, by a fraction, of which the numerator shall be the then Fair Market Value per share of Common Stock (as defined in paragraph (c) of this Section 3.1) on the date of such distribution, and of which the denominator shall be such Fair Market Value per share of Common Stock, less the then fair value (as determined by the Board of Directors of the Company, whose determination shall be conclusive) of the portion of the assets or evidences of indebtedness so distributed or of such subscription rights, options or warrants, or of such convertible securities applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of distribution retroactive to the date of the distribution. (c) For the purposes of this Section 3.1, "Fair Market Value" shall mean with respect to the Company's Common Stock the average of the closing prices of such security's sales on all domestic securities exchanges on which such security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of ten days consisting of the day as of which "Fair Market Value" is being determined and the nine consecutive business days prior to such day; provided, that if such security is listed on any domestic securities exchange, the term "business days" as used in this sentence means business days on which such exchange is open for trading. If at any time such security is not listed on any domestic securities exchange or quoted in the NASDAQ System or the domestic over-the-counter market, the "Fair Market Value" shall be the fair value thereof determined jointly by the Company and the Holder; provided, that if such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an appraiser jointly selected by -8- the Company and the Holder. The determination of such appraiser shall be final and binding on the Company and the Holder, and the fees and expenses of such appraiser shall be paid jointly by the Company and the Holder. (d) No adjustment in the number of Warrant Shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least 1% in the number of Warrant Shares purchasable upon the exercise of each Warrant; provided, however, that any adjustments which by reason of this paragraph (d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. 3.2 Stock Splits and Reverse Splits. In the event that the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares (by stock split, stock dividend, recapitalization or otherwise), the number of Warrant Shares purchasable pursuant to this Warrant immediately prior to such subdivision shall be proportionately increased. Conversely, in the event that the outstanding shares of Common Stock shall at any time be combined into a smaller number of shares (by reverse stock split or otherwise), the number of Warrant Shares purchasable upon the exercise of this Warrant immediately prior to such combination shall be proportionately reduced. 3.3 Reorganizations and Asset Sales. If any capital recapitalization, reorganization or reclassification of the capital stock of the Company, or any consolidation, merger or share exchange of the Company with another Person, or the sale, transfer or other disposition of all or substantially all of its assets to another Person shall be effected in such a way that a holder of Common Stock of the Company shall be entitled to receive capital stock, securities or assets with respect to or in exchange for their shares, then the following provisions shall apply: 3.3.1 As a condition of such recapitalization, reorganization, reclassification, consolidation, merger, share exchange, sale, transfer or other disposition (except as otherwise provided below in this Section 3.3), lawful and adequate provisions (in form and substance satisfactory to the Holders of Warrants representing a majority of the Warrant Shares obtainable upon exercise of all of the Warrants then outstanding) shall be made whereby the holder of Warrants shall thereafter have the right to purchase and receive upon the terms and conditions specified in this Warrant and in lieu of or addition to (as the case may be) the Warrant Shares immediately theretofore receivable upon the exercise of the rights represented hereby, such shares of capital stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of Warrant Shares immediately theretofore so receivable had such recapitalization, reorganization, reclassification, consolidation, merger, share exchange or sale not taken place, and in any such case appropriate provision (in form and substance satisfactory to the Holders of Warrants representing a majority of the Warrant Shares obtainable upon exercise of all of the Warrants -9- then outstanding) shall be made with respect to the rights and interests of such Holder(s) to the end that the provisions hereof shall thereafter be applicable, as nearly as possible, in relation to any shares of capital stock, securities or assets thereafter deliverable upon the exercise of Warrants. 3.3.2 The Company shall not effect any such consolidation, merger, share exchange, sale, transfer or other disposition unless prior to or simultaneously with the consummation thereof the successor Person (if other than the Company) resulting from such consolidation, share exchange or merger or the Person purchasing or otherwise acquiring such assets shall have assumed by written instrument executed and mailed or delivered to each of the Holders hereof at the last address of such holder appearing on the books of the Company, (i) the obligation to deliver to such holder such shares of capital stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to receive, and (ii) all other liabilities and obligations of the Company hereunder. As a condition to any consolidation, share exchange or merger, such successor Person must assume the Company's obligations hereunder by written instrument and issue a new warrant revised to reflect the modifications in this Warrant effected pursuant to this Section 3.3. 3.4 Notice of Adjustment. Whenever the number of Warrant Shares issuable upon the exercise of the Warrants shall be adjusted as herein provided, or the rights of the Holder hereof shall change by reason of other events specified herein, the Company shall compute the adjusted number of Warrant Shares in accordance with the provisions hereof and shall prepare an Officer's Certificate setting forth the adjusted number of Warrant Shares issuable upon the exercise of the Warrants or specifying the other shares of stock, securities or assets receivable as a result of such change in rights, and showing in reasonable detail the facts and calculations upon which such adjustments or other changes are based. The Company shall promptly cause to be mailed to the holder hereof copies of such Officer's Certificate together with a notice stating that the number of Warrant Shares purchasable upon exercise of the Warrants have been adjusted and setting forth the adjusted number of Warrant Shares purchasable upon the exercise of the Warrants. 3.5 Notices to Holders. In case at any time the Company proposes: (i) to declare any dividend upon its Common Stock payable in capital stock or make any dividend or other distribution to the holders of its Common Stock; (ii) to offer for subscription pro rata to all of the holders of its Common Stock any additional shares of capital stock of any class or other rights; -10- (iii) to effect any capital reorganization, or reclassification of the capital stock of the Company, or consolidation, merger or share exchange of the Company with another Person, or sale, transfer or other disposition of all or substantially all of its assets; or (iv) to effect a voluntary or involuntary dissolution, liquidation or winding up of the Company, then, in any one or more of such cases, the Company shall give the Holder hereof (a) at least 20 days' (but not more than 90 days') prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of such issuance, recapitalization, reorganization, reclassification, consolidation, merger, share exchange, sale, transfer, disposition, dissolution, liquidation or winding up, and (b) in the case of any such issuance, recapitalization, reorganization, reclassification, consolidation, merger, share exchange, sale, transfer, disposition, dissolution, liquidation or winding up, at least 20 days' (but not more than 90 days') prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (b) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock, as the case may be, for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, share exchange, sale, transfer, disposition, dissolution, liquidation or winding up, as the case may be. ARTICLE IV Liquidating Dividends If the Company declares or pays a dividend upon the Common Stock payable otherwise than in cash out of earnings or earned surplus (determined in accordance with generally accepted accounting principles, consistently applied) except for a stock dividend payable in shares of Common Stock (a "Liquidating Dividend"), then the Company shall pay to the Holder of this Warrant at the time of payment thereof the Liquidating Dividend which would have been paid to such Holder on the Common Stock had this Warrant been fully exercised immediately prior to the date on which a record is taken for such Liquidating Dividend, or, if no record is taken, the date as of which the record holders of Common Stock entitled to such dividends are to be determined. -11- ARTICLE V Reporting Requirements 5.1 Rule 144 and 144A Reporting Information. With a view to making available the benefits of certain rules and regulations of the SEC which may at times permit the sale of the Warrant or Warrant Shares to the public or other persons without registration, the Company shall use its reasonable best efforts to: 5.1.1 make and keep public information available, as contemplated by Rule 144 under the Securities Act; 5.1.2 file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and 5.1.3 furnish to each Holder of Warrant Shares promptly upon request (A) a written statement by the Company as to its compliance with the reporting requirements of such Rule 144 of the Securities Act and the Exchange Act, (B) copies of all SEC filings made by the Company within the previous one (1) year period and any press releases issued by the Company since the date of the last such filing, and (C) copies of all Rule 144A information with respect to the Company. ARTICLE VI MISCELLANEOUS 6.1 Entire Agreement. This Warrant and the Purchase Agreement contains the entire agreement between the Holder hereof and the Company with respect to the Warrant Shares purchasable upon exercise hereof and supersedes all prior arrangements or understandings with respect thereto. 6.2 Governing Law. This Warrant shall be governed by and construed in accordance with the laws (other than the laws of conflicts) of the State of Oklahoma. 6.3 Amendment and Waiver. Except as otherwise provided herein, the provisions of the Warrants may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holders of Warrants representing a majority of the Warrant Shares obtainable upon exercise of the Warrants; provided that no such action may change the Exercise -12- Price of the Warrants or the number of shares or class of stock obtainable upon exercise of each Warrant. Notwithstanding the foregoing, the Company may, at its option, reduce the Exercise Price of the Warrants, increase the number of shares of stock obtainable upon exercise of each Warrant, or extend the Term of the Warrant for such period as it may determine. 6.4 Illegality. In the event that any one or more of the provisions contained in this Warrant shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in any other respect and the remaining provisions of this Warrant shall not, at the election of the party for whom the benefit of the provision exists, be in any way impaired. 6.5 Copy of Warrant. A copy of this Warrant shall be filed among the records of the Company. 6.6 Notice. Any notice or other document required or permitted to be given or delivered to the Holder hereof shall be in writing and delivered at, or sent by certified or registered mail to such Holder at, the last address shown on the books of the Company maintained at the Warrant Office for the registration of this Warrant or at any more recent address of which the Holder hereof shall have notified the Company in writing. Any notice or other document required or permitted to be given or delivered to the Company, other than such notice or documents required to be delivered to the Warrant Office, shall be delivered at, or sent by certified or registered mail to, the offices of the Company at 5727 South Lewis Avenue, Suite 700, Tulsa, Oklahoma 74105, or such other address within the continental United States of America as shall have been furnished by the Company to the Holder of this Warrant. 6.7 Limitation of Liability; Not Stockholders. No provision of this Warrant shall be construed as conferring upon the Holder hereof the right to vote, consent, receive dividends or receive notices (other than as herein expressly provided) in respect of meetings of stockholders for the election of directors of the Company or any other matter whatsoever as a stockholder of the Company. No provision hereof, in the absence of affirmative action by the holder hereof to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such Holder for the purchase price of any shares of Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 6.8 Exchange, Loss, Destruction, etc. of Warrant. Upon receipt of evidence satisfactory to the Company of the loss, theft, mutilation or destruction of this Warrant, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity or such other security in such form and amount as shall be reasonably satisfactory to the Company, or in the event of such mutilation upon surrender and cancellation of this Warrant, the Company will -13- make and deliver a new warrant of like tenor, in lieu of such lost, stolen, destroyed or mutilated Warrant. Any warrant issued under the provisions of this Section 7.8 in lieu of any Warrant alleged to be lost, destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute an original contractual obligation on the part of the Company. This Warrant shall be promptly canceled by the Company upon the surrender hereof in connection with any exchange or replacement. The Company shall pay all taxes (other than securities transfer taxes or income taxes) and all other expenses and charges payable in connection with the preparation, execution and delivery of warrants pursuant to this Section 7.8. 6.9 Headings. The Article and Section and other headings herein are for convenience only and are not a part of this Warrant and shall not affect the interpretation thereof. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name. GOTHIC ENERGY CORPORATION Dated: April ___, 1998 By: --------------------------------- Michael Paulk, President -14- Exhibit I SUBSCRIPTION NOTICE ------------------- The undersigned, the holder of the attached Warrant (Certificate No. W-__________), hereby elects to subscribe to exercise purchase rights represented thereby and to purchase thereunder, __________ shares of the Common Stock covered by such Warrant, and herewith makes payment in full for such shares pursuant to Section 1.2 of such Warrant, and requests (a) that certificates for such shares (and any other securities or other property issuable upon such exercise) be issued in the name of, and delivered to _________________________ and (b) if such shares shall not include all of the shares issuable as provided in such Warrant, that a new warrant of like tenor and date for the balance of the shares of Common Stock issuable thereunder be delivered to the undersigned. Dated: -------------------------------------------- -------------------------------------------- Address -------------------------------------------- City, State, Zip Code Exhibit II ASSIGNMENT ---------- For value received, _________________________, hereby sells, assigns, and transfers unto _________________________ the within Warrant, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _________________________ attorney, to transfer such Warrant on the books of the Company, with full power of substitution. Dated: ---------------------------------------- REGISTRATION RIGHTS AGREEMENT DATED AS OF APRIL ___, 1998 BY AND BETWEEN GOTHIC ENERGY CORPORATION AND CHESAPEAKE GOTHIC CORP. TABLE OF CONTENTS Page ---- 1. Definitions.............................................................. 1 2. Demand Registrations..................................................... 2 3. Piggyback Registrations.................................................. 3 4. Maintaining Effectiveness of Registration Statement...................... 4 5. Expenses of Registration................................................. 5 6. Registration Procedures.................................................. 5 7. Indemnification.......................................................... 7 8. Certain Information......................................................10 9. Miscellaneous............................................................10 (a) No Inconsistent Agreements........................................10 (b) Amendments and Waivers............................................10 (c) Notices...........................................................11 (d) Successors and Assigns............................................11 (e) Rules 144 and 144A................................................11 (f) Counterparts......................................................11 (g) Headings..........................................................11 (h) GOVERNING LAW.....................................................12 (i) Severability......................................................12 (j) Entire Agreement..................................................12 Exhibit A This Registration Rights Agreement (this "Agreement") is made and entered into as of April ___, 1998, by and between Gothic Energy Corporation, an Oklahoma corporation (the "Company"), and Chesapeake Gothic Corp., an Oklahoma corporation (the "Purchaser"). This Agreement is made pursuant to the Securities Purchase Agreement, dated as of March 31, 1998, by and among the Company, the Purchaser and Chesapeake Acquisition Corporation (the "Purchase Agreement"), relating to the sale by the Company to the Purchaser of $50,000,000 in aggregate liquidation value of its Senior Redeemable Preferred Stock, Series B, par value $.05 per share (the "Preferred Stock"), along with warrants (the "Warrants") for the purchase of 2,439,246 shares (the "Warrant Shares") of its Common Stock, par value $.01 per share ("Common Stock"). In order to induce the Purchaser to enter into the Purchase Agreement, the Company has agreed to provide to the Purchaser and its Affiliates (the "Holders") the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the obligations of the Purchaser to purchase the Preferred Stock and Warrants under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "Affiliate" of any specified Person means any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that, beneficial ownership of at least 10% of the voting securities of a Person shall be deemed to be control. "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Preferred Stock" shall mean the Senior Redeemable Preferred Stock, Series B, of the Company, $.05 par value per share. "Registrable Securities" shall mean (i) the Warrant Shares; (ii) the Preferred Stock; (iii) Preferred Stock which has been converted to Common Stock; and (iv) any Common Stock issued or issuable at any time or from time to time in respect of any of the interests specified in (i) through (iii) hereof upon a stock split, stock dividend, recapitalization or other similar event involving the Company, of any Holder, until such Registrable Securities are registered pursuant to a Registration Statement or until such securities are able to be sold under Rule 144(k) (or successor Rule) under the Securities Act without restriction. The terms "register", "registered", and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering by the Commission of the effectiveness of such registration statement. "Registration Expenses" shall mean all expenses, other than Selling Expenses (as defined below), incurred by the Company in complying with this Agreement, including, without limitation, all registration, qualification and filing fees, exchange listing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company and all auditors, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "Securities Act" means the Securities Act of 1933, as amended. "Selling Expenses" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities registered by any Holder and all fees and disbursements of counsel for such Holders. 2. Demand Registrations. (a) Registration of Immediate Offering. At any time after September 30, 1998, the Holders of at least 50% of the Registrable Securities (hereinafter the "Majority Holders") may request registration by the Company under the Securities Act of the resale by such Holders of all or any portion of their Registrable Securities (an "Immediate Offering Registration"); provided, however, that, with respect to Common Stock, such request for registration includes such number of shares equal to or greater than 5% of the issued and outstanding shares of Common Stock on the date of request; and provided further, that, with respect to Preferred Stock, such request for registration includes such number of shares equal to or greater than 50% of the issued and outstanding shares of Preferred Stock on the date of request. A request for an Immediate Offering Registration shall specify the approximate number of Registrable Securities requested to be registered by the requesting Holders. Within 10 days after receipt of such request, the Company shall give written notice of such requested registration to all other Holders of Registrable Securities and shall include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 30 days after delivery of the Company's notice. (b) Registration of Delayed or Continuous Offering. At any time after September 30, 1998, the Majority Holders may request registration by the Company under the Securities Act of all or any portion of their Registrable Securities for resale in a delayed or continuous offering to the extent permitted by Rule 415 (or any successor rule thereto) under the Securities Act (a "Shelf Registration"). A registration statement for a Shelf Registration shall -2- provide for resale by the Holders in the manner or manners designated in writing to the Company by them (including, without limitation, one or more underwritten offerings). Within 10 days after the receipt of such request, the Company shall give similar written notice of such requested registration to all other Holders of Registrable Securities and shall include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 30 days after delivery of the Company's notice. (c) Number of Demand Registrations. The Majority Holders shall be entitled to request two (2) Immediate Offering Registrations; provided, a registration shall not count as one of the permitted Immediate Offering Registrations until it has become and remained effective for the prescribed time period. In addition, the Majority Holders shall be entitled to one (1) Shelf Registration; provided, a registration shall not count as the permitted Shelf Registration until it has become and remained effective for the prescribed time period. For purposes of this Agreement, an Immediate Offering Registration and a Shelf Registration shall each constitute and be referred to as "Demand Registration." (d) Priority on Demand Registrations. The Company shall not include in any Demand Registration any securities which are not Registrable Securities without the prior written consent of the Holders of at least 75% of the Registrable Securities initially requesting such registration. If a Demand Registration is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, other securities requested to be included in such offering exceeds the number of shares, if any, which can be sold in an orderly manner in such offering within a price range acceptable to the Majority Holders initially requesting registration, subject, however, to the terms of any other agreement entered into prior to the date hereof to which the Company shall be a party, the Company shall include in such registration prior to the inclusion of any securities which are not Registrable Securities the number of Registrable Securities requested to be included which in the opinion of such underwriters can be sold in an orderly manner within the price range of such offering, pro rata among the respective Holders of Registrable Securities, on the basis of the amount of shares requested for inclusion by each such Holder, then, after the inclusion of all such Registrable Securities, the Company shall include any other securities requested for inclusion. (e) Selection of Underwriters. The Majority Holders initially requesting registration in any Demand Registration hereunder shall have the right to select the investment banker(s) and manager(s) to administer the offering, subject to the Company's approval which shall not be unreasonably withheld. 3. Piggyback Registrations. (a) Right to Piggyback. At any time after September 30, 1998, whenever the Company proposes to register any of its securities under the Securities Act (other than pursuant -3- to a registration on Form S-4 or Form S-8) and the registration form to be used may be used for the registration of Registrable Securities (a "Piggyback Registration"), the Company shall give prompt written notice (in any event within five (5) business days after its receipt of notice of any exercise of demand registration rights other than under this Agreement) to all Holders of Warrants or Registrable Securities of its intention to effect such a registration and shall include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 30 days after the receipt of the Company's notice. (b) Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the Company, the Company shall include in such registration, subject, however, to the terms of any other agreement entered into prior to the date hereof to which the Company shall be a party, (i) first, the securities the Company proposes to sell, (ii) second, the Registrable Securities requested to be included in such registration, subject to pro rata cut back among the Holders thereof, and (iii) third, other securities requested to be included in such registration. (c) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company's securities, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the holders initially requesting such registration, the Company shall include in such registration, subject, however, to the terms of any other agreement entered into prior to the date hereof to which the Company shall be a party, (i) first, the securities requested to be included therein by the holders requesting such registration, (ii) second, the Registrable Securities requested to be included in such registration, pro rata among the Holders of such securities on the basis of the number of securities so requested to be included therein, and (iii), third, other securities requested to be included in such registration. (d) Right of Holder to Withdraw. A Holder who has given notice to the Company under Section 3(a) requesting inclusion of any Registrable Securities in a Piggyback Registration shall, on five (5) business days notice to the Company, have the right to withdraw its Registrable Securities from the Piggyback Registration. (e) Right of Company to Withdraw. The Company shall, on five business days notice to all holders who have given notice to the Company under Section 3(a) requesting inclusion of their Registrable Securities in a Piggyback Registration have the right to withdraw any registration statement filed pursuant to this Section 3 for a Piggyback Registration at any time prior to the effective date thereof. -4- 4. Maintaining Effectiveness of Registration Statement. (a) The Company shall use its reasonable best efforts to keep any registration statement prepared and filed pursuant to this Agreement continuously effective under the Securities Act from the initial effectiveness thereof until the earliest to occur of (i) the date when all Registrable Securities registered thereunder have been sold in the manner set forth and as contemplated in the registration statement, or (ii) the date when counsel to the Company or other counsel of such Holders' choosing shall render an opinion addressed to the Holders whose Registrable Securities are registered thereunder, to the effect that all remaining Registrable Securities are freely transferable in the open market without limitations as to volume and manner of sale, and without being required to file any forms or reports with the Commission under the Securities Act or the rules and regulations thereunder of the Company (such period being referred to as the "Effectiveness Period"). (b) If the registration statement filed pursuant to this Agreement ceases to be effective for any reason at any time during the Effectiveness Period, the Company shall use its reasonable best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 45 days of such cessation of effectiveness amend such registration statement in a manner reasonable expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional registration statement covering all of the Registrable Securities originally registered. If an additional registration statement is filed, the Company shall use its reasonable best efforts to cause such registration statement to be declared effective as soon as practicable after such filing and to keep such registration statement continuously effective for the remainder of the Effectiveness Period. 5. Expenses of Registration. All Registration Expenses shall be borne by the Company. Unless otherwise stated herein, all Selling Expenses relating to securities registered on behalf of the Holders shall be borne by the Holders. The Company shall pay all Registration Expenses in connection with any registration initiated under this Article whether or not it has become effective and whether or not such registration has counted as one of the permitted registrations. 6. Registration Procedures. In the case of each registration, qualification or compliance effected by the Company pursuant hereto, the Company will keep the Holders advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense, the Company will: (a) Prepare and file with the Commission a registration statement with respect to such securities and use its commercially reasonable efforts to cause such registration statement to become and remain effective until the distribution described in such registration statement has been completed; -5- (b) Notify each Holder of Registrable Securities of the effectiveness of each registration statement filed hereunder and prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period of time set forth in Section 4, as applicable, and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement. (c) Furnish to each Holder such number of copies of the registration statement, each supplement and amendment thereto, and the prospectus included therein, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such Holder may reasonably request in order to facilitate the public sale of the shares by such Holder, and promptly furnish to each Holder notice of any stop-order or similar notice issued by the Commission or any state agency charged with the regulation of securities, and notice of any Nasdaq or securities exchange listing. (d) Use its reasonable best efforts to register or qualify such Registrable Securities under the securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller. (e) Use its best efforts to cause the Warrant Shares, together with any shares of Common Stock issuable upon such conversion of Preferred Stock, to be listed on the Nasdaq SmallCap Market or such other Securities Exchange on which the Common Stock is approved for listing. (f) Notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the existence of facts or the happening of any event (without necessarily identifying such facts or event to such sellers) as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company shall prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading. (g) Enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the Majority Holders of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or -6- facilitate the disposition of such Registrable Securities in any underwritten offering of Registrable Securities. (h) Make available for reasonable inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, such financial and other records, corporate documents and properties of the Company as are customarily made available to such persons on a confidential basis by the issuer in connection with a registered public offering of securities similar to the Registrable Securities, and cause the Company's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement. (i) Otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Company's first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder. 7. Indemnification. (a) To the extent permitted by law, the Company will indemnify each Holder, each of their respective officers and directors and partners, and each person controlling a Holder within the meaning of the Securities Act, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter within the meaning of the Securities Act, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, to the extent such expenses, claims, losses, damages or liabilities arise out of or are based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other similar document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act or any rule or regulation promulgated under the Securities Act applicable to the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each Holder, each of their respective officers and directors and partners, and each person controlling a Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action; provided, however, that the indemnity contained herein -7- shall not apply to amounts paid in settlement of any claim, loss, damage, liability or expense if settlement is effected without the consent of the Company (which consent shall not unreasonably be withheld); provided, further, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by the Holders or such controlling person specifically for use therein. Notwithstanding the foregoing, insofar as the foregoing indemnity relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the amended prospectus on file with the Commission at the time the registration statement becomes effective or in the final prospectus filed with the Commission pursuant to the applicable rules of the Commission or in any supplement or addendum thereto, the indemnity agreement herein shall not inure to the benefit of any underwriter if a copy of the final prospectus filed pursuant to such rules, together with all supplements and addenda thereto, was not furnished to the person or entity asserting the loss, liability, claim or damage at or prior to the time such furnishing is required by the Securities Act. (b) To the extent permitted by law, each Holder will, if securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected pursuant to terms hereof, severally but not jointly, indemnify the Company, each of its directors and officers, each person who controls the Company or such underwriter within the meaning of the Securities Act, and each other person selling the Company's securities covered by such registration statement, each of such person's officers and directors and each person controlling such persons within the meaning of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by such Holder of any rule or regulation promulgated under the Securities Act applicable to such Holder and relating to action or inaction required of such Holder in connection with any such registration, qualification or compliance, and will reimburse the Company, such other persons, such directors, officers, persons, or control persons for any legal or other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder specifically for use therein; provided, however, that the indemnity contained herein shall not apply to amounts paid in settlement of any claim, loss, damage, liability or expense if settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld). Notwithstanding the foregoing, the liability of such Holder under this subsection (b) shall be limited in an amount equal to the net proceeds from the sale of Registrable Securities -8- sold by such Holder, unless such liability arises out of or is based on willful conduct by such Holder. In addition, insofar as the foregoing indemnity relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in the amended prospectus on file with the Commission at the time the registration statement becomes effective or in the final prospectus filed pursuant to applicable rules of the Commission or in any supplement or addendum thereto, the indemnity agreement herein shall not inure to the benefit of the Company if a copy of the final prospectus filed pursuant to such rules, together with all supplements and addenda thereto, was not furnished to the person or entity asserting the loss, liability, claim or damage at or prior to the time such furnishing is required by the Securities Act. (c) Notwithstanding the foregoing subsections (a) and (b), each party entitled to indemnification under this Section 7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or as to which the Indemnifying Party is asserting separate or different defenses, which defenses are inconsistent with the defenses of the Indemnified Party (in which case the Indemnifying Party shall pay for one separate counsel for those Indemnified Parties with whom such conflict exists). No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnified Party shall consent to entry of any judgment or enter into any settlement without the consent of each Indemnifying Party. The failure of an Indemnifying Party to give notice to the Indemnified Party of its election to assume and control the defense of any action for which notice has been given to the Indemnifying Party in accordance with this paragraph within 30 days after receipt of such notice shall constitute an election by the Indemnifying Party not to assume and control the defense of such action. An Indemnifying Party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such Indemnifying Party with respect to such claim, unless in the reasonable judgment of any Indemnified Party a conflict of interest may exist between such Indemnified Party and any other of such Indemnified Parties or the Indemnifying -9- Party with respect to such claim, in which event the Indemnifying Party shall be obligated to pay the fees and expenses of one separate counsel for such Indemnified Parties. (d) If the indemnification provided for in this Section 7 is unavailable to an Indemnified Party in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and each respective shareholder offering securities in the offering (the "Selling Security Holder"), on the other, from the offering of the Company's securities, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and each Selling Security Holder, on the other, in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and each Selling Security Holder, on the other, shall be the net proceeds from the offering (before deducting expenses) received by the Company, on the one hand, and each Selling Security Holder, on the other. The relative fault of the Company, on the one hand, and each Selling Security Holder, on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by such Selling Security Holder and the parties' relevant intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and each Selling Security Holder agree that it would not be just and equitable if contribution pursuant to this Section were based solely upon the number of entities from whom contribution was requested or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section. Notwithstanding the provisions of this Section, no Selling Security Holder shall be required to contribute any amount or make any other payments under this Agreement which in the aggregate exceed the proceeds received by such Selling Security Holder. No person guilty of fraudulent misrepresentation (within the meaning of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Party or any officer, director or controlling person of such Indemnified Party and shall survive the transfer of securities. 8. Certain Information. (a) Each Holder agrees, with respect to any Registrable Securities included in any registration, to furnish to the Company such information regarding such Holder, the -10- Registrable Securities and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification or compliance referred to herein. (b) The failure of a Holder to furnish the information requested pursuant to this Section shall not affect the obligation of the Company to any other selling security holders who furnish such information unless, in the reasonable opinion of counsel to the Company, such failure impairs or may impair the legality of the Registration Statement or the underlying offering. 9. Miscellaneous. (a) No Inconsistent Agreements. The Company has not entered into nor will the Company on or after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's other issued and outstanding securities, if any, under any such agreements. (b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this paragraph, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority in aggregate number of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or consent; provided, however, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders of Registrable Securities may be given by the Holders of a majority of the Registrable Securities proposed to be sold. (c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, registered first- class mail, telex, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 9(c), which address initially is, with respect to each Purchaser, the address set forth in the Purchase Agreement; and (ii) if to the Company, initially at the Company's address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 9(c). All such notices and communications shall be deemed to have been duly given: (i) at the time delivered by hand, if personally delivered, five (5) Business Days after being deposited in the mail, postage prepaid, if mailed; (ii) when answered back, if telexed; (iii) -11- when receipt is acknowledged, if telecopied; and (iv) on the next Business Day, if timely delivered to an air courier guaranteeing overnight delivery. (d) Successors and Assigns. This Agreement shall inure to the benefit of any successor, assign or transferee of any Holder; provided, however, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms and conditions of this Agreement or the Purchase Agreement. (e) Rules 144 and 144A. The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder of Registrable Securities, make publicly available other information of a like nature so long as necessary to permit sales pursuant to Rule 144 or Rule 144A. The Company further covenants that so long as any Registrable Securities remain outstanding to make available to any Holder of Registrable Securities in connection with any sale thereof, the information required by Rule 144A(d)(4) promulgated under the Securities Act in order to permit resales of such Registrable Securities pursuant to (a) such Rule 144A or (b) any similar rule or regulation hereafter adopted by the Commission. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (H) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF OKLAHOMA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF OKLAHOMA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (i) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. -12- (j) Entire Agreement. This Agreement, together with the Purchase Agreement, is intended by the parties as a final expression of their agreement, and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. -13- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. GOTHIC ENERGY CORPORATION (the "Company") By: ------------------------------ Michael Paulk, President CHESAPEAKE GOTHIC CORP. (the "Purchaser") By: ------------------------------ Aubrey K. McClendon, President -14- EX-10.3 4 SALE AND PARTICIPATION AGREEMENT EXHIBIT 10.3 SALE AND PARTICIPATION AGREEMENT between CHESAPEAKE GOTHIC CORP. and GOTHIC ENERGY CORPORATION, GOTHIC ENERGY OF TEXAS, INC. and GOTHIC PRODUCTION COMPANY Effective March 31, 1998 SELF, GIDDENS & LEES, INC. ATTORNEYS AND COUNSELORS 2725 Oklahoma Tower . 210 Park Avenue . Oklahoma City, Oklahoma 73102-5604 Telephone (405) 232-3001 . Telecopier (405) 232-5553 TABLE OF CONTENTS Page ---- 1. Sale............................................................. 2 1.1 Existing Acreage.......................................... 2 1.2 Related Interests......................................... 2 1.3 Reconveyance Obligation................................... 3 2. Additional Purchase Price........................................ 3 3. Initial Closing.................................................. 3 3.1 Closing Date.............................................. 3 3.2 Gothic Parties' Deliveries................................ 3 3.3 Chesapeake's Deliveries................................... 4 3.4 Possession................................................ 4 3.5 Cost...................................................... 4 4. Representations and Warranties................................... 4 4.1 Organization, Good Standing, Etc.......................... 4 4.2 Authority................................................. 5 4.3 No Assumption of Obligations.............................. 5 4.4 Absence of Liabilities.................................... 5 4.5 Contracts................................................. 5 4.6 Consents and Approvals.................................... 6 4.7 Litigation................................................ 6 4.8 Title..................................................... 6 4.9 Oil and Gas Leases in Good Standing....................... 7 4.10 Taxes..................................................... 7 4.11 Contracts, Consents and Preferential Rights............... 7 4.12 Environmental and Safety Matters.......................... 7 4.13 Payout and Gas Balancing.................................. 8 4.14 Affiliate Transactions.................................... 8 4.15 Full Disclosure........................................... 8 5. Chesapeake's Representations and Warranties...................... 8 6. Covenants........................................................ 9 6.1 Access to Information..................................... 9 6.2 Inspection................................................ 9 6.3 Consents.................................................. 9 6.4 Conditions................................................ 9 6.5 Subordination............................................. 9 6.6 Title and Information..................................... 10 7. Gothic Party Acquisitions........................................ 10 7.1 Existing Agreements....................................... 11 -i- 7.2 Acquisition Acreage Option................................ 11 7.3 Acquisition Acreage....................................... 12 7.4 Acquisition Costs......................................... 12 7.5 Acquisition Closings...................................... 12 8. Chesapeake AMI Acquisitions...................................... 13 8.1 Gothic Parties' Option.................................... 13 8.2 Definitions............................................... 14 8.3 Acquisition Closings...................................... 14 9. Lease Maintenance................................................ 14 9.1 Maintenance............................................... 14 9.2 Renewals; Re-leasing...................................... 15 10. Development...................................................... 15 10.1 Proposed Well Information................................. 15 10.2 Participation Election.................................... 16 10.3 Resubmissions............................................. 16 10.4 Operations................................................ 17 10.5 Third Party Wells......................................... 17 10.6 Limitations............................................... 18 11. Chesapeake's Conditions Precedent................................ 18 12. Gothic Parties' Conditions Precedent............................. 19 13. Default; Remedy.................................................. 20 14. Term............................................................. 20 15. Confidentiality.................................................. 21 16. Audits, Access and Information................................... 21 17. Gothic Parties' Indemnification.................................. 21 18. Chesapeake's Indemnification..................................... 22 19. No Partnership................................................... 22 20. Miscellaneous.................................................... 22 20.1 Notices................................................... 22 20.2 Entire Agreement.......................................... 23 20.3 Binding Effect............................................ 23 20.4 Severability.............................................. 23 20.5 Counterpart Execution..................................... 23 -ii- 20.6 Survival.................................................. 24 20.7 Assignment................................................ 24 20.8 Governing Law............................................. 24 20.9 Construction.............................................. 24 20.10 Memorandum of Agreement................................... 24 20.11 Press Release............................................. 24 -iii- SALE AND PARTICIPATION AGREEMENT -------------------------------- THIS AGREEMENT is entered into effective the 31st day of March, 1998, between CHESAPEAKE GOTHIC CORP., an Oklahoma corporation ("Chesapeake"), and GOTHIC ENERGY CORPORATION, an Oklahoma corporation ("Gothic"), GOTHIC ENERGY OF TEXAS, INC., an Oklahoma corporation ("Gothic Texas"), and GOTHIC PRODUCTION COMPANY, an Oklahoma corporation ("Gothic Production"). W I T N E S S E T H : WHEREAS, Gothic and Chesapeake Energy Corporation, an Oklahoma corporation, entered into that certain letter of intent dated March 18, 1998 (the "Letter of Intent"), in order to provide funding to allow the Gothic Parties to fund the development of the Gothic Parties' oil and gas interests (the "Financing Transaction") by: (i) issuing Gothic preferred stock to Chesapeake (the "Preferred Stock"), (ii) issuing warrants for Gothic common stock to Chesapeake, (iii) conveying to Chesapeake fifty percent (50%) of the Gothic Parties' oil and gas assets in the Arkoma Basin and (iv) conveying to Chesapeake fifty percent (50%) of the Gothic Parties' undeveloped oil and gas assets in the Participation Area; WHEREAS, Gothic, Gothic Texas and Gothic Production together with various affiliate corporations, partnerships, limited liability companies and other entities (jointly and severally the "Gothic Parties") own as of the date of this Agreement interests in oil, gas and mineral leases (the "Existing Acreage") covering lands located in whole or in part in Oklahoma, Texas, New Mexico, Arkansas and Kansas including, without implied limitation, the oil, gas and mineral leases described at Schedule "A" attached as a part hereof; WHEREAS, as part of the Financing Transaction and subject to the terms and conditions of this Agreement, Chesapeake has agreed to acquire and Gothic has agreed to convey to Chesapeake on the terms set forth in this Agreement an undivided fifty percent (50%) interest in the Existing Acreage, the Related Interests (as hereinafter defined) and the Acquisition Acreage (as hereinafter defined); and WHEREAS, Gothic and Chesapeake also desire to provide for the development of all of the Existing Acreage, the Related Interests and the Acquisition Acreage (collectively, the "Gothic Interests") covering lands (the "Participation Area") located in whole or in part in Oklahoma, Texas, New Mexico, Arkansas and Kansas, but excluding lands described as the Pecos Slope Acreage as outlined in the plat at Schedule "B" attached hereof. NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Sale. The purchase and sale of the Existing Acreage and the Related Interests will be consummated on the following terms: 1.1 Existing Acreage. The Gothic Parties agree to sell and Chesapeake agrees to purchase an undivided fifty percent (50%) interest of the Gothic Parties' right, title and interest in and to the Existing Acreage as of the date of this Agreement less and except: (a) the interest of the Gothic Parties in any existing wellbore which on the date of the Letter of Intent was producing oil and gas in commercial quantities which interest includes oil, gas and other hydrocarbons produced from such well bore and any revenue related thereto; (b) the interest of the Gothic Parties in the wellbore of wells drilling and or completed as of the date of this Agreement which are listed at Schedule 1.1 attached as a part hereof which interest includes oil, gas and other hydrocarbons produced from such wellbore and any revenue related thereto; and (c) any Gothic Interest that is covered by that certain Oil and Gas Asset Purchase Agreement of even date herewith between Chesapeake and Gothic covering oil and gas interests in the Arkoma Basin (the "Arkoma Purchase Agreement"). Notwithstanding the foregoing, the Gothic Parties agree to convey to Chesapeake a non- exclusive easement to utilize for the further development of the Gothic Interests any such producing wellbore that the Gothic Parties intend to plug or abandon. For purposes of this Agreement a well will be deemed to be "producing oil and gas in commercial quantities" if such well has produced or is capable of producing oil and gas in sufficient quantities to yield a return in excess of lifting expenses for the ninety (90) days prior to the determination date. 1.2 Related Interests. The Gothic Parties agree to sell and Chesapeake agrees to purchase an undivided fifty percent (50%) interest of the Gothic Parties' right, title and interest in and to any Related Interests as of the date of this Agreement less and except: (a) any interest of the Gothic Parties in any wellbore which on the date of the Letter of Intent was producing oil and gas in commercial quantities which interest includes oil, gas and other hydrocarbons produced from such well bore and any revenue related thereto; (b) the interest of the Gothic Parties in the wellbore of wells drilling and or completed as of the date of this Agreement which are listed at Schedule 1.1 attached as a part hereof which interest includes oil, gas and other hydrocarbons produced from such wellbore and any revenue related thereto; and (c) any Gothic Interest that is covered by the Arkoma Purchase Agreement. For purposes of this Agreement "Related Interests" means a non-cost bearing interest in oil, gas and other hydrocarbons owned by the Gothic Parties on the date of this Agreement which covers lands located in whole or in part in: (a) a governmental production unit containing Existing Acreage; and (b) lands covered by the Existing Acreage. The term Related Interests also includes, without implied limitation, mineral interests, royalty interests, overriding royalty interests, net profits interests, production payments, any such interests acquired from Amoco Production Company under that certain Purchase and Sale Agreement with Gothic dated November 24, 1997 (the "Amoco Agreement"), and the interests described at Schedule "1.2" attached as a part hereof. -2- 1.3 Reconveyance Obligation. Effective on April 30, 2003, (the "Reconveyance Date"), Chesapeake hereby agrees to reconvey to the Gothic Parties any Gothic Interests conveyed to Chesapeake under paragraphs 1.1 or 1.2 of this Agreement other than the Gothic Interests that: (a) cover any lands included in a governmental production unit for a Proposed Well (as hereinafter defined) proposed prior to the Reconveyance Date and spudded prior to December 31, 2003; (b) cover any lands included in a governmental production unit for any well spudded after the date of this Agreement but prior to the Reconveyance Date; (c) were reconveyed to the Gothic Parties, sold by Chesapeake in accordance with this Agreement or farmed out by Chesapeake (or otherwise conveyed) in accordance with this Agreement prior to the Reconveyance Date; or (d) were acquired by Chesapeake pursuant to the Arkoma Purchase Agreement. To consummate the foregoing reconveyance Chesapeake will execute and deliver to the Gothic Parties an assignment in substantially the form at Schedule "1.3" attached as a part hereof and will warrant title by, through and under Chesapeake, but not otherwise. For purposes of this Agreement the term "governmental production unit" means the area of land as to which parties with interest therein are bound to share the minerals produced from a well on a specified basis and as to which those having the right to conduct drilling or mining operations therein are bound to share investment and operating costs on a specified basis. A governmental production unit may be formed by agreement or by order of an agency of the state or federal government empowered to do so and includes drilling units, spacing units, pooled units and proration units. 2. Additional Purchase Price. In addition to the Financing Transaction and any consideration relating thereto Chesapeake agrees to pay to the Gothic Parties as additional consideration for the Gothic Interests to be conveyed to Chesapeake the sum of Ten Million, Five Hundred Thousand Dollars ($10,500,000.00) (the "Additional Purchase Price"). The Additional Purchase Price will be paid by Chesapeake to the Gothic Parties on the Closing Date as hereinafter defined. 3. Initial Closing. Subject to the terms and conditions set forth in this Agreement, the Gothic Parties and Chesapeake agree that the purchase and sale of the Gothic Parties' interest in the Existing Acreage and the Related Interests will be consummated as follows: 3.1 Closing Date. The sale will close on or before April 27, 1998 (the "Closing Date"). The closing will take place by wire transfer of funds and telefacsimile of documents with next day delivery of hard copies of closing documents. 3.2 Gothic Parties' Deliveries. On the Closing Date the Gothic Parties will deliver or cause to be delivered: (a) special warranty assignments and conveyances in substantially the form of Schedule "3.2" attached as a part hereof conveying to Chesapeake the fifty percent (50%) interest in the Existing Acreage and the Related Interests; (b) any title curative documents required by this Agreement including, without implied limitation, the Subordination Agreement (as hereinafter defined); (c) any letters in lieu of transfer covering the interests to be assigned to Chesapeake and reasonably acceptable to Chesapeake; and (d) such additional -3- documents as might be reasonably requested by Chesapeake. Where appropriate each of the foregoing documents will be duly executed, acknowledged and filed by Chesapeake. 3.3 Chesapeake's Deliveries. On the Closing Date Chesapeake will: (a) pay the Additional Purchase Price in immediately available funds; and (b) deliver or cause to be delivered any documents reasonably requested by the Gothic Parties. Where appropriate each of the foregoing documents will be duly executed, acknowledged and filed by Chesapeake. 3.4 Possession. Possession of the interests to be conveyed to Chesapeake in the Existing Acreage and the Related Interests together with unrestricted access to any information required to be provided under this Agreement will be provided to Chesapeake on the Closing Date, free from all parties claiming rights to possession of or having claims against such Gothic Interests arising by, through or under the Gothic Parties. Effective on the Closing Date, beneficial ownership and the risk of loss of the interests in the Existing Acreage and the Related Interests to be conveyed to Chesapeake under this Agreement will pass from the Gothic Parties to Chesapeake. 3.5 Cost. The Gothic Parties will pay the following closing costs: (a) the Gothic Parties' attorneys' fees; (b) any investment banking fees incurred in connection with this transaction; (c) the cost of documentary stamps to be affixed to any deeds conveying title to Chesapeake; and (d) any other charge imposed for the transfer of any item comprising the Existing Acreage or the Related Interests. Chesapeake will pay only the following closing costs: (y) Chesapeake's attorneys' fees; and (z) the cost of recording all documents. 4. Representations and Warranties. As an inducement to Chesapeake to enter into this Agreement, the Gothic Parties represent and warrant to Chesapeake that as of the date of this Agreement and the Closing Date: 4.1 Organization, Good Standing, Etc. Each of the Gothic Parties is a corporation duly organized, validly existing and in good standing under the laws of the state of the formation for such party and has the corporate power to own such party's property and to carry on such party's business as now being conducted. Each of the Gothic Parties has the power to execute and deliver this Agreement and to consummate the transactions contemplated hereby. Each of the Gothic Parties is duly qualified and/or licensed, as may be required, and in good standing in each of the jurisdictions in which the Gothic Interests are located. The Gothic Parties are not in default under or in violation of any provision of the Gothic Parties' certificates of incorporation or bylaws. 4.2 Authority. Each of the Gothic Parties has taken all necessary action to authorize the execution, delivery and performance of this Agreement and has adequate power, authority and legal right to enter into, execute, deliver and perform the transactions contemplated by this Agreement. This Agreement is legal, valid and -4- binding with respect to the Gothic Parties and is enforceable in accordance with its terms. On execution, delivery and performance of this Agreement in accordance with its terms, Chesapeake will acquire all of the Gothic Interests to be conveyed to Chesapeake free of all claims, liens, encumbrances and liabilities by, through or under the Gothic Parties including, without limitation, any mortgages, liens or security interests granted by the Gothic Parties in connection with the BancOne Loan (as hereinafter defined). 4.3 No Assumption of Obligations. Except as set forth in Schedule "4.3" attached as a part hereof, the execution and consummation of this Agreement by Chesapeake will not obligate Chesapeake with respect to (or result in the assumption by Chesapeake of) any obligation of the Gothic Parties arising prior to the Closing Date under or with respect to, any liability, agreement or commitment relating to the Gothic Interests including, without implied limitation, any obligation to pay to or share with any third party any portion of the hydrocarbons attributable to the Gothic Interests to be conveyed to Chesapeake. 4.4 Absence of Liabilities. Except as set forth in Schedule "4.4" attached as a part hereof: (a) the Gothic Parties have no debt, liability, obligation or commitment, absolute or contingent, known or unknown, relating to or connected with the Gothic Interests to be conveyed to Chesapeake; (b) neither Chesapeake nor the Gothic Interests will be subject to or liable for any claim, debt, liability, lien, encumbrance, obligation, guaranty, commitment or gas imbalance on the Closing Date; and (c) any such claims, debts, liabilities, obligations or commitments will be the sole responsibility of the Gothic Parties and the Gothic Parties hereby agree to indemnify and hold harmless Chesapeake from all such matters. The Gothic Parties have complied and will continue to comply with all applicable federal, state or local statutes, laws and regulations. 4.5 Contracts. The Gothic Parties have delivered copies or provided unrestricted access to Chesapeake of true copies (or descriptions, in the case of oral agreements) of all of the contracts and agreements relating to the Gothic Interests, including, without limitation, all marketing and production sales contracts. Except as set forth in Schedule "4.5" attached as a part hereof, there are no other material contracts, commitments or agreements in effect related to the Gothic Interests that have not been disclosed to Chesapeake in writing including, without implied limitation, marketing or production sales contracts that will in any way prevent or hinder Chesapeake from taking in kind Chesapeake's share of production from the Gothic Interests and selling such production to the person selected by Chesapeake. Except as set forth in Schedule "4.5" attached as a part hereof: (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 Gothic Interests that have not been disclosed to Chesapeake in writing. -5- 4.6 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 the Gothic Parties are a party or by which the Gothic Parties or the Gothic Interests are bound; (b) violate, conflict with or constitute a breach of any statute, regulation or judicial or administrative order, award, judgment or decree to which the Gothic Parties are a party or to which the Gothic Parties or the Gothic Interests 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 whatsoever, upon or affecting the Gothic Parties, the Gothic Interests or Chesapeake. 4.7 Litigation. Except as disclosed in Schedule "4.7" attached as a part hereof, there is: (a) no action, suit or proceeding pending, threatened or contemplated against the Gothic Parties or the Gothic Interests; and (b) no proceeding, investigation, charges, audit or inquiry threatened or pending before or by any federal, state, municipal or other governmental court, department, commission, board, bureau, agency or instrumentality which might result in an adverse effect on the Gothic Parties or the Gothic Interests. The Gothic Parties hereby agree to indemnify and hold harmless Chesapeake with respect to any and all litigation and proceedings including, without limitation, the matters described in Schedule "4.7." 4.8 Title. Except as set forth in Schedule "4.8" attached as a part hereof, the Gothic Parties own, possess and hold good and defensible title beneficially and of record in and to the respective Gothic Interests free and clear of all claims, liens, encumbrances, conditions, gas imbalances, 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 Gothic Interests. 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 Participation Area are described in Schedules "A" and "1.2" attached as a part hereof. 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 Gothic Interests to be conveyed to Chesapeake. 4.9 Oil and Gas Leases in Good Standing. Except as disclosed in Schedule "4.9" attached as a part hereof: (a) to the best of the Gothic Parties' knowledge all oil and gas leases which were acquired by the Gothic Parties under the Amoco Agreement are in full force and effect, and the Gothic Parties are not in default -6- thereunder; and (b) all other oil and gas leases which are material singly or in the aggregate are in full force and effect, and the Gothic Parties are not in default thereunder. 4.10 Taxes. All ad valorem, property, production, severance and similar taxes and assessments based on or measured by the ownership of property comprising the Gothic Interests or the production or removal of hydrocarbons or the receipt of proceeds therefrom have been timely paid when due and are not in arrears. 4.11 Contracts, Consents and Preferential Rights. The Gothic Parties have described in Schedule "4.11" attached as a part hereof: (a) all partnership, joint venture, farmin/farmout, dry hole, bottom hole, acreage contribution, area of mutual interest, purchase and/or acquisition agreements of which any terms remain executory which materially affect the Gothic Interests; (b) all other executory contracts to which the Gothic Parties are a party which materially affect any item of the Gothic Interests; (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 Gothic Interests upon the sale contemplated by this Agreement; and (e) all other contracts and agreements which are in any single case or in the aggregate of material importance to the Gothic Interests. 4.12 Environmental and Safety Matters. Except as set forth in Schedule "4.12" attached as a part hereof and insofar as it pertains to the Gothic Inter ests: 4.12.1 The Gothic Parties are not aware, and have 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 the Gothic Parties (or by Chesapeake after the Closing Date) with any United States, 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 the Gothic Parties 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 the Gothic Parties in each case. 4.12.2 The Gothic Parties are not aware of any civil, criminal or administrative action, lawsuit, demand, litigation, claim, hearing, notice of violation, investigation or proceeding, pending or threatened, against the Gothic Parties or the operator of any of the lands, facilities, assets and properties owned or formerly owned, operated, leased or used by the Gothic Parties as a result of the -7- 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 the Gothic Parties. 4.13 Payout and Gas Balancing. Schedule "4.13" attached as a part hereof, contains a complete and accurate list of: (a) the status of any "payout" balance as of December 31, 1997, for each of the Gothic Interests 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 over or under gas imbalances relating to the Gothic Interests as of December 31, 1997. 4.14 Affiliate Transactions. There are no transactions affecting any of the Gothic Interests between the Gothic Parties and any of the Gothic Parties' affiliates, except as set forth in Schedule "4.14" attached as a part hereof. 4.15 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. To the best knowledge of each Seller 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. 5. Chesapeake's Representations and Warranties. Chesapeake is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma and has all requisite corporate power and authority to own, lease, and operate its properties and to conduct its business as now being conducted. Chesapeake has full corporate power and authority to execute, deliver and perform this Agreement. 6. Covenants. The parties agree to perform the following prior to the Closing Date: 6.1 Access to Information. During the period commencing on the date of this Agreement and ending on the Closing Date, the Gothic Parties will afford Chesapeake and Chesapeake's authorized representatives full access during normal business hours to the properties, books, records, employees, accountants and lawyers of the Gothic Parties to make such investigation as Chesapeake desires regarding the Gothic Interests and furnish such financial, operating data, information and responses as Chesapeake might reasonably request with respect to the Gothic Interests. 6.2 Inspection. Prior to the Closing Date Chesapeake will conduct such investigation and inspection with respect to the Gothic Interests as Chesapeake deems -8- appropriate. If Chesapeake determines in good faith that the Gothic Interests are unsatisfactory for any reason whatsoever, Chesapeake will provide written notice to the Gothic Parties setting forth Chesapeake's objections. The Gothic Parties agree to use the Gothic Parties' best efforts to satisfy Chesapeake's objections. 6.3 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 consummation of the transactions contemplated by this Agreement. However, no contract will be amended to increase the amount payable thereunder and no burden to the Gothic Parties or Chesapeake will be increased to obtain any consent, approval or authorization. 6.4 Conditions. The Gothic Parties and Chesapeake will use their respective best efforts to cause the conditions in paragraphs 11 and 12 to be satisfied. 6.5 Subordination. Certain lenders have extended or will extend credit to the Gothic Parties which is secured by one (1) or more mortgages, liens, security interests and encumbrances covering all or part of the Gothic Interests, including, without implied limitation, the credit extended pursuant to that certain Third Amended and Restated Credit Agreement between the Gothic Parties and BancOne, N.A. dated March 30, 1998 (the "BancOne Loan") and the notes to be issued by the Gothic Parties as a condition precedent under paragraph 4.1(j) of the Securities Purchase Agreement. The Gothic Parties hereby agree as follows with respect to the BancOne Loan and any other loan secured by the Gothic Interests: (a) any and all mortgages, liens, security interests or other encumbrances granted in connection with or securing the BancOne Loan or any other loan will be terminated and released with respect to any Gothic Interest to be assigned or conveyed to Chesapeake in connection with this Agreement on or before the date such Gothic Interest is conveyed to Chesapeake; (b) the Gothic Parties will cause to be delivered and executed on or before the Closing Date a subordination agreement (the "Subordination Agreement") in form and substance satisfactory to Chesapeake subordinating any claim, mortgage, lien, security interest or other encumbrance on the Gothic Interests to be conveyed to Chesapeake after the Closing Date securing the BancOne Loan or any other loan to the Chesapeake Claims; and (c) the Gothic Parties will take such commercially reasonable actions as might be requested by Chesapeake to ensure that all amounts owing by the Gothic Parties with respect to any well drilled on the Gothic Interests will be paid in full in accordance with this Agreement and any related agreements. For purposes of this Agreement "Chesapeake Claims" means any interest in or claim against the Gothic Parties or the Gothic Interests which is owned or claimed by Chesapeake including, without implied limitation, any ownership interest in the Gothic Interests, any right to acquire one (1) or more of the Gothic Interests and any interest or amounts claimed by Chesapeake or any other person with respect to the acquisition, ownership or development of the Gothic Interests whether as operator or owner. -9- 6.6 Title and Information. During the term of this Agreement the Gothic Parties agree to provide to Chesapeake unrestricted access to and permit Chesapeake to make copies of the following (whether in paper or computerized form): (a) all title information relating to the Gothic Interests which is in the possession of or available to the Gothic Parties; (b) any additional title information relating to the Gothic Interests, if as and when obtained by or made available to the Gothic Parties; and (c) any technical information relating to the Gothic Interests which is in the possession of or available to the Gothic Parties including, without implied limitation, geological, seismic, engineering and land information, data, records or files. The Gothic Parties will convey title to the Gothic Interests free and clear from all liens, security interests and mortgages securing the BancOne Loan or any other loans or liabilities and will warrant title by, through or under the Gothic Parties but not otherwise. The Gothic Parties agree that none of the Gothic Interests will be subject to any overriding royalty interests in favor of the Gothic Parties or their respective affiliates, employees or consultants. As used in this Agreement: (i) "affiliate" means, as to any person, each officer or director of such person and each other person that directly or indirectly (through one (1) or more intermediaries) controls, is controlled by or is under common control with such person; and (ii) "person" means an individual, corporation, partnership, limited liability company, association, joint stock company, trust, associate (as defined in regulations promulgated by the Securities and Exchange Commission) or other legally recognizable entity. 7. Gothic Party Acquisitions. Chesapeake and the Gothic Parties agree to the creation of the Participation Area and the right of Chesapeake to participate in future acquisitions on the following terms: 7.1 Existing Agreements. The Gothic Parties represent and warrant that: (a) the Existing Acreage and the Related Interests constitute all oil, gas and mineral interests owned by the Gothic Parties in the Participation Area as of the date of this Agreement; (b) except as disclosed in Schedule "7.1" attached as a part hereof the Gothic Parties have not entered into, are not parties to or in any way subject to any option, participation agreement, area of mutual interest agreement or similar agreement which burdens any acreage within the Participation Area as of the date hereof; and (c) except in connection with a third party farmin (which applies only to the acreage being acquired under such farmin agreement) the Gothic Parties will not enter into any option, participation agreement, area of mutual interest agreement or similar agreement covering the Participation Area which has an adverse effect on Chesapeake or any of Chesapeake's rights or benefits under this Agreement. Notwithstanding the foregoing, the Gothic Parties and Chesapeake hereby agree that the Pecos Slope Acreage is excluded from the Participation Area and will not be governed by or subject to the provisions of this Agreement. 7.2 Acquisition Acreage Option. The Gothic Parties hereby grant to Chesapeake the option to purchase up to an undivided fifty percent (50%) interest in all Acquisition Acreage acquired or to be acquired by the Gothic Parties after the date hereof. If during the term of this Agreement the Gothic Parties or any affiliate of -10- the Gothic Parties (a) enter into a definitive purchase and sale agreement, contract, lease or other agreement providing for the acquisition of any Acquisition Acreage; (b) have the right to acquire Acquisition Acreage including, without implied limitation, any right under any joint operating agreement, any unitization order or agreement, any forced pooling order, area of mutual interest agreement or any other agreement or order, or (c) actually acquires Acquisition Acreage for which a prior notice has not been provided to Chesapeake, then the Gothic Parties will give written notice to Chesapeake of such acquisition within ten (10) days after such agreement is executed and the earnest money deposit, if any, is paid by the Gothic Parties (an "Acquisition Notice"). The Acquisition Notice will set forth and include: (a) the location of all of the Acquisition Acreage as reflected on an accompanying plat; (b) an itemized statement of Acquisition Costs (as hereinafter defined) and amount of acreage covered by the Acquisition Notice; (c) the date of the acquisition and a copy of any letters of intent, purchase contracts, agreements, mineral leases and assignments; (d) all of the terms of such acquisition (including leasehold burdens and drilling commitments); (e) all title information in the possession of or available to the Gothic Parties; (f) all seismic, geological or engineering information relating to such Acquisition Acreage which is in the possession of or available to the Gothic Parties; and (g) any other information reasonably requested by Chesapeake. The foregoing information will be made available to Chesapeake for review and photocopying. At Chesapeake's option, to be exercised within fifteen (15) days after receipt of a complete Acquisition Notice, Chesapeake will have the right to acquire up to an undivided fifty percent (50%) interest in the Acquisition Acreage acquired or to be acquired by the Gothic Parties. The purchase price (the "Acquisition Price") for the Acquisition Acreage to be acquired by Chesapeake will be the amount equal to the portion of the Acquisition Costs equal to the percentage of the Acquisition Acreage which Chesapeake elects to acquire under this paragraph 7.2. 7.3 Acquisition Acreage. As used in this Agreement "Acquisition Acreage" will mean and include any and all right, title or interest acquired by the Gothic Parties in any manner (whether owned directly, indirectly, beneficially or otherwise) in and to the following property, contractual or other interests located in whole or in part within the Participation Area: (i) any right of, contract for or lease for the development and/or production of oil, gas and other hydrocarbons including, without limitation, leasehold interests, working interests, net revenue interests, overriding royalty interests, net profits interests and production payments; (ii) any mineral, royalty or non- participating royalty interests; (iii) any interests of the type described in (i) or (ii) which may be earned or acquired by conducting drilling, seismic or other operations or activities; and (iv) any ownership interest in, indebtedness of and any option or other right to acquire any of the foregoing in any person which owns any of the foregoing interests in oil, gas and other hydrocarbons which are located in whole or in part in the Participation Area including, without implied limitation, any stock in any person, any membership interests in partnerships or limited liability companies or interests in business trusts. -11- 7.4 Acquisition Costs. As used in this Agreement "Acquisition Costs" means the sum of the amounts paid to unaffiliated third parties for: (a) leases or interests in oil and gas, including, but not limited to bonuses, brokers' commissions, geological consulting fees, engineering fees and the costs of any equipment or other assets purchased in conjunction with the acquisition of such leases; (b) title insurance or title examination costs, filing fees, recording costs, transfer taxes, if any, and like charges in connection with the acquisition of such leases; and (c) geological, geophysical, seismic, land, engineering, drafting, accounting, legal and other like costs and expenses incurred in connection with the acquisition of such leases. As soon as practical after delivery of an Acquisition Notice, but in any event not later than five (5) business days prior to the payment of the Acquisition Price by Chesapeake, the Gothic Parties will deliver to Chesapeake documentation supporting the calculation of the Acquisition Costs for verification by Chesapeake. 7.5 Acquisition Closings. In the event Chesapeake elects to acquire all or part of the Acquisition Acreage covered by an Acquisition Notice, within fifteen (15) days after Chesapeake provides the notice of its election to participate (or the next business day, if such day does not fall on a business day) the acquisition will be closed by Chesapeake paying the Acquisition Price for such Acquisition Acreage and the Gothic Parties assigning to Chesapeake the Acquisition Acreage to be acquired by Chesapeake by delivering an assignment in substantially the form attached at Schedule "7.5" attached as a part hereof. Chesapeake will record such assignment with appropriate governmental authorities at Chesapeake's expense. If the Gothic Parties are waiting on a farmout or third party assignment, the Gothic Parties will make the assignment to Chesapeake within twenty (20) days after the Gothic Parties receive such farmout or assignment or at Chesapeake's request direct such assignment to be made by the seller of the Acquisition Acreage directly to Chesapeake. 8. Chesapeake AMI Acquisitions. Chesapeake and the Gothic Parties agree to the creation of the area of mutual interest (the "Chesapeake AMI") covering the Gothic Parties' current 3D seismic projects in Oklahoma in the East Cement Field, the West Cement Field, the Coyote Hill Prospect, the Northern Canadian Prospect and the Calumet Prospects as outlined at Schedule "8" attached as a part hereof and the right of the Gothic Parties to participate in future acquisitions on the following terms: 8.1 Gothic Parties' Option. Chesapeake hereby grants to the Gothic Parties as a group the option to purchase up to an undivided fifty percent (50%) interest in Chesapeake Acreage (as hereinafter defined) to be acquired by Chesapeake pursuant to an agreement entered into with an unaffiliated third party after the Closing Date reduced by any existing or future area of mutual interest agreement which Chesapeake enters into with an unaffiliated third party covering all or part of the Chesapeake Acreage. If Chesapeake or any affiliate of Chesapeake enters into a definitive agreement or contract during the term of this Agreement providing for the acquisition of any Chesapeake Acreage in the Chesapeake AMI, Chesapeake will give written notice to the Gothic Parties of the acquisition within ten (10) days after such agreement is executed and the earnest money deposit, if -12- any, is paid by Chesapeake (a "CGC Acquisition Notice"). The CGC Acquisition Notice will set forth and include: (a) the location of all of the Chesapeake Acreage as reflected on an accompanying plat; (b) an itemized statement of CGC Acquisition Costs (as hereinafter defined) and amount of acreage covered by the CGC Acquisition Notice; (c) the date of the acquisition and a copy of any letters of intent, purchase contracts, agreements, mineral leases and assignments; (d) all of the terms of such acquisition (including leasehold burdens and drilling commitments); (e) all title information in the possession of or available to Chesapeake; and (f) and any other information reasonably requested by the Gothic Parties. The foregoing information will be made available to the Gothic Parties for review and photocopying. At the Gothic Parties' option, to be exercised within fifteen (15) days after receipt of each CGC Acquisition Notice, the Gothic Parties will have the right to acquire up to an undivided fifty percent (50%) interest in the Chesapeake Acreage acquired by Chesapeake as reduced by any existing or future area of mutual interest agreement which Chesapeake enters into with an unaffiliated third party covering all or part of the Chesapeake Acreage. The purchase price (the "Gothic Price") for the Chesapeake Acreage to be acquired by the Gothic Parties will be the amount equal to the portion of the CGC Acquisition Costs equal to the percentage of the Chesapeake Acreage which the Gothic Parties elect to acquire under this paragraph 8.1. 8.2 Definitions. As used in this Agreement "Chesapeake Acreage" will mean and include any and all right, title or interest acquired by Chesapeake or Chesapeake's affiliates in and to the following undeveloped interests in oil and gas located within the Chesapeake AMI: (a) any contract or lease for the development and/or production of oil, gas and other hydrocarbons including, without limitation, leasehold interests, working interests, net revenue interests, overriding royalty interests, net profits interests and production payments; (b) any mineral, royalty or non-participating royalty interests; and (c) any interests of the type described in (a) or (b) which may be earned or acquired by conducting drilling, seismic or other operations or activities. To qualify as Chesapeake Acreage the oil and gas interest (x) must be a direct undeveloped interest in oil and gas rather than an interest in a person, (y) cannot lie within the governmental production unit for a well producing oil and gas in commercial quantities in which Chesapeake is acquiring an interest in the same transaction and (z) must be acquired by Chesapeake directly from the landowner or from a person or company selling the oil and gas interest in the ordinary course of business pursuant to a farmout arrangement or pursuant to a pooling order entered by the appropriate governmental authority. As used in this Agreement "CGC Acquisition Costs" means any Acquisition Costs incurred by Chesapeake in the acquisition of Chesapeake Acreage. 8.3 Acquisition Closings. In the event the Gothic Parties elect to acquire all or part of the Chesapeake Acreage covered by a CGC Acquisition Notice, within fifteen (15) days after the Gothic Parties provide their election to participate (or the next business day, if such day does not fall on a business day) the acquisition will be closed by the Gothic Parties paying the Gothic Price for such Chesapeake Acreage and Chesapeake assigning to the Gothic Parties the Chesapeake Acreage to be -13- acquired by the Gothic Parties by delivering an assignment in substantially the form attached at Schedule "8.3" attached as a part hereof. The Gothic Parties will record such assignment with the appropriate governmental authorities at the Gothic Parties' expense. If Chesapeake is waiting on a farmout or third party assignment, Chesapeake will make the assignment to the Gothic Parties within twenty (20) days after Chesapeake receives such farmout or assignment or at the Gothic Parties' request direct such assignment to be made by the seller of the Chesapeake Acreage directly to the Gothic Parties. 9. Lease Maintenance. During the term of this Agreement, except as otherwise provided herein, the Gothic Parties agree to maintain the Existing Acreage, the Related Interests and the Acquisition Acreage as follows: 9.1 Maintenance. The Gothic Parties agree to take the actions necessary to maintain the oil and gas leases covering the Existing Acreage, the Related Interests and the Acquisition Acreage in which Chesapeake and the Gothic Parties own an interest in full force and effect for the respective terms thereof, including, without implied limitation, payment of delay rentals, taxes and other reasonable expenses (collectively, the "Maintenance Expenses") necessary to maintain the rights of Chesapeake and the Gothic Parties under the Existing Acreage, the Related Interests and the Acquisition Acreage. Not less than sixty (60) days prior to the date the Maintenance Expenses are due, the Gothic Parties will inform Chesapeake whether the Gothic Parties are going to take the actions necessary to maintain such Existing Acreage, Related Interests or Acquisition Acreage. In the event the Gothic Parties notify Chesapeake of the Gothic Parties' intent to take the actions necessary to maintain the Existing Acreage, the Related Interests or the Acquisition Acreage, within twenty (20) days after receipt of an invoice therefor, Chesapeake will: (a) pay to the Gothic Parties an amount equal to Chesapeake's proportionate share of such Maintenance Expenses based on Chesapeake's percentage ownership of the affected Existing Acreage, Related Interests and Acquisition Acreage; or (b) assign all of Chesapeake's interest in such Existing Acreage, Related Interests and Acquisition Acreage to the Gothic Parties pursuant to the form of assignment at Schedule "9.1A" attached as a part hereof. In the event the Gothic Parties decide not to maintain any Existing Acreage, Related Interests or Acquisition Acreage, within twenty (20) days after written request by Chesapeake, the Gothic Parties will assign all of the Gothic Parties' interest in such Existing Acreage, Related Interests or Acquisition Acreage to Chesapeake pursuant to the form of assignment at Schedule "9.1B" attached as a part hereof. 9.2 Renewals; Re-leasing. If prior to the reconveyance by Chesapeake under paragraph 1.3 of this Agreement any of the Existing Acreage, the Related Interests or Acquisition Acreage is renewed or any of the acreage covered thereby is re-leased by the Gothic Parties, the Gothic Parties will offer Chesapeake its pro rata share thereof at a price equal to the Acquisition Costs for such renewal or re-leasing. 10. Development. The Gothic Parties and Chesapeake agree to jointly develop and operate -14- the Existing Acreage, the Related Interests and the Acquisition Acreage on the terms and conditions set forth in this paragraph 10. From time to time during the term of this Agreement, either Chesapeake or the Gothic Parties (the "Proposing Party") may by written notice to the other party: (a) designate a governmental production unit from the Existing Acreage and/or the Acquisition Acreage (a "Prospect"); and (b) subject to the limitations in paragraph 10.6 propose the drilling and completion of one (1) or more wells on such Prospect (a "Proposed Well"). 10.1 Proposed Well Information. With respect to each Proposed Well, the Proposing Party will deliver to the other party to this Agreement (the "Receiving Party") a Proposed Well information package with the notice which will include the following: a brief geological presentation, a map designating the Prospect, an AFE for the Proposed Well, signature pages for the joint operating agreement (the "Joint Operating Agreement") for the Proposed Well and signature pages for the Memorandum of Joint Operating Agreement. The Joint Operating Agreement will be in the form at Schedule "10.1" attached as a part hereof. 10.2 Participation Election. The Receiving Party will notify the Proposing Party in writing whether the Receiving Party elects to participate in the Proposed Well with all or part of the Receiving Party's interest in any Existing Acreage, Related Interests and Acquisition Acreage within fifteen (15) days after receipt of the Proposed Well information package, unless otherwise extended in writing by the Proposing Party. If the Receiving Party elects to participate in the Proposed Well, the Receiving Party will deliver to the Proposing Party: (a) an executed Joint Operating Agreement signature page for such Proposed Well; (b) an executed AFE for such Proposed Well; and (c) an executed Memorandum of Joint Operating Agreement for such well which will be promptly filed by the Proposing Party in the appropriate governmental office. In the event the Receiving Party is a Gothic Party and the Gothic Party elects not to participate with all or part of the Existing Acreage, Related Interests or Acquisition Acreage retained by the Gothic Parties (the "Retained Interest") in any Proposed Well or fails to elect to participate within the required time period, the Gothic Parties will be deemed to have: (i) elected not to participate in the Proposed Well; and (ii) agreed to farmout all of the Retained Interest included in the Prospect for such Proposed Well to Chesapeake at a net revenue interest equal to the existing net revenue interest of such Gothic Party with no overriding royalty interest being retained by the Gothic Party. The acreage earned pursuant to any such farmout will be limited to the Retained Interest included in the governmental production unit for the Proposed Well as finally approved by the appropriate governmental authority and will be deemed earned on the earlier of the completion of such well as a producing well or the drilling of such well to the total proposed depth. The Gothic Parties agree to assign to Chesapeake the interest earned under the foregoing farmout within thirty (30) days after such interest is earned and to execute such additional documents as Chesapeake, as the Proposing Party, reasonable requests to evidence and convey any farmouts earned pursuant to this Agreement including an outright assignment to Chesapeake of such interest coupled with an obligation to reconvey such interest if such interest is not earned in accordance with this paragraph 10.2. -15- 10.3 Resubmissions. In the event the Proposed Well is not spudded within one hundred eighty (180) days following the Receiving Party's election, or deemed election, to participate or not participate therein, the Receiving Party's election under paragraph 10.2 will be voided and the Proposing Party will be required to repropose such Proposed Well in accordance with this paragraph 10.3. On such reproposal the Receiving Party will be entitled to make a new election under paragraph 10.2 of this Agreement. 10.4 Operations. Except for the Proposed Wells in which Chesapeake elects not to participate or a well containing Gothic Interests for which a third party not affiliated with the Gothic Parties was previously appointed and is continuing to act as the operator, Chesapeake will be appointed the operator on all Proposed Wells pursuant to the Joint Operating Agreement and the parties agree to vote all of their interests in such Proposed Well for Chesapeake as operator. With respect to each Proposed Well in which the Gothic Parties have elected to participate with at least twenty-five percent (25%) of the Existing Acreage and Acquisition Acreage in the Retained Interest for such well, the Gothic Parties will have the right to provide a request for a resignation to Chesapeake within five (5) days after the later of the following to occur: (a) first sale of production from such Proposed Well; or (b) the completion of all proposed drilling and completion of the Proposed Well as a producing oil or gas well. If the Gothic Parties and Chesapeake have sufficient votes together to ensure that a Gothic Party will be appointed as the operator of such Proposed Well, Chesapeake agrees to resign as the operator of such Proposed Well on the appointment of such Gothic Party as the operator of the Proposed Well which resignation and appointment will be effective on the first day of the month following the satisfaction of all the foregoing conditions. The right of the Gothic Parties to require Chesapeake to resign as operator will in no event apply to any wells now or hereafter drilled or operated in the Townships 4N-19E, 4N-20E, 5N-19E and 5N-20E except for Sections 1-7 in Township 5N-19E in the Arkoma Basin. If the Gothic Party appointed as operator of a Proposed Well subsequently proposes to resign as the operator of such Proposed Well, the Gothic Parties agree to use the Gothic Parties' best efforts to cause Chesapeake or Chesapeake's designee to be appointed as successor operator including, without implied limitation, voting all of the Gothic Parties' interests in such Proposed Well for Chesapeake as successor operator. 10.5 Third Party Wells. In the event an independent third party proposes a well in a governmental production unit that includes Retained Interests the Gothic Parties will within five (5) days after the Gothic Parties receive notice of the proposal provide written notice of the well proposal to Chesapeake and will, thereafter, notify Chesapeake in writing in not less than ten (10) days after the Gothic Parties receive the proposal if the Gothic Parties elect to participate in such third party well or elect not to participate in such third party well. For purposes of this Agreement the term Proposal includes any forced pooling action or other unitization by order of any governmental agency. In the event the Gothic Parties do not elect to participate with all or part of the Retained Interest in such well or fail to notify Chesapeake of the Gothic Parties' decision to participate within the -16- required time period, the Gothic Parties will at Chesapeake's election be deemed to have agreed to farmout the Retained Interest included in the Prospect for such third party well to Chesapeake on terms no less favorable to Chesapeake than the terms the third party proposing the well offered to the Gothic Parties in the initial written well proposal. Notwithstanding the foregoing, a well will not be a third party proposed well and will be deemed a Proposed Well and subsequent to the farmout provisions at paragraph 10.2 of this Agreement if: (a) Chesapeake or the Gothic Parties propose the well in accordance with this Agreement prior to receipt of the written well proposal from a third party; (b) after the well is proposed by the third party Chesapeake or the Gothic Parties are or have the right to become the operator of the well; or (c) the well is proposed by the third party at the instigation of the Gothic Parties or Chesapeake. The acreage earned pursuant to any such farmout will be limited to the Retained Interest included in the governmental production unit for the third party well as finally approved by the appropriate governmental authority and will be deemed earned on the earlier of the completion of such Proposed Well as a producing well or the drilling of such Proposed Well to the total proposed depth. The Gothic Parties agree to execute such additional documents as Chesapeake reasonably requests, to assign to Chesapeake the interest earned under the foregoing farmout within thirty (30) days after such interest is earned and to execute such additional documents as Chesapeake, reasonably requests to evidence and convey any farmouts earned pursuant to this Agreement including an outright assignment to Chesapeake of such interest coupled with an obligation to reconvey such interest if such interest is not earned in accordance with this paragraph. The Gothic Parties agree to cooperate with Chesapeake in order to permit Chesapeake to exercise the rights under this paragraph 10.5 including providing notice to Chesapeake of the Gothic Parties' election not to participate in such well in sufficient time for Chesapeake to elect to acquire such interest under this paragraph 10.5. 10.6 Limitations. The parties agree that the number of Proposed Wells to be proposed by Chesapeake under this paragraph 10 will be limited to the number of Proposed Wells proposed during such period under this paragraph 10 that result in a Gothic AFE Amount of not more than: (a) Fifteen Million Dollars ($15,000,000.00) during calendar year 1998; and (b) Twenty-five Million Dollars ($25,000,000.00) during calendar year 1999. The Gothic AFE Amount for any year will be equal to the cumulative sum of the following amounts for each Proposed Well proposed by Chesapeake to be drilled during such year: (y) the AFE for such Proposed Well, multiplied by (z) the Gothic Parties' percentage Retained Interest in such Proposed Well at the time the proposal is made by Chesapeake. Chesapeake will be entitled to withdraw a Proposed Well before such Proposed Well is spudded in order to substitute a different Proposed Well in order to minimize any adverse impact from this paragraph 10.6. 11. Chesapeake's Conditions Precedent. The obligation of Chesapeake to consummate the transactions contemplated by this Agreement is subject to the satisfaction or waiver (subject to applicable law) on or before the Closing Date of each of the following conditions: -17- 11.1 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; 11.2 No action will have been commenced or threatened against the Gothic Parties, Chesapeake or any of their respective affiliates, associates, officers or directors seeking damages arising from, or to prevent or challenge the transactions contemplated by this Agreement; 11.3 All representations and warranties of the Gothic Parties contained herein will be true and correct in all material respects; 11.4 The Gothic Parties will have performed or satisfied as of the Closing Date all obligations, covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Gothic Parties; 11.5 All actions, proceedings, instruments and documents required to carry out the transactions contemplated hereby will have been reasonably satisfactory to Chesapeake's counsel, including, without limitation, releases of any and all liens, claims, security interests or other encumbrances covering any of the Gothic Interests, and the Gothic Parties will have delivered such additional certificates and other documents as Chesapeake reasonably requests including, without limitation, such certificates of the Gothic Parties dated as of the Closing Date evidencing compliance with the conditions set forth in this paragraph 11; 11.6 Chesapeake shall have received and reviewed all schedules to be provided by the Gothic Parties and such schedules shall not be materially different than reasonably anticipated by Chesapeake; and 11.7 All of the transactions contemplated by the Arkoma Purchase Agreement and the Securities Purchase Agreement of even date herewith between the Gothic Parties and Chesapeake (the "Related Agreements") shall have been consummated on the terms and conditions set forth in the Related Agreements. 12. Gothic Parties' Conditions Precedent. The obligation of the Gothic Parties to consummate the transactions contemplated by this Agreement is subject to the satisfaction, on or before the Closing Date of each of the following conditions, any or all of which may be waived in whole or in part: 12.1 No preliminary or permanent injunction or other order will have been issued by any court of competent jurisdiction or any governmental or regulatory body preventing consummation of the transactions contemplated by this Agreement; 12.2 No action will have been commenced or threatened against the Gothic Parties, Chesapeake or any of their respective affiliates, associates, officers or directors seeking damages arising from, to prevent or to challenge the transactions contemplated by this Agreement; -18- 12.3 All representations and warranties of Chesapeake contained herein will be true and correct in all material respects; 12.4 Chesapeake will have performed in all material respects all obligations, agreements and conditions contained in this Agreement to be performed or complied with by Chesapeake; and 12.5 The Gothic Parties will have received such certificates of Chesapeake, dated the Closing Date, signed by officers of Chesapeake and others to evidence compliance with the conditions set forth in this paragraph 12. 12.6 All of the transactions contemplated by the Related Agreements shall have been consummated on the terms and conditions set forth in the Related Agreements. 13. Default; Remedy. In the event that either party fails to perform such party's obligations hereunder (except as excused by the other party's default), the party claiming default will make written demand for performance. If the defaulting party fails to comply with such written demand within five (5) business days after receipt thereof, the non-defaulting party will have the option to waive such default or to exercise any other remedy available at law or in equity. The remedies provided by this Agreement are cumulative and will not exclude any other remedy to which a party might be entitled under this Agreement. In the event that a party elects to selectively and successfully enforce such 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 except with respect to information to be provided under paragraph 16 hereof which on a material default will be limited to the information required to be provided under the Joint Operating Agreement and drilling proposals as provided in this Agreement. 14. Term. Except as otherwise provided in this Agreement, the terms of this Agreement relating to the rights and obligations of the parties to offer to sell and to acquire interests in the Acquisition Acreage in the Participation Area under paragraph 7 hereof and interests in the Chesapeake Acreage in the Chesapeake AMI under paragraph 8 hereof will commence on March 31, 1998, and continue until April 30, 2003 (the "Termination Date"). The remaining terms of this Agreement relating to the Participation Area and the development of the Existing Acreage, the Related Interests and the Acquisition Acreage will continue until the earlier of the following to occur: (i) the development or expiration of all of the Existing Acreage, the Related Interests and the Acquisition Acreage; or (ii) the mutual agreement of the parties. Termination of this Agreement will not affect any rights, titles or interests of the Gothic Parties or Chesapeake in any Proposed Well for which drilling operations have been proposed, committed, commenced or completed or the obligation of the Gothic Parties or Chesapeake to fund such party's share of costs and make assignments with respect thereto pursuant to this Agreement. Notwithstanding the foregoing, any lease, contract or letter of intent entered into by the Gothic Parties prior to the Termination Date, will be offered to Chesapeake in accordance with the terms hereof. 15. Confidentiality. Until April 30, 2003, absent the other party's written consent, neither party to this Agreement, or any of its affiliates, successors or assigns, will release to any person, -19- not an interest owner, any geological, geophysical, reservoir, engineering, production, title, cost or technical information pertaining to the progress, tests or results of any well or any other written or documentary proprietary information. Any announcements, news releases or disclosures of proprietary information to the public concerning the proposed or actual operations and/or actions taken or being considered pursuant to this Agreement will be made only after notification to the other party hereto. This confidentiality provision will not apply to: (a) reports to governmental agencies or others to which a party is required by law to disclose such information; (b) disclosures to reputable engineering firms, financial institutions, gas transmission companies or other bona fide potential purchasers of hydrocarbon reserves; (c) disclosures to other working interest owners or potential working interest owners or either party's or any such interest owner's respective advisors, consultants or potential funding sources; or (d) reports or disclosures to shareholders or pursuant to SEC regulations or guidelines; or (e) disclosures pursuant to existing exploration or area of mutual interest agreements to which one of the parties to this agreement are parties as of the date of this Agreement. 16. Audits, Access and Information. The Gothic Parties will provide Chesapeake reasonable access during normal business hours to information acquired in the course of performance of this Agreement, including relevant seismic information, if any, done for each Proposed Well. With respect to any Proposed Well, if any party makes or causes to be made logs, cores, formation tests, drill stem tests or production or other tests, each will promptly furnish the results thereof to the other party hereto. The Gothic Parties and Chesapeake will have access to any Proposed Well, including the derrick floor, at all reasonable times, but at the Gothic Parties' or Chesapeake's sole risk and expense, to witness all activities conducted by the operator of such well. Unless otherwise mutually agreed, the Gothic Parties and Chesapeake will have no less than twelve (12) operations meetings per calendar year. In addition, Chesapeake will have access to the Gothic Parties' personnel including, without implied limitation, any employees and consultants that provide services regarding land, geology, operations, finance, marketing and legal. 17. Gothic Parties' Indemnification. The Gothic Parties agree to defend, indemnify and hold harmless Chesapeake and its directors, officers, agents and employees (the "CGC Indemnified Parties") for, from and against all losses, diminution in value, damages, claims, liabilities, debts, obligations and expenses (including interest, reasonable legal fees, and expenses of litigation) in any way related to, arising from or connected with (whether known or unknown): (a) any of the Gothic Interests or the operation thereof and arising or related to the period before such Gothic Interest is assigned or conveyed to Chesapeake of record; (b) any of the Retained Interests and the operation or ownership thereof; (c) any of the wellbores or other interests and rights which are retained by the Gothic Parties and not assigned to Chesapeake; (d) any contractual liability or obligation assumed or entered into by the Gothic Parties prior to the date of this Agreement; and (e) any breach or default in performance by the Gothic Parties of any covenant or obligation set forth in this Agreement or any related document. In addition to the foregoing, the Gothic Parties will pay to the CGC Indemnified Parties interest on the amount of any loss, damage, claim, liability, debt, obligation or expense the payment of which is or becomes due to the CGC Indemnified Parties by the Gothic Parties, such interest to be at a floating rate of interest equal to the prime rate published from time to time in The Wall Street Journal. The remedies provided by this paragraph 18 are in addition to, and not in lieu of, such other remedies as may be available under applicable laws. Claims for indemnification will be paid by the Gothic Parties within ten -20- (10) days after notification thereof. At the election of the CGC Indemnified Parties the Gothic Parties agree to assume the defense of the CGC Indemnified Parties on terms and conditions reasonably acceptable to the CGC Indemnified Parties. 18. Chesapeake's Indemnification. Chesapeake agrees to defend, indemnify and hold harmless the Gothic Parties and their directors, officers, agents and employees (the "Gothic Indemnified Parties") for, from and against all losses, damages, claims, liabilities, debts, obligations and expenses (including interest, reasonable legal fees, and expenses of litigation) in any way related to, arising from or connected with (whether known or unknown): (a) any of the Gothic Interests conveyed to Chesapeake under this Agreement or the operation thereof and arising after such Gothic Interest is assigned or conveyed to Chesapeake of record; and (b) any breach of default in performance by Chesapeake of any covenant or obligation set forth in this Agreement or any related document. In addition to the foregoing, Chesapeake will pay to the Gothic Indemnified Parties interest on the amount of any loss, damage, claim, liability, debt, obligation or expense the payment of which is or becomes due to the Gothic Indemnified Parties by Chesapeake, such interest to be at a floating rate of interest equal to the prime rate published from time to time in The Wall Street Journal. The remedies provided by this paragraph 18 are in addition to, and not in lieu of, such other remedies as may be available under applicable laws. Claims for indemnification will be paid by Chesapeake within ten (10) days after notification thereof. 19. No Partnership. Neither this Agreement nor any other agreement between the Gothic Parties and Chesapeake creates, nor will it be construed as creating, a mining partnership, commercial partnership, partnership relationship or joint venture. The liability of the parties hereto will be several and not joint or collective. Each of the parties hereto elects under the Internal Revenue Code of 1986, as amended (the "Code"), to be excluded from the application of all of the provisions of Subchapter K of Chapter 1 of Subtitle A of the Code. Subject to the Gothic Parties' obligations under this Agreement to assign the Gothic Interests to Chesapeake, the parties may engage in or possess any interest in any other business venture of any nature or description, independently or with others, including, but not limited to, the acquisition ownership, financing, leasing, operation, or development of oil and gas interests. The Gothic Parties will not have any right to participate in any such venture or activity conducted or to be conducted by Chesapeake or the property, oil and gas interests, income or profits related thereto or derived therefrom. 20. Miscellaneous. It is further agreed as follows: 20.1 Notices. Any notice, payment, 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 when delivered personally to the party designated to receive such notice, or on the first business day following the date sent by overnight courier or telefacsimile, 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 party: -21- To Chesapeake: Chesapeake Gothic Corp. 6100 North Western Avenue Oklahoma City, Oklahoma 73118 Attn: Aubrey K. McClendon Telephone (405) 848-8000 Fax No. (405) 848-8588 To Gothic Parties: Gothic Energy Corporation 5727 South Lewis, Suite 700 Tulsa, Oklahoma 74105-7148 Attn: Michael K. Paulk Telephone (918) 749-5666 Fax No. (918) 749-5882 20.2 Entire Agreement. This Agreement, the Related Agreements and the instruments to be delivered pursuant to the foregoing constitute the entire agreement between Chesapeake and the Gothic Parties relating to the sale and development of the Gothic Interests and there are no agreements, understandings, warranties or representations between the Gothic Parties and Chesapeake except as set forth therein. 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. The failure by any party to insist on strict performance of the obligations created by this Agreement will not be a waiver of any right to demand strict compliance with this Agreement at any later time. 20.3 Binding Effect. This Agreement will inure to the benefit of and bind the respective successors and permitted assigns of the parties hereto, including, without limitation, any party deemed to become an affiliate of the Gothic Parties either by merger or the acquisition of capital stock or equity interests. 20.4 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 provision as is possible to make such provision legal, valid and enforceable. 20.5 Counterpart Execution. This Agreement may be executed in counterparts, each of which will be deemed an original document but all of which will constitute a single document. This Agreement will not be binding on or constitute evidence of a contract between the parties until such time as a counterpart of this Agreement has been executed by each party and a copy thereof delivered to the other parties to this Agreement. 20.6 Survival. The covenants, representations and warranties of the parties herein contained will be effective on the Closing Date and will survive closing. -22- 20.7 Assignment. The rights and obligations of the Gothic Parties under this Agreement and the Gothic Parties interest in the Gothic Interests cannot be assigned in whole or in part without the prior written consent of Chesapeake. 20.8 Governing Law. This Agreement is executed, delivered and intended to be performed in the State of Oklahoma, and the substantive laws of the State of Oklahoma will govern the validity, construction and enforcement of the Agreement. 20.9 Construction. Nothing contained in this Agreement will be construed to constitute the parties as joint venturers or to constitute a partnership. The descriptive headings of the paragraphs of this Agreement are for convenience only and are not to be used in the construction of the content of this Agreement. In the event of a conflict between the provisions of this Agreement and the provisions of the Joint Operating Agreement, this Agreement will control to the extent of such conflict. 20.10 Memorandum of Agreement. For purposes of public notification, Chesapeake and the Gothic Parties will execute and file of record in each county where the Gothic Interests are located a Memorandum of Agreement in the form at Schedule "20.10" attached as a part hereof. 20.11 Press Release. Each party will prepare and issue its own press releases relating to this Agreement, provided, however, each party will have the right to approve the other party's proposed press release. IN WITNESS WHEREOF, this Agreement has been executed by the parties on the dates hereafter indicated to be effective on the date first above written. -23- CHESAPEAKE GOTHIC CORP., an Oklahoma corporation By ---------------------------------------------- Aubrey K. McClendon, President Date Executed: ---------------------------------- ("Chesapeake") GOTHIC ENERGY CORPORATION, an Oklahoma corporation By ---------------------------------------------- Michael K. Paulk, President Date Executed: ---------------------------------- ("Gothic") GOTHIC ENERGY OF TEXAS, INC., an Oklahoma corporation By ---------------------------------------------- Michael K. Paulk, President Date Executed: ---------------------------------- ("Gothic Texas) GOTHIC PRODUCTION COMPANY, an Oklahoma corporation By ---------------------------------------------- Michael K. Paulk, President Date Executed: ---------------------------------- ("Gothic Production") -24- EX-10.4 5 OIL AND GAS ASSET PURCHASE AGREEMENT EXHIBIT 10.4 OIL AND GAS ASSET PURCHASE AGREEMENT between GOTHIC ENERGY CORPORATION and CHESAPEAKE GOTHIC CORP. Effective January 1, 1998 SELF, GIDDENS & LEES, INC. ATTORNEYS AND COUNSELORS 2725 Oklahoma Tower . 210 Park Avenue . Oklahoma City, Oklahoma 73102-5604 Telephone (405) 232-3001 . Telecopier (405) 232-5553 TABLE OF CONTENTS ----------------- Page 1. Sale Agreement........................................................... 1 2. Purchase Price........................................................... 3 2.1 Cash at Closing................................................... 3 2.2 Allocation........................................................ 3 3. Representations and Warranties........................................... 3 3.1 Organization, Good Standing, Etc.................................. 3 3.2 Authority......................................................... 3 3.3 No Assumption of Obligations...................................... 3 3.4 Absence of Liabilities............................................ 4 3.5 Contracts......................................................... 4 3.6 Consents and Approvals............................................ 4 3.7 Litigation........................................................ 5 3.8 Title............................................................. 5 3.9 Foreign Person.................................................... 5 3.10 Broker's or Finder's Fees......................................... 6 3.11 Permits........................................................... 6 3.12 Compliance with Laws.............................................. 6 3.13 Oil and Gas Leases in Good Standing............................... 6 3.14 Taxes............................................................. 6 3.15 Contracts, Consents and Preferential Rights....................... 6 3.16 Tax Partnerships.................................................. 7 3.17 Financial Statements.............................................. 7 3.18 Insurance......................................................... 7 3.19 Planned Future Commitments........................................ 7 3.20 Environmental and Safety Matters.................................. 7 3.21 Powers of Attorney................................................ 8 3.22 Plugging Status................................................... 8 3.23 Equipment......................................................... 8 3.24 Payout and Gas Balancing.......................................... 8 3.25 Affiliate Transactions............................................ 8 3.26 Intangible Property............................................... 8 3.27 Full Disclosure................................................... 9 4. Purchaser's Representations and Warranties............................... 9 5. Covenants................................................................ 9 5.1 Access to Information............................................. 9 5.2 Inspection........................................................ 9 5.3 Title Adjustments................................................. 9 5.4 Conduct of Businesses.............................................10 5.5 Consents..........................................................10 5.6 Conditions........................................................10 5.7 Capital Expenditures..............................................10 6. Purchaser's Conditions Precedent.........................................11 7. Seller's Conditions Precedent............................................12 8. The Closing..............................................................13 8.1 Purchaser's Deliveries............................................13 8.1.1 Payment..................................................13 8.1.2 Evidence of Authority....................................13 8.1.3 Closing Memorandum.......................................13 8.1.4 Additional Documents.....................................13 8.2 Seller's Deliveries...............................................13 8.2.1 Assignments..............................................13 8.2.4 Evidence of Authority....................................14 8.2.5 Closing Memorandum.......................................14 8.2.6 Additional Documents.....................................14 8.3 Costs.............................................................14 9. Adjustments..............................................................14 10. Operations...............................................................14 11. Indemnification..........................................................15 12. Termination..............................................................17 13. Default..................................................................17 14. Miscellaneous............................................................17 14.1 Time..............................................................17 14.2 Notices...........................................................17 14.3 Representations and Warranties....................................18 14.4 Cooperation.......................................................18 14.5 Press Release.....................................................19 14.6 Choice of Law.....................................................19 14.7 Headings..........................................................19 14.8 Entire Agreement..................................................19 14.9 Assignment........................................................19 14.10 Amendment.........................................................19 14.11 Severability......................................................19 14.12 Attorney Fees.....................................................19 14.13 Waiver............................................................19 14.14 No Third Party Beneficiaries......................................20 14.15 Execution in Counterparts.........................................20 -2- Schedule "1.1" Properties Schedule "3.3" Obligations Schedule "3.4" Liabilities Schedule "3.5" Contracts Schedule "3.7" Litigation Schedule "3.8" Title Schedule "3.12" Violations of Law Schedule "3.13" Oil and Gas Leases Schedule "3.15" Contracts Schedule "3.16" Tax Partnerships Schedule "3.17" Financial Statements Schedule "3.19" Planned Future Commitments Schedule "3.20" Environmental & Safety Matters Schedule "3.24" Payout and Gas Balancing Schedule "3.25" Affiliate Transactions Exhibit "6.7" Participation Agreement Exhibit "8.2.1" Assignments and Conveyances Exhibit "8.2.3A" Letters in Lieu of Transfer Orders Exhibit "8.2.3B" Notice of Change of Operations and Ballots -3- OIL AND GAS ASSET PURCHASE AGREEMENT ------------------------------------ THIS AGREEMENT is entered into the 31st day of March, 1998, effective January 1, 1998, among CHESAPEAKE GOTHIC CORP., an Oklahoma corporation, CHESAPEAKE ACQUISITION CORPORATION, an Oklahoma corporation (collectively, referred to herein as the "Purchaser"), and GOTHIC ENERGY CORPORATION, an Oklahoma corporation (the "Seller"). B A C K G R O U N D : A. The Seller owns various interests (the "Interests") in oil and gas properties located in Atoka, Haskell, Latimer, LeFlore and Pittsburg Counties, Oklahoma and Crawford, Franklin, Johnson and Logan Counties, Arkansas (the "Arkoma Basin") including, without implied limitation, those listed at Schedule "1.1" attached hereto as a part hereof. B. The Purchaser desires to acquire and the Seller desires to sell an undivided fifty percent (50%) of the Interests together with all assets, rights, properties and claims which are used in or related to the ownership, operation or maintenance of the Interests (the "Properties") as provided in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Sale Agreement. Subject to the terms and conditions of this Agreement, the Purchaser agrees to purchase and the Seller agrees to sell absolute ownership of an undivided fifty percent (50%) of all of the Seller's right, title and interest in the Interests effective at 7:00 a.m. on January 1, 1998 (the "Effective Date"), free and clear of all liens, claims and encumbrances. The Properties include, without limitation, the following: 1.1 An undivided fifty percent (50%) interest in all of Seller's right, title and interest in, to and under the leases, overriding royalty interests, fee mineral interests, mineral rights, fee royalty interests, carried interests, net revenue interests, net profits interests, licenses, production payments, permits and other interests and agreements relating to the lands in the Arkoma Basin whether developed or undeveloped (the "Lands") including, without limitation, the Lands described in Schedule "1.1" attached hereto as a part hereof. 1.2 An undivided fifty percent (50%) interest in all of Seller's right, title and interest in all Hydrocarbons produced from or allocated to the Properties and sold after the Effective Date. The term "Hydrocarbons" means and includes oil, gas, casinghead gas, condensate, natural gas liquids and all components of the foregoing. 1.3 An undivided fifty percent (50%) interest in all of Seller's interest in and to all documents, agreements and contracts relating to the Properties or Lands including, without limitation, the Purchase and Sale Agreement dated November 24, 1997 between the Seller and Amoco Production Company ("Amoco") with respect to any Interests in the Arkoma Basin (the "Amoco Agreement"), leases, operating agreements, gas balancing agreements, oil, gas and condensate purchase and sale agreements, processing, gathering, compression and transportation agreements, joint venture agreements, farmout agreements, farmin agreements, dry hole agreements, bottom hole agreements, acreage contribution agreements, area of mutual interest agreements, easements, permits, salt water disposal agreements, surface agreements, unitization or pooling agreements, warranties, covenants, indemnities and representations from third parties. 1.4 An undivided fifty percent (50%) interest in all of Seller's interest in and to all real, personal and mixed, movable, immovable, tangible and intangible property, and all other fixtures and improvements appurtenant to or used in connection with the Interests or Lands, including, without implied limitation, all wells, fixtures, equipment, claims, rights and causes of action against third parties whether asserted and unasserted or known and unknown. 1.5 An undivided fifty percent (50%) interest in all of Seller's interest and estate in and to or derived under any oil, gas and mineral unitization, pooling and communitization agreements, declarations or orders relating to the Interests or Lands, and the units, pools or communitized areas, if any, created thereby (including, without limitation, all units, pools or communitized areas formed under orders, regulations, rules or other official acts of any federal, state or other governmental agency having or asserting jurisdiction) and all interests in any wells within the units, pools or communitized areas associated with the Interests or Lands. 1.6 An undivided fifty percent (50%) interest in all of Seller's interests in all permits, franchises, easements, rights-of-way, contract rights, intangible rights, inchoate rights, choses in action, rights under warranties made by prior owners of the Interests or Lands, and other third parties, rights accruing under applicable statutes of limitation or prescription and other rights, estates and hereditaments incident or relating to the Interests or Lands, or any of the foregoing items set forth in this description of the Properties. 1.7 Access to and the right to copy all books, land records, geology records, geophysical records and other business records relating to the Interests or the Lands including, without implied limitation, title opinions, abstracts of title, curative documents, division of interest statements, accounting records, joint interest billings, revenue decks and other computerized data, well files, land -2- files, logs, test data, production records, geologic and geophysical records, maps and all other records, materials and files related to the Interests or Lands (the "Records"). 2. Purchase Price. Subject to the adjustments and prorations hereafter described, the total purchase price to be paid by the Purchaser to the Seller for the purchase of the Properties is the sum of Twenty Million Dollars ($20,000,000.00) (the "Purchase Price"). The Purchase Price will be adjusted and paid as follows: 2.1 Cash at Closing. On the Closing Date (as hereafter defined), the Purchaser will pay to the Seller the Purchase Price as adjusted under paragraphs 5.2, 5.3 and 9 of this Agreement in immediately available funds. 2.2 Allocation. Any adjustments to the Purchase Price under paragraphs 5.2, 5.3 or 9 of this Agreement will be deducted from the Purchase Price. The Purchaser will allocate the Purchase Price among the Properties according to sound accounting practices and such allocation will be delivered to the Seller within three (3) days after execution of this Agreement. 3. Representations and Warranties. As an inducement to the Purchaser to enter into this Agreement, the Seller represents and warrants to the Purchaser that as of the date of this Agreement and the Closing Date: 3.1 Organization, Good Standing, Etc. The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power to own the Seller's property and to carry on the Seller's business as now being conducted. The Seller has the power to execute and deliver this Agreement and to consummate the transaction contemplated hereby. The Seller is duly qualified and/or licensed, as may be required, and in good standing in each of the jurisdictions in which the Interests are located. The Seller is not in default under or in violation of any provision of the Seller's certificate of incorporation or bylaws. 3.2 Authority. The Seller has taken all necessary action to authorize the execution, delivery and performance of this Agreement and has adequate power, authority and legal right to enter into, execute, deliver and perform the transactions contemplated by this Agreement. This Agreement is legal, valid and binding with respect to the Seller and is enforceable in accordance with its terms. On execution, delivery and performance of this Agreement in accordance with its terms, the Purchaser will acquire all of the Properties free of all claims, liens, encumbrances and liabilities. 3.3 No Assumption of Obligations. Except as set forth in Schedule "3.3" attached hereto as a part hereof, the execution and consummation of this Agreement by -3- the Purchaser will not obligate the Purchaser with respect to (or result in the assumption by the Purchaser of) any obligation of the Seller arising prior to the Effective 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. 3.4 Absence of Liabilities. Except as set forth in Schedule "3.4" attached hereto as a part hereof to the best of the Seller's knowledge: (a) the Seller has no debt, liability, obligation or commitment, absolute or contingent, known or unknown, relating to or connected with the Properties; (b) neither the Purchaser nor the Properties will be subject to or liable for any claim, debt, liability, lien, encumbrance, obligation, guaranty, commitment on the Closing Date; and (c) any such claims, debts, liabilities, obligations or commitments will be the sole responsibility of the Seller and the Seller hereby agrees to indemnify and hold harmless the Purchaser from all such matters. The Seller has complied and will continue to comply with all applicable federal, state or local statutes, laws and regulations. 3.5 Contracts. The Seller has delivered to the Purchaser 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 provided in Schedule 3.5 attached hereto as a part hereof no such marketing or production sales contracts will in any way prevent or hinder the Purchaser in taking in kind the Purchaser'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 the Purchaser in writing. Except as set forth in Schedule "3.5," to the best of the Seller'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 that have not been disclosed to the Purchaser in writing. 3.6 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, -4- commitment, license, promissory note, conditional sales contract, indenture, mortgage, deed of trust, lease or other agreement, instrument or arrangement to which the Seller is a party or by which the Seller or, to the best of the Seller's knowledge the Properties are bound; (b) violate, conflict or constitute a breach of any statute, regulation or judicial or administrative order, award, judgment or decree to which the Seller is a party or to which the Seller or, to the best of the Seller's knowledge the Properties 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 the Seller, or to the best of the Seller's knowledge, the Properties or the Purchaser. 3.7 Litigation. Except as disclosed in Schedule "3.7" attached hereto as a part hereof, there is to the best of the Seller's knowledge and subject to the Seller's rights under the Amoco Agreement: (a) no action, suit or proceeding pending, threatened or contemplated against the Seller or the Properties; and (b) no proceeding, investigation, charges, audit or inquiry threatened or pending before or by any federal, state, municipal or other governmental court, department, commission, board, bureau, agency or instrumentality which might result in an adverse effect on the Seller or the Properties. The Seller hereby agrees to indemnify and hold harmless the Purchaser with respect to any and all litigation and proceedings including, without limitation, the matters described in Schedule "3.7." 3.8 Title. Except as set forth in Schedule "3.8" attached hereto as a part hereof, the Seller 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 the Seller or any of the Seller's direct or indirect subsidiaries which are located in the Arkoma Basin are described in Schedule "1.1" hereto. The Seller is entitled to receive not less than the "Net Revenue Interest" set forth on Schedule "1.1" of all Hydrocarbons produced, saved and marketed from the Properties without reduction, suspension or termination of such interest throughout the duration of the productive life of such Properties and is in no event obligated to bear any of the costs and expenses related to the maintenance, development or operation (including, without limitation, the costs and expenses of plugging and abandoning any wells and removal and salvage of any equipment and facilities) of the Properties throughout the productive life of the Properties in excess of the "Working Interest" set forth in Schedule "1.1." To the best of the Seller's knowledge, Amoco has been receiving the percentage of the fair market value of all Hydrocarbons produced, saved or used from each of the Properties equal to the Net Revenue Interest designated on Schedule "1.1" for such Property. -5- To the best of the Seller's knowledge, there are no suspended revenues or any basis to suspend revenues from the Properties. To the best of the Seller's knowledge, there does not exist any lien, claim, encumbrance, restriction or other matter which might cause the Purchaser 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 Effective Date equal to the Net Revenue Interest designated on Schedule "1.1." 3.9 Foreign Person. The Seller is not a "foreign person" as that term is defined under the Internal Revenue Code of 1986. 3.10 Broker's or Finder's Fees. The Seller has not incurred any liability, contingent or otherwise, for broker's or finder's fees in respect of this Agreement for which the Purchaser will have any responsibility whatsoever. 3.11 Permits. On the Closing Date, the Seller will have all approvals, authorizations, consents, licenses, orders, franchises, rights, registrations and permits of all governmental agencies, whether federal, state or local, United States or foreign, required to permit the operation of the Seller's business as presently conducted (the "Permits") and each will be in full force and effect and will have been duly and validly issued, except where the absence of which, singly or in the aggregate, would not have a material adverse effect on the Properties. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not result in any revocation, cancellation, suspension or modification of any such Permit except where such revocation, cancellation, suspension or modification would not have a material adverse effect on the Properties. On the Closing Date, there will be no outstanding violation of any of the Permits. 3.12 Compliance with Laws. Except as disclosed in Schedule "3.12," the Seller is not in violation of any applicable law, ordinance, regulation, writ, judgment, decree or order of any court or government or governmental unit in connection with the Properties, the consequences of which singly or in the aggregate would have a material adverse effect on the Seller or the Properties. 3.13 Oil and Gas Leases in Good Standing. Except as disclosed in Schedule "3.13" attached hereto as a part hereof, to the best of the Seller's knowledge all oil and gas leases which are material singly or in the aggregate are in full force and effect, and the Seller is not in default thereunder. 3.14 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 -6- proceeds therefrom have been timely paid when due and are not in arrears. 3.15 Contracts, Consents and Preferential Rights. To the best of the Seller's knowledge, the Seller has described in Schedule "3.15" attached hereto as a part hereof: (a) all partnership, joint venture, farmin/farmout, dry hole, bottom hole, acreage contribution, area 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 the Seller 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. 3.16 Tax Partnerships. None of the Properties is treated for income tax purposes as being owned by a partnership except as disclosed in Schedule "3.16" attached hereto as a part hereof. 3.17 Financial Statements. The Seller has provided to the Purchaser all reserve reports, cash flow and operational information in the Seller's possession relating to the Properties and to the best of the Seller's knowledge since the respective dates of such items no material adverse change has occurred with respect to the Properties. To the best of the Seller's knowledge, the Seller has no liabilities of any kind whatsoever relating to the Properties, whether accrued, contingent or otherwise except as disclosed in Schedule "3.17" attached hereto as a part hereof and trade payables arising in the ordinary course of business. 3.18 Insurance. The Seller will maintain or cause to be maintained through the Closing Date, with financially sound and reputable insurers, insurance to the extent and against such hazards and liabilities and in such types and amounts as is commonly maintained by entities similarly situated. 3.19 Planned Future Commitments. The Seller has not planned or budgeted future expenditure commitments relating to the Properties prior to the Closing Date (drilling of wells, workovers, contract settlements, pipeline projects, production facilities, etc.) in excess of Twenty-Five Thousand Dollars ($25,000.00) in the aggregate which are not disclosed in Schedule "3.19" attached hereto as a part hereof. 3.20 Environmental and Safety Matters. Except as set forth in Schedule "3.20" attached hereto as a part hereof and insofar as it pertains to the Properties: -7- 3.20.1 The Seller 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 the Seller (or by the Purchaser after the Closing Date) with any United States, 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 the Seller 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 the Seller in each case. 3.20.2 The Seller 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 the Seller or operator of any of the lands, facilities, assets and properties owned or formerly owned, operated, leased or used by the Seller 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 the Seller. 3.21 Powers of Attorney. There are no outstanding powers of attorney relating to or affecting any of the Properties. 3.22 Plugging Status. To the best of the Seller's knowledge, all wells on the Properties that have been permanently plugged and abandoned have been so plugged and abandoned in accordance in all material respects with all applicable requirements of each governmental authority having jurisdiction over the Seller and the Properties. 3.23 Equipment. To the best of the Seller's knowledge, the equipment has been installed, maintained and operated by the operator thereof 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 of the Properties. 3.24 Payout and Gas Balancing. To the best of the Seller's knowledge, Schedule "3.24" attached hereto as a part hereof, contains a complete and accurate list of: (a) the status of any "payout" balance as of December 31, 1997, for each of the Properties that is subject to a reversion or other adjustment at some level -8- of cost recovery or payout (or passage of time or other event, other than cessation of production); and (b) all over or under gas imbalances relating to the Properties as of December 31, 1997. 3.25 Affiliate Transactions. There are no transactions affecting any of the Properties between the Seller and any of the Seller's affiliates, except as set forth in Schedule "3.25" attached hereto as a part hereof. 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. 3.26 Intangible Property. To the best of the Seller's knowledge, there are no material trademarks, trade names, patents, service marks, brand names, computer programs, data bases, industrial designs, copyrights or other intangible properties that are necessary for the operation, or continued operation, or for the ownership and operation, or continued ownership and operation, of any of the Properties. 3.27 Full Disclosure. This Agreement, any schedule referenced in or attached to this Agreement, any document furnished to the Purchaser under this Agreement and any certification furnished to the Purchaser 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 the Purchaser. 4. Purchaser's Representations and Warranties. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma and has all requisite corporate power and authority to own, lease, and operate its properties and to conduct its business as now being conducted. The Purchaser has full corporate power and authority to execute, deliver and perform this Agreement. 5. Covenants. The parties agree to perform the following prior to the Closing Date: 5.1 Access to Information. During the period commencing on the date of this Agreement and ending on the Closing Date, the Seller will afford the Purchaser and the Purchaser's authorized representatives full access during normal business hours to the properties, books, records, employees, accountants and lawyers of the Seller to make such investigation as the Purchaser desires regarding the Properties and furnish such financial, operating data, information and responses as the Purchaser might reasonably request with respect to the -9- Properties. 5.2 Inspection. Prior to the Closing Date the Purchaser will conduct such investigation and inspection with respect to the Properties as the Purchaser deems appropriate. If the Purchaser determines that by comparing the Reserve Report to more accurate title, net revenue and net working interests information, the amount of reserves attributable to the Properties is less than ninety-five percent (95%) of the amount set forth in the Reserve Report, the Purchase Price will be adjusted by an amount equal to the amount by which such discrepancies exceed five percent (5%) of the Purchase Price. 5.3 Title Adjustments. In addition to any other remedies available to the Purchaser, if a casualty or title defect exists with respect to one (1) or more of the Properties which the Seller refuses to or cannot cure on or before August 1, 1998, then the Purchase Price will be adjusted downward as provided herein with such adjustment being accounted for in the post closing allocations under paragraph 9 of this Agreement. If the casualty or title defect is an encumbrance or charge which is undisputed and liquidated the decrease in the Purchase Price will be the amount necessary to satisfy such charge and remove the title defect. In all other cases, the amount of the decrease in the Purchase Price will be the amount determined by multiplying (a) the percentage of the specific Property affected by the casualty or title defect by (b) the allocation of the Purchase Price to that specific Property. As used in this Agreement, "title defect" means: (a) the Seller's title at the Effective Date or at the Closing Date is subject to a mortgage, deed of trust, lien or security interest; (b) any of the interests in the Properties are subject to being reduced by virtue of the exercise by a third party of any preferential purchase rights, reversionary or back-in interest, farmout of other than wellbore rights or other similar rights; or (c) any claim, encumbrance, defect or other matter which: (i) would cause the Purchaser to receive (free and clear of all royalties, overriding royalties, net profits interests or other burdens on or measured by production of hydrocarbons and associated gases) less than one hundred percent (100%) of the "Net Revenue Interests" set forth in Schedule "1.1" of all oil, gas, sulfur and associated liquid and gaseous hydrocarbons and other associated gases produced, saved and marketed from the Properties for the productive life of such Properties; or (ii) would obligate the Purchaser to bear costs and expenses relating to the maintenance, development or operation of any of the Properties in an amount greater than the "Working Interests" set forth in Schedule "1.1" during the productive life of such Property. 5.4 Conduct of Businesses. Prior to the Closing Date, the Seller will operate the Properties in a businesslike manner in accordance with the Seller's prior practices and will use the Seller's best efforts to maintain and preserve the Properties. In addition, unless the Purchaser otherwise consents in writing (a) -10- the Seller has not and will not transfer, sell, mortgage, pledge, encumber or dispose of any of the Properties; or (b) make, permit any amendment or permit the termination of any material contract, agreement or commitment relating to the Properties. The Seller and the Seller's affiliates, advisors or representatives will not, directly or indirectly, encourage, initiate, engage in discussions or negotiations with, or provide any information to, any corporation, partnership, person or other entity or group concerning the sale of the Properties. 5.5 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 Seller as are necessary for the consummation of the transactions contemplated by this Agreement. However, no contract will be amended to increase the amount payable thereunder and no burden to the Seller or the Purchaser will be increased to obtain any consent, approval or authorization. 5.6 Conditions. The Seller and the Purchaser will use their respective best efforts to cause the conditions in paragraphs 6 and 7 to be satisfied. 5.7 Capital Expenditures. The Seller will not incur or make any commitment to incur any costs or expenses relating to the Properties in excess of Twenty-Five Thousand Dollars ($25,000.00) unless the Purchaser otherwise consents thereto in writing, which consent will not be unreasonably withheld. 6. Purchaser's Conditions Precedent. The obligation of the Purchaser to consummate the transactions contemplated by this Agreement is subject to the satisfaction or waiver (subject to applicable law) on or before the Closing Date of each of the following conditions: 6.1 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; 6.2 No action will have been commenced or threatened against the Seller, Purchaser or any of their respective affiliates, associates, officers or directors seeking damages arising from, or to prevent or challenge the transactions contemplated by this Agreement; 6.3 All representations and warranties of the Seller contained herein will be true and correct in all material respects; 6.4 The Seller will have performed or satisfied as of the Closing Date all obligations, covenants, agreements and conditions contained in this Agreement to be performed or complied with by the Seller; -11- 6.5 All actions, proceedings, instruments and documents required to carry out the transactions contemplated hereby will have been satisfactory to the Purchaser's counsel, including, without limitation, corporate resolutions authorizing the transactions contemplated hereby, and releases of any and all liens, claims, security interests or other encumbrances affecting any of the Properties, and the Seller will have delivered such additional certificates and other documents as the Purchaser reasonably requests including, without limitation, such certificates of the Seller dated as of the Closing Date evidencing compliance with the conditions set forth in this paragraph 6; 6.6 The Purchaser shall have received and reviewed all Schedules to be provided by the Seller and such Schedules shall not be materially different than anticipated by the Purchaser as determined in the Purchaser's reasonable judgment; 6.7 All of the transactions contemplated by the Sale and Participation Agreement in the form of Exhibit "6.7" (the "Participation Agreement") and the Securities Purchase Agreement of even date herewith between the Seller and the Purchaser (the "Related Agreements") shall have been consummated on the terms and conditions set forth in the Related Agreements; 6.8 The Seller shall have obtained and delivered to the Purchaser consents to the transactions contemplated by this Agreement from the parties whose consent is required by contract or otherwise; 6.9 There shall not have occurred since December 31, 1997 any material loss or damage to any of the Properties; 6.10 The Purchaser shall have received from legal counsel to the Purchaser an opinion dated the Closing Date, in form and substance satisfactory to the Purchaser's counsel, to the effect that: (a) the Seller is a corporation duly incorporated and validly existing and in good standing under the laws of the State of Oklahoma; (b) the Seller has the corporate power to carry on its business as not being conducted; (c) the Seller has the requisite corporate power and authority and has taken all requisite corporate action necessary to enable the Seller to execute and deliver this Agreement and to consummate the transactions contemplated hereby; and (d) this Agreement has been duly and validly executed and delivered by the Seller and is enforceable against the Seller in accordance with its terms; and 6.11 As of the Closing Date, the Seller shall not have sold, assigned, transferred or otherwise conveyed any of the Interests to any person except as disclosed to and approved by the Purchaser. -12- 7. Seller's Conditions Precedent. The obligation of the Seller to consummate the transactions contemplated by this Agreement is subject to the satisfaction, on or before the Closing Date of each of the following conditions, any or all of which may be waived in whole or in part: 7.1 No preliminary or permanent injunction or other order will have been issued by any court of competent jurisdiction or any governmental or regulatory body preventing consummation of the transactions contemplated by this Agreement; 7.2 No action will have been commenced or threatened against the Seller, the Purchaser or any of their respective affiliates, associates, officers or directors seeking damages arising from, to prevent or to challenge the transactions contemplated by this Agreement; 7.3 All representations and warranties of the Purchaser contained herein will be true and correct in all material respects; 7.4 The Purchaser will have performed in all material respects all obligations, agreements and conditions contained in this Agreement to be performed or complied with by the Purchaser; and 7.5 The Seller will have received such certificates of the Purchaser, dated the Closing Date, signed by officers of the Purchaser and others to evidence compliance with the conditions set forth in this paragraph 7. 7.6 All of the transactions contemplated by the Related Agreements shall have been consummated on the terms and conditions set forth in the Related Agreements. 8. The Closing. Unless extended in writing executed by the Seller and the Purchaser, the transactions contemplated by this Agreement will be consummated at 10:00 a.m. local time in the offices of the Purchaser on or before April 27, 1998 (the "Closing Date"). 8.1 Purchaser's Deliveries. On the Closing Date, the Purchaser will deliver or cause to be delivered to the Seller the following items (all documents will be duly executed and acknowledged where required): 8.1.1 Payment. The portion of the Purchase Price due under paragraph 2 as adjusted under paragraphs 5.3 and 9 of this Agreement; 8.1.2 Evidence of Authority. Such corporate resolutions, certificates of good standing, incumbency certificates and other evidence of authority with respect to the Purchaser as might be reasonably requested by the Seller; -13- 8.1.3 Closing Memorandum. A memorandum setting forth the items delivered and accounting for the payments made on the Closing Date; and 8.1.4 Additional Documents. Such additional documents as might be reasonably requested by the Seller to consummate this Agreement. 8.2 Seller's Deliveries. On the Closing Date, the Seller will deliver or cause to be delivered to the Purchaser the following items (all documents will be duly executed and acknowledged where required): 8.2.1 Assignments. Assignments and conveyances in substantially the form of Exhibit "8.2.1" attached hereto as a part hereof conveying to the Purchaser all of the Seller's right, title and interest in and to the Properties; 8.2.2 Releases. Releases and termination statements with respect to any and all liens, claims, security interests and other encumbrances covering any of the Properties; 8.2.3 Notices. Letters in lieu of transfer orders addressed to all purchasers of production from the Properties in the form of Exhibit "8.2.3A" attached hereto as a part hereof and notices of change of operations and ballots (where applicable) in the form of Exhibit "8.2.3B" attached hereto as a part hereof. 8.2.4 Evidence of Authority. Such corporate resolutions, certificates of good standing, incumbency certificates and other evidence of authority with respect to the Seller as might be reasonably requested by the Purchaser; 8.2.5 Closing Memorandum. A memorandum setting forth the items delivered and accounting for the payments made on the Closing Date; and 8.2.6 Additional Documents. The Records and such additional documents as might be reasonably requested by the Purchaser to consummate this Agreement. 8.3 Costs. The Seller will pay the following closing costs: (a) the Seller'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 the Purchaser; and (c) any other charge imposed for the transfer of any item -14- comprising the Properties. The Purchaser will pay only the following closing costs: (y) the Purchaser's attorneys' fees; and (z) the cost of recording the transfer documents. 9. Adjustments. All receipts and disbursements with respect to the Properties will be prorated as of the Effective Date as follows: (a) gross proceeds from sales of Hydrocarbons prior to the Effective Date attributable to the Properties will be the property of and payable to the Seller; (b) gross proceeds from sales of Hydrocarbons after the Effective Date attributable to the Properties will be the property of and payable to the Purchaser; (c) all costs, expenses and expenditures attributed directly to the Properties and arising prior to the Effective Date will be the obligation of the Seller; (d) all costs, expenses and expenditures attributed directly to the Properties and arising after the Effective Date will be the obligation of the Purchaser; and (e) all real and personal property ad valorem taxes and special assessments for the Properties payable for any taxable period prior to the calendar year in which the Closing Date occurs will be the obligation of the Seller. At least ten (10) days prior to the Closing Date the Seller will provide the Purchaser with an itemized statement of all preferential purchase rights which have been exercised by third parties. All exercised preferential purchase rights will be treated as an adjustment to the Purchase Price on the Closing Date. On or before August 1, 1998, the Purchaser and the Seller will account for and agree on all of the foregoing adjustments and any adjustments required under paragraph 5.3 of this Agreement and the net adjustment will be paid to the appropriate party on or before the fifth (5th) day thereafter. 10. Operations. Subject to the rights of unaffiliated third parties, the Seller and the Purchaser hereby agree that with respect to their respective interests in the existing wells in the Arkoma Basin: (a) the Purchaser will be appointed the operator on all wells now or hereafter located in townships 4N-19E, 4N-20E, 5N-19E and 5N-20E, except for wells located in Sections 1-7, 5N-19E; and (b) the Seller will remain the operator of all wells located in Sections 1-7, 5N-19E and the remainder of the Arkoma Basin. Township references in this paragraph are to the Indian Meridian, State of Oklahoma. The operational rights and obligations with respect to future development in the Arkoma Basin will be determined in accordance with the Participation Agreement, including, without limitation the provisions of paragraph 10 of the Participation Agreement. 11. Indemnification. The Seller and the Purchaser hereby agree to indemnify each other as follows: 11.1 Seller Indemnity. The Seller agrees to pay, defend, indemnify, reimburse and hold harmless the Purchaser and its directors, officers, agents and employees (the "Purchaser Indemnified Parties") for, from and against any loss, damage, claim, liability, debt, obligation or expense (including interest, reasonable legal fees, and expenses of litigation) incurred or suffered or paid by, imposed upon, resulting to or threatened against any of the Purchaser Indemnified Parties or the Properties which directly or indirectly results from, arises out of or in connection with, is based upon, or exists by reason of: (a) the execution, -15- delivery, validity and enforceability of this Agreement; (b) the performance of this Agreement by the Seller; (c) the Purchaser not obtaining one hundred percent (100%) ownership of the interest agreed to be conveyed in the Properties; (d) any misrepresentation of facts relating to the Seller or the Properties (whether contained in this Agreement or any other document delivered or required to be delivered pursuant to this Agreement) or any other representation or warranty made by the Seller in this Agreement; (e) the existence of any facts or circumstances which constitute a breach, violation or inaccuracy of, incorrectness in, or conflict with any representation or warranty by Seller relating to the Properties; (f) the litigation described in Schedule "3.7" and any other claims or liabilities relating to the Properties arising prior to the Effective Date; or (g) the ownership or operation of the Properties prior to the Effective Date or any breach or default in performance by the Seller of any covenant or obligation set forth in this Agreement, the Related Agreements or any related document. 11.2 Purchaser Indemnity. The Purchaser agrees to pay, defend, indemnify, reimburse and hold harmless the Seller and its directors, officers, agents, and employees (the "Seller Indemnified Parties") for, from and against any loss, damage, claim, liability, debt, obligation or expense (including interest, reasonable legal fees, and expenses of litigation) incurred or suffered or paid by, imposed upon, resulting to or threatened against any of the Seller Indemnified Parties which directly or indirectly results from, arises out of or in connection with, is based upon or exists by reason of: (a) the performance of this Agreement by the Purchaser; (b) any misrepresentation of facts relating to the Purchaser (whether contained in this Agreement or any other document delivered or required to be delivered pursuant to this Agreement) or any other representation or warranty made by the Purchaser in this Agreement; or (c) any claims or liabilities relating to the Properties arising after the Effective Date, provided, however, any such claims and liabilities arising prior to the Closing Date which are outside the ordinary course of ownership and operation of the Properties shall have been disclosed to the Purchaser and subject to adjustment under paragraph 5.3 of this Agreement. 11.3 Indemnification Procedure. If any party hereto discovers or otherwise becomes aware of an indemnification claim arising under this Agreement, such indemnified party will give written notice to the indemnifying party, specifying such claim, and may thereafter exercise any remedies available to such party under this Agreement; provided, however, that the failure of any indemnified party to give notice as provided herein will not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. Further, promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be -16- made against any indemnifying party, the indemnified party will give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein will not relieve the indemnifying party of any obligations hereunder, to the extent the indemnifying party is not materially prejudiced thereby. 11.4 Defense. If any such action is brought against an indemnified party, the indemnifying party will be entitled to participate in and to assume the defense thereof to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after such notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof unless the indemnifying party has failed to assume the defense of such claim and to employ counsel reasonably satisfactory to such indemnified person. Notwithstanding any of the foregoing to the contrary, the indemnified party will be entitled to select its own counsel and assume the defense of any action brought against it if the indemnifying party fails to select counsel reasonably satisfactory to the indemnified party, the expenses of such defense is to be paid by the indemnifying party. No indemnifying party shall consent to entry of any judgment or enter into any settlement with respect to a claim without the consent of the indemnified party, which consent shall not be unreasonably withheld, or unless such judgment or settlement includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability with respect to such claim. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action, the defense of which has been assumed by an indemnifying party, without the consent of such indemnifying party, which consent shall not be unreasonably withheld. 11.5 Interest. In addition to the foregoing, the indemnifying party will pay to the indemnified party interest on the amount of any loss, damage, claim, liability, debt, obligation or expense the payment of which is not paid within ten (10) days after notification by the indemnified party by the indemnifying party, such interest to be at a floating rate of interest equal to the prime rate published from time to time in The Wall Street Journal. The remedies provided by this paragraph 11 are in addition to, and not in lieu of, such other remedies as may be available under applicable laws. Claims for indemnification will be paid by the indemnifying party within ten (10) days after notification thereof. 12. Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned by: (a) mutual consent of the Seller and the Purchaser; (b) the Purchaser, if the Purchaser is not in default and the conditions set forth in paragraph 6 of this Agreement have not been satisfied by the Seller or waived by the Purchaser; or (c) the Seller, if -17- the Seller is not in default, and the conditions precedent set forth in paragraph 7 of this Agreement have not been satisfied or waived by the Seller. In the event of termination, written notice thereof will be given to the other party or parties specifying the provision pursuant to which such termination is made. On termination pursuant to this paragraph 12, this Agreement will become void and have no effect, and there will be no liability hereunder on the part of the Purchaser or the Seller or any of their respective officers, directors, employees, agents, stockholders or principals. 13. Default. If a party fails to perform any obligation contained in this Agreement, the party claiming default will serve written notice to the other party specifying the nature of such default and demanding performance. If the Seller fails to cure such default within ten (10) days after receipt thereof, the Purchaser will have the option to waive such default, to demand specific performance, to exercise any other remedy available at law or in equity or to terminate this Agreement. If the Purchaser fails to cure such default within ten (10) days after receipt thereof, the Seller will have the option to waive such default, terminate this Agreement or exercise any other remedy available at law or in equity. The Purchaser is entitled to enforce this Agreement by specific performance without the necessity of demonstrating inadequacy of damages or irreparable harm. 14. Miscellaneous. It is further agreed as follows: 14.1 Time. Time is of the essence of this Agreement. 14.2 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 the Purchaser: Chesapeake Gothic Corp. 6100 North Western Oklahoma City, Oklahoma 73118 Attn: Mr. Aubrey K. McClendon Telephone: (405) 848-8000 Fax: (405) 848-8588 Chesapeake Acquisition Corporation 6100 North Western Oklahoma City, Oklahoma 73118 Attn: Mr. Aubrey K. McClendon Telephone: (405) 848-8000 -18- Fax: (405) 848-8588 With a copy to: Self, Giddens & Lees, Inc. 2725 Oklahoma Tower 210 Park Avenue Oklahoma City, OK 73102 Attn: C. Ray Lees, Esquire Telephone: (405) 232-3001 Fax: (405) 232-5553 To the Seller: Gothic Energy Corporation 5727 South Lewis Avenue Tulsa, Oklahoma 74105-7148 Attn: Michael K. Paulk Telephone: (918) 749-5666 Fax: (918) 749-5882 With a copy to: Pray, Walker, Jackman, Williamson & Marlar, A P.C. Attn: Ira L. Edwards, Jr., Esquire 100 W. 5th Street, Suite 900 Tulsa, Oklahoma 74103-4218 Telephone: (918) 581-5500 Fax: (918) 581-5599 14.3 Representations and Warranties. The respective representations and warranties of the Seller and the Purchaser contained in this Agreement, any certificate or any other document delivered prior to or on the Closing Date will not be deemed waived or otherwise affected by any investigation made by any party hereto. Each and every such representation and warranty will survive the Closing Date and will not be terminated or extinguished. This paragraph 14.3 will have no effect on any other obligation of the parties hereto, whether to be performed before or after the Closing Date. 14.4 Cooperation. Prior to and at all times following the termination of this Agreement 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 any party to this Agreement to assure that the benefits of this Agreement are realized by the parties. 14.5 Press Release. The Purchaser and the Seller will each prepare and issue their own press releases relating to this Agreement and the sale of the Properties, however, each party will have the right to approve the other party's proposed press release. -19- 14.6 Choice of Law. This Agreement will be interpreted, construed and enforced in accordance with the laws of the State of Oklahoma. 14.7 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. 14.8 Entire Agreement. This Agreement, the Related Agreements and any document executed in connection herewith or therewith on or after the date of this Agreement constitute the entire agreement between the parties with respect to the subject matters hereof and thereof. 14.9 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 party to this Agreement. 14.10 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. 14.11 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 and to be legal, valid and enforceable. 14.12 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. 14.13 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. 14.14 No Third Party Beneficiaries. This Agreement has been and is made solely for the benefit of and shall be binding upon the parties hereto and their respective successors and permitted assigns and no other person will acquire or have any -20- rights under or by virtue of this Agreement. 14.15 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original and which together will constitute one and the same instrument. IN WITNESS WHEREOF, the Seller and the Purchaser have executed this Agreement on the date to be effective on the Effective Date. CHESAPEAKE GOTHIC CORP., an Oklahoma corporation By ------------------ Aubrey K. McClendon, President CHESAPEAKE ACQUISITION CORPORATION, an Oklahoma corporation By ------------------ Aubrey K. McClendon, President (the "Purchaser") -21- GOTHIC ENERGY CORPORATION, a Delaware corporation By ------------------ Michael K. Paulk, President (the "Seller") -22- -----END PRIVACY-ENHANCED MESSAGE-----