-----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, Fif7FS+lqmLN8kk32mln5wCR3jO1GcxbaSbXy0GeN7NCflpBDLdgEuf/pI2SdSL1 Pu++JSSKO/fcXhDrAy5dsA== 0000950134-00-003153.txt : 20000411 0000950134-00-003153.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950134-00-003153 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20000410 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: GOTHIC ENERGY CORP CENTRAL INDEX KEY: 0000878482 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 222663839 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-46067 FILM NUMBER: 596595 BUSINESS ADDRESS: STREET 1: 5727 S LEWIS AVE STE 700 STREET 2: P O BOX 186 CITY: TULSA STATE: OK ZIP: 74105 BUSINESS PHONE: 9187495666 FORMER COMPANY: FORMER CONFORMED NAME: TNC MEDIA INC DATE OF NAME CHANGE: 19930328 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CHESAPEAKE EXPLORATION L P CENTRAL INDEX KEY: 0000949557 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 731384282 STATE OF INCORPORATION: OK FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 6100 NORTH WESTERN AVENUE CITY: OKLAHOMA CITY STATE: OK ZIP: 73118 BUSINESS PHONE: 4058488000 MAIL ADDRESS: STREET 1: 6100 N WESTERN CITY: OKLAHOMA CITY STATE: OK ZIP: 73118 SC 13D/A 1 AMENDMENT NO. 3 TO SCHEDULE 13D 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D (Amendment No. 3) Under the Securities Exchange Act of 1934 GOTHIC ENERGY CORPORATION ------------------------- (Name of Issuer) Common Stock, par value $.01 ------------------------------ (Title of Class of Securities) 383482106 -------------- (CUSIP Number) Shannon Self, Esquire Self, Giddens & Lees, Inc. 2725 Oklahoma Tower 210 Park Avenue Oklahoma City, Oklahoma 73102 (405) 232-3001 ------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) April 4, 2000 ------------------------------------------------------- (Date of Event Which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box. [ ] NOTE: Six (6) copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). Page 1 of 7 Pages 2 CUSIP NO. 383482106 (1) Names of Reporting Persons, S.S. or I.R.S. Identification Nos. Chesapeake Exploration Limited of Above Persons Partnership, an Oklahoma limited partnership, successor by merger to Chesapeake Mid-Continent Corp., an Oklahoma corporation 73-1384282 (2) Check the Appropriate Box if a Member of a Group (See (a) [ ] Instructions) (b) [x] (3) SEC Use Only (4) Source of Funds (See Instructions) AF,WC (5) Check if Disclosure of Legal Proceedings is Required Pursuant [ ] to Items 2(d) or 2(e) (6) Citizenship or Place of Organization Oklahoma Number of Shares (7) Sole Voting Power 32,275,287 Beneficially Owned (8) Shared Voting Power - By Each Reporting (9) Sole Disposition 32,275,287 Person With: (10) Shared Dispositive Power - (11) Aggregate Amount Beneficially Owned by Each Reporting Person 32,275,287 (12) Check if the Aggregate Amount in Row (11) Excludes Certain [ ] Shares (See Instructions) (13) Percent of Class Represented by Amount in Row (11) 66.46% (14) Type of Reporting Person (See Instructions) PN
Page 2 of 7 Pages 3 CUSIP NO. 383482106 Preliminary Statement This Amendment No. 3 to Schedule 13D amends and restates: (a) the Schedule 13D dated September 15, 1999, and filed by Chesapeake Mid-Continent Corp., an Oklahoma corporation ("Chesapeake Mid-Continent"), as successor by merger to Chesapeake Gothic Corp., an Oklahoma Corporation ("Chesapeake Gothic"); (b) Amendment No. 1 to Schedule 13D filed on September 23, 1999, by Chesapeake Mid-Continent; and (c) Amendment No. 2 to Schedule 13D filed on October 8, 1999 by Chesapeake Mid-Continent. Item 1. Security and Issuer. The common stock par value $.01 per share (the "Common Stock"), of Gothic Energy Corporation, an Oklahoma corporation ("Gothic"). Gothic's principal executive offices are located at 6120 South Yale Avenue, Ste. 1200, Tulsa, Oklahoma 74136. Item 2. Identity and Background. Chesapeake Exploration Limited Partnership ("CELP") is an Oklahoma limited partnership having as its general partner Chesapeake Operating, Inc., an Oklahoma corporation ("COI"), and having as its limited partner Chesapeake Energy Corporation, an Oklahoma corporation ("Chesapeake Energy"). CELP and Chesapeake Mid-Continent were merged with CELP as the surviving entity. CELP, COI and Chesapeake Mid-Continent are wholly owned subsidiaries of Chesapeake Energy and are located at 6100 North Western Avenue, Oklahoma City, Oklahoma 73118, and are engaged in the ownership, development and operation of oil and gas assets in North America. The executive officers and directors of COI and Chesapeake Energy are set forth below. Each individual designated by an asterisk is a director or officer of COI and Chesapeake Energy. Aubrey K. McClendon * Director and Chief Executive Officer 6100 North Western Oklahoma City, Oklahoma 73118 Tom L. Ward * Director and Chief Operating Officer 6200 North Western Oklahoma City, Oklahoma 73118 Marcus C. Rowland * Chief Financial Officer 6100 North Western Oklahoma City, Oklahoma 73118 Page 3 of 7 Pages 4 CUSIP NO. 383482106 Edgar F. Heizer, Jr. Director 261 Bluff's Edge Drive Lake Forest, Illinois 60045 Breene M. Kerr Director 115 Bay Street Easton, Maryland 21601-2703 Shannon Self Director 2725 Oklahoma Tower 210 Park Avenue Oklahoma City, Oklahoma 73102 Frederick B. Whittemore Director 1221 Avenue of the Americas New York, New York 10020 Walter C. Wilson Director 2001 Kirby Drive, Suite 1107 Houston, Texas 77019 CELP, COI, Chesapeake Energy and each of the listed individuals have not, during the last five years, been convicted in a criminal proceeding and have not been or become subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Each individual is a United States citizen. Item 3. Source and Amount of Funds or Other Consideration On April 27, 1998, Chesapeake Gothic and certain affiliated entities made a strategic investment in Gothic (the "Transaction") and in connection therewith Chesapeake Gothic or certain affiliates acquired Gothic's Series B Senior Preferred Stock (the "Preferred Stock"), certain oil and gas interests, the right to participate in certain oil and gas development activities of Gothic under that certain Sale and Participation Agreement dated March 31, 1998 (the "Participation Agreement"), and a warrant (the "Warrant") for 2,439,246 shares of Common Stock at an exercise price of $.01 per share. The Preferred Stock, together with any Preferred Stock received as in-kind dividends on such Preferred Stock, is convertible into Common Stock at the option of CELP on ninety (90) days prior written notice after April 30, 2000. CELP'S right to convert the Preferred Stock is limited to the extent the conversion would cause CELP to own or be deemed to own more than 19.9% of the outstanding Common Stock and is subject to Gothic's prior right to redeem such Preferred Stock. The Preferred Stock is convertible into shares of Common Stock equal to the liquidation preference for the Preferred Stock divided by the greater of the fair market value of the Common Stock or $2.04167. The consideration for the Page 4 of 7 Pages 5 CUSIP NO. 383482106 Transaction was provided by Chesapeake Energy and its affiliated entities from working capital and the proceeds from one or more bond financing transactions. Subsequent to the Transaction, Chesapeake Gothic merged into Chesapeake Mid-Continent with Chesapeake Mid-Continent as the surviving entity. On August 18, 1999, Chesapeake Mid-Continent exercised the Warrant on a net basis by surrendering 45,121 warrants and receiving 2,394,125 shares of Common Stock, which represented approximately 14.7% of the then outstanding Common Stock. Effective December 31, 1999, Chesapeake Mid-Continent merged into CELP, with CELP being the surviving entity and the continuing holder of the Common Stock and the Preferred Stock. Item 4. Purpose of Transaction The Preferred Stock, the Warrant, the underlying Common Stock to be acquired from the exercise of the Warrant or the conversion of the Preferred Stock and the other interests described in Item 3 of this Schedule 13D, were acquired in the Transaction as investments by CELP's predecessors in interest. On September 13, 1999, Gothic announced that Gothic was exploring alternatives to restructure Gothic's debt and equity, which included the possible sale of assets, the issuance of new debt or the issuance of new equity securities. In connection with a potential restructure of its balance sheet proposed by Gothic, on February 28, 2000, CELP and Gothic entered into an agreement (the "OP Agreement") pursuant to which CELP agreed to grant to Gothic an option (the "Option") to redeem the Preferred Stock and Common Stock held by CELP in exchange for the assignment to CELP of certain undeveloped leasehold interests covered by the Participation Agreement. The grant of the Option under the terms of the OP Agreement and the subsequent exercise of the Option are subject to a number of conditions. The conditions were satisfied under the OP Agreement and the Option was granted by CELP to Gothic on April 4, 2000, effective March 27, 2000. As part of the consideration to be received by CELP for the grant of the Option under the OP Agreement: (a) the Participation Agreement was extended for three years to April 30, 2006; (b) CELP was granted a right of first refusal on property dispositions by Gothic or it affiliates; (c) COI was permitted to become operator of 28 wells operated by Gothic; and (d) Chesapeake Energy was granted the first right to drill, complete and operate oil and gas wells located in certain areas covered by the Participation Agreement. Subject to the terms of the Transaction, the OP Agreement, the Option and any related agreements, CELP may in the future: (i) purchase additional shares of Common Stock, debt securities or other equity securities of Gothic, (ii) sell all or part of the Common Stock or the Preferred Stock; (iii) communicate with management of Gothic regarding Gothic's business plans and the evaluation of Gothic's strategic alternatives as indicated above; or (iv) enter into additional transactions in connection with Gothic or Gothic's assets. CELP has the right to appoint one director to Gothic's board of directors, but to date has declined to exercise that right. Except as set forth above, CELP has no present plans or intentions relating to the transactions described in subparagraphs (a) through (j) of Item 4 of Schedule 13D. Page 5 of 7 Pages 6 CUSIP NO. 383482106 Item 5. Interest in Securities of the Issuer. (a) CELP owns 2,394,125 shares of Common Stock resulting from the exercise of the Warrant and 61,007 shares of Preferred Stock convertible into 29,881,162 shares of Common Stock after 90 days written notice delivered subsequent to April 30, 2000. Based on the 18,685,765 shares of Common Stock reflected as issued and outstanding in Gothic's Form 10K filed on March 30, 2000, the 2,394,125 shares of Common Stock held by CELP represents 12.81% of the outstanding Common Stock. If the Preferred Stock could be converted on the date of this Schedule 13D, the Common Stock held by CELP immediately after the conversion would represent 64.46% of the outstanding Common Stock after giving effect to the issuance of the Common Stock as a result of the conversion of the Preferred Stock. However, CELP can only convert shares of the Preferred Stock that would cause CELP or its affiliates to own no more than 19.9% of the outstanding Common Stock of Gothic. (b) CELP has the sole power to vote or dispose of the shares of Common Stock currently owned by CELP and acquired from the exercise of the Warrant. CELP has the sole power to dispose of the Preferred Stock, but will not have the right to vote or dispose of the Common Stock to be received from the conversion of the Preferred Stock until such Preferred Stock is converted. (c) CELP has the right to receive dividends which have accrued on the Preferred Stock, which dividends can be paid by Gothic on an in-kind basis. In addition to the foregoing, CELP and Gothic entered into the OP Agreement on February 27, 2000, and consummated the OP Agreement by issuing the Option on April 4, 2000, effective March 28, 2000. (d) Inapplicable. (e) Inapplicable. Item 6. Contracts, Agreements, Underwritings or Relationships With Respect to Securities of the Issuer. The Preferred Stock can be converted to Common Stock within 90 days after receipt by Gothic of written notice of exercise delivered by CELP after April 30, 2000. The holders of at least 50% of Common Stock underlying the Warrant, the Preferred Stock and related shares described in the Registration Rights Agreement can request the registration of such Common Stock under the Securities Act at any time after September 30, 1998. In addition, as part of the Transaction CELP's predecessors and Gothic entered into a standstill agreement that prohibited certain actions by CELP and its affiliates prior to March 31, 2000, including prohibitions against acquiring additional securities of Gothic or taking actions to change or influence the control of Gothic. Gothic and CELP entered into the OP Agreement and may enter into the Option. The remaining agreements entered into as part of or subsequent to the Transaction were entered into and performed in the ordinary course of the oil and gas exploration and development business. Page 6 of 7 Pages 7 CUSIP NO. 383482106 Item 7. Materials to be filed as Exhibits. 1. The Warrant dated April 27, 1998, to purchase Common Stock of Gothic issued to Chesapeake Gothic was attached as Exhibit 99.1 to the Schedule 13D dated September 15, 1999, filed by Chesapeake Mid-Continent. 2. The Option Purchase Agreement dated February 28, 2000, between Gothic Energy Corporation, an Oklahoma corporation, Gothic Production Company, an Oklahoma corporation, and Chesapeake Exploration Limited Partnership, an Oklahoma limited partnership, successor in interest by merger to Chesapeake Gothic Corp., is attached hereto as Exhibit "99.2." 3. The Option dated March 27, 2000, between Gothic Energy Corporation, an Oklahoma corporation, Gothic Production Company, an Oklahoma corporation, and Chesapeake Exploration Limited Partnership, an Oklahoma limited partnership, successor in interest by merger to Chesapeake Gothic Corp., is attached hereto as Exhibit "99.3." SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. DATED: April 6, 2000 Chesapeake Exploration Limited Partnership, an Oklahoma limited partnership By Chesapeake Operating, Inc., an Oklahoma corporation, as general partner By /s/Aubrey K. McClendon ------------------------------------ Aubrey K. McClendon Chief Executive Officer Page 7 of 7 Pages 8 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 99.2 OPTION PURCHASE AGREEMENT 99.3 OPTION AGREEMENT
EX-99.2 2 OPTION PURCHASE AGREEMENT 1 OPTION PURCHASE AGREEMENT THIS AGREEMENT is made this 28th day of February, 2000, between GOTHIC ENERGY CORPORATION, an Oklahoma corporation ("GEC"), GOTHIC PRODUCTION COMPANY, an Oklahoma corporation ("GPC" and, jointly and severally with GEC, the "Buyer"), and CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP, an Oklahoma limited partnership, successor in interest by merger to Chesapeake Gothic Corp. (the "Seller"). R E C I T A L S : WHEREAS, the Seller owns (a) 61,007.474 shares of GEC's Senior Redeemable Preferred Stock, Series B, $0.05 par value per share, (b) the right to receive accrued and unpaid dividends on such Preferred Stock payable in kind, and (c) 2,394,125 shares of GEC's Common Stock, $0.01 par value per share (collectively, the "GEC Securities"); WHEREAS, the Seller and one or more of the wholly owned subsidiaries of Chesapeake Energy Corporation (collectively, the "CEC Parties"), and the Buyer and the Buyer's affiliated entities (collectively, the "Gothic Parties") are parties to that certain Sale and Participation Agreement dated as of March 31, 1998, as amended (the "Participation Agreement") pursuant to which: (a) the Seller acquired an undivided fifty percent (50%) interest in certain oil, gas and related assets from the Gothic Parties, (b) the CEC Parties and the Gothic Parties provided for the maintenance, joint development and operation of the Existing Acreage, the Related Interests and the Acquisition Acreage (as those terms are defined in the Participation Agreement), and (c) an area of mutual interest was created among the CEC Parties and the Gothic Parties covering lands located in the States of Arkansas, Kansas, New Mexico (excluding the Pecos Slope Acreage), Oklahoma and Texas; WHEREAS, the Buyer desires to purchase an option to acquire all of the Seller's GEC Securities (the "Option") pursuant to the Option Agreement in the form at Schedule "A" attached as a part hereof (the "Option Agreement") which the Seller is willing to sell to the Buyer in exchange for certain modifications to the Participation Agreement and the performance of certain other agreements and documents set forth herein, all subject to the terms and conditions set forth in this Agreement; WHEREAS, one or more of the Discount Noteholders (as hereinafter defined) have made the execution and delivery of this Agreement and the Option a condition precedent to the Discount Noteholders entering into agreements to convert the debt held by such parties to equity of the Buyer. NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: Exhibit "99.2" Page 1 of 9 Pages 2 2. Purchase and Sale. Subject to the terms and conditions set forth in this Agreement, the Seller hereby agrees to sell the Option and the Buyer hereby agrees to purchase the Option and perform the Purchase Consideration. 3. Purchase Consideration. Upon satisfaction or waiver of the conditions precedent set forth in paragraph 3 hereof in accordance with the terms thereof, and in consideration for the sale of the Option to the Buyer and as a condition precedent to the effectiveness of such grant, the Buyer will cause the Gothic Parties to take the following actions (the"Purchase Consideration") on the Closing Date (as hereinafter defined): 3.1 Operations. The Gothic Parties will take all actions necessary to turn over to the CEC Parties operations on: (a) the wells identified at Schedule "2.1" attached as a part hereof; and (b) all wells which have been or are currently being developed under the Participation Agreement and all other wells now or hereafter proposed which are located in: (i) Meade and Clark Counties, Kansas, and (ii) Texas, Beaver, Harper, Ellis, Woods, Woodward, Dewey, Major, Blaine (Township 19N only), Custer, Grady, Pittsburg, Haskell, Latimer (except for Sections 19-36 of Township 3N Range 20E) and LeFlore Counties, Oklahoma, by permanently resigning as operator and waiving any rights under the Participation Agreement to become operator of such wells in the future. On the Closing Date the Gothic Parties will execute and deliver resignation of operator letters in form and substance satisfactory to the Seller and will vote all of the Gothic Parties' interests in such properties for the Chesapeake Parties as successor operator (the "Operator Documents"). 3.2 Extensions and Right of First Refusal. The Gothic Parties take all actions necessary to: (a) extend the term of the reassignment obligation under paragraph 1.3 of the Participation Agreement until April 30, 2006; (b) extend the Termination Date (as defined in paragraph 14 of the Participation Agreement) until April 30, 2006, for the portion of the Participation Area included in the States of Arkansas, Kansas and Oklahoma and the portion of the State of Texas located north of latitude 34(degrees)N; (c) amend the default and remedies provisions under paragraph 13 of the Participation Agreement; and (d) grant the CEC Parties preferential purchase and related rights with respect to sales of assets covered by the Participation Agreement. In order to evidence such extension, the parties will execute and deliver the Amendment Documents (as defined below) simultaneously with the execution of this Agreement. 4. Conditions Precedent to Option Grant. Unless waived in writing by the Buyer and the Seller, the sale of the Option pursuant to this Agreement is subject to the satisfaction of all of the following conditions precedent on or before March 14, 2000 (the "Condition Satisfaction Period"), unless extended in writing by the Seller: 4.1 Authorization. The terms of this Agreement and the Option will have been duly authorized by the respective Boards of Directors of the Buyer and the Seller. Exhibit "99.2" Page 2 of 9 Pages 3 4.2 Consents. The Buyer and the Seller will have received required written consents to the terms and conditions of this Agreement from the holders of the Buyer's 14 1/8% Senior Secured Discount Notes (the "Discount Noteholders"), Bank One, Texas, N.A., and any other necessary parties. 4.3 No Actions. No actions will have been taken or threatened to prevent any party from entering into of this Agreement, performing this Agreement or seeking other relief as a result of this Agreement. 4.4 Discount Noteholders. The Discount Noteholders and the Gothic Parties will have executed and delivered the instruments necessary to evidence the agreement of the Discount Noteholders to convert all of the notes held by the Discount Noteholders into equity of the Buyer. 4.5 Additional Documents. The Gothic Parties and the CEC Parties will have each executed and delivered to the other parties such additional documents and instruments as might be reasonably requested by the Buyer or the Seller to consummate this Agreement. 4.6 JIB Payments. The Gothic Parties and the CEC Parties will have each paid current all joint interest billings owing to the parties as required by the Joint Operating Agreements attached to the Participation Agreement. 5. Closing. Unless extended in writing by the Seller, the transactions contemplated by this Agreement will be consummated on the date (the "Closing Date") which is two (2) business days after the date all of the conditions under paragraph 3 of this Agreement have been satisfied in full or waived in writing by the Buyer and the Seller. 5.1 Seller's Deliveries. Subject to the terms and conditions of this Agreement and the performance of the Buyer's obligations under paragraph 4.2 of this Agreement, on the Closing Date the Seller will deliver or cause to be delivered to the Buyer the following items (all documents will be duly executed and acknowledged where required): 5.1.1 Option. The Option and the Amendment Documents (as hereinafter defined); 5.1.2 Evidence of Authority. Such resolutions, certificates of good standing, incumbency certificates and other evidence of authority with respect to the Seller as might be reasonably requested by the Buyer; 5.1.3 Additional Documents. Such additional documents as might be reasonably requested by Gothic to consummate this Agreement. Exhibit "99.2" Page 3 of 9 Pages 4 5.2 Buyer's Deliveries. On the Closing Date, the Buyer will deliver or cause to be delivered to the Seller the following items (all documents will be duly executed and acknowledged where required): 5.2.1 Purchase Consideration. The Gothic Parties will have each executed and delivered to the Seller the Second Amendment to Participation Agreement in the form of Schedule "4.2.1" attached hereto as a part hereof and the other documents contemplated thereby (the "Amendment Documents"), the Operator Documents and any other documents required to evidence the Purchase Consideration; 5.2.2 Evidence of Authority. Such corporate resolutions, certificates of good standing, incumbency certificates and other evidence of authority with respect to each of the Gothic Parties as might be reasonably requested by the Seller; 5.2.3 Additional Documents. Such additional documents as might be reasonably requested by the Seller to consummate this Agreement. 6. Seller Representations and Warranties. The Seller hereby represents and warrants to the Buyer that: 5.1 Title. The Seller has good and valid title to the GEC Securities, free and clear of all liens, claims and encumbrances. 5.2 Authority and Reliance. The Seller has taken all necessary action to authorize the execution, delivery and performance of this Agreement, the Amendment Documents, the Operator Documents and the Option Agreement and has adequate power, authority and legal right to enter into, execute, deliver and perform this Agreement and to issue the Option as contemplated hereby. 5.3 Consents. No consent, approval, license, qualification or formal exemption from, nor any filing, declaration or registration with, any court, governmental agency or regulatory authority or any securities exchange is required in connection with the execution, delivery or performance by the Seller of this Agreement. 5.4 Litigation. There is no action, suit, investigation or proceeding, governmental or otherwise, pending or, to the best knowledge of the Seller, threatened to which any of the CEC Parties is or would be a party which seeks to restrain, enjoin, prevent the consummation of or otherwise challenge this Agreement or the Seller's granting of the Option or questions the legality or validity of any such transactions or seeks to recover damages or obtain other relief in connection with any such transactions. Exhibit "99.2" Page 4 of 9 Pages 5 7. Buyer Representations and Warranties. The Buyer hereby represents and warrants to the Seller that: 7.1 Authority and Reliance. The Buyer has taken all necessary action to authorize the execution, delivery and performance of this Agreement, the Amendment Documents, the Operator Documents and the Option Agreement and has all requisite corporate power, authority and legal right to enter into, execute, deliver and perform this Agreement, the Amendment Documents, the Operator Documents and the Option Agreement. The Buyer further represents and warrants that, in purchasing the Option, the Buyer has relied upon independent investigations made by the Buyer or the Buyer's representatives, that the Buyer has had sufficient opportunities to make inquiries of the Seller and that the Buyer and such representatives have been given the opportunity to examine all documents concerning the terms and conditions of the Option. The Buyer represents and warrants that the Buyer is experienced in the oil and gas business, has knowledge and experience in business and financial matters and is competent to evaluate the value of the Option and the benefits and risks relating to the purchase of the Option and the Buyer has determined that the consideration being given by the Buyer is the fair value equivalent of the consideration being received by the Buyer for the granting of the Option. 7.2 Consents. The Buyer has obtained and provided to the Seller all consents, approvals or waivers necessary or appropriate for the Buyer to enter into this Agreement and to consummate the transactions contemplated hereby. No other authorization, consent, approval, license, qualification or formal exemption from, nor any filing, declaration or registration with, any court, governmental agency or regulatory authority or any securities exchange is required in connection with the execution, delivery or performance by the Gothic Parties of this Agreement. 7.3 Litigation. There is no action, suit, investigation or proceeding, governmental or otherwise, pending or, to the best knowledge of the Buyer, threatened to which any of the Gothic Parties is or would be a party which seeks to restrain, enjoin, prevent the consummation of or otherwise challenge this Agreement or the Buyer's purchase of the Option or questions the legality or validity of any such transactions or seeks to recover damages or obtain other relief in connection with any such transactions. 8. Default; Failure of Conditions. In the event either party fails to perform such party's obligations hereunder (except as excused by another party's default) (the "Defaulting Party") such failure will constitute an event of default under this Agreement and the other party (the "Other Party") will have the right to exercise any and all remedies available at law or in equity unless such default is waived by the Other Party or cured by the Defaulting Party within five (5) business days after receipt of notice of such default. The remedies provided by this Agreement are cumulative and will not exclude any other remedy to which the Other Party might be entitled under this Agreement or applicable law. In the event the Other Party elects to selectively and successfully enforce the Exhibit "99.2" Page 5 of 9 Pages 6 Other Party's rights under this Agreement, such action will not be deemed a waiver or discharge of any other remedy. During the pendency of any default or disputes, this Agreement will be deemed to be in full force. Notwithstanding anything herein to the contrary, on the occurrence of a default or other breach of this Agreement by the Buyer, the Seller may terminate the Option and the Option Agreement in the sole and absolute discretion of the Seller. 9. Standstill. Each of the parties irrevocably agree that the negotiation, preparation, execution and delivery of this Agreement and any preliminary discussions with any person regarding this Agreement, the Option or any similar transaction will not and did not violate any standstill, nonsolicitation or similar agreement including, without implied limitation, paragraph 5.4 of the Securities Purchase Agreement among the Buyer, Chesapeake Acquisition Corporation and Chesapeake Gothic Corp. dated March 31, 1998 (the "Securities Purchase Agreement"), and relating to the purchase of the GEC Securities by affiliates of the Seller. The Buyer hereby releases, acquits and forever discharges the CEC Parties and the CEC Parties' directors, officers, shareholders, partners, members, employees, agents, attorneys, parent corporations, subsidiary corporations, affiliates and such parties' respective successors and assigns from any and all claims, whether asserted or assertable, known or unknown, and all actions, debts, suits, causes of action, both at law and in equity, demands, defenses, offsets, liabilities, losses, obligations or damages directly or indirectly related to any violation or alleged violation of the Securities Purchase Agreement arising out of any action, inaction, contact, discussions or matter prior to the date of this Agreement including, without implied limitation, any violation or alleged violation of any standstill or confidentiality agreement set forth in the Securities Purchase Agreement or otherwise. 10. Deferral of Operations Turnovers. Notwithstanding anything to the contrary in this Agreement or in the Participation Agreement, during the Condition Satisfaction Period, the Seller will not be required to turnover operations on any wells located in the areas described in paragraph 2.1 of this Agreement including, without limitation, the Della 1-9 well. 11. Miscellaneous. It is further agreed as follows: 11.1 Time. Time is of the essence of this Agreement. 11.2 Notices. Any notice, demand or communication required or permitted to be given by any provision of this Agreement will be in writing and will be deemed to have been given and received when delivered personally or by telefacsimile to the party designated to receive such notice, or on the date following the day sent by overnight courier, or on the third (3rd) business day after the same is sent by certified mail, postage and charges prepaid, directed to the following addresses or to such other or additional addresses as any party might designate by written notice to the other parties: Exhibit "99.2" Page 6 of 9 Pages 7 To the Buyer: Gothic Energy Corporation 6120 South Yale Avenue, Suite 1200 Tulsa, Oklahoma 74136 Attn: Michael K. Paulk Telephone (918) 749-5666 Fax No. (918) 749-5882 With a copy to: Pray, Walker, Jackman, Williamson & Marlar 900 OneOk Plaza 100 West 5th Street Tulsa, Oklahoma 74103-4218 Attn: Ira L. Edwards, Jr. Telephone (918) 581-5500 Fax No. (918) 581-5599 To the Seller: Chesapeake Energy Corporation 6100 North Western Avenue Oklahoma City, Oklahoma 73118 Attn: Aubrey K. McClendon Telephone (405) 879-9226 Fax No. (405) 848-8588 With a copy to: Self, Giddens & Lees, Inc. 2725 Oklahoma Tower 210 Park Avenue Oklahoma City, Oklahoma 73102 Attn: Ray Lees Telephone (405) 232-3001 Fax: (405) 232-5553 11.3 Press Release. Except to the extent required by applicable disclosure requirements, all press releases relating to this Agreement and the transactions contemplated by this Agreement will be approved by the Buyer and the Seller prior to dissemination. 11.4 Choice of Law. This Agreement will be interpreted, construed and enforced in accordance with the laws of the State of Oklahoma and will be deemed for such purposes to have been made, executed and performed in Oklahoma County, Oklahoma. All claims, disputes and other matters in question arising out of or relating to this Agreement will be decided by proceedings instituted and litigated in the District Court of Oklahoma County, Oklahoma, or the United States District Court for the Western District of Oklahoma. Exhibit "99.2" Page 7 of 9 Pages 8 11.5 Headings. The paragraph headings contained in this Agreement are for reference purposes only and are not intended to affect in any way the meaning or interpretation of this Agreement. 11.6 No Oral Agreements. There are no unwritten oral agreements, understandings, warranties or representations with respect to the subject matter of this Agreement. 11.7 Assignment. It is agreed that neither party may assign such party's rights nor delegate such party's duties under this Agreement without the express written consent of the other party to this Agreement. 11.8 Amendment. Neither this Agreement, nor any of the provisions hereof can be changed, waived, discharged or terminated, except by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. 11.9 Severability. If any clause or provision of this Agreement is illegal, invalid or unenforceable under any present or future law, the remainder of this Agreement will not be affected thereby. It is the intention of the parties that if any such provision is held to be illegal, invalid or unenforceable, there will be added in lieu thereof a provision as similar in terms to such provisions as is possible to cause such provision to be legal, valid and enforceable. 11.10 Attorney Fees. If any party institutes an action or proceeding against any other party relating to the provisions of this Agreement, the party to such action or proceeding which does not prevail will reimburse the prevailing party therein for the reasonable expenses of attorneys' fees and disbursements incurred by the prevailing party. 11.11 Waiver. Waiver of performance of any obligation or term contained in this Agreement by any party, or waiver by one party of the other's default hereunder must be in writing and will not operate as a waiver of performance of any other obligation or term of this Agreement or constitute a future waiver of the same obligation or a waiver of any future default. IN WITNESS WHEREOF, the Seller and the Buyer have executed this Agreement as of the date first above written. GOTHIC ENERGY CORPORATION, an Oklahoma corporation By /s/ Michael K. Paulk ----------------------------------------------- Michael K. Paulk, President Exhibit "99.2" Page 8 of 9 Pages 9 GOTHIC PRODUCTION COMPANY, an Oklahoma corporation By /s/ Michael K. Paulk ------------------------------------------ Michael K. Paulk, President (jointly and severally referred to herein as the "Buyer") CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP, an Oklahoma limited partnership By: Chesapeake Operating, Inc., General Partner By /s/ Aubrey K. McClendon ---------------------------------- Aubrey K. McClendon, Chief Executive Officer (the "Seller") Exhibit "99.2" Page 9 of 9 Pages EX-99.3 3 OPTION AGREEMENT 1 OPTION AGREEMENT THIS AGREEMENT is made this 27th day of March, 2000, between GOTHIC ENERGY CORPORATION, an Oklahoma corporation ("GEC"), GOTHIC PRODUCTION COMPANY, an Oklahoma corporation ("GPC"and, jointly and severally with GEC, "Gothic"), and CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP, an Oklahoma limited partnership, successor in interest by merger to Chesapeake Gothic Corp. ("Chesapeake"). R E C I T A L S : WHEREAS, Chesapeake owns (a) 61,007.474 shares of GEC's Senior Redeemable Preferred Stock, Series B, $0.05 par value per share, (b) the right to receive accrued and unpaid dividends on such Preferred Stock payable in kind, and (c) 2,394,125 shares of GEC's Common Stock, $0.01 par value per share (collectively, the "GEC Securities"); WHEREAS, Chesapeake or one or more of the wholly owned subsidiaries of Chesapeake Energy Corporation (collectively, the "CEC Parties"), and Gothic and its affiliated entities (collectively, the "Gothic Parties") are parties to that certain Sale and Participation Agreement dated as of March 31, 1998, as amended (the "Participation Agreement") pursuant to which: (a) Chesapeake acquired an undivided fifty percent (50%) interest in certain oil, gas and related assets from the Gothic Parties, (b) the CEC Parties and the Gothic Parties provided for the maintenance, joint development and operation of the Existing Acreage, the Related Interests and the Acquisition Acreage (as those terms are defined in the Participation Agreement), and (c) an area of mutual interest was created among the CEC Parties and the Gothic Parties covering lands located in whole or in part in the States of Arkansas, Kansas, New Mexico (excluding the Pecos Slope Acreage), Oklahoma and Texas; and WHEREAS, Gothic has purchased an option to acquire all of Chesapeake's GEC Securities which Chesapeake has granted, such option to be evidenced by and subject to the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of receipt of the consideration set forth in that certain Option Purchase Agreement of even date herewith, the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Option Agreement. Chesapeake hereby grants to Gothic the right and option to purchase all of the GEC Securities owned by Chesapeake (the "Option") in strict accordance with the terms and conditions of this Agreement. 2. Term. Unless Fully Exercised in strict accordance with all of the terms and conditions set forth in this Agreement, unless extended in writing by Chesapeake, the Option will expire on the earlier of: (i) January 31, 2001, at 5:00 p.m. Oklahoma City, Oklahoma time; or (ii) thirty (30) days after the confirmation order of the plan of bankruptcy for Gothic (the "Option Period"), and all rights and obligations of Chesapeake and the Gothic Parties under this Agreement will expire and terminate Exhibit "99.3" Page 1 of 17 Pages 2 without any further notice or action. The Option will be deemed "Fully Exercised" if, and only if, each of the following actions is completed before the expiration of the Option Period: (a) receipt by Chesapeake of the exercise notice under paragraph of this Agreement; (b) satisfaction in full by the Gothic Parties of all conditions precedent set forth in this Agreement; and (c) full and complete performance by the Gothic Parties of the Exercise Consideration (as defined below) including, without implied limitation, the execution, delivery and recordation (where appropriate) of the Conveyance Documents and the Restated Participation Agreement (as those terms are defined below). 3. Exercise. Gothic may exercise the Option at any time prior to the expiration of the Option Period by delivery to Chesapeake of a written notice advising Chesapeake of Gothic's intent to exercise the Option. On receipt of such notice of intent to exercise: (a) this Agreement will be deemed a legally binding agreement by Gothic to purchase the GEC Securities from Chesapeake prior to the expiration of the Option Period on the terms and conditions stated in this Agreement; and (b) this Agreement will be deemed to be a legally binding agreement by Chesapeake to sell the GEC Securities to Gothic prior to the expiration of the Option Period under the terms and conditions stated in this Agreement. Notwithstanding the foregoing, Chesapeake will have no obligation to assign or deliver any interest in the GEC Securities to Gothic until the Option is Fully Exercised. 4. Exercise Consideration. The payment of the "Exercise Consideration" means the performance by Gothic of all of the following agreements in accordance herewith: 4.1 Sale and Conveyance. As a portion of the Exercise Consideration the Gothic Parties will convey and assign to the CEC Parties all of the Gothic Parties' right, title and interest in and to the Properties (as defined below) free and clear of any and all liens, claims and encumbrances. The Properties assigned to the CEC Parties will be assigned pursuant to the form of assignment at Schedule "(a)" attached as a part hereof with appropriate schedules attached to describe the Properties as set forth in Schedule "4.1(b)" attached hereto as a part hereof (the "Property Schedules") and the Properties located within the CHK Area (as hereinafter defined) will be released from the terms of the Participation Agreement in all respects. 4.2 Participation Agreement. The Gothic Parties and the CEC Parties will enter into the Amended and Restated Participation Agreement in the form of Schedule "4.2" attached as a part hereof (the "Restated Participation Agreement") which will amend and replace the Participation Agreement to the extent set forth in the Restated Participation Agreement. 4.3 Definitions. For purposes of this Agreement the term "Properties" means the following: (a) any right to any reconveyance in favor of the Gothic Parties under paragraph 1.3 of the Participation Agreement, any reversion or any other interest owned by the Gothic Parties under the Participation Agreement in the fifty percent (50%) interest in the Existing Acreage, the Related Interests and the Acquisition Acreage (as those terms are defined in the Participation Agreement) previously Exhibit "99.3" Page 2 of 17 Pages 3 conveyed to the CEC Parties together with any related interests or property rights acquired by the CEC Parties so that the CEC Parties own such interest in any and all acreage, interests and property rights acquired in connection with the Participation Agreement free and clear of all re-assignment obligations, reversionary interests or any other terms or obligations under the Participation Agreement; (b) except for the Gothic Wellbore Interests (as defined below) but specifically including any other wells participated in by the Gothic Parties pursuant to paragraph 5.8 of this Agreement, all of the Gothic Parties' right, title and interest in all oil, gas and mineral interests of every kind and character within the CHK Area (as defined below) together with any related interests and property rights including, without limitation, any interest in farmout agreements, contribution agreements, exploration agreements, access agreements, the Existing Acreage, the Related Interests, the Acquisition Acreage and other agreements to acquire such interests which are owned by the Gothic Parties in the CHK Area; and (c) the right to operations of all wells in the CHK Area including, without limitation, any well containing the Gothic Wellbore Interests. For purposes of this Agreement: (y) the term "CHK Area" means: (i) Meade and Clark Counties, Kansas, and (ii) Texas, Beaver, Harper, Ellis, Woods, Woodward, Dewey, Major, Blaine (Townships in 19N only), Custer, Grady (Townships in 7N, 8N and 9N only), Pittsburg, Haskell, Latimer (excluding Sections 25, 34, 35 and 36 in Township 3 North, Range 19 East, Sections 19, 22, 23, 24, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 and 36 in Township 3 North, Range 20 East and Sections 19, 20, 27, 28, 31, 32, 33, and 34 in Township 3 North, Range 21 East) and LeFlore Counties, Oklahoma; and (z) the term "Gothic Wellbore Interests" means the Gothic Parties' interests in the following wellbores (but excluding any interest in any acreage within the applicable governmental production unit): (i) any wellbores in the CHK Area which were producing in paying quantities as of February 1, 2000, and (ii) the next wellbores to be drilled in the designated quarter section of the governmental spacing units as described in Schedule "4.3" attached hereto as a part hereof which includes four (4) locations in Custer County, Oklahoma, six (6) locations in Pittsburg County, Oklahoma, four (4) locations in Latimer County, Oklahoma and one (1) location in Major County, Oklahoma. 5. Conditions Precedent to Exercise. Unless waived in writing by Chesapeake in Chesapeake's sole discretion, the right of Gothic to exercise the Option is subject to the satisfaction of all of the following conditions precedent: 5.1 Plan of Reorganization. A plan of reorganization for Gothic will have been confirmed under the United States Bankruptcy Code, as amended, on terms and conditions which approve, without modification, this Agreement, the Restated Participation Agreement and all of the other instruments, agreements, conveyances, certificates, memoranda and other documents to be entered into upon the exercise of the Option and the consummation of the provisions of this Agreement (the "Conveyance Documents"). Exhibit "99.3" Page 3 of 17 Pages 4 5.2 Approvals. Chesapeake and Gothic will have received written consents and approvals to the terms and conditions of this Agreement and the Conveyance Documents in form and substance satisfactory to Chesapeake from the holders of the Gothic's 14 1/8% Senior Secured Discount Notes, the holders of the Gothic's Senior Notes, Bank One, Texas, N.A., and any other necessary parties deemed necessary or prudent by Chesapeake. 5.3 Lien Releases. Chesapeake will have received lien releases and other documents required to assure Chesapeake that the Properties and the other interests to be acquired by the CEC Parties under the Conveyance Documents will be free and clear of all liens, claims and encumbrances. 5.4 Conveyance Documents. The Conveyance Documents will have been duly executed, acknowledged (where appropriate) and delivered by the Gothic Parties and the CEC Parties, the Conveyance Documents will include a certificate making and reaffirming each of the representations, warranties, covenants and agreements set forth in this Agreement, and the covenants and conditions precedent set forth therein will have been satisfied. 5.5 Litigation. No actions, suits or litigation will have been threatened or filed seeking to prevent the consummation of the transactions contemplated by the Conveyance Documents or seeking damages or other relief as a result of the Conveyance Documents or the consummation of the transactions contemplated thereby and: (a) no preliminary or permanent injunction or other order will have been issued by any court of competent jurisdiction or any regulatory body preventing consummation of the transactions contemplated by this Agreement or the Conveyance Documents; (b) no action will have been commenced or threatened against Chesapeake, Gothic or any of their respective affiliates, associates, officers or directors seeking damages arising from, to prevent or challenge the transactions contemplated by this Agreement and the Conveyance Documents; (c) all representations and warranties of Gothic contained herein will be true and correct in all material respects on and as of the date of the exercise of the Option; and (d) the Gothic Parties will have performed or satisfied on and as of the date of the exercise of the Option, all obligations, covenants, agreements and conditions contained in this Agreement and the Conveyance Documents to be performed or complied with by the Gothic Parties. 5.6 Lease Maintenance. The Gothic Parties will have maintained in full force and effect all of the oil, gas and mineral leases, farmout agreements, joint development agreements, joint operating agreements and other oil and gas related interests covered by the Participation Agreement in full force and effect and will not have rejected or terminated any of such interests or breached any of the terms or conditions applicable thereto. Exhibit "99.3" Page 4 of 17 Pages 5 5.7 No Default. The Gothic Parties will have not defaulted under this Agreement, the Participation Agreement or the Option Purchase Agreement, each of the Gothic Parties' representations and warranties will be true and correct in all material respects and there will not have occurred any event that would constitute an event of default with the passage of time. 5.8 Participation. The Gothic Parties will not have proposed any wells to be drilled in or on any governmental production unit (as defined in the Participation Agreement) containing any of the Properties in the CHK Area as to which drilling operations had not commenced prior to February 1, 2000 and, with respect to any wells (other than the Gothic Wellbore Interests) proposed by the Chesapeake Parties or third parties spudded after February 1, 2000 ("Interim Wells"), in the event the Gothic Parties elect to participate therein, all of the interests of the Gothic Parties in such Interim Wells and the governmental spacing units with respect thereto will, at Chesapeake's election, be included in the Properties to be conveyed to Chesapeake pursuant to paragraph 10.2.1 of this Agreement. In the event the Gothic Parties elect not to participate in any such Interim Wells, the Gothic Parties will have farmed out, assigned or otherwise conveyed to the Chesapeake Parties, the Gothic Parties' interests in any such Interim Wells and the governmental spacing units pursuant to the Participation Agreement. 5.9 JIB Payments. The Gothic Parties will have paid current all joint interest billings owing to the CEC Parties as required by the Joint Operating Agreements attached to the Participation Agreement. 5.10 Motion to Affirm. Within forty-five (45) days after the filing of the petition in bankruptcy for one or more of the Gothic Parties, the Gothic Parties will have filed a motion and will thereafter diligently pursue entry of an order in such bankruptcy proceeding to irrevocably affirm this Agreement, the Option, the Conveyance Documents, the Participation Agreement and the Restated Participation Agreement in all respects. 6. Chesapeake Representations and Warranties. Chesapeake hereby represents and warrants to Gothic that as of the date of this Agreement and until the Option is exercised in accordance with the terms and conditions of this Agreement or the Option Period has expired without the Option being exercised: 6.1 Ownership. Chesapeake has and will have good and valid title to the GEC Securities, free and clear of all liens, claims and encumbrances. No person or entity other than the CEC Parties has or will have any interest in the GEC Securities either of record or beneficially. 6.2 Authority. Chesapeake has taken all necessary action to authorize the execution, delivery and performance of this Agreement and has adequate corporate power, Exhibit "99.3" Page 5 of 17 Pages 6 authority and legal right to enter into, execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. 6.3 Absence of Liabilities. Except as approved by Gothic in writing prior to the Closing Date: (a) Chesapeake has no debt, liability, obligation or commitment, absolute or contingent, known or unknown, relating to or connected with the GEC Securities; (b) the GEC Securities will not be subject to or liable for any claim, debt, liability, lien, encumbrance, obligation, guaranty or commitment of Chesapeake on the Closing Date; and (c) any such claims, debts, liabilities, obligations or commitments will be the sole responsibility of Chesapeake and Chesapeake hereby agrees to indemnify and hold harmless Gothic from all such matters. 6.4 Consents and Approvals. No notice to, filing with, or authorization, consent or approval of any governmental entity, person or other entity is necessary for the consummation of the transactions contemplated by this Agreement. The execution, delivery, performance and consummation of this Agreement does not and will not: (a) violate, conflict with or constitute a default or an event that, with notice or lapse of time or both, would be a default, breach or violation under any term or provision of any instrument, agreement, contract, commitment, license, promissory note, conditional sales contract, indenture, mortgage, deed of trust, lease or other agreement, instrument or arrangement to which Chesapeake is a party or by which Chesapeake or, to the best of Chesapeake's knowledge, the GEC Securities are bound; (b) violate, conflict or constitute a breach of any statute, regulation or judicial or administrative order, award, judgment or decree to which Chesapeake is a party or to which Chesapeake or, to the best of Chesapeake's knowledge the GEC Securities are bound; or (c) result in the creation or imposition of any adverse claim or interest, lien, encumbrance, charge, equity or restriction of any nature whatever, upon or affecting Chesapeake, or to the best of Chesapeake's knowledge, the GEC Securities or Gothic. 7. Gothic Representations and Warranties. Gothic hereby represents and warrants to Chesapeake that as of the date of this Agreement and as of the Closing Date: 7.1 Authority and Reliance. Gothic has taken all necessary action to authorize the execution, delivery and performance of this Agreement and has all requisite corporate power, authority and legal right to enter into, execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby and to own, lease, and operate its properties and to conduct its business as now being conducted. Gothic represents and warrants that Gothic is experienced in the oil and gas business and has knowledge and experience in business and financial matters and, with respect to investments generally and, in particular, investments generally comparable to the Option and the GEC Securities, Gothic is competent to evaluate the value of each of the GEC Securities and the Exercise Price and the benefits and risks relating to this Agreement and Gothic has determined that the Exhibit "99.3" Page 6 of 17 Pages 7 consideration being given by Gothic is the fair value equivalent of the consideration being received by Gothic for the purchase and exercise of the Option. If Gothic exercises the Option, Gothic's representations and warranties hereunder will extend fully to the exercise of the Option as if made on the date the Option is exercised. 7.2 Consents. Gothic has obtained and provided to Chesapeake all consents, approvals or waivers necessary or appropriate for Gothic to enter into this Agreement and to consummate the transactions contemplated hereby. No other authorization, consent, approval, license, qualification or formal exemption from, nor any filing, declaration or registration with, any court, governmental agency or regulatory authority or any securities exchange is required in connection with the execution, delivery or performance by the Gothic Parties of this Agreement. 7.3 Litigation. There is no action, suit, investigation or proceeding, governmental or otherwise, pending or, to the best of Gothic's knowledge, threatened to which any of the Gothic Parties is or would be a party or of which the Properties, the Properties or other assets of the Gothic Parties is or would be subject. 7.4 Properties. All of the oil, gas and related interests of every kind and character owned by the Gothic Parties or any of the Gothic Parties' direct or indirect subsidiaries which are located in the CHK Area are described in Schedule "7.4" attached as a part hereof. 8. Covenants. Unless waived in writing, the parties agree to the following during the Option Period: 8.1 Conduct of Businesses. Prior to the exercise of the Option or expiration of the Option Period, the Gothic Parties will operate in a businesslike manner in accordance with prior practices and will maintain and preserve all of the assets and businesses of the Gothic Parties including the Properties. 8.2 Properties. The Gothic Parties have not and will not: (a) transfer, sell, mortgage, pledge, encumber or dispose of any assets covered by this Agreement or the Restated Participation Agreement, except for the existing mortgages which have been subordinated to the interests of Chesapeake pursuant to the Participation Agreement; or (b) except in the ordinary course of business consistent with past business practices, make or permit any amendment or termination of any material contract, agreement or commitment affecting the assets covered by this Agreement or the Restated Participation Agreement. 8.3 Consents. The parties will use their best efforts to obtain, all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and parties to contracts with the Gothic Parties as are necessary for the Exhibit "99.3" Page 7 of 17 Pages 8 consummation of the transactions contemplated by this Agreement or are reasonably requested by Chesapeake. 8.4 Litigation. Promptly on learning thereof, each party to this Agreement will notify the other party of any litigation, suit or administrative proceeding that could reasonably be expected to have a material adverse affect on the ability of the parties to consummate the transactions contemplated by this Agreement or the Conveyance Documents, or otherwise adversely affect any of the businesses, affairs, assets, prospects, operations or conditions, financial or otherwise, of the parties, whether or not the claim is considered to be covered by insurance. Gothic and Chesapeake each agree to not to agree to or join in the pursuit of any injunctive relief prohibiting the transactions contemplated by this Agreement. 8.5 Plan of Reorganization. Gothic will not propose or consent to any plan of reorganization which materially conflicts with any of the terms and conditions of this Agreement, the Conveyance Documents or the Restated Participation Agreement and will not dispute or seek to modify or rescind this Agreement in any bankruptcy proceeding or other action affecting Gothic. The Gothic Parties will simultaneously provide to Chesapeake copies of all notices, filings and other documents relating to the Gothic Parties bankruptcy, reorganization or any proposed plan of reorganization including, without limitation, all communications to, from or among any of the Gothic Parties, any formal or informal committees of creditors or security holders or any creditors of the Gothic Parties, whether before or after the filing of bankruptcy. 8.6 GEC Securities. Chesapeake will not transfer, sell, pledge, encumber or dispose of any of the GEC Securities. 9. Representations and Warranties for the Properties. As an inducement to Chesapeake to enter into this Agreement and accept the assignment of the interests in the Properties, Gothic represents and warrants to Chesapeake that as of the date of this Agreement and the Closing Date: 9.1 No Assumption of Obligations. Except as approved by Chesapeake in writing prior to the Closing Date, the execution and consummation of this Agreement will not obligate Chesapeake with respect to (or result in the assumption by Chesapeake of) any obligation of Gothic arising prior to the Closing Date under or with respect to, any liability, agreement or commitment relating to the Properties including, without implied limitation, to pay to or share with any third party any portion of the Hydrocarbons attributable to the Properties. The term "Hydrocarbons" means and includes oil, gas, casinghead gas, condensate, natural gas liquids and all components of the foregoing. 9.2 Absence of Liabilities. Except as approved by Chesapeake in writing prior to the Closing Date: (a) Gothic has no debt, liability, obligation or commitment, absolute or contingent, known or unknown, relating to or connected with the Properties; Exhibit "99.3" Page 8 of 17 Pages 9 (b) neither Chesapeake nor the Properties will be subject to or liable for any claim, debt, liability, lien, encumbrance, obligation, guaranty or commitment on the Closing Date; and (c) any such claims, debts, liabilities, obligations or commitments will be the sole responsibility of Gothic and Gothic hereby agrees to indemnify and hold harmless Chesapeake from all such matters. Gothic has complied and will continue to comply with all applicable federal, state or local statutes, laws and regulations. 9.3 Contracts. Gothic has delivered to Chesapeake true copies (or descriptions, in the case of oral agreements) of all of the contracts and agreements relating to the Properties including, without limitation, all marketing and production sales contracts. Except as approved by Chesapeake in writing prior to the Closing Date, no such marketing or production sales contracts will in any way prevent or hinder Chesapeake in taking in kind Chesapeake's share of production from the Properties. There are no other material contracts, commitments or agreements in effect related to the Properties that have not been disclosed to Chesapeake in writing. To the best of Gothic's knowledge: (a) such contracts and agreements are in full force and effect; (b) no event of default or event which would become an event of default with the giving of notice or passage of time has occurred; and (c) no condition presently exists which would give any party to any such contract the right to terminate such contract. There are no other material contracts, commitments or agreements in effect related to the Properties. 9.4 Consents and Approvals. No notice to, filing with, or authorization, consent or approval of any governmental entity, person or other entity is necessary for the consummation of the transactions contemplated by this Agreement. The execution, delivery, performance and consummation of this Agreement does not and will not: violate, conflict with or constitute a default or an event that, with notice or lapse of time or both, would be a default, breach or violation under any term or provision of any instrument, agreement, contract, commitment, license, promissory note, conditional sales contract, indenture, mortgage, deed of trust, lease or other agreement, instrument or arrangement to which Gothic is a party or by which Gothic or, to the best of Gothic's knowledge, the Properties are bound; violate, conflict or constitute a breach of any statute, regulation or judicial or administrative order, award, judgment or decree to which Gothic is a party or to which Gothic or, to the best of Gothic's knowledge the Properties are bound; or result in the creation or imposition of any adverse claim or interest, lien, encumbrance, charge, equity or restriction of any nature whatever, upon or affecting Gothic, or to the best of Gothic's knowledge, the Properties or Chesapeake. 9.5 Litigation. To the best of Gothic's knowledge there is: (a) no action, suit or proceeding pending, threatened or contemplated against Gothic or the Properties; and (b) no proceeding, investigation, charge, audit or inquiry threatened or pending before or by any federal, state, municipal or other governmental court, Exhibit "99.3" Page 9 of 17 Pages 10 department, commission, board, bureau, agency or instrumentality which might result in an adverse effect on Gothic or the Properties. Gothic hereby agrees to indemnify and hold harmless Chesapeake with respect to any and all litigation and proceedings. 9.6 Title. Gothic owns, possesses and holds good and defensible title beneficially and of record in and to the respective Properties free and clear of all claims, liens, encumbrances, conditions, restrictions, calls on production, obligations to pay to or share with third parties any revenue or other matter adversely affecting the value or ownership of the Properties. All of the oil, gas and related interests of every kind and character owned by Gothic or any of Gothic's affiliates which are located in the CHK Area are described in the Conveyance Documents. Gothic is entitled to receive not less than the "Net Revenue Interest" set forth in the Conveyance Documents of all Hydrocarbons produced, saved and marketed from the Properties without reduction, suspension or termination of such interest throughout the duration of the productive life of such Properties and is in no event obligated to bear any of the costs and expenses related to the maintenance, development or operation (including, without limitation, the costs and expenses of plugging and abandoning any wells and removal and salvage of any equipment and facilities) of the Properties throughout the productive life of the Properties in excess of the "Working Interest" set forth in Conveyance Documents. To the best of Gothic's knowledge, there are no suspended revenues or any basis to suspend revenues from the Properties. To the best of Gothic's knowledge, there does not exist any lien, claim, encumbrance, restriction or other matter which might cause Chesapeake to not receive for its own account free and clear of all liens, claims and encumbrances the percentage of the fair market value of all Hydrocarbons produced, saved or used from each of the Properties after the Closing Date equal to the Net Revenue Interest designated in the Conveyance Documents. 9.7 Foreign Person. Gothic is not a "foreign person" as that term is defined under the Internal Revenue Code of 1986. 9.8 Oil and Gas Leases in Good Standing. Except as approved by Chesapeake in writing prior to the Closing Date, to the best of Gothic's knowledge all oil and gas leases which are material singly or in the aggregate are in full force and effect, and Gothic is not in default thereunder. 9.9 Taxes. All ad valorem, property, production, severance and similar taxes and assessments based on or measured by the ownership of property comprising the Properties or the production or removal of hydrocarbons or the receipt of proceeds therefrom have been timely paid when due and are not in arrears. 9.10 Contracts, Consents and Preferential Rights. Gothic has disclosed to Chesapeake in writing after the date hereof by reference to this paragraph: (a) all partnership, joint venture, farmin/farmout, dry hole, bottom hole, acreage contribution, area Exhibit "99.3" Page 10 of 17 Pages 11 of mutual interest, purchase and/or acquisition agreements of which any terms remain executory which materially affect the Properties; (b) all other executory contracts to which Gothic is a party which materially affect any item of the Properties; (c) all governmental or court approvals and third party contractual consents required in order to consummate the transactions contemplated by this Agreement; (d) all agreements pursuant to which third parties have preferential rights or similar rights to acquire any portion of the Properties upon the sale contemplated by this Agreement; and (e) all other contracts and agreements which are in any single case of material importance to the Properties. 9.11 Tax Partnerships. None of the Properties is treated for income tax purposes as being owned by a partnership. 9.12 Environmental Conditions. Gothic is not aware, and has not received notice from any person, entity or governmental body, agency or commission, of any release, disposal, event, condition, circumstance, activity, practice or incident concerning any land, facility, asset or property that: (a) interferes with or prevents compliance or continued compliance by Gothic (or by Chesapeake after the Closing Date) with any federal, state or local law, regulation, code or ordinance or the terms of any license or permit issued pursuant thereto; or (b) gives rise to or results in any common law or other liability of Gothic to any person, entity or governmental body, agency or commission for damage or injury to natural resources, wildlife, human health or the environment which would have a material adverse effect on Gothic in each case. Gothic is not aware of any civil, criminal or administrative action, lawsuit, demand, litigation, claim, hearing, notice of violation, investigation or proceeding, pending or threatened, against Gothic or operator of any of the lands, facilities, assets and properties owned or formerly owned, operated, leased or used by Gothic as a result of the violation or breach of any federal, state, or local law, regulation, code or ordinance or any duty arising at common law to any person, entity or governmental body, singly or in the aggregate, which if determined adversely would have a material adverse effect on Gothic. 9.13 Plugging Status. To the best of Gothic's knowledge, all wells on the Properties that have been permanently plugged and abandoned have been so plugged and abandoned in accordance in all material respects with all applicable requirements of each governmental authority having jurisdiction over Gothic and the Properties. 9.14 Affiliate Transactions. There are no transactions affecting any of the Properties between Gothic and any of Gothic's affiliates. As used in this Agreement, "affiliate" means, with respect to any person or entity, each other person or entity directly or indirectly controlling, controlled by or under common control with such person. Exhibit "99.3" Page 11 of 17 Pages 12 9.15 Full Disclosure. This Agreement, any schedule referenced in or attached to this Agreement, any document furnished to Chesapeake under this Agreement and any certification furnished to Chesapeake under this Agreement does not contain any untrue statement of a material fact and does not omit to state a material fact necessary to make the statements made, in the circumstances under which they were made, not misleading. All of the representations, warranties and covenants in this Agreement: (a) are true and correct as of the date made; (b) will be true and correct as of the Closing Date; and (c) will survive and not be waived, discharged, released, modified, terminated or affected by any due diligence by Chesapeake. 10. Closing. Unless the Option Period has expired or the closing is extended in writing by Gothic and Chesapeake, the transactions contemplated by this Agreement will be consummated on the date (the "Closing Date") which is five (5) business days after the later of: (a) the notice of intent to exercise under paragraph of this Agreement; or (b) the date all of the conditions under this Agreement have been satisfied in full. 10.1 Chesapeake's Deliveries. Subject to the terms and conditions of this Agreement, on the Closing Date Chesapeake will deliver or cause to be delivered to Gothic the following items (all documents will be duly executed and acknowledged where required): 10.1.1 GEC Securities. Conditioned on the Option being Fully Exercised, the GEC Securities due under paragraph of this Agreement together with stock powers with all signatures guaranteed in the form attached hereto as Schedule "10.1.1"; 10.1.2 Evidence of Authority. Such resolutions, certificates of good standing, incumbency certificates and other evidence of authority with respect to Chesapeake as might be reasonably requested by Gothic; 10.1.3 JIB Payments. Current payment of all joint interest billings owing to the Gothic Parties as required by the Joint Operating Agreements attached to the Participation Agreement; 10.1.4 Closing Memorandum. A memorandum setting forth the items delivered and accounting for the payments made on the Closing Date; 10.1.5 Additional Documents. Such additional documents as might be reasonably requested by Gothic to consummate this Agreement; and 10.1.6 Interim Wells. In the event Chesapeake elects to include the Gothic Parties' interests in the Interim Wells in the Properties pursuant to paragraph 5.8 hereof, Chesapeake will pay to the Gothic Parties an Exhibit "99.3" Page 12 of 17 Pages 13 amount equal to the Gothic Parties' unrecovered drilling costs for such Interim Wells. 10.2 Gothic's Deliveries. On the Closing Date, Gothic will deliver or cause to be delivered to Chesapeake the following items (all documents will be duly executed and acknowledged where required): 10.2.1 Assignments. The Conveyance Documents in substantially the form and substance satisfactory to Chesapeake conveying to Chesapeake all of Gothic Parties' right, title and interest in and to the Properties including, without limitation, all of the right, title and interest in and to the Interim Wells in the event Chesapeake elects to include the Interim Wells in the Properties pursuant to paragraph 5.8 hereof; 10.2.2 Releases. Releases and termination statements with respect to any and all liens, claims, security interests and other encumbrances covering any of the Properties including a release of any reconveyance rights in favor of the Gothic Parties under the Participation Agreement; 10.2.3 Evidence of Authority. Such corporate resolutions, certificates of good standing, incumbency certificates and other evidence of authority with respect to each of the Gothic Parties as might be reasonably requested by Chesapeake; 10.2.4 Closing Memorandum. A memorandum setting forth the items delivered and accounting for the payments made on the Closing Date; 10.2.5 Additional Documents. Such additional documents as might be reasonably requested by Chesapeake to consummate this Agreement. 10.3 Costs. Gothic will pay the following closing costs: (a) Gothic's attorneys' fees, investment banker's fees and bank fees; (b) the cost of recording all mortgage or other lien releases and the cost of documentary stamps to be affixed to any deeds conveying title to the Properties to Chesapeake; and (c) any other charge imposed by any governmental authority for the transfer of any item comprising the Properties. Chesapeake will pay only Chesapeake's attorneys' fees and the cost of recording the Conveyance Documents. Chesapeake and the Gothic Parties each agree to use their respective best efforts to take any and all reasonable action to minimize the recording costs and other charges associated with the consummation of the transactions contemplated by this Agreement. 10.4 Files and Data. As of the Closing Date and at all times thereafter during the term of the Restated Participation Agreement, Gothic will make available to Exhibit "99.3" Page 13 of 17 Pages 14 Chesapeake for copying, at Chesapeake's expense, all files, records, reports and other data relating to the Properties. 11. Default. In the event either party fails to perform such party's obligations hereunder (except as excused by another party's default) (the "Defaulting Party") such failure will constitute an event of default under this Agreement and the other party (the "Other Party") will have the right to exercise any and all remedies available at law or in equity including, without limitation, specific performance of this Agreement or any one or more of the provisions herein contained, unless such default is waived by the Other Party or cured by the Defaulting Party within five (5) business days after receipt of notice of such default. The remedies provided by this Agreement are cumulative and will not exclude any other remedy to which the Other Party might be entitled under this Agreement or applicable law. In the event the Other Party elects to selectively and successfully enforce the Other Party's rights under this Agreement, such action will not be deemed a waiver or discharge of any other remedy. During the pendency of any default or disputes, this Agreement will be deemed to be in full force and effect. Notwithstanding anything herein to the contrary, on the occurrence of a default or other breach of this Agreement by Gothic, Chesapeake may terminate the Option in the sole and absolute discretion of Chesapeake. 12. Miscellaneous. It is further agreed as follows: 12.1 Time. Time is of the essence of this Agreement. 12.2 Notices. Any notice, demand or communication required or permitted to be given by any provision of this Agreement will be in writing and will be deemed to have been given and received when delivered personally or by telefacsimile to the party designated to receive such notice, or on the date following the day sent by overnight courier, or on the third (3rd) business day after the same is sent by certified mail, postage and charges prepaid, directed to the following addresses or to such other or additional addresses as any party might designate by written notice to the other parties: To Gothic: Gothic Energy Corporation 6120 South Yale Avenue, Suite 1200 Tulsa, Oklahoma 74136 Attn: Michael K. Paulk Telephone (918) 749-5666 Fax No. (918) 749-5882 With a copy to: Pray, Walker, Jackman, Williamson & Marlar 900 OneOk Plaza 100 West 5th Street Tulsa, Oklahoma 74103-4218 Attn: Ira L. Edwards, Jr. Telephone (918) 581-5500 Fax No. (918) 581-5599 Exhibit "99.3" Page 14 of 17 Pages 15 To Chesapeake: Chesapeake Energy Corporation 6100 North Western Avenue Oklahoma City, Oklahoma 73118 Attn: Aubrey K. McClendon Telephone (405) 879-9226 Fax No. (405) 848-8588 With a copy to: Self, Giddens & Lees, Inc. 2725 Oklahoma Tower 210 Park Avenue Oklahoma City, Oklahoma 73102 Attn: Ray Lees Telephone (405) 232-3001 Fax: (405) 232-5553 12.3 Cooperation. At all times during the Option Period the parties agree to execute and deliver, or cause to be executed and delivered, such documents and do, or cause to be done, such other acts and things as might reasonably be requested by the other party to this Agreement to assure that the benefits of this Agreement are realized by the parties. 12.4 Press Release. Except to the extent required by applicable disclosure requirements, all press releases relating to this Agreement and the transactions contemplated by this Agreement and the Conveyance Documents will be approved by Gothic and Chesapeake prior to dissemination. 12.5 Choice of Law. This Agreement will be interpreted, construed and enforced in accordance with the laws of the State of Oklahoma and will be deemed for such purposes to have been made, executed and performed in Oklahoma County, Oklahoma. All claims, disputes and other matters in question arising out of or relating to this Agreement will be decided by proceedings instituted and litigated in the District Court of Oklahoma County, Oklahoma or the United States District Court for the Western District of Oklahoma. 12.6 Headings. The paragraph headings contained in this Agreement are for reference purposes only and are not intended to affect in any way the meaning or interpretation of this Agreement. 12.7 Entire Agreement. This Agreement and any document executed in connection herewith on or after the date of this Agreement constitute the entire agreement between the parties with respect to the subject matter hereof and there are no agreements, understandings, warranties or representations except as set forth herein. Exhibit "99.3" Page 15 of 17 Pages 16 12.8 Assignment. It is agreed that the parties may not assign such party's rights nor delegate such party's duties under this Agreement without the express written consent of the other parties to this Agreement. 12.9 Amendment. Neither this Agreement, nor any of the provisions hereof can be changed, waived, discharged or terminated, except by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. 12.10 Severability. If any clause or provision of this Agreement is illegal, invalid or unenforceable under any present or future law, the remainder of this Agreement will not be affected thereby. It is the intention of the parties that if any such provision is held to be illegal, invalid or unenforceable, there will be added in lieu thereof a provision as similar in terms to such provisions as is possible to cause such provision to be legal, valid and enforceable. 12.11 Attorney Fees. If any party institutes an action or proceeding against any other party relating to the provisions of this Agreement, the party to such action or proceeding which does not prevail will reimburse the prevailing party therein for the reasonable expenses of attorneys' fees and disbursements incurred by the prevailing party. 12.12 Waiver. Waiver of performance of any obligation or term contained in this Agreement by any party, or waiver by one party of the other's default hereunder will not operate as a waiver of performance of any other obligation or term of this Agreement or a future waiver of the same obligation or a waiver of any future default. Exhibit "99.3" Page 16 of 17 Pages 17 IN WITNESS WHEREOF, Chesapeake and Gothic have executed this Agreement as of the date first above written. GOTHIC ENERGY CORPORATION, an Oklahoma corporation By /s/ Michael K. Paulk -------------------- Michael K. Paulk, President GOTHIC PRODUCTION COMPANY, an Oklahoma corporation By /s/ Michael K. Paulk -------------------- Michael K. Paulk, President (jointly and severally referred to herein as "Gothic") CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP, an Oklahoma limited partnership By: Chesapeake Operating, Inc., General Partner By /s/ Aubrey K. McClendon ----------------------- Aubrey K. McClendon, Chief Executive Officer ("Chesapeake") Exhibit "99.3" Page 17 of 17 Pages -----END PRIVACY-ENHANCED MESSAGE-----