-----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, K4HJIbbe0/iwe1B93FW7WcQsDsEERFMY6iu5ixUZtsy9jLJPymxen+Bttu6Thhsf LPt7EBrrvG86MmAlISmFHg== 0000930661-96-001660.txt : 19961120 0000930661-96-001660.hdr.sgml : 19961120 ACCESSION NUMBER: 0000930661-96-001660 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961118 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOTHIC ENERGY CORP CENTRAL INDEX KEY: 0000878482 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 222663839 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-19753 FILM NUMBER: 96668293 BUSINESS ADDRESS: STREET 1: 5727 S LEWIS AVE STE 700 STREET 2: P O BOX 186 CITY: TULSARD STATE: OK ZIP: 74105 BUSINESS PHONE: 9187495666 FORMER COMPANY: FORMER CONFORMED NAME: TNC MEDIA INC DATE OF NAME CHANGE: 19930328 10QSB 1 FORM 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period from ________________ to _________________. Commission file number 0-19753 --------------------------------------------------------------------- GOTHIC ENERGY CORPORATION (Exact name of registrant as specified in its charter) OKLAHOMA 22-2663839 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 5727 SOUTH LEWIS, #700, TULSA, OKLAHOMA 74105-7148 (Address of principal executive offices) 918-749-5666 (Registrant's telephone number, including area code) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --------- --------- APPLICABLE ONLY TO CORPORATE ISSUERS: As of November 11, 1996, 12,381,857 shares of the Registrant's Common Stock, $.01 par value, were outstanding. GOTHIC ENERGY CORPORATION TABLE OF CONTENTS
PAGE PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS Consolidated Unaudited Balance Sheets September 30, 1996 and December 31, 1995 3 Consolidated Unaudited Statements of Operations Nine Months ended September 30, 1996 and 1995 4 Consolidated Unaudited Statements of Operations Three Months ended September 30, 1996 and 1995 5 Consolidated Unaudited Statements of Cash Flows Nine Months ended September 30, 1996 and 1995 6 Notes to Unaudited Consolidated Financial Statements 7 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS Management's Discussion and Analysis or Plan of Operations 11 PART II - OTHER INFORMATION PAGE Item 1 - Legal Proceedings 15 Item 2 - Changes in Securities 15 Item 3 - Defaults Upon Senior Securities 15 Item 4 - Submission of Matters to a Vote of Security Holders 15 Item 5 - Other Information 16 Item 6 - Exhibits and Reports on Form 8-K 17 Signatures 18
2 GOTHIC ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ (UNAUDITED) ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 471,419 $ 157,559 Oil and gas receivable 2,377,577 295,344 Receivable from officers and employees 33,607 16,459 Other 34,531 74,697 ------------ ------------ TOTAL CURRENT ASSETS 2,917,134 544,059 PROPERTY AND EQUIPMENT: Oil and gas properties on full cost method 35,593,890 8,640,480 Equipment, furniture and fixtures 308,715 135,807 Accumulated depreciation and depletion (3,051,414) (780,414) ------------ ------------ PROPERTY AND EQUIPMENT, NET 32,851,191 7,995,873 NOTES RECEIVABLE: Affiliate - 123,000 Other 61,648 61,648 Investment - 200,000 Other assets, net 1,617,704 377,541 ------------ ------------ TOTAL ASSETS $ 37,447,677 $ 9,302,121 ============ ============ LIABILITIES AND STOCKHOLDERS'EQUITY ----------------------------------- CURRENT LIABILITIES: Accounts payable trade $ 1,128,075 $ 1,019,543 Revenues payable 1,793,780 94,841 Accrued liabilities 219,420 516,176 Notes payable 25,000 2,900,000 Current portion long-term debt 5,068,202 2,220,000 ------------ ------------ TOTAL CURRENT LIABILITIES 8,234,477 6,750,560 LONG-TERM DEBT 13,672,436 3,025,573 GAS IMBALANCE LIABILITY 1,186,273 - STOCKHOLDERS' EQUITY: Preferred stock, par value $.05, authorized 500,000 shares; issued and outstanding 5,540 shares 277 - Common stock, par value $.01, authorized 100,000,000 shares; issued and outstanding 12,381,857 and 5,501,785 shares 123,819 55,018 Additional paid in capital 32,530,560 13,965,236 Accumulated deficit (18,300,165) (14,494,266) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 14,354,491 (474,012) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 37,447,677 $ 9,302,121 ============ ============
See accompanying notes 3 GOTHIC ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1996 1995 ---------- ----------- REVENUES: Oil and gas sales $ 7,270,252 $ 1,221,664 Well operations 754,160 38,563 Interest and other income 48,705 1,139 ----------- ----------- TOTAL REVENUES 8,073,117 1,261,366 COSTS AND EXPENSES: Lease operating expenses 3,481,114 728,961 Depletion, depreciation and 2,318,975 422,550 amortization Selling, general and administrative 1,250,484 719,383 expense Provision for impairment of oil and 5,050,000 486,000 gas properties Provision for impairment of investment - 802,287 Loss on termination of option - 1,850,000 ----------- ----------- Operating loss (4,027,456) (3,747,815) Interest expense 1,061,017 1,282,680 ----------- ----------- LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM $(5,088,473) $(5,030,495) INCOME TAX BENEFIT 2,992,547 - ----------- ----------- LOSS BEFORE EXTRAORDINARY ITEM (2,095,926) (5,030,495) LOSS ON EARLY EXTINGUISHMENT OF DEBT 1,432,973 - ----------- ----------- NET LOSS $(3,528,899) $(5,030,495) =========== =========== PREFERRED DIVIDEND 277,000 - ----------- ----------- NET LOSS AVAILABLE FOR COMMON SHARES $(3,805,899) $(5,030,495) =========== =========== LOSS PER COMMON SHARE $ (.33) $ (1.25) =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 11,443,994 4,009,315 =========== ===========
See accompanying notes 4 GOTHIC ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, -------------------------- 1996 1995 ----------- ----------- REVENUES: Oil and gas sales $ 2,927,126 $ 734,630 Well operations 270,295 26,459 Interest and other income 17,063 (6,156) ----------- ----------- TOTAL REVENUES 3,214,484 754,933 COSTS AND EXPENSES: Lease operating expenses 1,421,379 453,890 Depletion, depreciation and amortization 732,193 246,650 Selling, general and administrative expense 432,160 261,962 Provision for impairment of investment - 802,287 Loss on termination of option - 1,850,000 ----------- ----------- Operating income (loss) 628,752 (2,859,856) Interest expense 412,756 417,915 ----------- ----------- NET INCOME (LOSS) $ 215,996 $(3,277,771) PREFERRED DIVIDEND 103,875 - ----------- ----------- NET INCOME (LOSS) AVAILABLE FOR COMMON SHARES $ 112,121 $(3,277,771) =========== =========== INCOME (LOSS) PER COMMON SHARE $ 0.01 $ (0.63) =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 12,353,190 5,163,651 =========== ===========
See accompanying notes 5 GOTHIC ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, --------------------------- 1996 1995 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,528,899) $ (5,030,495) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Depreciation and amortization 2,318,975 422,550 Amortization of discount and loan costs - 919,285 Provision for impairment of oil and gas properties 5,050,000 486,000 Provision for impairment of investment - 802,287 Loss on termination of option - 1,850,000 Deferred income tax benefit (2,992,547) - Loss on early extinguishment of debt 1,432,973 - CHANGES IN ASSETS AND LIABILITIES: Increase in accounts receivable (899,853) (243,848) Decrease (increase) in other current assets 57,226 (38,365) Increase in accounts and revenues payable 500,878 573,033 Increase (decrease) in accrued liabilities (754,667) 239,070 Decrease in other assets 226,555 - ------------ ------------ NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,410,641 (20,483) NET CASH USED BY INVESTING ACTIVITIES: Proceeds from sale of investment 200,000 - Proceeds from collection on note receivable 123,000 - Proceeds from sale of property 991,507 306,318 Purchase of property and equipment (11,552,620) (10,589,675) Property development (676,216) (368,753) Acquisition of business, net of cash acquired (17,592,973) - ------------ ------------ NET CASH USED BY INVESTING ACTIVITIES (28,507,302) (10,652,110) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on short-term debt (1,560,000) (150,000) Proceeds of short-term debt - 2,000,000 Payments on long-term debt (8,768,135) (614,366) Proceeds of long-term debt 21,022,395 7,194,654 Proceeds from sale of common stock, net 13,141,368 1,777,552 Proceeds from sale of preferred stock, net 3,997,430 - Payment of Dividends (173,125) - Other (249,412) (198,432) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 27,410,521 10,009,408 NET CHANGE IN CASH AND CASH EQUIVALENTS 313,860 (663,185) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 157,559 824,978 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 471,419 $ 161,793 ============ ============
See accompanying notes 6 GOTHIC ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. GENERAL AND ACCOUNTING POLICIES BUSINESS - The consolidated financial statements include the accounts of Gothic Energy Corporation, (the "Company"), and its subsidiaries, Gothic Energy of Texas, Inc. ("Gothic Texas"), since its inception in 1995 and Buttonwood Energy Corporation and its subsidiaries Buttonwood Petroleum, Inc. and Dakota Services, Inc. ("Buttonwood") since their acquisition on January 30, 1996. Since November 1994, the Company has been primarily engaged in the business of acquiring, developing and exploiting oil and gas reserves. Preparation of Financial Statements - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The December 31, 1995 consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by generally accepted accounting principles. The condensed financial statements should be read in conjunction with the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995. In the opinion of management of the Company, the accompanying financial statements contain all adjustments, none of which were other than normal recurring accruals, necessary to present fairly the financial position of the Company as of September 30, 1996, and the results of its operations and cash flows for the periods ended September 30, 1996 and 1995. The results of operations for the periods represented are not necessarily indicative of the results of operations to be expected for the full year. NOTE 2. OIL AND GAS PROPERTY ACQUISITIONS VARIOUS WORKING INTEREST ACQUISITIONS- On August 5, 1996 the Company completed the acquisition, from various sellers, of working interest in approximately 120 wells in the Anadarko Basin of Western Oklahoma, and the Arkoma Basin of Eastern Oklahoma and Arkansas. The Company currently operates 70 of the wells in which the interests were acquired. The purchase price was financed through an increase in the amount of borrowings under the Company's Loan Agreement dated January 19, 1996 with Bank One, Texas, N.A. of $2,792,200, and from the Company's working capital. COMSTOCK ACQUISITION - On May 16, 1996 the Company completed the acquisition, effective as of January 1, 1996, from Comstock Oil and Gas, Inc. and Comstock Offshore Energy, Inc. ("Comstock"), of various working interests in 145 producing oil and gas properties. The Company operates 70 of the wells. The purchase price for the properties acquired was $6,600,000, subject to certain post-closing adjustments which reduced the amount paid to $6,430,195. Substantially all of the properties acquired are located in the Anadarko Basin of western Oklahoma and the Arkoma Basin of eastern Oklahoma and Arkansas. The purchase was financed through an increase in the amount of borrowings under the Company's Loan Agreement dated January 19, 1996 with Bank One, Texas, N.A. STRATUM OVERRIDE ACQUISITION - On May 16, 1996 the Company completed the acquisition of the Stratum Group, L.L.C. ("Stratum") 7% overriding royalty interests in the Company's Johnson Ranch wells. The purchase price for the interests acquired was $800,000. The purchase price was financed through an increase in the Company's borrowing facility at Bank One, Texas, N.A. and from the Company's working capital. 7 GOTHIC ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) BUTTONWOOD ACQUISITION - On January 30, 1996 the Company completed the acquisition of Buttonwood Energy Corporation (the "Buttonwood Acquisition"), at a price of $17,912,500, net of a $1,000,000 deposit paid in 1995 and charged to expense. The aggregate purchase price of $18,008,712 including acquisition costs of $389,212, was allocated to the assets acquired and liabilities assumed as follows: Current assets $ 1,632,327 Property and equipment 20,784,016 Other assets 1,435,500 Current liabilities (1,660,628) Gas imbalance (1,189,956) Deferred income taxes (2,992,547) ------------ Aggregate purchase price 18,008,712 Less: Cash acquired (415,739) ------------ Net cash paid $ 17,592,973 ============ The Buttonwood Acquisition was financed with proceeds from a public offering of the Company's common stock and preferred stock, a bridge financing and the establishment of a credit facility with Bank One, Texas. The public offering and the preferred stock financing, generated net proceeds of $17,216,000. The remaining purchase price was paid out of the proceeds from the Bank One, Texas Credit Facility. The acquisition was accounted for under the purchase method and, accordingly, results of operations of the acquired operations are included in the Company's results of operations since the date of acquisition. NOTE 3. FINANCING ACTIVITIES BANK ONE LOAN - Effective January 30, 1996, the Company entered into an $11 million revolving credit facility with Bank One Texas. The proceeds of the borrowing were used to finance a portion of the purchase price of the Buttonwood Acquisition , and to repay outstanding indebtedness to Stratum Group, L.L.C. ("Stratum"). On May 16, 1996 the revolving credit facility was increased to $17.7 million. The proceeds from this increase were used to finance the purchase price of the Comstock and Stratum acquisitions (See Note 2). Of the increase $669,895 was part of a one-time $1 million Special Advance which must be repaid in full prior to November 1, 1996 and bears interest at a rate of 5% over the bank's base rate. The Company anticipates repaying the special advance out of excess working capital and through the sale of marginal properties. The remaining increase was granted under the original terms of the credit facility. On July 31, 1996 the revolving credit facility was increased to $19.3 million. The proceeds from this increase were used to finance the purchase of various working interest in some 120 wells (See Note 2). The total amount outstanding on the Bank One Loan was $18,726,795 at September 30, 1996. The terms of the Bank One Loan provide for principal reduction payments at the rate of $290,000 per month, plus interest with all outstanding principal and interest due and payable on January 30, 1999. Interest is payable at the option of the Company, either at the rate of 1% over Bank One's base rate or up to 3.75% (based on the principal balance outstanding), over the rate for borrowed dollars by the lending bank in the London Interbank Market. The indebtedness is collateralized by first liens on all of the Company's oil and gas properties, including those acquired from Buttonwood and Comstock. The loan agreement relating to the credit facility includes various affirmative and negative covenants including, among others, the requirements that the Company maintain certain ratios of current assets to current liabilities, and debt service coverage. The loan agreement also established an amount of minimum tangible net worth and places a limitation on annual selling, general and administrative expenses. Material breaches of these or other covenants which are not cured or waived could result in this indebtedness becoming immediately due and payable and empowering the lender to foreclose against the collateral for the loan. At September 30, 1996, the Company was not in compliance with its secured bank loan agreement requiring a 1:1 ratio of current assets to current liabilities. The Company has obtained a waiver from the bank in regard to this non compliance. 8 GOTHIC ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) STRATUM LOAN - On June 2, 1995, Gothic Texas entered into an agreement with Stratum in which Stratum agreed to loan Gothic Texas a maximum amount of $8,131,500, of which $6,756,500 was drawn and used to complete the Johnson Ranch Acquisition. At January 30, 1996 the amount outstanding was $6,575,687. On that date the Company, with proceeds from its new credit facility, paid Stratum in full and terminated its loan agreement with them. This transaction resulted in a loss on extinguishment of debt of $1,432,973. Effective January 30, 1996 Quest Capital Corporation ("Quest"), converted $1,290,000 of its $1,850,000 note into 1,290 shares of the Company's 7 1/2% Cumulative Convertible Preferred Stock. The remaining $560,000 of indebtedness and $265,000 of accrued interest and other amounts due Quest were converted into a subordinated note in the principal amount of $825,000 which was paid in full by the Company on March 13, 1996. BRIDGE FINANCING - A $1,000,000 note owing to Quest, Epoch Capital Corporation and another lender , along with accrued interest, was paid in full, on January 30, 1996 at the closing of the public offering by the Company. PUBLIC OFFERING - During the quarter ended March 31, 1996, the Company completed a public offering of 2,545,000 Units at a price of $6.00 per Unit. Each Unit consisted of three shares of the Company's $.01 par value common stock and three redeemable common stock purchase warrants, each exercisable for one share of common stock at $2.40 per share. The offering netted the Company approximately $12,970,000, which, together with the proceeds from the credit facility and preferred stock financing, was applied to the purchase of Buttonwood and the repayment of indebtedness. PREFERRED STOCK OFFERING - On January 30, 1996 the Company completed a preferred stock financing of 5,540 shares of the Company's 7 1/2% Cumulative Convertible Preferred Stock. The financing included 1,290 shares issued to Quest in exchange for $1,290,000 principal amount of a note. The remaining 4,250 shares were sold for an aggregate cash price of $4,250,000. The 5,540 shares of 7 1/2% Cumulative Convertible Preferred Stock issued are convertible commencing December 31, 1996, into shares of the Company's Common Stock at a conversion price per share of Common Stock of $2.00. On the basis of the above mentioned conversion price, an aggregate of 2,770,000 shares of Common Stock would be issuable on conversion. NOTE 4. STOCKHOLDERS' EQUITY On August 13, 1996 at the Annual Shareholders' meeting, the shareholders approved; (I) an increase in the number of shares of common stock authorized from 30,000,000 to 100,000,000; (ii) the 1996 Omnibus Incentive Plan; (iii) the 1996 Non-Employees Stock Option Plan; and (iv) an increase in the shares reserved for issuance under the 1989 Incentive Stock Option Plan from 1,500,000 to 2,500,000. The shareholders approved the merger of the Company into a newly- formed wholly-owned subsidiary, incorporated in the State of Oklahoma, which changed the Company's state of incorporation from Delaware to Oklahoma. This transaction was accounted for as a combination of entities under common control, similar to a pooling of interests, and had no effect on the Company's results of operations or financial position. The 1996 Omnibus Incentive Plan provides for compensatory awards representing or corresponding to up to an aggregate of 1,000,000 shares of Common Stock of the Company to officers, directors and certain other key employees. Awards may be granted for no consideration and consist of stock options, stock awards, stock appreciation rights, dividend equivalents, other stock-based awards (such as phantom stock) and performance awards consisting of any combination of the foregoing. Generally, options will be granted at an exercise price equal to the lower of (I) 100% of fair market value of the shares of Common Stock on the date of grant or (ii) 85% of the fair market value of the shares of 9 Common Stock on the date of exercise. Each option will be exercisable for the period or periods specified in the option agreement, which will generally not exceed 10 years from the date of grant. No options have been issued under the Omnibus Incentive Plan. The 1996 Non-Employee Stock Option Plan provides a means by which non- employee Directors of the Company and consultants to the Company can be given an opportunity to purchase stock in the Company. The Plan provides that a total of 1,000,000 shares of the Company's Common Stock may be issued pursuant to options granted under the Non-Employee Plan, subject to certain adjustments. The exercise price for each option granted under the Non-Employee Plan will be not less than the fair market value of the Common Stock underlying the option on the date of grant. Each option granted under the Non-Employee Plan is 10 years after the date of grant. Options granted to Directors will terminate to the extent such options have not been previously exercised thirty (30) days after the date the Director is no longer a Director of the Company. No options have been issued under the Non-Employee Plan. NOTE 5. CONTINGENCIES A former officer and employee of the company, on May 6, 1996, commenced an arbitration proceeding under the Rules of the American Arbitration Association against the Company seeking to recover damages for an alleged breach of contract and intentional interference with contract. The damages sought are approximately $384,000. The Company believes that it has adequate basis to prove that the termination for cause was appropriate. NOTE 6. SUBSEQUENT EVENTS PROPERTY SALE - Subsequent to the quarter ended September 30, 1996, the Company completed the sale of its interest in approximately 290 wells of which 15 were operated by the Company. The net sales price was $2,080,550. The Company used $1,143,701 to reduce its revolving credit facility with Bank One and $444,501 to repay the Bank One Special Advance. The remaining sale proceeds were used as working capital. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following is management's discussion and analysis of certain significant factors which have affected the Company's earnings, financial condition and liquidity during the periods included in the accompanying Consolidated Financial Statements. On January 19, 1995, the Company completed its first acquisition of oil and gas reserves, the Egolf Acquisition, and on June 2, 1995, the Company completed a second acquisition of oil and gas reserves, the Johnson Ranch Acquisition. On January 30, 1996, the Company completed the following transactions: (i) it completed the acquisition of Buttonwood Energy Corporation (the "Buttonwood Acquisition"); (ii) it borrowed $11 million pursuant to a credit facility (the "Credit Facility") entered into with a bank; (iii) it completed the public sale of securities (the "Offering") yielding net proceeds of approximately $12,970,000; and (iv) it sold 5,540 shares of 7 1/2% Cumulative Preferred Stock (the "Preferred Stock Financing") for aggregate consideration of $5,540,000 inclusive of $1,290,000 principal amount of a note of the Company exchanged for the preferred shares. On May 16, 1996, the Company completed the acquisition from Comstock of various working interests in 145 producing oil and gas properties for the purchase price of $6,430,195. In addition, on May 16, 1996, the Company completed the acquisition of the Stratum 7% overriding royalty interests in the Company's Johnson Ranch wells for the purchase price of $800,000. The purchase prices were financed through an increase in the Company's borrowing facility at Bank One, Texas, N.A. and from the Company's working capital. On August 5, 1996 the company completed the acquisition from various sellers, of working interest in approximately 120 wells in the Anadarko Basin of Western Oklahoma, and the Arkoma Basin of Eastern Oklahoma and Arkansas. Gothic currently operates 70 of the wells in which the interests were acquired. The purchase price of the transaction was approximately $3.3 million. This amount was financed through an increase in the Company's borrowing facility at Bank One, Texas N.A. of $2,792,200, and from the Company's working capital. RESULTS OF OPERATIONS - --------------------- NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 Revenues were $8,073,117 for the nine months ended September 30, 1996, as compared to $1,261,366 for the same period ended September 30, 1995. This increase is primarily the result of acquisitions of oil and gas properties made by the Company since September 1995, as described above. Higher prices for oil and gas sales also contributed to the increase. Oil and gas revenues for the period ended September 30, 1996 were $7,270,252 with $2,648,801 coming from oil sales and $4,621,451 from gas sales. Oil sales were based on the sale of 131,020 barrels at an average price of $20.22 per barrel. Gas sales were based on the sale of 2,396,746 mcf at an average price of $1.93 per mcf. The Company incurred lease operating expenses during the nine months ended September 30, 1996 of $ 3,481,114. This compares to $ 728,961 for the same period in 1995. This increase is also a result of the acquisitions completed since September, 1995, as described above. Depletion, depreciation and amortization expense increased to $2,318,975 for the nine months ended September 30, 1996 from $422,550 for the same period in the prior year. Depletion of the oil and gas properties increased to $2,244,000 for the nine months ended September 30, 1996 from $395,000 for the comparable period in 1995 primarily due to the acquisitions since September 1995, as described above. Selling, general and administrative costs were $1,250,484 for the nine months ended September 30, 1996, as compared to $719,383 for the nine months ended September 30, 1995. The major reason for this increase is the addition of personnel and related costs due to acquisitions made since September of 1995. The increase also includes some nonrecurring costs related to the completion of the Buttonwood transaction. The Company also recorded a $5,050,000 full cost ceiling write-down on its oil and gas properties at March 31, 1996. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED) Interest and financing costs decreased to $1,061,017 for the nine months ended September 30, 1996. This compares to $1,282,680 for the same period in 1995. The decrease is the result of the Company's debt restructuring which was completed in January 1996, and lower financing costs. The Company recorded an extraordinary loss of $1,432,973 on the early extinguishment of debt during the quarter ended March 31, 1996, with the payoff of the Stratum loan. The Company also recognized $277,000 in preferred dividends on its 7 1/2% cumulative preferred stock during the nine months ended September 30, 1996. THREE MONTHS ENDED SEPTEMBER 30, 1996 AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1995. Revenues were $3,214,484 for the three months ended September 30, 1996, as compared to $754,933 for the same period ended September 30, 1995. This increase is the result of acquisitions of oil and gas properties made by the Company since September 1995, as described above. Oil and gas revenues for the period ended September 30, 1996 were $2,927,126 of which $1,071,681 came from oil sales and $1,855,445 from gas sales. Oil sales were based on the sale of 48,294 barrels at an average price of $22.19 per barrel. Gas sales were based on the sale of 997,058 mcf at an average price of $1.86 per mcf. The Company incurred lease operating expenses during the three months ended September 30, 1996 of $1,421,379. This compares to $453,890 for the same period in 1995. This increase is also a result of the acquisitions completed since September 1995, as described above. Depletion, depreciation and amortization expense was $732,193 for the three months ended September 30, 1996 as compared to $246,650 for the same period in the prior year. Such increase was primarily due to higher volumes of oil and gas produced related to the properties acquired since September of 1995. Selling, general and administrative costs were $432,160 for the three months ended September 30, 1996, as compared to $261,962 for the three months ended September 30, 1995. The major reason for this increase is the addition of personnel and related costs due to acquisitions made since September of 1995. Interest and financing costs remained relatively constant at $412,756 for the three months ended September 30, 1996 as compared to $417,915 for the same period in 1995. The Company also recognized $103,875 in preferred dividends on its 7 1/2% cumulative preferred stock during the three months ended September 30, 1996. CAPITAL RESOURCES AND LIQUIDITY - ------------------------------- GENERAL - ------- The Company's capital requirements relate to the acquisition, exploration, enhancement, development and operation of oil and gas producing properties. In general, because oil and gas reserves the Company has acquired and intends to acquire are depleted by production over time, the success of its business strategy is dependent upon a continuous acquisition, exploitation, enhancement, development and operation program. In order to achieve profitability and generate cash flow, the Company is dependent upon acquiring or developing additional oil and gas properties or entering into joint oil and gas well development arrangements. The Company will continue to require access to debt and equity capital or the availability of joint venture development arrangements, among other possible sources, to pursue its business strategy of additional property acquisition and development. No assurance can be given that the Company will be able to obtain additional capital or enter into joint venture development arrangements on satisfactory terms to implement the Company's business strategy. The Company has funded its recent capital needs through the issuance of capital stock and borrowings. Without raising additional capital or 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED) entering into joint oil and gas well development arrangements, the Company will be unable to acquire additional producing oil and gas properties and its ability to develop its existing oil and gas properties will be limited to the extent of the available cash flow. No assurance can be given as to the availability or terms of any such additional capital or joint development arrangements or that such terms as are available may not be dilutive to the interests of the Company's stockholders. At September 30, 1996 the Company had a cash position of $471,419 and a working capital deficit of $5,317,343 including $5,068,202 of current portion of long-term debt, of which $1,588,202 has been paid subsequent to the period end with proceeds received from the sale of properties (See Note 6). ACQUISITION FINANCING - --------------------- Under the terms of the Buttonwood Acquisition agreement, which was completed on January 30, 1996, the Company paid $17,912,500, in consideration for the acquisition, net of a $1,000,000 deposit paid in 1995 and charged to expense. The Bank One Credit Facility currently enables the Company to borrow up to $19.3 million. On January 30, 1996, $11 million of the credit facility was used to finance a portion of the purchase price for the Buttonwood Acquisition and repay outstanding indebtedness. Additional proceeds of $7,230,195 were used on May 16, 1996 to finance the purchase of the Comstock and Stratum well interests, and on July 31, 1996, proceeds of $2,792,200 were used to finance the acquisition of well interests from various sellers. The Company has repaid $2,295,600 under the facility since January 30, 1996. The terms currently provide for amortization payments at the rate of $290,000 per month commencing September 1, 1996, with all outstanding principal and interest due and payable on January 30, 1999. Interest is payable, at the option of Company, either at the rate of 1% over the lending bank's base rate or up to 3.75% (based on the principal balance outstanding) over the rate for borrowed dollars by the lending bank in the London Interbank market. The indebtedness is collateralized by first liens on all of the Company's oil and gas properties. The loan agreement relating to the Credit Facility includes various affirmative and negative covenants, including, among others, the requirements that the Company (i) maintain a ratio of current assets to current liabilities, as defined, of not less than 1.0 to 1.0, (ii) maintain a debt service coverage ratio of net cash flow per quarter to required quarterly reduction of indebtedness of not less than 1.10 to 1.0, (iii) maintain minimum tangible net worth at the end of each fiscal quarter of $10,250,000, plus certain percentages of net income and proceeds received from the sale of securities, and (iv) maintain selling, general and administrative expenses per quarter not in excess of 25% of consolidated net revenues. Material breaches of these or other covenants which are not cured or waived could result in a default under the loan agreement resulting in this indebtedness becoming immediately due and payable and empowering the lender to foreclose against the collateral for the loan. At September 30, 1996, the Company was not in compliance with its secured bank loan agreement requiring a 1:1 ratio of current assets to current liabilities. The Company has obtained a waiver from the bank in regard to this non compliance. Pursuant to the Preferred Stock Financing, the Company issued and sold 5,540 shares of its 7 1/2% Cumulative Convertible Preferred Stock for an aggregate consideration of $5,540,000, of which $4,250,000 was paid in cash, and $1,290,000 was paid by Quest by exchange of $1,290,000 of outstanding principal amount of indebtedness held by Quest for 1,290 shares. The proceeds were used by the Company, together with the net proceeds from the offering and the Credit Facility, for the balance of the purchase price of the Buttonwood Acquisition and to repay indebtedness and expenses of the 1996 transactions. The 5,540 shares of 7 1/2% Cumulative Convertible Preferred Stock are convertible, commencing December 31, 1996, into shares of the Company's Common Stock at a conversion price per share of Common Stock equal to the lesser of (i) $2.00 or (ii) a price equal to the average of the closing prices of the Company's Common Stock during the 30 business days prior to the day the shares are converted less a discount of 12 1/2%. The number of shares of Common Stock to be issued on conversion is determined by multiplying the number of shares of 7 1/2% Cumulative Convertible Preferred Stock to be converted by $1,000 and dividing the result by the conversion price in effect. The shares pay a cumulative preferred dividend of 7 1/2% of the stated value per annum payable semi- annually. The shares of 7 1/2% Cumulative Convertible Preferred Stock have no voting rights. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED) After reflecting the exchange of $1,290,000 principal amount of indebtedness for 1,290 shares of 7 1/2% Cumulative Convertible Preferred Stock in the Preferred Stock Financing, the remaining $560,000 of principal and accrued interest of $173,000 owing to Quest on a note, and other obligations owing to Quest aggregating $92,000 were replaced at the closing of the Preferred Stock Financing with a new subordinated note in the principal amount of $825,000 bearing interest at 7 1/2% per annum, due, together with all accrued interest thereon, ten years from the date it is issued. The $825,000 note was repaid on March 13, 1996. CASH FLOW - --------- Net cash provided by operating activities increased to $1,410,641 for the nine months ended September 30, 1996 as compared to net cash used of $20,483 for same period in 1995. This was primarily the result of an increase in cash flow from operations, partially offset by an increase in working capital. The Company used $28,507,302 of net cash in investing activities for the first nine months of 1996 compared with $10,652,110 for the same period in 1995. This was primarily due to the acquisition of Buttonwood, net of cash acquired, for $17,592,973, the acquisition of Comstock for $6,430,195, net of adjustments, the August Working Owner acquisition for $3,290,000, and oil and gas well enhancements in the amount of $676,216 and other producing property acquisitions of $1,832,425. Net cash provided by financing activities for the nine months ended September 30, 1996 was $27,410,521 compared to $10,009,408 provided in 1995. During the nine months ended September 30, 1996 the Company received proceeds from long-term debt of $21,022,395 proceeds from the issuance of common stock of $13,141,368 and proceeds from the issuance of preferred stock of $3,997,430. The Company also used funds of $10,328,135 to pay short and long-term debt during the period, and $173,125 to pay preferred dividends. CAUTIONARY STATEMENT - Reference is made to the Cautionary Statement for ------------------------ Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation - ----------------------------------------------------------------------------- Reform Act of 1995 contained in the Company's Annual Report on Form 10-KSB for - ------------------ the year ended December 31, 1995, which Cautionary Statement is incorporated herein by reference. 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS (a) A former officer and employee of the Company, Larry L. Terry, on May 6, 1996, commenced an arbitration proceeding under the Rules of the American Arbitration Association against the Company seeking to recover damages for an alleged breach of contract and intentional interference with contract. The damages sought are approximately $384,000. The Company believes that it has adequate basis to prove that the termination of Mr. Terry for cause was appropriate. ITEM 2. CHANGES IN SECURITIES Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Company held an annual meeting of stockholders on August 13, 1996. On August 13, 1996, the following proposals were voted on. (i) The following persons were elected as Directors to serve until the annual meeting of stockholders in 1997 and until their successors have been elected and qualified by the following vote:
Votes for Votes against ---------- ------------- John J. Fleming 10,912,153 55,772 Michael K. Paulk 10,912,153 55,772 John L. Rainwater 10,911,103 56,822 Morton A. Cohen 10,912,153 55,772 Brian E. Bayley 10,912,153 55,772
(ii) The Proposal to increase the number of shares of common stock authorized from 30,000,000 to 100,000,000 was approved by the following vote:
Votes ----------- In favor 10,420,812 Against 368,213 Abstentions 73,900 Not voted 105,000
(iii) The proposal to approve the 1996 Omnibus Incentive Plan was approved by the following vote:
Votes --------- In favor 3,991,499 Against 419,092 Abstentions 158,525 Not voted 6,398,809
(iv) The proposal to approve the 1996 Non-Employee Stock Option Plan was approved by the following vote:
Votes --------- In favor 4,019,129 Against 462,887 Abstentions 87,100 Not voted 6,398,809
15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED) (v) The proposal to approve the amendment of the Company's 1989 Incentive Stock Option Plan so as to increase the number of shares reserved for the grant of options thereunder from 1,500,000 to 2,500,000 was approved by the following vote:
Votes --------- In favor 3,988,579 Against 490,037 Abstentions 90,500 Not voted 6,398,809
(b) At an adjournment of the Annual Meeting held on October 4, 1996, the following proposals were voted on. (i) The proposal to reincorporate the Company as an Oklahoma corporation by merger of the Company into a newly-formed wholly-owned subsidiary of the Company incorporated in Oklahoma was approved by the following vote:
Votes --------- In favor 6,252,140 Against 206,927 Abstentions 80,350 Not voted 4,956,911
(ii) The proposal to increase the number of shares of Preferred Stock authorized from 500,000 to 2,500,000 was not approved by the following vote:
Common Stock Preferred Stock ------------ --------------- In favor 5,912,614 4,100 Against 514,103 Abstentions 103,700 Non-voted 4,956,911 1,440
ITEM 5. OTHER INFORMATION On October 22, 1996, Gothic Energy Corporation, a Delaware corporation, merged with and into its wholly owned subsidiary corporation incorporated under the laws of the State of Oklahoma. Thereby the Company changed its state of incorporation from Delaware to Oklahoma. 16 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 6(i) Certificate of Incorporation of Gothic Energy Newco, Inc., an Oklahoma corporation 6(ii) Bylaws of Gothic Energy Newco, Inc. 6(iii) Certificate of Ownership and Merger filed with the State of Oklahoma (b) Reports on Form 8-K During the quarter ended September 30, 1996, the Company filed an Amendment No. 1 to its Current Report on Form 8-K dated May 16, 1996, reporting under "Item 7 - Financial Statements and Exhibits". 17 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized. GOTHIC ENERGY CORPORATION DATE: NOVEMBER 18, 1996 BY: /S/ MICHAEL PAULK ----------------- MICHAEL PAULK, PRESIDENT, CHIEF EXECUTIVE OFFICER DATE: NOVEMBER 18, 1996 BY: /S/ ANDREW MCGUIRE ------------------ ANDREW MCGUIRE, CONTROLLER 18 EX-6.I 2 CERTIFICATE OF INCORPORATION Exhibit 6(i) CERTIFICATE OF INCORPORATION OF GOTHIC ENERGY NEWCO, INC. FIRST. The name of the corporation (herein referred to as the "Corporation") is Gothic Energy Newco, Inc. SECOND. The address of the registered office of the Corporation in the State of Oklahoma is Corporation Service Company. The name of its registered agent at such address is Corporation Service Company, 115 Southwest 89th Street, Oklahoma City, Oklahoma 73139-8511. THIRD. The purposes of the Corporation are: To engage in, promote, conduct, and carry on any lawful acts or activities for which corporations may be organized under the General Corporation Law of the State of Oklahoma. FOURTH. The total number of shares of capital stock of all classes which the Corporation shall have authority to issue is One Hundred Million Five Hundred Thousand (100,500,000) shares, of which One Hundred Million (100,000,000) shares, of a par value of $.01 per share, shall be designated "Common Stock," and Five Hundred Thousand (500,000) shares, of a par value of $.05 per share, shall be designated "Preferred Stock." A. The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article FOURTH, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Oklahoma, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The authority of the Board with respect to each series shall include, but not be limited to, determination of the following: (a) The number of shares constituting that series and the distinctive designation of that series; (b) The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (c) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (d) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (e) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (f) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (g) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; (h) Any other relative rights, preferences and limitations of that series. Dividends on outstanding shares of Preferred Stock shall be paid or declared and set apart for payment before any dividends shall be paid or declared and set apart for payment on the common shares with respect to the same dividend period. If upon any voluntary or involuntary liquidation, dissolution or winding up of the corporation, the assets available for distribution to holders of shares of Preferred Stock of all series shall be insufficient to pay such holders the full preferential amount to which they are entitled, then such assets shall be distributed ratably among the shares of all series of Preferred Stock in accordance with the respective preferential amounts (including unpaid cumulative dividends, if any) payable with respect thereto. B. No holder of shares of the Corporation of any class or series, now or hereafter authorized, shall have any preferential or preemptive right to subscribe for, purchase, or receive any shares of stock of the Corporation of any class or series, now or hereafter authorized, or any options or warrants for such shares, or any rights to subscribe to or purchase such shares, or any securities convertible into or exchangeable for such shares, which may at any time or from time to time be issued, sold, or offered for sale by the Corporation. FIFTH. The name and mailing address of the sole incorporator is: William S. Clarke, Esquire, 5 Independence Way, Princeton, New Jersey 08540. SIXTH. The Corporation is to have perpetual existence. SEVENTH. The private property or assets of the shareholders of the Corporation shall not to any extent whatsoever be subject to the payment of the debts of the Corporation. EIGHTH. The number of directors of the Corporation shall be such number as from time to time shall be fixed by, or in the manner provided in, the Bylaws of the Corporation. None of the directors need be a shareholder or a resident of the State of Oklahoma. NINTH. The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation and for the purpose of creating, defining, limiting and regulating powers of the Corporation and its directors and shareholders: (a) The Board of Directors shall have the power to adopt, amend or repeal By-Laws of the Corporation. (b) Elections of directors need not be by written ballot unless the By-Laws of the Corporation shall so provide. (c) The Board of Directors shall have the power to adopt from time to time By-law provisions with respect to indemnification of directors, officers, employees, agents, and other persons as it shall deem expedient and in the best interests of the Corporation and to the extent permitted by law. TENTH. The books of the Corporation may be kept outside the State of Oklahoma at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation, subject to any provision contained in the statutes. ELEVENTH. The Corporation reserves the right to amend, alter, change, or repeal any provisions herein contained, in the manner now or hereafter prescribed by statute, and all rights, powers, privileges, and discretionary authority granted or conferred herein upon shareholders or directors are granted subject to this reservation. TWELFTH. A Director of the Corporation shall have no personal liability to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a Director; provided, however, this Article shall not eliminate or limit the liability of a Director (i) for any breach of the Director's duty of loyalty to the Corporation or its shareholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section l053 of the General Corporation Law of the State of Oklahoma; or (iv) for any transaction from which the Director derived an improper personal benefit. The undersigned, being the sole incorporator herein before named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Oklahoma, does make this Certificate of Incorporation, hereby declaring, affirming, acknowledging, and certifying, under penalties of perjury, that this is the act and deed of the undersigned and that the facts stated herein are true, and accordingly has hereunto set his hand this 10th day of October, 1996. Sole Incorporator /s/ William S. Clarke -------------------------------------------- William S. Clarke, Esquire EX-6.II 3 BY-LAWS OF GOTHIC ENERGY CORPORATION Exhibit 6(ii) BY-LAWS GOTHIC ENERGY CORPORATION (AN OKLAHOMA CORPORATION) (As Adopted August 13, 1996) ARTICLE I OFFICES Section 1. Registered Office. The registered office of the Corporation ----------------- shall be at Corporation Service Company, 115 Southwest 89th Street, Oklahoma City, Oklahoma 73139-8511. Section 2. Additional Offices. The Corporation may also have offices at ------------------ such other places both within and without the State of Oklahoma, as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. Time and Place. A meeting of shareholders for any purpose may -------------- be held at such time and place within or without the State of Oklahoma as the Board of Directors may fix from time to time and as shall be stated in the notice of the meeting or in a duly executed waiver or notice thereof. Section 2. Annual Meeting. Annual meetings of shareholders, commencing -------------- with the year 1997, shall be held on the third Thursday of May, if not a legal holiday, or, if a legal holiday, then on the next secular day following, at 10:00AM, or at such other date and time as shall, from time to time, be designated by the Board of Directors and stated in the notice of the meeting. At such annual meetings, the shareholders shall elect a Board of Directors and transact such other business as may properly be brought before the meetings. Section 3. Notice of Annual Meeting. Written notice of the annual meeting, ------------------------ stating the place, date, and time thereof, shall be given to each shareholder entitled to vote at such meeting not less than ten (10) (unless a longer period is required by law) nor more than sixty (60) days prior to the meeting. Section 4. Special Meetings. Special meetings of the shareholders may be ---------------- called for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, by the Chairman of the Board, if any, or the President, and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors or of the shareholders owning at least ten percent (10%) of the shares of capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 5. Notice of Special Meeting. Written notice of a special ------------------------- meeting, stating the place, date, and time thereof and the purpose or purposes for which the meeting is called, shall be given to each shareholder entitled to vote at such meeting not less than 10 (unless a longer period is required by law) nor more than 60 days prior to the meeting. Section 6. List of Shareholders. The officer in charge of the stock -------------------- ledger of the Corporation or the transfer agent shall prepare and make, at least ten (10) days before every meeting of shareholders, a complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, at a place within the city where the meeting is to be held, which place, if other than the place of the meeting, shall be specified in the notice of the meeting. The list shall also be produced and kept at the place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present in person thereat. Section 7. Presiding Officer and Order of Business. --------------------------------------- (a) Meetings of shareholders shall be presided over by the Chairman of the Board. If he is not present or there is none, they shall be presided over by the President, or, if he is not present or there is none, by a person chosen by the Board of Directors, or, if no such person is present or has been chosen, by a chairman to be chosen by the shareholders owning a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote at the meeting and who are present in person or represented by proxy. The Secretary of the Corporation, or, if he is not present, an Assistant Secretary, or, if he is not present, a person chosen by the Board of Directors, shall act as secretary at meetings of shareholders; if no such person is present or has been chosen, the shareholders owning a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote at the meeting who are present in person or represented by proxy shall choose any person present to act as secretary of the meeting. (b) The following order of business, unless otherwise determined at the meeting, shall be observed as far as practicable and consistent with the purposes of the meeting: 1. Call of the meeting to order. 2. Presentation of proof of mailing of the notice of the meeting and, if the meeting is a special meeting, the call thereof. 3. Presentation of proxies. 4. Announcement that a quorum is present. 5. Reading and approval of the minutes of the previous meeting. 6. Reports, if any, of officers. 7. Election of directors, if the meeting is an annual meeting or a meeting called for that purpose. 8. Consideration of the specific purpose or purposes, other than the election of directors, for which the meeting has been called, if the meeting is a special meeting. 9. Transaction of such other business as may properly come before the meeting. 10. Adjournment. Section 8. Quorum and Adjournments. The presence in person or ----------------------- representation by proxy of the holders of a majority of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote shall be necessary to, and shall constitute a quorum for, the transaction of business at all meetings of the shareholders, except as otherwise provided by statute or by the Certificate of Incorporation. If, however, a quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat who are present in person or represented by proxy shall have the power to adjourn the meeting from time to time until a quorum shall be present or represented. If the time and place of the adjourned meeting are announced at the meeting at which the adjournment is taken, no further notice of the adjourned meeting need be given. Even if a quorum shall be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat who are present in person or represented by proxy shall have the power to adjourn the meeting from time to time for good cause to a date that is not more than 30 days after the date of the original meeting. Further notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. At any adjourned meeting at which a quorum is present in person or represented by proxy, any business may be transacted that might have been transacted at the meeting as originally called. If the adjournment is for more than 30 days, or if, after the adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote thereat. Section 9. Voting. ------ (a) At any meeting of shareholders, every shareholder having the right to vote shall be entitled to vote in person or by proxy. Except as otherwise provided by law or the Certificate of Incorporation, each shareholder of record shall be entitled to one vote for each share of capital stock registered in his name on the books of the Corporation. (b) All elections shall be determined by a plurality vote, and, except as otherwise provided by law or the Certificate of Incorporation, all other matters shall be determined by a vote of a majority of the shares present in person or represented by proxy and voting on such other matters. Section 10. Action by Consent. Any action required or permitted by law or ----------------- the Certificate of Incorporation to be taken at any meeting of shareholders may be taken without a meeting, without prior notice, and without a vote, if a written consent, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present or represented by proxy and voted. Such written consent shall be filed with the minutes of the meetings of shareholders. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those shareholders who have not consented in writing thereto. ARTICLE III DIRECTORS Section 1. General Powers, Number, and Tenure. The business of the ---------------------------------- Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and perform all lawful acts that are not by law, the Certificate of Incorporation, or these By-Laws directed or required to be exercised or performed by the shareholders. The number of directors shall be determined from time to time by the Board of Directors; if no such determination is made, the number of directors shall be three. The directors shall be elected at the annual meeting of the shareholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and shall qualify. Directors need not be shareholders. Section 2. Vacancies. If any vacancies occur in the Board of Directors, --------- or if any new directorships are created, they may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Each director so chosen shall hold office until the next annual meeting of shareholders and until his successor is duly elected and shall qualify. If there are no directors in office, any officer or shareholder may call a special meeting of shareholders in accordance with the provisions of the Certificate of Incorporation or these By-Laws, at which meeting such vacancies shall be filled. Section 3. Removal or Resignation. ---------------------- (a) Except as otherwise provided by law or the Certificate of Incorporation, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. (b) Any director may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board, if any, or the President or Secretary of the Corporation. Unless otherwise specified in such written notice, a resignation shall take effect upon delivery thereof to the Board of Directors or the designated officer. It shall not be necessary for a resignation to be accepted before it becomes effective. Section 4. Place of Meetings. The Board of Directors may hold meetings, ----------------- both regular and special, either within or without the State of Oklahoma. Section 5. Annual Meeting. The annual meeting of each newly elected Board -------------- of Directors shall be held immediately following the annual meeting of shareholders, and no notice of such meeting shall be necessary to the newly elected directors in order to constitute the meeting legally, provided a quorum shall be present. Section 6. Regular Meetings. Additional regular meetings of the Board of ---------------- Directors may be held without notice at such time and place as may be determined from time to time by the Board of Directors. Section 7. Special Meetings. Special meetings of the Board of Directors ---------------- may be called by the Chairman of the Board, the President, or by two or more directors on at least two (2) days' notice to each director, if such notice is delivered personally or sent by telegram, or on at least three (3) days' notice if sent by mail. Special meetings shall be called by the Chairman of the Board, President, Secretary, or two or more directors in like manner and on like notice on the written request of one-half or more of the number of directors then in office. Any such notice need not state the purpose or purposes of such meeting except as provided in Article XI. Section 8. Quorum and Adjournments. At all meetings of the Board of ----------------------- Directors, a majority of the directors then in office shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law or the Certificate of Incorporation. If a quorum is not present at any meeting of the Board of Directors, the directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting at which the adjournment is taken, until a quorum shall be present. Section 9. Compensation. Directors shall be entitled to such compensation ------------ for their services as directors and to such reimbursement for any reasonable expenses incurred in attending directors' meetings as may from time to time be fixed by the Board of Directors. The compensation of directors may be on such basis as is determined by the Board of Directors. Any director may waive compensation for any meeting. Any director receiving compensation under these provisions shall not be barred from serving the Corporation in any other capacity and receiving compensation and reimbursement for reasonable expenses for such other services. Section 10. Action by Consent. Any action required or permitted to be ----------------- taken at any meeting of the Board of Directors may be taken without a meeting if a written consent to such action is signed by all members of the Board of Directors and such written consent is filed with the minutes of its proceedings. Section 11. Meetings by Telephone or Similar Communications Equipment. The --------------------------------------------------------- Board of Directors may participate in a meeting by means of conference telephone or similar communications equipment by means of which all directors participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person by any such director at such meeting. ARTICLE IV COMMITTEES Section 1. Executive Committee. The Board of Directors, by resolution ------------------- adopted by a majority of the whole Board, may appoint an Executive Committee consisting of one or more directors, one of whom shall be designated as Chairman of the Executive Committee. Each member of the Executive Committee shall continue as a member thereof until the expiration of his term as a director or his earlier resignation, unless sooner removed as a member or as a director. Section 2. Powers. The Executive Committee shall have and may exercise ------ those rights, powers, and authority of the Board of Directors as may from time to time be granted to it by the Board of Directors to the extent permitted by law, and may authorize the seal of the Corporation to be affixed to all papers that may require it. Section 3. Procedure and Meetings. The Executive Committee shall fix its ---------------------- own rules of procedure and shall meet at such times and at such place or places as may be provided by such rules or as the members of the Executive Committee shall fix. The Executive Committee shall keep regular minutes of its meetings, which it shall deliver to the Board of Directors from time to time. The Chairman of the Executive Committee chosen by a majority of the members present shall preside at meetings of the Executive Committee, and another member chosen by the Executive Committee shall act as Secretary of the Executive Committee. Section 4. Quorum. A majority of the Executive Committee shall constitute ------ a quorum for the transaction of business, and the affirmative vote of a majority of the members present at any meeting at which there is a quorum shall be required for any action of the Executive Committee; provided, however, that when an Executive Committee of one member is authorized under the provisions of Section 1 of this Article, that one member shall constitute a quorum. Section 5. Other Committees. The Board of Directors, by resolutions ---------------- adopted by a majority of the whole Board, may appoint such other committee or committees as it shall deem advisable and with such rights, powers, and authority as it shall prescribe. Each such committee shall consist of one or more directors. Section 6. Committee Changes. The Board of Directors shall have the power ----------------- at any time to fill vacancies in, to change the membership of, and to discharge any committee. Section 7. Compensation. Members of any committee shall be entitled to ------------ such compensation for their services as members of the committee and to such reimbursement for any reasonable expenses incurred in attending committee meetings as may from time to time be fixed by the Board of Directors. Any member may waive compensation for any meeting. Any committee member receiving compensation under these provisions shall not be barred from serving the Corporation in any other capacity and from receiving compensation and reimbursement of reasonable expenses for such other services. Section 8. Action by Consent. Any action required or permitted to be ----------------- taken at any meeting of any committee of the Board of Directors may be taken without a meeting if a written consent to such action is signed by all members of the committee and such written consent is filed with the minutes of its proceedings. Section 9. Meetings by Telephone or Similar Communications Equipment. The --------------------------------------------------------- members of any committee designated by the Board of Directors may participate in a meeting of such committee by means of conference telephone or similar communications equipment by means of which all persons participating in such meeting can hear each other, and participation in such a meeting shall constitute presence in person by any such committee member at such meeting. ARTICLE V NOTICES Section 1. Form and Delivery. Whenever a provision of any law, the ----------------- Certificate of Incorporation, or these By-Laws requires that notice be given to any director or shareholder, it shall not be construed to require personal notice unless so specifically provided, but such notice may be given in writing, by mail addressed to the address of the director or shareholder as it appears on the records of the Corporation, with postage prepaid. These notices shall be deemed to be given when they are deposited in the United States mail. Notice to a director may also be given personally or by telegram sent to his address as it appears on the records of the Corporation. Section 2. Waiver. Whenever any notice is required to be given under the ------ provisions of any law, the Certificate of Incorporation, or these By-Laws, a written waiver thereof signed by the person entitled to said notice, whether before or after the time stated therein, shall be deemed to be equivalent to such notice. In addition, any shareholder who attends a meeting of shareholders in person or is represented at such meeting by proxy, without protesting at the commencement of the meeting the lack of notice thereof to him, or any director who attends a meeting of the Board of Directors without protesting, at the commencement of the meeting, the lack of notice, shall be conclusively deemed to have waived notice of such meeting. ARTICLE VI OFFICERS Section 1. Designations. The officers of the Corporation shall be chosen ------------ by the Board of Directors. The Board of Directors may choose a Chairman of the Board, a President, a Vice-President or Vice-Presidents, a Secretary, a Treasurer, one or more Assistant Secretaries and/or Assistant Treasurers, and other officers and agents that it shall deem necessary or appropriate. All officers of the Corporation shall exercise the powers and perform the duties that shall from time to time be determined by the Board of Directors. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws provide otherwise. Section 2. Term Of, and Removal From, Office. At its first regular --------------------------------- meeting after each annual meeting of shareholders, the Board of Directors shall choose a President, a Secretary, and a Treasurer. It may also choose a Chairman of the Board, a Vice-President or Vice-Presidents, one or more Assistant Secretaries and/or Assistant Treasurers, and such other officers and agents as it shall deem necessary or appropriate. Each officer of the Corporation shall hold office until his successor is chosen and shall qualify. Any Officer elected or appointed by the Board of Directors may be removed, with or without cause, at any time by the affirmative vote of a majority of the directors then in office. Removal from office, however, shall not prejudice the contract rights, if any, of the person removed. Any vacancy occurring in any office of the Corporation may be filled for the unexpired portion of the term by the Board of Directors. Section 3. Compensation. The salaries of all officers of the Corporation ------------ shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving a salary because he is also a director of the Corporation. Section 4. The Chairman of the Board. The Chairman of the Board, if any, ------------------------- shall be an officer of the Corporation and, subject to the direction of the Board of Directors, shall perform such executive, supervisory, and management functions and duties as may be assigned to him from time to time by the Board of Directors. He shall, if present, preside at all meetings of shareholders and of the Board of Directors. Section 5. The President. ------------- (a) The President shall be the chief executive officer of the Corporation and, subject to the direction of the Board of Directors, shall have general charge of the business, affairs, and property of the Corporation and general supervision over its other officers and agents. In general, he shall perform all duties incident to the office of President and shall see that all orders and resolutions of the Board of Directors are carried into effect . In addition to and not in limitation of the foregoing, the President shall be empowered to the extent permitted by the Oklahoma General Corporation Law to authorize any change of the registered office or registered agent or both of the Corporation in the State of Oklahoma. (b) Unless otherwise prescribed by the Board of Directors, the President shall have full power and authority to attend, act, and vote on behalf of the Corporation at any meeting of the security holders of other corporations in which the Corporation may hold securities. At any such meeting, the President shall possess and may exercise any and all rights and powers incident to the ownership of such securities that the Corporation might have possessed and exercised if it had been present. The Board of Directors may from time to time confer like powers upon any other person or persons. Section 6. The Vice-President. The Vice-President, if any, or in the ------------------ event there be more than one, the Vice-Presidents in the order designated, or in the absence of any designation, in the order of their election, shall, in the absence of the President or in the event of his disability, perform the duties and exercise the powers of the President and shall generally assist the President and perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 7. The Secretary. The Secretary shall attend all meetings of the ------------- Board of Directors and the shareholders and record all votes and the proceedings of the meetings in a book to be kept for that purpose. He shall perform like duties for the Executive Committee or other committees, if required. He shall give, or cause to be given, notice of all meetings of shareholders and special meetings of the Board of Directors, and shall perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, or the President, under whose supervision he shall act. He shall have custody of the seal of the Corporation, and he, or an Assistant Secretary, shall have authority to affix it to any instrument requiring it, and, when so affixed, the seal may be attested by his signature or by the signature of the Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing thereof by his signature. Section 8. The Assistant Secretary. The Assistant Secretary, if any, or ----------------------- in the event there be more than one, the Assistant Secretaries in the order designated, or in the absence of any designation, in the order of their election, shall, in the absence of the Secretary or in the event of his disability, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 9. The Treasurer. The Treasurer shall have the custody of the ------------- corporate funds and other valuable effects, including securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may from time to time be designated by the Board of Directors. He shall disburse the funds of the Corporation in accord with the orders of the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board, if any, the President, and the Board of Directors, whenever they may require it or at regular meetings of the Board, an account of all his transactions as Treasurer and of the financial condition of the Corporation. Section 10. The Assistant Treasurer. The Assistant Treasurer, if any, or ----------------------- in the event there shall be more than one, the Assistant Treasurers in the order designated, or in the absence of any designation, in the order of their election, shall, in the absence of the Treasurer or in the event of his disability, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. ARTICLE VII INDEMNIFICATION As used in this Article the term "pertinent corporation" means this corporation and any corporation, partnership, joint venture, trust or other enterprise of which the person is or was a director, officer, employee or agent. Section 1. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the pertinent corporation) by reason of the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the pertinent corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the pertinent corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the pertinent corporation to procure a judgment in its favor by reason of the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the pertinent corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the pertinent corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 3. To the extent that a Director, officer, employee or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in sections (1) or (2) of this By-Law, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 4. Any indemnification under sections (1) and (2) of this By-Law (unless ordered by a court) shall be made by the Corporation only upon a determination that indemnification of the Director, officer, employee or agent is proper in the circumstances because he has met the applicable standards of conduct set forth in said sections (1) and (2). Such determination shall be made (1) by the Board of Directors of the Corporation by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel (who may be regular counsel for the Corporation or pertinent corporation) in a written opinion, or (3) by the shareholders of the Corporation. Section 5. Expenses incurred by an officer or Director who may have a right of indemnification under this By-Law in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person, to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation pursuant to this By-Law. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. Section 6. The indemnification and advancement of expenses provided by, or granted pursuant to, this By-Law are in addition to and independent of and shall not be deemed exclusive of any other rights to which any person may be entitled under any certificate of incorporation, articles of incorporation, articles of association, by law, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a Director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person; provided, that any indemnification realized other than under this By-Law shall apply as a credit against any indemnification provided by this By-Law. Section 7. The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this By-Law or of applicable law, if and whenever the Board of Directors of the Corporation deems it to be in the best interest of the Corporation to do so. Section 8. For the purposes of this By-Law and indemnification hereunder, any person who is or was a Director, officer, employee or agent of any other corporation of which the Corporation owns or controls or at the time owned or controlled directly or indirectly a majority of the shares of stock entitled to vote for election of Directors of such other corporation shall be conclusively presumed to be serving or to have served as such Director, officer, employee or agent at the request of the Corporation. Section 9. The Corporation may provide indemnification under this By-Law to any employee or agent of the Corporation or of any other corporation of which the Corporation owns or controls or at the time owned or controlled directly or indirectly a majority of the shares of stock entitled to vote for election of Directors or to any Director, officer, employee or agent of any other corporation, partnership, joint venture, trust or other enterprise in which the Corporation has or at the time had an interest as an owner, creditor or otherwise, if and whenever the Board of Directors of the Corporation deems it in the best interest of the Corporation to do so. Section 10. The Corporation may, to the fullest extent permitted by applicable law from time to time in effect, indemnify any and all persons whom the Corporation shall have power to indemnify under said law from and against any and all of the expenses, liabilities or other matters referred to in or covered by said law, if and whenever the Board of Directors of the Corporation deems it to be in the best interest of the Corporation to do so. ARTICLE VIII AFFILIATED TRANSACTIONS AND INTERESTED DIRECTORS Section 1. Affiliated Transactions. No contract or transaction between ----------------------- the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the contract or transaction or solely because his or their votes are counted for such purpose, if: (a) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) The material facts as to his relationship or interest as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by the vote of the shareholders; or (c) The contract or transaction is fair as to the Corporation as of the time it is authorized, approved, or ratified by the Board of Directors, a committee thereof, or the shareholders. Section 2. Determining Quorum. Common or interested directors may be ------------------ counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee thereof which authorizes the contract or transaction. ARTICLE IX STOCK CERTIFICATES Section 1. Form and Signatures. ------------------- (a) Every holder of stock of the Corporation shall be entitled to a certificate stating the number and class, and series, if any, of shares owned by him, signed by the Chairman of the Board, if any, or the President and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, and bearing the seal of the Corporation. The signatures and the seal may be facsimile. A certificate may be signed, manually or by facsimile, by a transfer agent or registrar other than the Corporation or its employee. In case any officer who has signed, or whose facsimile signature was placed on, a certificate shall have ceased to be such officer before the certificate is issued, it may nevertheless be issued by the Corporation with the same effect as if he were such officer at the date of its issue. (b) All stock certificates representing shares of capital stock that are subject to restrictions on transfer or to other restrictions may have imprinted thereon any notation to that effect determined by the Board of Directors. (c) Notwithstanding anything to the contrary contained in these By- Laws, the Corporation shall have authority to issue uncertificated stock in accordance with the Oklahoma General Corporation Law. Section 2. Registration of Transfer. Upon surrender to the Corporation or ------------------------ any transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment, or authority to transfer, the Corporation or its transfer agent shall, subject to compliance with any applicable laws, issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction upon its books or record the transfer of uncertificated stock. Section 3. Registered Shareholders. ----------------------- (a) Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person who is registered on its books as the owner of shares of its capital stock to receive dividends or other distributions and to vote or consent as such owner, and to hold liable for calls and assessments any person who is registered on its books as the owner of shares of its capital stock. The Corporation shall not be bound to recognize any equitable or legal claim to, or interest in, such shares on the part of any other person. (b) If a shareholder desires that notices and/or dividends shall be sent to a name or address other than the name or address appearing on the stock ledger maintained by the Corporation, or its transfer agent or registrar, if any, the shareholder shall have the duty to notify the Corporation, or its transfer agent or registrar, if any, in writing of his desire and specify the alternate name or address to be used. Section 4. Record Date. In order that the Corporation may determine the ----------- shareholders of record who are entitled to receive notice of, or to vote at, any meeting of shareholders or any adjournment thereof or to express consent to corporate action in writing without a meeting, to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any lawful action, the Board of Directors may, in advance, fix a date as the record date for any such determination. Such date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to the date of any other action. A determination of shareholders of record entitled to notice of, or to vote at, a meeting of shareholders shall apply to any adjournment of the meeting taken pursuant to Section 8 of Article II; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 5. Lost, Stolen, or Destroyed Certificates. The Board of --------------------------------------- Directors may direct that a new certificate be issued to replace any certificate theretofore issued by the Corporation that, it is claimed, has been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing the issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of the lost, stolen, or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require, and/or to give the Corporation a bond in such sum, or other security in such form, as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate claimed to have been lost, stolen, or destroyed. ARTICLE X GENERAL PROVISIONS Section 1. Dividends. Subject to the provisions of law and the --------- Certificate of Incorporation, dividends upon the outstanding capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the Corporation's capital stock. Section 2. Reserves. The Board of Directors shall have full power, -------- subject to the provisions of law and the Certificate of Incorporation, to determine whether any, and, if so, what part, of the funds legally available for the payment of dividends shall be declared as dividends and paid to the shareholders of the Corporation. The Board of Directors, in its sole discretion, may fix a sum that may be set aside or reserved over and above the paid-in capital of the Corporation as a reserve for any proper purpose, and may, from time to time, increase, diminish, or vary such amount. Section 3. Fiscal Year. The fiscal year of the Corporation shall be ----------- determined from time to time by the Board of Directors. Section 4. Seal. The corporate seal shall have inscribed thereon the name ---- of the Corporation, the year of its incorporation, and the words "Corporate Seal" and "Oklahoma." ARTICLE XI AMENDMENTS The Board of Directors shall have the power to alter and repeal these By- Laws and to adopt new By-Laws by an affirmative vote of a majority of the whole Board, provided that notice of the proposal to alter or repeal these By-Laws or to adopt new By-Laws must be included in the notice of the meeting of the Board of Directors at which such action takes place. SECRETARY'S CERTIFICATE I, Linda Esley, Secretary of Gothic Energy Corporation (the "Corporation"), an Oklahoma corporation, do hereby certify that the foregoing is a true and correct copy of the Corporation's By-Laws as adopted by the Board of Directors of the Corporation on August _____, 1996, and that such By-Laws have not been altered or repealed and are in full force and effect on the date set forth below. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Corporate Seal of the Corporation this __________ day of August, 1996. ------------------------------------------------- Linda Esley, Secretary (Corporate Seal) EX-6.III 4 CERTIFICATE OF OWNERSHIP AND MERGER Exhibit 6(iii) CERTIFICATE OF OWNERSHIP AND MERGER MERGING GOTHIC ENERGY CORPORATION (A DELAWARE CORPORATION) INTO GOTHIC ENERGY NEWCO, INC. (AN OKLAHOMA CORPORATION) (Under Section 253 of the General Corporation Law of the State of Delaware) Gothic Energy Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Company"), does hereby certify: FIRST: That it was organized pursuant to the provisions of the General Corporation Law of the State of Delaware (the "DGCL") under the name TNC Subsidiary Corp., on June 15, 1994 and on April 18, 1995 filed a Certificate of Amendment changing its name to Gothic Energy Corporation. SECOND: That it owns all of the outstanding shares of stock of Gothic Energy Newco, Inc., a corporation organized pursuant to the provisions of the Oklahoma General Corporation Law on October 11, 1996 ("Newco"). THIRD: That the Board of Directors of the Company, by unanimous written consent dated October 10, 1996, determined to merge the Company into Newco (the "Merger"), and did adopt the following resolutions: RESOLVED, that the Board of Directors deems it advisable and in the best interests of the Company that the Company and its wholly owned subsidiary, Gothic Energy Newco, Inc., an Oklahoma corporation ("Newco"), be merged upon the terms and conditions set forth in (a) the Agreement and Plan of Merger between the Company and Newco (the "Merger Agreement"), (b) the Certificate of Ownership and Merger under Section 1083 of the General Corporation Law of the State of Oklahoma merging the Company into Newco (the "Oklahoma Certificate of Merger") and (c) the Certificate of Ownership and Merger under Section 253 of the General Corporation Law of the State of Delaware merging the Company into Newco (the "Delaware Certificate of Merger"), each of which is filed with and made a part of these resolutions (the "Merger Documents"), pursuant to which Newco shall survive the merger (the "Merger"); and be it further RESOLVED: That the terms and conditions of the Merger are as follows: (a) At the effective time of the merger (the "Effective Time"), the Company shall be merged into Newco and, thereupon, Newco shall possess any and all purposes and powers of the Company; and all leases, licenses, property, rights, privileges and powers of whatever nature and description of the Company shall be transferred to, vested in and devolved upon Newco, without further act or deed, subject to all of the debts and obligations of the Company; (b) At the Effective Time, the corporate name of Newco shall be changed to Gothic Energy Corporation; (c) At the Effective Time, by virtue of the Merger and without any action on the part of the Company, Newco or any holder of any stock of either of them: (i) Each share of Common Stock, $0.01 par value per share, of the Company ("Company Common Shares") issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive one (1) validly issued, fully paid and nonassessable share of Common Stock, $0.001 par value per share, of Newco ("Newco Common Shares"). Each certificate representing Company Common Shares shall thereafter represent the right to receive Newco Common Shares. All Company Common Shares shall cease to be outstanding, shall be canceled and retired and shall cease to exist; (ii) Each Company Common Share issued and held in the Company's treasury shall cease to be outstanding, shall be canceled and retired without payment of any consideration therefor and shall cease to exist; (iii) Each share of 7-1/2% Cumulative Convertible Preferred Stock, $0.05 par value per share, of the Company ("Company Preferred Shares") issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive one (1) validly issued, fully paid and non-assessable share of 7-1/2% Cumulative Convertible Preferred Stock, $0.05 par value per share, of Newco ("Newco Preferred Shares'). Each certificate representing Company Preferred Shares shall thereafter represent the right to receive Newco Preferred Shares. All Company Preferred Shares shall cease to be outstanding, shall be cancelled and retired and shall cease to exist; (iv) Each Newco Common Share issued and outstanding immediately prior to the Effective Time shall cease to be outstanding, shall be canceled and retired without payment of any consideration therefor and shall cease to exist; (v) Each option, warrant, conversion right, or other right to purchase or otherwise acquire Company Common Shares pursuant to stock option, warrant or other stock-based plans or conversion right of the Company granted, issued or outstanding immediately prior to the Effective Time (A) shall be converted into and become a right to purchase or otherwise acquire the same number of Newco Common Shares at the same price per share and upon the same terms and subject to the same conditions as applicable to such options, warrants, conversion rights, or other rights immediately prior to the Effective Time and (B) shall be assumed and governed under all option plans or agreements binding upon or in force against the Company immediately prior to the Effective Time; (d) On or after the Effective Time, all of the outstanding certificates which prior to that time represented Company Common Shares or Company Preferred Shares shall be deemed for all purposes to evidence ownership of and to represent Newco Common Shares or Newco Preferred Shares into which such shares have been converted as hereinabove provided and shall be so registered on the books and records of Newco or its transfer agents. Until any such certificate shall have been surrendered for transfer or otherwise accounted for to Newco or its transfer agent, the registered owner of any such outstanding certificate shall have and be entitled to exercise any voting and other rights with respect to, and to receive any dividend or other distribution on, the Newco Common Shares or Newco Preferred Shares into which the Company Common Shares or Company Preferred Shares represented by such certificate have been converted. After the Effective Time, whenever certificates which formerly represented Company Common Shares or Company Preferred Shares are presented for exchange or registration of transfer, Newco will cause to be issued in respect thereof certificates representing an equal number of Newco Common Shares or Newco Preferred Shares; and be it further RESOLVED: That, in the event the Merger Agreement is not terminated by the Board of Directors, the proper officers of the Company are hereby authorized and directed to execute the Merger Documents, to take all action necessary for the proper filing of the Certificate of Ownership and Merger with the Secretary of State of the State of Oklahoma and the Certificate of Ownership and Merger with the Secretary of State of the State of Delaware, and to take such other action and execute such other documents as may be necessary or appropriate to the implementation and consummation of the Merger. FOURTH: That the Merger has been approved by the holders of at least a majority of the outstanding shares of stock of the Company entitled to vote thereon, at the annual meeting of stockholders of the Company held on August 13, 1996, duly called and held after twenty (20) days' notice of the purpose of the meeting was mailed to each stockholder at his address as it appears on the records of the Company. FIFTH: That the Company hereby agrees that it may be served with process in the State of Delaware in any proceeding for the enforcement of any obligation of the Company, as well as for the enforcement of any obligation of Newco arising from the Merger, including any suit or other proceeding to enforce the right of any stockholder as determined in any appraisal proceeding pursuant to the provisions of Section 262 of the DGCL, and hereby irrevocably appoints the Secretary of State of the State of Delaware (the "Secretary of State") as its agent to accept service of process in any such suit or other proceeding and agrees that service of any such process may be made by personally delivering to and leaving with the Secretary of State duplicate copies of such process; and hereby authorizes the Secretary of State to send forthwith by registered mail one of such duplicate copies of such process addressed to Gothic Energy Corporation, 5727 South Lewis Avenue, Suite 700, Tulsa, Oklahoma 74105, unless the Company shall hereafter designate in writing to the Secretary of State a different address for such process, in which case the duplicate copy of such process shall be mailed to the last address so designated. SIXTH: This Certificate of Ownership and Merger shall become effective upon acceptance for filing by the Secretary of State. SEVENTH: The undersigned President of the Company acknowledges this Certificate of Ownership and Merger to be the corporate act of the Company, and further, as to all matters or facts required to be verified under oath, the President of the Company acknowledges that, to the best of his knowledge, information and belief, these matters and facts relating to the Company are true in all material respects and that this statement is made under the penalties for perjury. IN WITNESS WHEREOF, this Certificate of Ownership and Merger has been duly executed by the President of the Company and attested to by its Secretary this __________ day of October 1996. Attest: GOTHIC ENERGY CORPORATION /s/ Linda Esley By: /s/ Michael Paulk - -------------------------------------- -------------------------- Linda Esley, Secretary Michael Paulk, President (corporate seal) EX-27 5 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 471,419 0 2,480,174 (68,990) 0 2,917,134 35,902,605 (3,051,414) 37,447,677 8,234,477 0 0 277 123,819 14,230,395 37,447,677 7,270,252 8,073,117 0 3,481,114 1,250,484 5,050,000 1,061,017 (5,088,473) 2,992,547 0 0 (1,432,973) 0 (3,805,899) (.33) (.33)
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