AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 2002
Registration No. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
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CHESAPEAKE ENERGY CORPORATION*
(Exact Name of Registrant as Specified in Its Charter)
<Table>
OKLAHOMA 73-1395733
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number)
6100 NORTH WESTERN AVENUE AUBREY K. MCCLENDON
OKLAHOMA CITY, OKLAHOMA 73118 CHAIRMAN OF THE BOARD AND
(405) 848-8000 CHIEF EXECUTIVE OFFICER
(Address, Including Zip Code, 6100 NORTH WESTERN AVENUE
and Telephone Number, Including Area Code, OKLAHOMA CITY, OKLAHOMA 73118
of Registrant's Principal Executive Offices) (405) 848-8000
(Name, Address, Including Zip Code,
and Telephone Number, Including
Area Code, of Agent for Service)
</Table>
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Copy to:
JAMES M. PRINCE, ESQ.
VINSON & ELKINS L.L.P.
2300 FIRST CITY TOWER
1001 FANNIN STREET
HOUSTON, TEXAS 77002-6760
713-758-3710
713-615-5962 (FAX)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
=======================================================================================================================
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED (1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
Debt Securities(2)(3).................................
- -----------------------------------------------------------------------------------------------------------------------
Guarantees of Debt Securities(2)(4)...................
- -----------------------------------------------------------------------------------------------------------------------
Common Stock (including attached preferred share purchase
rights)(2).......................................
- -----------------------------------------------------------------------------------------------------------------------
Total................................................. $500,000,000 $46,000
=======================================================================================================================
</Table>
(1) Rule 457(o) under the Securities Act of 1933, as amended, permits the
registration fee to be calculated on the basis of the maximum offering
price of all of the securities listed and, therefore, the table does
not specify by each class information as to the amount to be registered
or the proposed maximum offering price per security.
(2) An indeterminate principal amount or number of debt securities,
guarantees of debt securities and common stock may be issued from time
to time at indeterminate prices, with an aggregate offering price not
to exceed $500,000,000.
(3) If any debt securities are issued at an original issue discount, then
the offering price of those debt securities shall be in an amount that
will result in an aggregate initial offering price not to exceed
$500,000,000, less the dollar amount of any registered securities
previously issued.
(4) The Ames Company, Inc., Carmen Acquisition Corp., Chesapeake
Acquisition Corporation, Chesapeake Energy Louisiana Corporation,
Chesapeake Exploration Limited Partnership, Chesapeake Louisiana, L.P.,
Chesapeake Operating, Inc., Chesapeake Panhandle Limited Partnership,
Chesapeake Royalty Company, Gothic Energy Corporation, Gothic
Production Corporation, Nomac Drilling Corporation, Chesapeake Mountain
Front Corp., Sap Acquisition Corp., Chesapeake-Staghorn Acquisition
L.P., Chesapeake KNAN Acquisition Corporation, Chesapeake Alpha Corp.,
Chesapeake Beta Corp., Chesapeake Delta Corp., Chesapeake Focus Corp.
and Chesapeake Sigma, L.P. will fully, irrevocably and unconditionally
guarantee on an unsecured basis any debt securities of Chesapeake
Energy Corporation issued and sold pursuant to this registration
statement. Pursuant to Rule 457(n) under the Securities Act, no
separate fee is payable with respect to the guarantees of the debt
securities being registered.
* Includes certain subsidiaries of Chesapeake Energy Corporation identified on
the following pages.
<Table>
THE AMES COMPANY, INC.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1470082
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CARMEN ACQUISITION CORP.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1604860
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHESAPEAKE ACQUISITION CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1528271
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHESAPEAKE ENERGY LOUISIANA CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1524569
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1384282
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHESAPEAKE LOUISIANA, L.P.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1519126
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHESAPEAKE OPERATING, INC.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1343196
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHESAPEAKE PANHANDLE LIMITED PARTNERSHIP
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1565350
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHESAPEAKE ROYALTY COMPANY
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1549744
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
GOTHIC ENERGY CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 22-2663839
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
GOTHIC PRODUCTION CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1539475
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
NOMAC DRILLING CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1606317
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHESAPEAKE MOUNTAIN FRONT CORP.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1238619
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
</Table>
<Table>
SAP ACQUISITION CORP.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1622555
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHESAPEAKE-STAGHORN ACQUISITION L.P.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1612854
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHESAPEAKE KNAN ACQUISITION CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA 73-1300132
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHESAPEAKE ALPHA CORP.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA [APPLIED FOR]
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHESAPEAKE BETA CORP.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA [APPLIED FOR]
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHESAPEAKE DELTA CORP.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA [APPLIED FOR]
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHESAPEAKE FOCUS CORP.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA [APPLIED FOR]
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
CHESAPEAKE SIGMA, L.P.
(Exact Name of Registrant As Specified In Its Charter)
OKLAHOMA [APPLIED FOR]
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification
Organization) Number)
</Table>
EACH REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
PROSPECTUS
$500,000,000
CHESAPEAKE ENERGY CORPORATION
DEBT SECURITIES
COMMON STOCK
GUARANTEES OF DEBT SECURITIES OF CHESAPEAKE ENERGY CORPORATION BY:
THE AMES COMPANY, INC.
CARMEN ACQUISITION CORP.
CHESAPEAKE ACQUISITION CORPORATION
CHESAPEAKE ENERGY LOUISIANA CORPORATION
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP
CHESAPEAKE LOUISIANA, L.P.
CHESAPEAKE OPERATING, INC.
CHESAPEAKE PANHANDLE LIMITED PARTNERSHIP
CHESAPEAKE ROYALTY COMPANY
GOTHIC ENERGY CORPORATION
GOTHIC PRODUCTION CORPORATION
NOMAC DRILLING CORPORATION
CHESAPEAKE MOUNTAIN FRONT CORP.
SAP ACQUISITION CORP.
CHESAPEAKE-STAGHORN ACQUISITION L.P.
CHESAPEAKE KNAN ACQUISITION CORPORATION
CHESAPEAKE ALPHA CORP.
CHESAPEAKE BETA CORP.
CHESAPEAKE DELTA CORP.
CHESAPEAKE FOCUS CORP.
CHESAPEAKE SIGMA, L.P.
We may from time to time offer and sell common stock and debt
securities that will be fully, irrevocably and unconditionally guaranteed by
certain of our subsidiaries, The Ames Company, Inc., Carmen Acquisition Corp.,
Chesapeake Acquisition Corporation, Chesapeake Energy Louisiana Corporation,
Chesapeake Exploration Limited Partnership, Chesapeake Louisiana, L.P.,
Chesapeake Operating, Inc., Chesapeake Panhandle Limited Partnership, Chesapeake
Royalty Company, Gothic Energy Corporation, Gothic Production Corporation, Nomac
Drilling Corporation, Chesapeake Mountain Front Corp., Sap Acquisition Corp.,
Chesapeake-Staghorn Acquisition L.P., Chesapeake KNAN Acquisition Corporation,
Chesapeake Alpha Corp., Chesapeake Beta Corp., Chesapeake Delta Corp.,
Chesapeake Focus Corp. and Chesapeake Sigma, L.P.
This prospectus provides you with a general description of the
securities that may be offered. Each time securities are sold, we will provide
one or more supplements to this prospectus that will contain additional
information about the specific offering and the terms of the securities being
offered. The supplements may also add, update or change information contained in
this prospectus. You should carefully read this prospectus and any accompanying
prospectus supplement before you invest in any of our securities.
Our common stock is listed for trading on the New York Stock Exchange
under the symbol "CHK." Our executive offices are located at 6100 North Western
Avenue, Oklahoma City, Oklahoma 73118, and our telephone number is (405)
848-8000.
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INVESTING IN OUR SECURITIES INVOLVES RISKS. PLEASE READ CAREFULLY THE
SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 2 OF THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS ________, 2002.
TABLE OF CONTENTS
<Table>
ABOUT THIS PROSPECTUS.............................................................................................1
ABOUT CHESAPEAKE ENERGY CORPORATION...............................................................................1
ABOUT THE SUBSIDIARY GUARANTORS...................................................................................1
RISK FACTORS......................................................................................................2
WHERE YOU CAN FIND MORE INFORMATION...............................................................................9
FORWARD LOOKING STATEMENTS........................................................................................9
USE OF PROCEEDS..................................................................................................11
RATIOS OF EARNINGS TO FIXED CHARGES..............................................................................11
DESCRIPTION OF DEBT SECURITIES...................................................................................12
DESCRIPTION OF CAPITAL STOCK.....................................................................................21
PLAN OF DISTRIBUTION.............................................................................................30
LEGAL MATTERS....................................................................................................32
EXPERTS..........................................................................................................32
</Table>
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You should rely only on the information included or incorporated by
reference in this prospectus and any accompanying prospectus supplement. We have
not authorized any dealer, salesman or other person to provide you with
additional or different information. This prospectus and any accompanying
prospectus supplement are not an offer to sell or the solicitation of an offer
to buy any securities other than the securities to which they relate and are not
an offer to sell or the solicitation of an offer to buy securities in any
jurisdiction to any person to whom it is unlawful to make an offer or
solicitation in that jurisdiction. You should not assume that the information in
this prospectus or any accompanying prospectus supplement or in any document
incorporated by reference in this prospectus or any accompanying prospectus
supplement is accurate as of any date other than the date of the document
containing the information.
i
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we
filed with the Securities and Exchange Commission, which we refer to as the
"SEC," using a "shelf" registration process. Under this shelf process, we may,
over time, sell any combination of the securities described in this prospectus
in one or more offerings up to a total dollar amount of $500 million. This
prospectus provides you with a general description of the securities we may
offer pursuant to this prospectus. Each time we sell securities, we will provide
one or more prospectus supplements that will contain specific information about
the terms of that offering. This prospectus does not contain all of the
information included in the registration statement. For a complete understanding
of the offering of securities, you should refer to the registration statement
relating to this prospectus, including its exhibits. A prospectus supplement may
also add, update or change information contained in this prospectus. You should
read both this prospectus and any accompanying prospectus supplement together
with the additional information described under the heading "Where You Can Find
More Information."
ABOUT CHESAPEAKE ENERGY CORPORATION
We are among the ten largest independent natural gas producers in the
United States. We own interests in approximately 8,800 producing oil and gas
wells with what we believe to be approximately 1.9 trillion cubic feet of gas
equivalent of proved reserves in the United States as of March 31, 2002 (using
oil and gas prices of $26.32 per barrel of oil and $3.19 per thousand cubic
feet, or mcf, of gas). Approximately 90% of our reserves are natural gas. Our
primary operating area is the Mid-Continent region of the United States, which
includes Oklahoma, western Arkansas, southwestern Kansas and the Texas Panhandle
and in which 85% of our reserves are located. We have smaller operations in the
Deep Giddings field in Texas, the Permian Basin region of southeastern New
Mexico and the Williston Basin of North Dakota and Montana.
Unless the context requires otherwise or unless otherwise noted, all
references in this prospectus or any accompanying prospectus supplement to
"Chesapeake," "we," "us" or "our" are to Chesapeake Energy Corporation and its
subsidiaries.
ABOUT THE SUBSIDIARY GUARANTORS
The Ames Company, Inc., Carmen Acquisition Corp., Chesapeake
Acquisition Corporation, Chesapeake Energy Louisiana Corporation, Chesapeake
Exploration Limited Partnership, Chesapeake Louisiana, L.P., Chesapeake
Operating, Inc., Chesapeake Panhandle Limited Partnership, Chesapeake Royalty
Company, Gothic Energy Corporation, Gothic Production Corporation, Nomac
Drilling Corporation, Chesapeake Mountain Front Corp., Sap Acquisition Corp.,
Chesapeake-Staghorn Acquisition L.P., Chesapeake KNAN Acquisition Corporation,
Chesapeake Alpha Corp., Chesapeake Beta Corp., Chesapeake Delta Corp.,
Chesapeake Focus Corp. and Chesapeake Sigma, L.P. constitute substantially all
of our subsidiaries as of the date of this prospectus other than Chesapeake
Energy Marketing, Inc. and, unless otherwise indicated in an accompanying
prospectus supplement, each will jointly and severally, fully, irrevocably and
unconditionally guarantee our payment obligations under any series of debt
securities offered by this prospectus. We refer to these subsidiaries guarantors
in this prospectus as the "Subsidiary Guarantors." Financial information
concerning our Subsidiary Guarantors and non-guarantor subsidiaries will be
included in our consolidated financial statements filed as a part of our
periodic reports filed pursuant to the Securities Exchange Act of 1934, as
amended, to the extent required by the rules and regulations of the SEC.
1
RISK FACTORS
Your investment in our securities will involve risks. You should carefully
consider, in addition to the other information contained in, or incorporated by
reference into, this prospectus and any accompanying prospectus supplement, the
risks described below before deciding whether an investment in our securities is
appropriate for you.
RISKS RELATED TO OUR BUSINESS
Oil and gas prices are volatile. A decline in prices could adversely
affect our financial results, cash flows, access to capital and ability to grow.
Our revenues, operating results, profitability, future rate of growth
and the carrying value of our oil and gas properties depend primarily upon the
prices we receive for our oil and gas. Prices also affect the amount of cash
flow available for capital expenditures and our ability to borrow money or raise
additional capital. The amount we can borrow from banks is subject to
semi-annual redeterminations based on prices specified by our bank group at the
time of redetermination. In addition, we may have ceiling test writedowns in the
future if prices fall significantly below the prices at December 31, 2001.
Historically, the markets for oil and gas have been volatile and they
are likely to continue to be volatile. Wide fluctuations in oil and gas prices
may result from relatively minor changes in the supply of and demand for oil and
natural gas, market uncertainty and other factors that are beyond our control,
including:
o worldwide and domestic supplies of oil and gas;
o weather conditions;
o the level of consumer demand;
o the price and availability of alternative fuels;
o risks associated with owning and operating drilling rigs;
o the availability of pipeline capacity;
o the price and level of foreign imports;
o domestic and foreign governmental regulations and taxes;
o the ability of the members of the Organization of Petroleum
Exporting Countries to agree to and maintain oil price and
production controls;
o political instability or armed conflict in oil-producing
regions; and
o the overall economic environment.
These factors and the volatility of the energy markets make it
extremely difficult to predict future oil and gas price movements with any
certainty. Declines in oil and gas prices would not only reduce revenue, but
could reduce the amount of oil and gas that we can produce economically and, as
a result, could have a material adverse effect on our financial condition,
results of operations and reserves. Further, oil and gas prices do not
necessarily move in tandem. Because approximately 90% of our proved reserves are
currently natural gas reserves, we are more affected by movements in natural gas
prices.
2
Our level of indebtedness may adversely affect operations, and we may
have difficulty repaying long-term indebtedness as it matures.
As of March 31, 2002, we had long-term indebtedness of $1.3 billion,
which included no bank indebtedness. Our long-term indebtedness represented 65%
of our total book capitalization at March 31, 2002.
Our level of indebtedness affects our operations in several ways,
including the following:
o a significant portion of our cash flows must be used to
service our indebtedness; for example, for the three months
ended March 31, 2002, interest (including capitalized
interest) on our borrowings was $27.0 million and equaled
approximately 24% of EBITDA. As a result, our business may not
generate sufficient cash flows from operations to enable us to
continue to meet our obligations under our indentures;
o a high level of debt increases our vulnerability to general
adverse economic and industry conditions;
o the covenants contained in the agreements governing our
outstanding indebtedness limit our ability to borrow
additional funds, dispose of assets, pay dividends and make
certain investments;
o our debt covenants may also affect our flexibility in planning
for, and reacting to, changes in the economy and in our
industry; and
o a high level of debt may impair our ability to obtain
additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate or other
purposes.
We may incur additional debt, including significant secured
indebtedness, in order to make future acquisitions or to develop our properties.
A higher level of indebtedness increases the risk that we may default on our
debt obligations. Our ability to meet our debt obligations and to reduce our
level of indebtedness depends on our future performance. General economic
conditions, oil and gas prices and financial, business and other factors affect
our operations and our future performance. Many of these factors are beyond our
control. We may not be able to generate sufficient cash flow to pay the interest
on our debt and future working capital, borrowings or equity financing may not
be available to pay or refinance such debt. Factors that will affect our ability
to raise cash through an offering of our capital stock or a refinancing of our
debt include financial market conditions, the value of our assets and our
performance at the time we need capital.
In addition, our bank borrowing base is subject to annual
redeterminations. We could be forced to repay a portion of our bank borrowings
due to redeterminations of our borrowing base. If we are forced to do so, we may
not have sufficient funds to make such repayments. If we do not have sufficient
funds and are otherwise unable to negotiate renewals of our borrowings or
arrange new financing, we may have to sell significant assets. Any such sale
could have a material adverse effect on our business and financial results.
Our industry is extremely competitive.
The energy industry is extremely competitive. This is especially true
with regard to exploration for, and development and production of, new sources
of oil and natural gas. As an independent producer of oil and natural gas, we
frequently compete against companies that are larger and financially stronger in
acquiring properties suitable for exploration, in contracting for drilling
equipment and other services and in securing trained personnel.
Our commodity price risk management activities may reduce the realized
prices received for our oil and gas sales.
In order to manage our exposure to price volatility in marketing our
oil and gas, we enter into oil and gas price risk management arrangements for a
portion of our expected production. These transactions are limited in life.
While intended to reduce the effects of volatile oil and gas prices, commodity
price risk management transactions
3
may limit the prices we actually realize and we may experience reductions to oil
and gas revenues from our commodity price risk management activities in the
future. In addition, our commodity price risk management transactions may expose
us to the risk of financial loss in certain circumstances, including instances
in which:
o our production is less than expected;
o there is a widening of price differentials between delivery
points for our production and the delivery point assumed in
the hedge arrangement; or
o the counterparties to our contracts fail to perform under the
contracts.
Some of our commodity price risk management arrangements require us to
deliver cash collateral or other assurances of performance to the counterparties
in the event that our payment obligations with respect to our commodity price
risk management transactions exceed certain levels. As of March 31, 2002, we
were required to post $20.0 million of collateral. Future collateral
requirements are uncertain and will depend on arrangements with our
counterparties and highly volatile natural gas and oil prices.
Estimates of oil and gas reserves are uncertain and inherently
imprecise.
This prospectus and the documents incorporated by reference herein
contain estimates of our proved reserves and the estimated future net revenues
from our proved reserves. These estimates are based upon various assumptions,
including assumptions required by the SEC relating to oil and gas prices,
drilling and operating expenses, capital expenditures, taxes and availability of
funds. The process of estimating oil and gas reserves is complex. The process
involves significant decisions and assumptions in the evaluation of available
geological, geophysical, engineering and economic data for each reservoir.
Therefore, these estimates are inherently imprecise.
Actual future production, oil and gas prices, revenues, taxes,
development expenditures, operating expenses and quantities of recoverable oil
and gas reserves most likely will vary from these estimates. Such variations may
be significant and could materially affect the estimated quantities and present
value of our proved reserves. In addition, we may adjust estimates of proved
reserves to reflect production history, results of exploration and development
drilling, prevailing oil and gas prices and other factors, many of which are
beyond our control. Our properties may also be susceptible to hydrocarbon
drainage from production by operators on adjacent properties.
At December 31, 2001 approximately 29% by volume of our estimated
proved reserves were undeveloped. Recovery of undeveloped reserves requires
significant capital expenditures and successful drilling operations. The
estimates of these reserves include the assumption that we will make significant
capital expenditures to develop the reserves, including $224 million in 2002.
Although we have prepared estimates of our oil and gas reserves and the costs
associated with these reserves in accordance with industry standards, the
estimated costs may not be accurate, development may not occur as scheduled and
results may not be as estimated.
You should not assume that the present values referred to in the
documents incorporated by reference into this prospectus represent the current
market value of our estimated oil and gas reserves. In accordance with SEC
requirements, the estimates of our present values are based on prices and costs
as of the date of the estimates. The December 31, 2001 present value is based on
weighted average wellhead oil and gas prices of $18.82 per barrel of oil and
$2.51 per mcf of natural gas. Actual future prices and costs may be materially
higher or lower than the prices and costs as of the date of an estimate. A
change in price of $0.10 per mcf and $1.00 per barrel would result in a change
in our December 31, 2001 present value of proved reserves of approximately $82
million and $16 million, respectively.
Any changes in consumption by oil and gas purchasers or in governmental
regulations or taxation will also affect actual future net cash flows.
The timing of both the production and the expenses from the development
and production of oil and gas properties will affect both the timing of actual
future net cash flows from our proved reserves and their present value. In
addition, the 10% discount factor, which is required by the SEC to be used in
calculating discounted future net cash flows for reporting purposes, is not
necessarily the most accurate discount factor. The effective interest rate
4
at various times and the risks associated with our business or the oil and gas
industry in general will affect the accuracy of the 10% discount factor.
If we do not make significant capital expenditures, we may not be able
to replace reserves.
Our exploration, development and acquisition activities require
substantial capital expenditures. Historically, we have funded our capital
expenditures through a combination of cash flows from operations, our bank
credit facility and debt and equity issuances. Future cash flows are subject to
a number of variables, such as the level of production from existing wells,
prices of oil and gas, and our success in developing and producing new reserves.
If revenue were to decrease as a result of lower oil and gas prices or decreased
production, and our access to capital were limited, we would have a reduced
ability to replace our reserves. If our cash flow from operations is not
sufficient to fund our capital expenditure budget, there can be no assurance
that additional bank debt, debt or equity issuances or other methods of
financing will be available to meet these requirements.
If we are not able to replace reserves, we may not be able to sustain
production.
Our future success depends largely upon our ability to find, develop or
acquire additional oil and gas reserves that are economically recoverable.
Unless we replace the reserves we produce through successful development,
exploration or acquisition, our proved reserves will decline over time. Recovery
of such reserves will require significant capital expenditures and successful
drilling operations. We cannot assure you that we can successfully find and
produce reserves economically in the future. In addition, we may not be able to
acquire proved reserves at acceptable costs.
Acquisitions are subject to the uncertainties of evaluating recoverable
reserves and potential liabilities.
Our recent growth is due in part to acquisitions of exploration and
production companies and producing properties. We expect acquisitions will also
contribute to our future growth. Successful acquisitions require an assessment
of a number of factors, many of which are beyond our control. These factors
include recoverable reserves, exploration potential, future oil and gas prices,
operating costs and potential environmental and other liabilities. Such
assessments are inexact and their accuracy is inherently uncertain. In
connection with our assessments, we perform a review of the acquired properties,
which we believe is generally consistent with industry practices. However, such
a review will not reveal all existing or potential problems. In addition, our
review may not permit us to become sufficiently familiar with the properties to
fully assess their deficiencies and capabilities. We do not inspect every well.
Even when we inspect a well, we do not always discover structural, subsurface
and environmental problems that may exist or arise.
We are generally not entitled to contractual indemnification for
preclosing liabilities, including environmental liabilities. Normally, we
acquire interests in properties on an "as is" basis with limited remedies for
breaches of representations and warranties. In addition, competition for
producing oil and gas properties is intense and many of our competitors have
financial and other resources that are substantially greater than those
available to us. Therefore, we may not be able to acquire oil and gas properties
that contain economically recoverable reserves or be able to complete such
acquisitions on acceptable terms.
Additionally, significant acquisitions can change the nature of our
operations and business depending upon the character of the acquired properties,
which may have substantially different operating and geological characteristics
or be in different geographic locations than our existing properties. While it
is our current intention to continue to concentrate on acquiring properties with
development and exploration potential located in the Mid-Continent region, there
can be no assurance that in the future we will not decide to pursue acquisitions
or properties located in other geographic regions. To the extent that such
acquired properties are substantially different than our existing properties,
our ability to efficiently realize the economic benefits of such transactions
may be limited.
Oil and gas drilling and producing operations are hazardous and expose
us to environmental liabilities.
Oil and gas operations are subject to many risks, including well
blowouts, cratering and explosions, pipe failure, fires, formations with
abnormal pressures, uncontrollable flows of oil, natural gas, brine or well
fluids, and other environmental hazards and risks. Our drilling operations
involve risks from high pressures and from
5
mechanical difficulties such as stuck pipes, collapsed casings and separated
cables. If any of these risks occurs, we could sustain substantial losses as a
result of:
o injury or loss of life;
o severe damage to or destruction of property, natural resources
and equipment;
o pollution or other environmental damage;
o clean-up responsibilities;
o regulatory investigations and penalties; and
o suspension of operations.
Our liability for environmental hazards includes those created either
by the previous owners of properties that we purchase or lease or by acquired
companies prior to the date we acquire them. In accordance with industry
practice, we maintain insurance against some, but not all, of the risks
described above. We cannot assure you that our insurance will be adequate to
cover casualty losses or liabilities. Also, we cannot predict the continued
availability of insurance at premium levels that justify its purchase.
Exploration and development drilling may not result in commercially
productive reserves.
We do not always encounter commercially productive reservoirs through
our drilling operations. The new wells we drill or participate in may not be
productive and we may not recover all or any portion of our investment in wells
we drilled or participate in. The seismic data and other technologies we use do
not allow us to know conclusively prior to drilling a well that oil or gas is
present or may be produced economically. The cost of drilling, completing and
operating a well is often uncertain, and cost factors can adversely affect the
economics of a project. Our efforts will be unprofitable if we drill dry wells
or wells that are productive but do not produce enough reserves to return a
profit after drilling, operating and other costs. Further, our drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors, including:
o unexpected drilling conditions;
o title problems;
o pressure or irregularities in formations;
o equipment failures or accidents;
o adverse weather conditions;
o compliance with environmental and other governmental
requirements; and
o cost of, or shortages or delays in the availability of,
drilling rigs and equipment.
The loss of key personnel could adversely affect our ability to
operate.
We depend, and will continue to depend in the foreseeable future, on
the services of our officers and key employees with extensive experience and
expertise in evaluating and analyzing producing oil and gas properties and
drilling prospects, maximizing production from oil and gas properties and
marketing oil and gas production. Our ability to retain our officers and key
employees is important to our continued success and growth. The unexpected loss
of the services of one or more of these individuals could have a detrimental
effect on our business.
6
Lower oil and gas prices could negatively impact our ability to borrow.
Our current bank credit facility limits our borrowings to a borrowing
base, $225 million as of the date of this prospectus. The borrowing base is
determined periodically at the discretion of a majority of the banks and is
based in part on oil and gas prices. Additionally, some of the indentures under
which our outstanding senior notes have been issued contain covenants limiting
our ability to incur indebtedness in addition to that incurred under our bank
credit facility. These indentures limit our ability to incur additional
indebtedness unless we meet one of two alternative tests. The first alternative
is based on a percentage of our adjusted consolidated net tangible assets, which
is determined using discounted future net revenues from proved oil and gas
reserves as of the end of each year. As of the date of this prospectus, we
cannot incur additional indebtedness under this first alternative of the debt
incurrence test other than the indebtedness we are permitted to incur pursuant
to our bank credit facility. The second alternative is based on the ratio of our
adjusted consolidated EBITDA to our adjusted consolidated interest expense over
a trailing twelve-month period. As of the date of this prospectus, we are
permitted to incur significant additional indebtedness under this second
alternative of the debt incurrence test. Lower oil and gas prices in the future
could reduce our adjusted consolidated EBITDA, as well as our adjusted
consolidated net tangible assets, and thus could reduce our ability to incur
additional indebtedness.
RISKS RELATED TO OUR COMMON STOCK
We do not intend to pay, and are restricted in our ability to pay,
dividends on our common stock.
We have not paid cash dividends on our common stock since 1998 and do
not intend to pay dividends on our common stock in the foreseeable future. We
currently intend to retain any earnings for the future operation and development
of our business. Our ability to make dividend payments in the future will depend
on our future performance and liquidity. In addition, our credit facility
contains restrictions on our ability to pay cash dividends on our capital stock,
including our common stock.
Our certificate of incorporation, bylaws, the Oklahoma General
Corporation Act and our shareholder rights agreement contain provisions that
could discourage an acquisition or change of control of our company.
Our shareholder rights agreement and the Oklahoma Business Combination
Statute, together with certain provisions of our certificate of incorporation
and bylaws, may make it more difficult to effect a change in control of our
company, to acquire us or to replace incumbent management. These provisions
could potentially deprive our stockholders of opportunities to sell shares of
our stock at above-market prices. Please read "Description of Capital Stock ---
Anti-Takeover Provisions."
RISKS RELATED TO DEBT SECURITIES
If an active trading market does not develop for a series of debt
securities sold pursuant to this prospectus, you may be unable to sell any such
debt securities or to sell any such debt securities at a price that you deem
sufficient.
Unless otherwise specified in an accompanying prospectus supplement,
any debt securities sold pursuant to this prospectus will be new securities for
which there currently is no established trading market. We may not list any debt
securities sold pursuant to this prospectus on a national securities exchange.
While the underwriters of a particular offering of debt securities may advise us
that they intend to make a market in those debt securities, the underwriters
will not be obligated to do so and may stop their market making at any time. No
assurance can be given:
o that a market for any series of debt securities will develop
or continue;
o as to the liquidity of any market that does develop; or
o as to your ability to sell any debt securities you may own or
the price at which you may be able to sell your debt
securities.
7
A guarantee of debt securities could be voided if the guarantors
fraudulently transferred their guarantees at the time they incurred the
indebtedness, which could result in the holders of debt securities being able to
rely on only Chesapeake Energy Corporation to satisfy claims.
Any series of debt securities issued pursuant to this prospectus will
be fully, irrevocably and unconditionally guaranteed by the Subsidiary
Guarantors. However, under U.S. bankruptcy law and comparable provisions of
state fraudulent transfer laws, such a guarantee can be voided, or claims under
a guarantee may be subordinated to all other debts of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:
o intended to hinder, delay or defraud any present or future
creditor or received less than reasonably equivalent value or
fair consideration for the incurrence of the guarantee;
o was insolvent or rendered insolvent by reason of such
incurrence;
o was engaged in a business or transaction for which the
guarantor's remaining assets constituted unreasonably small
capital; or
o intended to incur, or believed that it would incur, debts
beyond its ability to pay those debts as they mature.
In addition, any payment by that guarantor under a guarantee could be
voided and required to be returned to the guarantor or to a fund for the benefit
of the creditors of the guarantor.
The measures of insolvency for purposes of fraudulent transfer laws
vary depending upon the governing law. Generally, a guarantor would be
considered insolvent if:
o the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all of its assets;
o the present fair saleable value of its assets was less than
the amount that would be required to pay its probable
liability on its existing debts, including contingent
liabilities, as they became absolute and mature; or
o it could not pay its debts as they became due.
Holders of any debt securities sold pursuant to this prospectus will be
effectively subordinated to all of our and the Subsidiary Guarantors' secured
indebtedness and to all liabilities of our non-guarantor subsidiaries.
Holders of our secured indebtedness, including the indebtedness under
our credit facilities, have claims with respect to our assets constituting
collateral for their indebtedness that are prior to the claims of any debt
securities sold pursuant to this prospectus. In the event of a default on such
debt securities or our bankruptcy, liquidation or reorganization, those assets
would be available to satisfy obligations with respect to the indebtedness
secured thereby before any payment could be made on debt securities sold
pursuant to this prospectus. Accordingly, the secured indebtedness would
effectively be senior to such series of debt securities to the extent of the
value of the collateral securing the indebtedness. To the extent the value of
the collateral is not sufficient to satisfy the secured indebtedness, the
holders of that indebtedness would be entitled to share with the holders of the
debt securities issued pursuant to this prospectus and the holders of other
claims against us with respect to our other assets.
In addition, the Subsidiary Guarantors do not constitute all of our
subsidiaries and any series of debt securities issued and sold pursuant to this
prospectus will not be guaranteed by all of our subsidiaries, and our
non-guarantor subsidiaries will be permitted to incur additional indebtedness
under the indenture. As a result, holders of such debt securities will be
effectively subordinated to claims of third party creditors, including holders
of indebtedness, and preferred shareholders of these non-guarantor subsidiaries.
Claims of those other creditors, including trade creditors, secured creditors,
governmental taxing authorities, holders of indebtedness or guarantees issued by
the non-guarantor subsidiaries and preferred shareholders of the non-guarantor
subsidiaries, will generally have priority as to the assets of the non-guarantor
subsidiaries over our claims and equity interests. As a result, holders of our
indebtedness, including the holders of the debt securities sold pursuant to this
prospectus, will be effectively subordinated to all those claims.
8
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information
with the SEC. You may inspect and copy such material at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for more information on the public
reference room. You can also find our SEC filings at the SEC's website at
www.sec.gov and on our website at www.chkenergy.com. Information contained on
our website is not part of this prospectus.
In addition, our reports and other information concerning us can be
inspected at the New York Stock Exchange, 20 Broad Street, New York, New York
10005, where our common stock is listed.
The following documents we filed with the SEC pursuant to the Exchange
Act are incorporated herein by reference:
o the description of our common stock contained in our
registration statement on Form 8-B (No. 001-13726), including
the amendment to such description filed on Form 8-K on August
13, 2001;
o our annual report on Form 10-K for the fiscal year ended
December 31, 2001;
o our quarterly report on Form 10-Q for the fiscal quarter ended
March 31, 2002;
o our current reports on Form 8-K filed on January 22, 2002,
February 5, 2002, February 21, 2002, March 12, 2002, March 18,
2002, April 4, 2002, April 16, 2002, April 23, 2002, April 30,
2002, June 5, 2002, July 1, 2002 and July 11, 2002 (excluding
any information filed pursuant to Item 9 on any such current
report on Form 8-K); and
o the consolidated financial statements of Gothic Energy
Corporation included in our annual report on Form 10-K/A for
the fiscal year ended December 31, 2000.
All documents filed by us pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this filing and prior to the
termination of this offering shall be deemed to be incorporated in this
prospectus and to be a part hereof from the date of the filing of such document.
Any statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this prospectus, or in any other subsequently filed
document which is also incorporated or deemed to be incorporated by reference,
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus.
We will provide without charge to each person to whom this prospectus
is delivered, upon written or oral request of such person, a copy of any or all
documents incorporated by reference in this prospectus. Requests for such copies
should be directed to Jennifer M. Grigsby, Secretary, Chesapeake Energy
Corporation, 6100 North Western Avenue, Oklahoma City, Oklahoma 73118, by mail,
or if by telephone at (405) 848-8000.
FORWARD LOOKING STATEMENTS
This prospectus and the documents incorporated herein by reference
include "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Exchange Act.
Forward-looking statements give our current expectations or forecasts of future
events. They include statements regarding oil and gas reserve estimates, planned
capital expenditures, the drilling of oil and gas wells and future acquisitions,
expected oil and gas production, cash flow and anticipated liquidity, business
strategy and other plans and objectives for future operations, expected future
expenses and utilization of net operating loss carryforwards. Statements
concerning the fair values of derivative contracts and their estimated
contribution to our future results of operations are based upon market
information as of a specific date. These market prices are subject to
significant volatility.
9
Although we believe the expectations and forecasts reflected in these
and other forward-looking statements are reasonable, we can give no assurance
they will prove to have been correct. They can be affected by inaccurate
assumptions or by known or unknown risks and uncertainties. Factors that could
cause actual results to differ materially from expected results are described
under "Risk Factors" beginning on page 2. These factors include:
o the volatility of oil and gas prices;
o our substantial indebtedness;
o the cost and availability of drilling and production services;
o our commodity price risk management activities, including
counterparty contract performance risk;
o uncertainties inherent in estimating quantities of oil and gas
reserves, projecting future rates of production and the timing
of development expenditures;
o our ability to replace reserves;
o the availability of capital;
o uncertainties in evaluating oil and gas reserves of acquired
properties and associated potential liabilities;
o drilling and operating risks;
o our ability to generate future taxable income sufficient to
utilize our federal and state income tax net operating loss
(NOL) carryforwards before their expiration;
o future ownership changes which could result in additional
limitations to our NOLs;
o adverse effects of governmental and environmental regulation;
o losses possible from pending or future litigation;
o the strength and financial resources of our competitors; and
o the loss of officers or key employees.
We caution you not to place undue reliance on these forward-looking
statements, which speak only as of the date of this prospectus or as of the date
of the report or document in which they are contained, and we undertake no
obligation to update such information. We urge you to carefully review and
consider the disclosures made in this prospectus and our reports filed with the
SEC and incorporated by reference herein that attempt to advise interested
parties of the risks and factors that may affect our business.
10
USE OF PROCEEDS
Except as may otherwise be described in an accompanying prospectus
supplement, the net proceeds from the sale of the securities offered pursuant to
this prospectus and any accompanying prospectus supplement will be used for
general corporate purposes. Any specific allocation of the net proceeds of an
offering of securities to a specific purpose will be determined at the time of
the offering and will be described in an accompanying prospectus supplement.
RATIOS OF EARNINGS TO FIXED CHARGES
For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as net income (loss) before income taxes, extraordinary
items, amortization of capitalized interest and fixed charges, less capitalized
interest. Fixed charges consist of interest (whether expensed or capitalized),
and amortization of debt expenses and discount or premium relating to any
indebtedness.
<Table>
<Caption>
YEAR SIX MONTHS THREE MONTHS
ENDED ENDED ENDED
JUNE 30, DECEMBER 31, YEAR ENDED DECEMBER 31, MARCH 31,
----------- ------------- ------------------------------------ -------------
1997 1997 1998 1999 2000 2001 2002
----------- ------------- ------ ------ ------ ------ -------------
Ratio of earnings to fixed
charges..................... (a) (b) (c) 1.4x 3.1x 5.1x (d)
</Table>
- ----------
(a) Earnings for such year were insufficient to cover fixed charges by
approximately $185 million.
(b) Earnings for such six month period were insufficient to cover fixed
charges by approximately $32 million.
(c) Earnings for such year were insufficient to cover fixed charges by
approximately $915 million.
(d) Earnings for such three month period were insufficient to cover fixed
charges by approximately $47 million.
11
DESCRIPTION OF DEBT SECURITIES
We will issue our debt securities under an indenture, among us, as
issuer, The Bank of New York, as Trustee, and the Subsidiary Guarantors. The
debt securities will be governed by the provisions of the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939. We,
the Trustee and the Subsidiary Guarantors may enter into supplements to the
Indenture from time to time.
This description is a summary of the material provisions of the debt
securities and the Indenture. We urge you to read the form of the Indenture
filed as an exhibit to the registration statement of which this prospectus is a
part because the Indenture, and not this description, govern your rights as a
holder of debt securities.
GENERAL
The Debt Securities. Any series of debt securities that we issue:
o will be our general obligations; and
o will be general obligations of the Subsidiary Guarantors.
The Indenture does not limit the total amount of debt securities that
we may issue. We may issue debt securities under the Indenture from time to time
in separate series, up to the aggregate amount authorized for each such series.
We will prepare a prospectus supplement and either an indenture
supplement or a resolution of our board of directors and an accompanying
officers' certificate relating to any series of debt securities that we offer,
which will include specific terms relating to some or all of the following:
o the form and title of the debt securities;
o the total principal amount of the debt securities;
o the date or dates on which the debt securities may be issued;
o the portion of the principal amount which will be payable if
the maturity of the debt securities is accelerated;
o any right we may have to defer payments of interest by
extending the dates payments are due and whether interest on
those deferred amounts will be payable;
o the dates on which the principal and premium, if any, of the
debt securities will be payable;
o the interest rate which the debt securities will bear and the
interest payment dates for the debt securities;
o any optional redemption provisions;
o any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the debt securities;
o whether the debt securities are entitled to the benefits of
any guarantees by the Subsidiary Guarantors;
o any changes to or additional Events of Default;
12
o any affirmative or negative covenants relating to such series,
including, without limitation, financial and other covenants
that restrict our and our Restricted Subsidiaries' ability to:
o incur additional indebtedness;
o pay dividends on our capital stock or redeem,
repurchase or retire our capital stock or subordinated
indebtedness;
o make investments and other restricted payments;
o create restrictions on the payment of dividends or
other amounts to us from our Restricted Subsidiaries;
o incur liens;
o engage in transactions with affiliates;
o sell assets;
o consolidate, merge or transfer assets; and
o designate a Restricted Subsidiary as an Unrestricted
Subsidiary; and
o any other terms of the debt securities.
This description of debt securities will be deemed modified, amended or
supplemented by any description of any series of debt securities set forth in a
prospectus supplement related to that series.
The prospectus supplement will also describe any material United States
federal income tax consequences or other special considerations regarding the
applicable series of debt securities, including those relating to:
o debt securities with respect to which payments of principal,
premium or interest are determined with reference to an index
or formula, including changes in prices of particular
securities, currencies or commodities;
o debt securities with respect to which principal, premium or
interest is payable in a foreign or composite currency;
o debt securities that are issued at a discount below their
stated principal amount, bearing no interest or interest at a
rate that at the time of issuance is below market rates; and
o variable rate debt securities that are exchangeable for fixed
rate debt securities.
At our option, we may make interest payments by check mailed to the
registered holders of debt securities or, if so stated in the applicable
prospectus supplement, at the option of a holder by wire transfer to an account
designated by the holder.
Unless otherwise provided in the applicable prospectus supplement,
fully registered securities may be transferred or exchanged at the office of the
Trustee at which its corporate trust business is principally administered in the
United States, subject to the limitations provided in the Indenture, without the
payment of any service charge, other than any applicable tax or governmental
charge.
13
Any funds we pay to a paying agent for the payment of amounts due on
any debt securities that remain unclaimed for two years will be returned to us,
and the holders of the debt securities must look only to us for payment after
that time.
The Subsidiary Guarantees. The Subsidiary Guarantors, which currently
constitute all of our subsidiaries other than Chesapeake Energy Marketing, Inc.,
will fully and unconditionally guarantee, on a joint and several basis, our
obligations to pay principal of, premium, if any, and interest on any series of
debt securities. Each entity that becomes a Restricted Subsidiary after the date
of original issuance of any series of debt securities will guarantee the payment
of such series.
Unless otherwise indicated in an accompanying prospectus supplement,
"Restricted Subsidiary" means any subsidiary of our company other than an
Unrestricted Subsidiary. Unless otherwise indicated in an accompanying
prospectus supplement relating to a particular series of debt securities, our
board of directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary.
Unless otherwise indicated in an accompanying prospectus supplement,
"Unrestricted Subsidiary" means:
(a) Chesapeake Energy Marketing, Inc. until it is designated
as a Restricted Subsidiary;
(b) any subsidiary of an Unrestricted Subsidiary; and
(c) any subsidiary of our company or of a Restricted
Subsidiary that is designated as an Unrestricted Subsidiary by a
resolution adopted by our board of directors.
The obligations of each Subsidiary Guarantor under its guarantee will
be limited as necessary to prevent that guarantee from constituting a fraudulent
conveyance or fraudulent transfer under federal, state or foreign law. Each
Subsidiary Guarantor that makes a payment or distribution under a guarantee
shall be entitled to a contribution from each other Subsidiary Guarantor in a
pro rata amount based on the respective net assets of each Subsidiary Guarantor
at the time of such payment determined in accordance with GAAP.
If a guarantee were rendered voidable, it could be subordinated by a
court to all other indebtedness (including guarantees and other contingent
liabilities) of the applicable Subsidiary Guarantor, and, depending on the
amount of such indebtedness, a Subsidiary Guarantor's liability on its guarantee
could be reduced to zero. See "Risk Factors -- Risks Related to Debt Securities
- -- A guarantee of debt securities could be voided if the guarantors fraudulently
transferred their guarantees at the time they incurred the indebtedness, which
could result in the holders of debt securities being able to rely on only
Chesapeake Energy Corporation to satisfy claims."
Unless otherwise indicated in an accompanying prospectus supplement and
subject to the next paragraph, no Subsidiary Guarantor may consolidate or merge
with or into (whether or not such Subsidiary Guarantor is the surviving entity)
another entity unless:
o the entity formed by or surviving any such consolidation or
merger (if other than such Subsidiary Guarantor) assumes all
the obligations of such Subsidiary Guarantor under the
Indenture and the Debt Securities pursuant to a supplemental
indenture, in a form reasonably satisfactory to the Trustee;
and
o immediately after such transaction, no Default or Event of
Default exists.
The preceding does not prohibit a merger between Subsidiary Guarantors
or a merger between our company and a Subsidiary Guarantor.
In the event of a sale or other disposition of all or substantially all
of the assets of any Subsidiary Guarantor, or a sale or other disposition of all
the capital stock of such Subsidiary Guarantor, in any case whether by way of
merger, consolidation or otherwise, or a Subsidiary Guarantor otherwise ceases
to be a Subsidiary Guarantor, then the person acquiring the assets (in the event
of a sale or other disposition, by way of such a merger,
14
consolidation or otherwise, of all or substantially all of the assets of such
Subsidiary Guarantor) or such Subsidiary Guarantor (in any other event) will be
released and relieved of any obligations under its guarantee.
COVENANTS
Reports. The Indenture contains the following covenant for the benefit
of the holders of all series of debt securities:
Notwithstanding that we may not be required to remain subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, we will file
with the SEC and provide the Trustee and holders of Debt Securities with annual
reports and such information, documents and other reports specified in Sections
13 and 15(d) of the Exchange Act.
A series of debt securities may provide for other covenants applicable
to us and our subsidiaries. A description of any such affirmative and negative
covenants will be contained in a prospectus supplement applicable to such
series.
EVENTS OF DEFAULT, REMEDIES AND NOTICE
Events of Default. Unless otherwise indicated in an accompanying
prospectus supplement, each of the following events will be an "Event of
Default" under the Indenture with respect to a series of debt securities:
o default in any payment of interest on any debt securities of
that series when due that continues for 30 days;
o default in the payment of principal of or premium, if any, on
any debt securities of that series when due at its stated
maturity, upon redemption, upon required repurchase or
otherwise;
o default in the payment of any sinking fund payment, if any, on
any debt securities of that series when due;
o failure by us or by a Subsidiary Guarantor to comply for 60
days after notice with the other agreements contained in the
Indenture, any supplement to the Indenture or any board
resolution authorizing the issuance of that series;
o certain events of bankruptcy, insolvency or reorganization of
us or of the Subsidiary Guarantors;
o any of the guarantees by the Subsidiary Guarantors ceases to
be in full force and effect, except as otherwise provided in
the Indenture;
o any of the guarantees by the Subsidiary Guarantors is declared
null and void in a judicial proceeding; or
o any Subsidiary Guarantor denies or disaffirms its obligations
under the Indenture or its guarantee.
Exercise of Remedies. If an Event of Default, other than an Event of
Default described in the fifth bullet point above, occurs and is continuing, the
Trustee or the holders of at least 25% in principal amount of the outstanding
debt securities of that series may declare the entire principal of, premium, if
any, and accrued and unpaid interest, if any, on all the debt securities of that
series to be due and payable immediately.
A default under the fourth bullet point above will not constitute an
Event of Default until the Trustee or the holders of 25% in principal amount of
the outstanding debt securities of that series notify us and the Subsidiary
Guarantors of the default and such default is not cured within 60 days after
receipt of notice.
15
If an Event of Default described in the fifth bullet point above occurs
and is continuing, the principal of, premium, if any, and accrued and unpaid
interest on all outstanding debt securities of all series will become
immediately due and payable without any declaration of acceleration or other act
on the part of the Trustee or any holders.
The holders of a majority in principal amount of the outstanding debt
securities of a series may:
o waive all past defaults, except with respect to nonpayment of
principal, premium or interest or any other provision of the
Indenture that cannot be amended without the consent of each
holder that is affected; and
o rescind any declaration of acceleration by the Trustee or the
holders with respect to the debt securities of that series,
but only if:
o rescinding the declaration of acceleration would not
conflict with any judgment or decree of a court of
competent jurisdiction; and
o all existing Events of Default have been cured or
waived, other than the nonpayment of principal,
premium or interest on the debt securities of that
series that have become due solely by the declaration
of acceleration.
If an Event of Default occurs and is continuing, the Trustee will be
under no obligation, except as otherwise provided in the Indenture, to exercise
any of the rights or powers under the Indenture at the request or direction of
any of the holders unless such holders have offered to the Trustee reasonable
indemnity or security against any costs, liability or expense. No holder may
pursue any remedy with respect to the Indenture or the debt securities of any
series, except to enforce the right to receive payment of principal, premium or
interest when due, unless:
o such holder has previously given the Trustee notice that an
Event of Default with respect to that series is continuing;
o holders of at least 25% in principal amount of the outstanding
debt securities of that series have requested that the Trustee
pursue the remedy;
o such holders have offered the Trustee reasonable indemnity or
security against any cost, liability or expense;
o the Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of indemnity or
security; and
o the holders of a majority in principal amount of the
outstanding debt securities of that series have not given the
Trustee a direction that, in the opinion of the Trustee, is
inconsistent with such request within such 60-day period.
The holders of a majority in principal amount of the outstanding debt
securities of a series have the right, subject to certain restrictions, to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or of exercising any right or power conferred on the
Trustee with respect to that series of debt securities. The Trustee, however,
may refuse to follow any direction that:
o conflicts with law;
o is inconsistent with any provision of the Indenture;
o the Trustee determines is unduly prejudicial to the rights of
any other holder; or
o would involve the Trustee in personal liability.
16
Notice of Events of Default. Upon the occurrence of an Event of
Default, we are required to give written notice to the Trustee and indicate the
status of the default and what action we are taking or propose to take to cure
the default. In addition, we are required to deliver to the Trustee, within 90
days after the end of each fiscal year, a compliance certificate indicating that
we have complied with all covenants contained in the Indenture or whether any
default or Event of Default has occurred during the previous year.
If an Event of Default occurs and is continuing and is known to the
Trustee, the Trustee must mail to each holder a notice of the Event of Default
by the later of 90 days after the Event of Default occurs or 30 days after the
Trustee knows of the Event of Default. Except in the case of a default in the
payment of principal, premium or interest with respect to any debt securities,
the Trustee may withhold such notice, but only if and so long as the board of
directors, the executive committee or a committee of directors or responsible
officers of the Trustee in good faith determines that withholding such notice is
in the interests of the holders.
Amendments and Waivers. We may amend the Indenture without the consent
of any holder of debt securities to:
o cure any ambiguity, omission, defect or inconsistency;
o convey, transfer, assign, mortgage or pledge any property to
or with the Trustee;
o provide for the assumption by a successor of our obligations
under the Indenture;
o add Subsidiary Guarantors with respect to the debt securities;
o evidence the removal of a Subsidiary Guarantor with respect to
the debt securities as permitted by the indenture and as
described under "__ Subsidiary Guarantees" or an accompanying
prospectus supplement;
o secure the debt securities;
o add covenants for the benefit of the holders or surrender any
right or power conferred upon us or any Subsidiary Guarantor;
o make any change that does not adversely affect the rights of
any holder;
o add or appoint a successor or separate Trustee; or
o comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act.
In addition, we may amend the Indenture if the holders of a majority in
principal amount of all debt securities of each series that would be affected
then outstanding under the Indenture consent to it. We may not, however, without
the consent of each holder of outstanding debt securities of each series that
would be affected, amend the Indenture to:
o reduce the percentage in principal amount of debt securities
of any series whose holders must consent to an amendment;
o reduce the rate of or extend the time for payment of interest
on any debt securities;
o reduce the principal of or extend the stated maturity of any
debt securities;
o reduce the premium payable upon the redemption of any debt
securities or change the time at which any debt securities may
or shall be redeemed;
o make any debt securities payable in other than U.S. dollars;
17
o impair the right of any holder to receive payment of premium,
principal or interest with respect to such holder's debt
securities on or after the applicable due date;
o impair the right of any holder to institute suit for the
enforcement of any payment with respect to such holder's debt
securities;
o release any security that has been granted in respect of the
debt securities;
o make any change to an amendment or waiver provision which
requires each holder's consent;
o make any change in the waiver provisions; or
o release a Subsidiary Guarantor or modify such Subsidiary
Guarantor's guarantee in any manner adverse to the holders
other than as provided under "--- The Subsidiary Guarantees."
The consent of the holders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment. After an amendment
under the Indenture becomes effective, we are required to mail to all holders a
notice briefly describing the amendment. The failure to give, or any defect in,
such notice, however, will not impair or affect the validity of the amendment.
The holders of a majority in aggregate principal amount of the
outstanding debt securities of each affected series, on behalf of all such
holders, and subject to certain rights of the Trustee, may waive:
o compliance by us or a Subsidiary Guarantor with certain
restrictive provisions of the Indenture; and
o any past default under the Indenture, subject to certain
rights of the Trustee under the Indenture;
except that such majority of holders may not waive a default:
o in the payment of principal, premium or interest; or
o in respect of a provision that under the Indenture cannot be
amended without the consent of all holders of the series of
debt securities that are affected.
Defeasance. At any time, we may terminate, with respect to debt
securities of a particular series, all our obligations under such series of debt
securities and the Indenture, which we call a "legal defeasance." If we decide
to make a legal defeasance, however, we may not terminate our obligations:
o relating to the defeasance trust;
o to register the transfer or exchange of the debt securities;
o to replace mutilated, destroyed, lost or stolen debt
securities; or
o to maintain a registrar and paying agent in respect of the
debt securities.
If we exercise our legal defeasance option, any subsidiary guarantee
will terminate with respect to that series of debt securities.
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At any time we may also effect a "covenant defeasance," which means we
have elected to terminate our obligations under:
o covenants applicable to a series of debt securities and
described in the prospectus supplement applicable to such
series, other than as described in such prospectus supplement;
o the bankruptcy provisions with respect to the Subsidiary
Guarantors, if any; and
o the guarantee provision described under "Events of Default"
above with respect to a series of debt securities.
We may exercise our legal defeasance option notwithstanding our prior
exercise of our covenant defeasance option. If we exercise our legal defeasance
option, payment of the affected series of debt securities may not be accelerated
because of an Event of Default with respect to that series. If we exercise our
covenant defeasance option, payment of the affected series of debt securities
may not be accelerated because of an Event of Default specified in the fourth,
fifth (with respect only to a Subsidiary Guarantor) or sixth bullet points under
"-- Events of Default" above or an Event of Default that is added specifically
for such series and described in a prospectus supplement.
In order to exercise either defeasance option, we must:
o irrevocably deposit in trust with the Trustee money or certain
U.S. government obligations for the payment of principal,
premium, if any, and interest on the series of debt securities
to redemption or maturity, as the case may be;
o comply with certain other conditions, including that no
default has occurred and is continuing after the deposit in
trust; and
o deliver to the Trustee an opinion of counsel to the effect
that holders of the series of debt securities will not
recognize income, gain or loss for Federal income tax purposes
as a result of such defeasance and will be subject to Federal
income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit and
defeasance had not occurred. In the case of legal defeasance
only, such opinion of counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal
income tax law.
Book Entry, Delivery and Form. We may issue debt securities of a series
in the form of one or more global certificates deposited with a depositary. We
expect that The Depository Trust Company, New York, New York, or "DTC," will act
as depositary. If we issue debt securities of a series in book-entry form, we
will issue one or more global certificates that will be deposited with or on
behalf of DTC and will not issue physical certificates to each holder. A global
security may not be transferred unless it is exchanged in whole or in part for a
certificated security, except that DTC, its nominees and their successors may
transfer a global security as a whole to one another.
DTC will keep a computerized record of its participants, such as a
broker, whose clients have purchased the debt securities. The participants will
then keep records of their clients who purchased the debt securities. Beneficial
interests in global securities will be shown on, and transfers of beneficial
interests in global securities will be made only through, records maintained by
DTC and its participants.
DTC advises us that it is:
o a limited-purpose trust company organized under the New York
Banking Law;
o a "banking organization" within the meaning of the New York
Banking Law;
o a member of the United States Federal Reserve System;
o a "clearing corporation" within the meaning of the New York
Uniform Commercial Code; and
o a "clearing agency" registered under the provisions of Section
17A of the Exchange Act.
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DTC is owned by a number of its participants and by the New York Stock
Exchange, Inc., The American Stock Exchange, Inc. and the National Association
of Securities Dealers, Inc. The rules that apply to DTC and its participants are
on file with the SEC.
DTC holds securities that its participants deposit with DTC. DTC also
records the settlement among participants of securities transactions, such as
transfers and pledges, in deposited securities through computerized records for
participants' accounts. This eliminates the need to exchange certificates.
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations.
We will wire principal, premium, if any, and interest payments due on
the global securities to DTC's nominee. We, the Trustee and any paying agent
will treat DTC's nominee as the owner of the global securities for all purposes.
Accordingly, we, the Trustee and any paying agent will have no direct
responsibility or liability to pay amounts due on the global securities to
owners of beneficial interests in the global securities.
It is DTC's current practice, upon receipt of any payment of principal,
premium, if any, or interest, to credit participants' accounts on the payment
date according to their respective holdings of beneficial interests in the
global securities as shown on DTC's records. In addition, it is DTC's current
practice to assign any consenting or voting rights to participants, whose
accounts are credited with debt securities on a record date, by using an omnibus
proxy.
Payments by participants to owners of beneficial interests in the
global securities, as well as voting by participants, will be governed by the
customary practices between the participants and the owners of beneficial
interests, as is the case with debt securities held for the account of customers
registered in "street name." Payments to holders of beneficial interests are the
responsibility of the participants and not of DTC, the Trustee or us.
Beneficial interests in global securities will be exchangeable for
certificated securities with the same terms in authorized denominations only if:
o DTC notifies us that it is unwilling or unable to continue as
depositary or if DTC ceases to be a clearing agency registered
under applicable law and a successor depositary is not
appointed by us within 90 days; or
o we determine not to require all of the debt securities of a
series to be represented by a global security and notify the
Trustee of our decision.
The Trustee. The Bank of New York will be the Trustee under the Indenture. The
Bank of New York also serves as Trustee for our 7.875% Senior Notes due 2004,
our 8.375% Senior Notes due 2008, our 8.125% Senior Notes due 2011 and our 8.5%
Senior Notes due 2012. We may also maintain banking and other commercial
relationships with the Trustee and its affiliates in the ordinary course of
business, and the Trustee may own our debt securities.
Governing Law. The Indenture and the debt securities will be governed by, and
construed in accordance with, the laws of the State of New York.
20
DESCRIPTION OF CAPITAL STOCK
The description of our capital stock set forth below is not complete
and is qualified by reference to our certificate of incorporation (including our
certificates of designation) and bylaws. Copies of our certificate of
incorporation (including our certificates of designation) and bylaws are
available from us upon request and have also been filed with the SEC. See "Where
You Can Find More Information."
AUTHORIZED CAPITAL STOCK
Our authorized capital stock consists of 350,000,000 shares of common
stock, par value $.01 per share, and 10,000,000 shares of preferred stock, par
value $.01 per share, of which 250,000 shares are designated as Series A Junior
Participating Preferred Stock and 3,000,000 shares are designated 6.75%
Cumulative Convertible Preferred Stock.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of shareholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of our common stock are entitled to receive ratably such dividends as may be
declared by the board of directors out of funds legally available for dividends.
In the event of our liquidation or dissolution, holders of our common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any outstanding preferred stock.
Holders of our common stock have no preemptive rights and have no
rights to convert their common stock into any other securities. All of the
outstanding shares of common stock are duly authorized, validly issued, fully
paid and nonassessable.
6.75% CUMULATIVE CONVERTIBLE PREFERRED STOCK
General. We have 6,750,000 shares of authorized preferred stock which
are undesignated. 3,000,000 shares of preferred stock are designated as 6.75%
Cumulative Convertible Preferred Stock, of which 2,998,000 are currently
outstanding. Our board of directors has also authorized the issuance of up to
250,000 shares of Series A Junior Participating Preferred Stock in connection
with the adoption of our shareholder rights plan in July 1998. None of these
shares are currently outstanding. The Series A Preferred Stock is described
below under "--- Share Rights Plan."
Our board of directors has the authority, without further shareholder
approval, to issue shares of preferred stock from time to time in one or more
series, with such voting powers or without voting powers, and with such
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions, as shall be set forth
in the resolutions providing thereof.
While providing desirable flexibility for possible acquisitions and
other corporate purposes, and eliminating delays associated with a shareholder
vote on specific issuances, the issuance of preferred stock could adversely
affect the voting power of holders of common stock, as well as dividend and
liquidation payments on both common and preferred stock. It also could have the
effect of delaying, deferring or preventing a change in control.
Ranking. The Convertible Preferred Stock, with respect to dividend
rights or rights upon the liquidation, winding-up or dissolution, ranks:
o senior to all classes of our common stock and to the Series A
Junior Participating Preferred Stock and each other class of
capital stock or series of preferred stock established after
the original issue date of the Convertible Preferred Stock
(which we will refer to as the "Issue Date") the terms of
which do not expressly provide that such class or series ranks
senior to or on a parity with the Convertible Preferred Stock
as to dividend rights or rights upon our liquidation,
winding-up or dissolution (which we will refer to collectively
as "Junior Stock");
21
o on a parity with any class of capital stock or series of
preferred stock established after the Issue Date the terms of
which expressly provide that such class or series will rank on
a parity with the Convertible Preferred Stock as to dividend
rights or rights upon our liquidation, winding-up or
dissolution (which we will refer to collectively as "Parity
Stock"); and
o junior to each class of capital stock or series of preferred
stock established after the Issue Date the terms of which
expressly provide that such class or series will rank senior
to the Convertible Preferred Stock as to dividend rights or
rights upon our liquidation, winding-up or dissolution (which
we will refer to collectively as "Senior Stock").
While any shares of our Convertible Preferred Stock are outstanding, we
may not authorize, increase the authorized amount of, or issue any shares of,
any class or series of Senior Stock (or any security convertible into Senior
Stock) without the affirmative vote or consent of the holders of at least 66
2/3% of the outstanding shares of Convertible Preferred Stock. Without the
consent of any holder of Convertible Preferred Stock, however, we may authorize,
increase the authorized amount of, or issue any shares of, any class or series
of Parity Stock or Junior Stock. See "-- Voting Rights" below.
Dividends. Holders of shares of Convertible Preferred Stock are
entitled to receive, when, as and if declared by our board of directors out of
funds legally available for payment, cumulative cash dividends at the rate per
annum of 6.75% per share on the liquidation preference thereof of $50 per share
of Convertible Preferred Stock (equivalent to $3.375 per annum per share).
Dividends on the Convertible Preferred Stock are payable quarterly on February
15, May 15, August 15 and November 15 of each year at such annual rate, and
accumulate from the most recent date as to which dividends have been paid or, if
no dividends have been paid, from the Issue Date of the Convertible Preferred
Stock, whether or not in any dividend period or periods there have been funds
legally available for the payment of such dividends. Dividends will be payable
to holders of record as they appear on our stock register on the immediately
preceding February 1, May 1, August 1 and November 1. Accumulations of dividends
on shares of Convertible Preferred Stock do not bear interest. Dividends payable
on the Convertible Preferred Stock for any period less than a full dividend
period (based upon the number of days elapsed during the period) are computed on
the basis of a 360-day year consisting of twelve 30-day months.
No dividend will be declared or paid upon, or any sum set apart for the
payment of dividends upon, any outstanding share of the Convertible Preferred
Stock with respect to any dividend period unless all dividends for all preceding
dividend periods have been declared and paid or declared and a sufficient sum
set apart for the payment of such dividend, upon all outstanding shares of
Convertible Preferred Stock.
No dividends or other distributions (other than a dividend or
distribution payable solely in shares of Parity Stock or Junior Stock (in the
case of Parity Stock) or Junior Stock (in the case of Junior Stock) and cash in
lieu of fractional shares) may be declared, made or paid, or set apart for
payment upon, any Parity Stock or Junior Stock, nor may any Parity Stock or
Junior Stock be redeemed, purchased or otherwise acquired for any consideration
(or any money paid to or made available for a sinking fund for the redemption of
any Parity Stock or Junior Stock) by us or on our behalf (except by conversion
into or exchange for shares of Parity Stock or Junior Stock (in the case of
Parity Stock) or Junior Stock (in the case of Junior Stock)) unless all
accumulated and unpaid dividends have been or contemporaneously are declared and
paid, or are declared and a sum sufficient for the payment thereof is set apart
for such payment, on the Convertible Preferred Stock and any Parity Stock for
all dividend payment periods terminating on or prior to the date of such
declaration, payment, redemption, purchase or acquisition. Notwithstanding the
foregoing, if full dividends have not been paid on the Convertible Preferred
Stock and any Parity Stock, dividends may be declared and paid on the
Convertible Preferred Stock and such Parity Stock so long as the dividends are
declared and paid pro rata so that the amounts of dividends declared per share
on the Convertible Preferred Stock and such Parity Stock will in all cases bear
to each other the same ratio that accumulated and unpaid dividends per share on
the shares of the Convertible Preferred Stock and such Parity Stock bear to each
other. Holders of shares of the Convertible Preferred Stock are not entitled to
any dividend, whether payable in cash, property or stock, in excess of full
cumulative dividends.
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Our ability to declare and pay cash dividends and make other
distributions with respect to our capital stock, including the Convertible
Preferred Stock, is limited by the terms of our outstanding indebtedness. In
addition, our ability to declare and pay dividends may be limited by applicable
Oklahoma law.
Liquidation Preference. In the event of our voluntary or involuntary
liquidation, winding-up or dissolution, each holder of Convertible Preferred
Stock will be entitled to receive and to be paid out of our assets available for
distribution to our stockholders, before any payment or distribution is made to
holders of Junior Stock (including common stock), a liquidation preference in
the amount of $50 per share of the Convertible Preferred Stock, plus accumulated
and unpaid dividends thereon to the date fixed for liquidation, winding-up or
dissolution. If, upon our voluntary or involuntary liquidation, winding-up or
dissolution, the amounts payable with respect to the liquidation preference of
the Convertible Preferred Stock and all Parity Stock are not paid in full, the
holders of the Convertible Preferred Stock and the Parity Stock will share
equally and ratably in any distribution of our assets in proportion to the full
liquidation preference and accumulated and unpaid dividends to which they are
entitled. After payment of the full amount of the liquidation preference and
accumulated and unpaid dividends to which they are entitled, the holders of the
Convertible Preferred Stock will have no right or claim to any of our remaining
assets. Neither the sale of all or substantially all of our assets or business
(other than in connection with the liquidation, winding-up or dissolution of its
business), nor our merger or consolidation into or with any other person, will
be deemed to be our voluntary or involuntary liquidation, winding-up or
dissolution.
The certificate of designation does not contain any provision requiring
funds to be set aside to protect the liquidation preference of the Convertible
Preferred Stock even though it is substantially in excess of the par value
thereof.
Voting Rights. The holders of the Convertible Preferred Stock have no
voting rights except as set forth below or as otherwise required by Oklahoma
law.
If dividends on the Convertible Preferred Stock are in arrears and
unpaid for six or more quarterly periods (whether or not consecutive), the
holders of the Convertible Preferred Stock, voting as a single class with any
other preferred stock or preference securities having similar voting rights that
are exercisable, will be entitled at our next regular or special meeting of
stockholders to elect two additional directors to our board of directors unless
our board is comprised of fewer than six directors at such time, in which case
such holders will be entitled to elect one additional director. Upon the
election of any additional directors, the number of directors that compose our
board shall be increased by such number of additional directors. Such voting
rights and the terms of the directors so elected will continue until such time
as the dividend arrearage on the Convertible Preferred Stock has been paid in
full.
In addition, the affirmative vote or consent of the holders of at least
66 2/3% of the outstanding Convertible Preferred Stock is required for the
issuance of any class or series of Senior Stock (or any security convertible
into Senior Stock) and for amendments to our certificate of incorporation that
would affect adversely the rights of holders of the Convertible Preferred Stock.
The certificate of designation provides that the authorization of, the increase
in the authorized amount of, or the issuance of any shares of any class or
series of Parity Stock or Junior Stock does not require the consent of the
holders of the Convertible Preferred Stock, and is not deemed to affect
adversely the rights of the holders of the Convertible Preferred Stock.
In all cases in which the holders of Convertible Preferred Stock are
entitled to vote, each share of Convertible Preferred Stock shall be entitled to
one vote.
Conversion Rights. Each share of Convertible Preferred Stock is
convertible at any time at the option of the holder thereof into 6.4935 shares
of common stock (which was calculated using an initial conversion price of $7.70
per share of common stock) subject to adjustment for certain dilutive events (we
refer to such price or adjusted price as the "Conversion Price").
Mandatory Conversion. At any time on or after November 20, 2004, we may
at our option cause the Convertible Preferred Stock to be automatically
converted into that number of shares of common stock for each share of
Convertible Preferred Stock equal to $50.00 (the liquidation preference per
share of Convertible Preferred Stock) divided by the then prevailing Conversion
Price. We may exercise this right only if the closing price of its
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common stock equals or exceeds 130% of the then prevailing Conversion Price for
at least 20 trading days in any consecutive 30-day trading period, including the
last trading day of such 30-day period, ending on the trading day prior to our
issuance of a press release announcing the mandatory conversion as described
below.
We may not authorize, issue a press release or give notice of any
mandatory conversion unless, prior to giving the conversion notice, all
accumulated and unpaid dividends on the Convertible Preferred Stock for periods
ended prior to the date of such conversion notice shall have been paid in cash.
In addition to the mandatory conversion provision described above, if
there are less than 250,000 shares of Convertible Preferred Stock outstanding,
we may, at any time on or after November 20, 2006, at our option, cause the
Convertible Preferred Stock to be automatically converted into that number of
shares of common stock equal to $50.00 (the liquidation preference per share of
Convertible Preferred Stock) divided by the lesser of the then prevailing
Conversion Price and the Market Value for the five trading day period ending on
the second trading day immediately prior to the date set for conversion.
The term "Market Value" means the average closing price of the common
stock for a five consecutive trading day period on the New York Stock Exchange
(or such other national securities exchange or automated quotation system on
which the common stock is then listed or authorized for quotation or, if not so
listed or authorized for quotation, an amount determined in good faith by our
board of directors to be the fair value of the common stock).
Change of Control. Except as provided below, upon a Change of Control
(as defined below), holders of Convertible Preferred Stock shall, in the event
that the Market Value at such time is less than the Conversion Price, have a
one-time option to convert all of their outstanding shares of Convertible
Preferred Stock into shares of common stock at an adjusted Conversion Price
equal to the greater of (i) the Market Value as of the Change of Control Date
and (ii) $4.0733. This option shall be exercisable during a period of not less
than 30 days nor more than 60 days commencing on the third business day after
notice of the Change of Control is given by us in the manner specified in the
certificate of designation. In lieu of issuing the shares of common stock
issuable upon conversion in the event of a Change of Control, we may, at our
option, make a cash payment equal to the Market Value for each share of such
common stock otherwise issuable determined for the period ending on the Change
of Control Date. Notwithstanding the foregoing, upon a Change of Control in
which (x) each holder of our common stock receives consideration consisting
solely of common stock of the successor, acquiror or other third party (and cash
paid in lieu of fractional shares) that is listed on a national securities
exchange or quoted on the NASDAQ National Market and (y) all our common stock
has been exchanged for, converted into or acquired for common stock of the
successor, acquiror or other third party (and cash in lieu of fractional
shares), and the Convertible Preferred Stock becomes convertible solely into
such common stock, the Conversion Price will not be adjusted as described in
this paragraph.
The certificate of designation defines "Change of Control" as any of
the following events:
o the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of our assets
(determined on a consolidated basis) to any person or group
(as such term is used in Section 13(d)(3) of the Exchange
Act), other than to Permitted Holders (as defined below);
o the adoption of a plan the consummation of which would result
in the liquidation or dissolution of our company;
o the acquisition, directly or indirectly, by any person or
group (as such term is used in Section 13(d)(3) of the
Exchange Act), other than Permitted Holders, of beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of
more than 50% of our aggregate voting power of the voting
stock; provided, however, that the Permitted Holders
beneficially own (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act), directly or indirectly, in the aggregate a
lesser percentage of the total voting power of our voting
stock than such other person and do not have the right or
ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors
(for the purposes of this definition, such other person shall
be
24
deemed to beneficially own any voting stock of a specified
corporation held by a parent corporation, if such other person
is the beneficial owner (as defined above), directly or
indirectly, of more than 35% of the voting power of the voting
stock of such parent corporation and the Permitted Holders
beneficially own (as defined in this proviso), directly or
indirectly, in the aggregate a lesser percentage of the voting
power of the voting stock of such parent corporation and do
not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of our
board of directors of such parent corporation); or
o during any period of two consecutive years, individuals who at
the beginning of such period composed our board of directors
(together with any new directors whose election by such board
of directors or whose nomination for election by our
shareholders was approved by a vote of 66 2/3% of our
directors then still in office who were either directors at
the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason
to constitute a majority of our board of directors then in
office.
For purposes of the definition of "Change of Control," the term "Permitted
Holders" means Aubrey K. McClendon and Tom L. Ward and their respective
Affiliates.
The phrase "all or substantially all" of the assets of our company is
likely to be interpreted by reference to applicable state law at the relevant
time, and will be dependent on the facts and circumstances existing at such
time. As a result, there may be a degree of uncertainty in ascertaining whether
a sale or transfer is of "all or substantially all" of our assets.
ANTI-TAKEOVER PROVISIONS
Our certificate of incorporation and bylaws and the Oklahoma General
Corporation Act include a number of provisions which may have the effect of
encouraging persons considering unsolicited tender offers or other unilateral
takeover proposals to negotiate with our board of directors rather than pursue
non-negotiated takeover attempts. These provisions include a classified board of
directors, authorized blank check preferred stock, restrictions on business
combinations and the availability of authorized but unissued common stock.
Classified Board of Directors. Our certificate of incorporation and
bylaws contain provisions for a staggered board of directors with only one-third
of the board standing for election each year. Directors can only be removed for
cause. A staggered board makes it more difficult for shareholders to change the
majority of the directors.
Oklahoma Business Combination Statute. Section 1090.3 of the Oklahoma
General Corporation Act prevents an "interested shareholder" from engaging in a
"business combination" with an Oklahoma corporation for three years following
the date the person became an interested shareholder, unless:
o prior to the date the person became an interested shareholder,
the board of directors of the corporation approved the
transaction in which the interested shareholder became an
interested shareholder or approved the business combination;
o upon consummation of the transaction that resulted in the
interested shareholder becoming an interested shareholder, the
interested shareholder owns stock having at least 85% of all
voting power of the corporation at the time the transaction
commenced, excluding stock held by directors who are also
officers of the corporation and stock held by certain employee
stock plans; or
o on or subsequent to the date of the transaction in which the
person became an interested shareholder, the business
combination is approved by the board of directors of the
corporation and authorized at a meeting of shareholders by the
affirmative vote of the holders of two-thirds of all voting
power not attributable to shares owned by the interested
shareholder.
25
The statute defines a "business combination" to include:
o any merger or consolidation involving the corporation and an
interested shareholder;
o any sale, lease, exchange, mortgage, pledge, transfer or other
disposition to or with an interested shareholder of 10% or
more of the assets of the corporation;
o subject to certain exceptions, any transaction which results
in the issuance or transfer by the corporation of any stock of
the corporation to an interested shareholder;
o any transaction involving the corporation which has the effect
of increasing the proportionate share of the stock of any
class or series or voting power of the corporation owned by
the interested shareholder;
o the receipt by an interested shareholder of any loans,
guarantees, pledges or other financial benefits provided by or
through the corporation; or
o any share acquisition by the interested shareholder pursuant
to Section 1090.1 of the Oklahoma General Corporation Act.
For purposes of Section 1090.3, the term "corporation" also includes
the corporation's majority-owned subsidiaries.
In addition, Section 1090.3 defines an "interested shareholder,"
generally, as any person that owns stock having 15% or more of all voting power
of the corporation, any person that is an affiliate or associate of the
corporation and owned stock having 15% or more of all voting power of the
corporation at any time within the three-year period prior to the time of
determination of interested shareholder status, and any affiliate or associate
of such person.
Stock Purchase Provisions. Our certificate of incorporation includes a
provision which requires the affirmative vote of two-thirds of the votes cast by
the holders, voting together as a single class, of all then outstanding shares
of capital stock, excluding the votes by an interested shareholder, to approve
the purchase of any of our capital stock from the interested shareholder at a
price in excess of fair market value, unless the purchase is either (1) made on
the same terms offered to all holders of the same securities or (2) made on the
open market and not the result of a privately negotiated transaction.
SHARE RIGHTS PLAN
The Rights. On July 7, 1998, our board of directors declared a dividend
distribution of one preferred stock purchase right for each outstanding share of
common stock. The distribution was paid on July 27, 1998 to the shareholders of
record on that date. Each right entitles the registered holder to purchase from
us one one-thousandth of a share of Series A Preferred Stock at a price of
$25.00, subject to adjustment.
The following is a summary of these rights. The full description and
terms of the rights are set forth in a rights agreement with UMB Bank, N.A., as
rights agent. Copies of the rights agreement and the certificate of designation
for the Series A Preferred Stock are available free of charge. This summary
description of the rights and the Series A Preferred Stock does not purport to
be complete and is qualified in its entirety by reference to all the provisions
of the rights agreement and the certificate of designation for the Series A
Preferred Stock.
Initially, the rights attached to all certificates representing shares
of our outstanding common stock, and no separate rights certificates were
distributed. The rights will separate from our common stock and the distribution
date will occur upon the earlier of:
o ten days following the date of public announcement that a
person or group of persons has become an acquiring person; or
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o ten business days (or a later date set by the board of
directors prior to the time a person becomes an acquiring
person) following the commencement of, or the announcement of
an intention to make, a tender offer or exchange offer upon
consummation of which the offeror would, if successful, become
an acquiring person.
The earlier of these dates is called the distribution date.
The term "acquiring person" means any person who or which, together
with all of its affiliates and associates, is the beneficial owner of 15% or
more of our outstanding common stock, but does not include:
o us or any of our subsidiaries or employee benefit plans;
o Aubrey K. McClendon, his spouse, lineal descendants and
ascendants, heirs, executors or other legal representatives
and any trusts established for the benefit of the foregoing or
any other person or entity in which the foregoing persons or
entities are at the time of determination the direct record
and beneficial owners of all outstanding voting securities
(each a "McClendon shareholder");
o Tom L. Ward, his spouse, lineal descendants and ascendants,
heirs, executors or other legal representatives and any trusts
established for the benefit of the foregoing, or any other
person or entity in which the foregoing persons or entities
are at the time of determination the direct record and
beneficial owners of all outstanding voting securities (each a
"Ward shareholder");
o Morgan Guaranty Trust Company of New York, in its capacity as
pledgee of shares beneficially owned by a McClendon or Ward
shareholder, or both, under any pledge agreement in effect on
September 11, 1998, to the extent that upon the exercise by
the pledgee of any of its rights or duties as pledgee, other
than the exercise of any voting power by the pledgee or the
acquisition of ownership by the pledgee, such pledgee becomes
a beneficial owner of pledged shares; or
o any person (other than the pledgee just described) that is
neither a McClendon nor Ward shareholder, but who or which is
the beneficial owner of common stock beneficially owned by a
McClendon or Ward shareholder (a "second tier shareholder"),
but only if the shares of common stock otherwise beneficially
owned by a second tier shareholder ("second tier holder
shares") do not exceed the sum of (A) the holder's second tier
holder shares held on September 11, 1998 and (B) 1% of the
shares of our common stock then outstanding (collectively,
"exempt persons").
The rights agreement provides that, until the distribution date, the rights
will be transferred with and only with the common stock. Until the distribution
date (or earlier redemption or expiration of the rights), new common stock
certificates issued after July 27, 1998, upon transfer or new issuance of common
stock, will contain a notation incorporating the rights agreement by reference.
Until the distribution date or earlier redemption or expiration of the rights,
the surrender for transfer of any certificate for common stock, outstanding as
of July 27, 1998, even without a notation or a copy of a summary of the rights
being attached, will also constitute the transfer of the rights associated with
the common stock represented by the certificate. As soon as practicable
following the distribution date, separate certificates evidencing the rights
will be mailed to holders of record of the common stock as of the close of
business on the distribution date and these separate rights certificates alone
will evidence the rights.
The rights are not exercisable until the distribution date. The rights
will expire on July 27, 2008.
The purchase price payable, and the number of one one-thousandths of a
share of Series A Preferred Stock or other securities or property issuable, upon
exercise of the rights are subject to adjustment from time to time to prevent
dilution:
o in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the Series A Preferred
Stock;
27
o upon the grant to holders of the Series A Preferred Stock of
certain rights or warrants to subscribe for or purchase shares
of Series A Preferred Stock at a price, or securities
convertible into Series A Preferred Stock with a conversion
price, less than the then current market price of the Series A
Preferred Stock; or
o upon the distribution to holders of the Series A Preferred
Stock of evidences of indebtedness or assets (excluding
regular periodic cash dividends paid or dividends payable in
Series A Preferred Stock) or of subscription rights or
warrants (other than those referred to above).
The number of outstanding rights and the number of one one-thousandths of a
share of Series A Preferred Stock issuable upon exercise of each right are also
subject to adjustment in the event of a stock split of the common stock or a
stock dividend on the common stock payable in the common stock or subdivisions,
consolidations or combinations of the common stock occurring, in any such case,
prior to the distribution date.
In the event that following the date of public announcement that a person
has become an acquiring person, we are acquired in a merger or other business
combination transaction or more than 50% of our consolidated assets or earning
power is sold, proper provision will be made so that each holder of a right will
thereafter have the right to receive, upon the exercise of the right at the then
current exercise price of the right, that number of shares of common stock of
the acquiring company which at the time of such transaction will have a market
value of two times the exercise price of the right (the "flip-over right").
In the event that a person, other than an exempt person, becomes an
acquiring person, proper provision will be made so that each holder of a right,
other than the acquiring person and its affiliates and associates, will
thereafter have the right to receive upon exercise that number of shares of
common stock, or, if applicable, cash, other equity securities or property of
us, having a market value equal to two times the purchase price of the rights
(the "flip-in right"). Any rights that are or were at any time owned by an
acquiring person will then become void.
With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments require an adjustment of at least 1% in
the purchase price. Upon exercise of the rights, no fractional shares of Series
A Preferred Stock will be issued other than fractions which are integral
multiples of one one-hundredth of a share of Series A Preferred Stock. Cash will
be paid in lieu of fractional shares of Series A Preferred Stock that are not
integral multiples of one one-hundredth of a share of Series A Preferred Stock.
At any time prior to the earlier to occur of (1) 5:00 p.m., Oklahoma
City, Oklahoma time on the tenth day after the stock acquisition date or (2) the
expiration of the rights, we may redeem the rights in whole, but not in part, at
a price of $0.01 per right; provided, that (a) if the board of directors
authorizes redemption on or after the time a person becomes an acquiring person,
then the authorization must be by board approval and (b) the period for
redemption may, upon board approval, be extended by amending the rights
agreement. Board approval means the approval of a majority of our directors.
Immediately upon any redemption of the rights described in this paragraph, the
right to exercise the rights will terminate and the only right of the holders of
rights will be to receive the redemption price.
Our board of directors may amend the terms of the rights without the
consent of the holders of the rights at any time and from time to time provided
that any amendment does not adversely affect the interests of the holders of the
rights. In addition, during any time that the rights are subject to redemption,
the terms of the rights may be amended by the approval of a majority of the
directors, including an amendment that adversely affects the interests of the
holders of the rights, without the consent of the holders of rights.
Until a right is exercised, a holder will have no rights as a
shareholder, including, without limitation, the right to vote or to receive
dividends. While the distribution of the rights will not be taxable to us or our
shareholders, shareholders may, depending upon the circumstances, recognize
taxable income in the event that the rights become exercisable for Series A
Preferred Stock, or other consideration.
The Series A Preferred Stock. Each one-thousandth of a share of the
Series A Preferred Stock (a "preferred share fraction") that may be acquired
upon exercise of the rights will be nonredeemable and junior to any other shares
of preferred stock that we may issue.
28
Each preferred share fraction will have a minimum preferential
quarterly dividend rate of $0.01 per preferred share fraction but will, in any
event, be entitled to a dividend equal to the per share dividend declared on the
common stock.
In the event of liquidation, the holder of a preferred share fraction
will receive a preferred liquidation payment equal to the greater of $0.01 per
preferred share fraction or the per share amount paid in respect of a share of
common stock.
Each preferred share fraction will have one vote, voting together with
the common stock. The holders of preferred share fractions, voting as a separate
class, will be entitled to elect two directors if dividends on the Series A
Preferred Stock are in arrears for six fiscal quarters.
In the event of any merger, consolidation or other transaction in which
shares of common stock are exchanged, each preferred share fraction will be
entitled to receive the per share amount paid in respect of each share of common
stock.
The rights of holders of the Series A Preferred Stock to dividends,
liquidation and voting, and in the event of mergers and consolidations, are
protected by customary antidilution provisions.
Because of the nature of the Series A Preferred Stock's dividend,
liquidation and voting rights, the economic value of one preferred share
fraction that may be acquired upon the exercise of each right should approximate
the economic value of one share of our common stock.
SHAREHOLDER ACTION
Except as otherwise provided by law or in our certificate of
incorporation or bylaws, the approval by holders of a majority of the shares of
common stock present in person or represented by proxy at a meeting and entitled
to vote is sufficient to authorize, affirm, ratify or consent to a matter voted
on by shareholders. Our bylaws provide that all questions submitted to
shareholders will be decided by a plurality of the votes cast, unless otherwise
required by law, our certificate of incorporation, stock exchange requirements
or any certificate of designation. The Oklahoma General Corporation Act requires
the approval of the holders of a majority of the outstanding stock entitled to
vote for certain extraordinary corporate transactions, such as a merger, sale of
substantially all assets, dissolution or amendment of the certificate of
incorporation. Our certificate of incorporation provides for a vote of the
holders of two-thirds of the issued and outstanding stock having voting power,
voting as a single class, to amend, repeal or adopt any provision inconsistent
with the provisions of the certificate of incorporation limiting director
liability and stock purchases by us, and providing for staggered terms of
directors and indemnity for directors. The same vote is also required for
shareholders to amend, repeal or adopt any provision of our bylaws.
Under Oklahoma law, shareholders may take actions without the holding
of a meeting by written consent or consents signed by the holders of a
sufficient number of shares to approve the transaction had all of the
outstanding shares of our capital stock entitled to vote thereon been present at
a meeting. If shareholder action is taken by written consent, the rules and
regulations of the SEC require us to send each shareholder entitled to vote on
the matter, but whose consent was not solicited, an information statement
containing information substantially similar to that which would have been
contained in a proxy statement.
TRANSFER AGENT AND REGISTRAR
UMB Bank, N.A. is the transfer agent and registrar for our common stock
and the Convertible Preferred Stock.
29
PLAN OF DISTRIBUTION
Any of the securities being offered hereby may be sold in any one or
more of the following ways from time to time:
o through agents;
o to or through underwriters;
o through dealers; or
o directly by us.
The distribution of the securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
Offers to purchase securities may be solicited by agents designated by
us from time to time. Any such agent involved in the offer or sale of the
securities in respect of which this prospectus is delivered will be named, and
any commissions payable by us to such agent will be set forth, in the applicable
prospectus supplement. Unless otherwise indicated in such prospectus supplement,
any such agent will be acting on a reasonable best efforts basis for the period
of its appointment. Any such agent may be deemed to be an underwriter, as that
term is defined in the Securities Act, of the securities so offered and sold.
If securities are sold by means of an underwritten offering, we will
execute an underwriting agreement with an underwriter or underwriters at the
time an agreement for such sale is reached, and the names of the specific
managing underwriter or underwriters, as well as any other underwriters, the
respective amounts underwritten and the terms of the transaction, including
commissions, discounts and any other compensation of the underwriters and
dealers, if any, will be set forth in the applicable prospectus supplement which
will be used by the underwriters to make resales of the securities in respect of
which this prospectus is being delivered to the public. If underwriters are
utilized in the sale of any securities in respect of which this prospectus is
being delivered, such securities will be acquired by the underwriters for their
own account and may be resold from time to time in one or more transactions,
including negotiated transactions, at fixed public offering prices or at varying
prices determined by the underwriters at the time of sale. Securities may be
offered to the public either through underwriting syndicates represented by
managing underwriters or directly by one or more underwriters. If any
underwriter or underwriters are utilized in the sale of securities, unless
otherwise indicated in the applicable prospectus supplement, the underwriting
agreement will provide that the obligations of the underwriters are subject to
certain conditions precedent and that the underwriters with respect to a sale of
such securities will be obligated to purchase all such securities if any are
purchased.
We may grant to the underwriters options to purchase additional
securities, to cover over-allotments, if any, at the price at which securities
are first offered to the public (with additional underwriting commissions or
discounts), as may be set forth in the prospectus supplement relating thereto.
If we grant any over-allotment option, the terms of such over-allotment option
will be set forth in the prospectus supplement for such securities.
If a dealer is utilized in the sale of the securities in respect of
which this prospectus is delivered, we will sell such securities to the dealer
as principal. The dealer may then resell such securities to the public at
varying prices to be determined by such dealer at the time of resale. Any such
dealer may be deemed to be an underwriter, as such term is defined in the
Securities Act, of the securities so offered and sold. The name of the dealer
and their terms of the transaction will be set forth in the prospectus
supplement relating thereto.
Offers to purchase securities may be solicited directly by us and the
sale thereof may be made by us directly to institutional investors or others,
who may be deemed to be underwriters within the meaning of the Securities Act
with respect to any resale thereof. The terms of any such sales will be
described in the prospectus supplement relating thereto.
30
If so indicated in the applicable prospectus supplement, we may
authorize agents and underwriters to solicit offers by certain institutions to
purchase securities from us at the public offering price set forth in the
applicable prospectus supplement pursuant to delayed delivery contracts
providing for payment and delivery on the date or dates stated in the applicable
prospectus supplement. Such delayed delivery contracts will be subject to only
those conditions set forth in the applicable prospectus supplement. A commission
indicated in the applicable prospectus supplement will be paid to underwriters
and agents soliciting purchases of securities pursuant to delayed delivery
contracts accepted by us.
Agents, underwriters and dealers may be entitled under relevant
agreements with us to indemnification by us against certain liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which such agents, underwriters and dealers may be required to make
in respect thereof.
Each series of securities will be a new issue and, other than our
common stock, which is listed on The New York Stock Exchange, will have no
established trading market. We may elect to list any series of securities on an
exchange, and in the case of common stock, on any additional exchange, but,
unless otherwise specified in the applicable prospectus supplement, we shall not
be obligated to do so. No assurance can be given as to the liquidity of the
trading market for any of the securities.
Agents, underwriters and dealers may be customers of, engage in
transactions with, or perform services for, us and our subsidiaries in the
ordinary course of business.
31
LEGAL MATTERS
The validity of the debt securities offered by this prospectus will be
passed upon for us by Vinson & Elkins L.L.P. The validity of the common stock
offered by this prospectus will be passed upon for us by Commercial Law Group,
P.C. Legal counsel to any underwriters may pass upon legal matters for such
underwriters.
Shannon T. Self, a shareholder in Commercial Law Group, P.C., is a director
of Chesapeake, and he beneficially owns 35,576 shares of our common stock.
EXPERTS
The consolidated financial statements of Chesapeake Energy Corporation,
incorporated in this prospectus by reference to Chesapeake's annual report on
Form 10-K for the year ended December 31, 2001, and the consolidated financial
statements of Gothic Energy Corporation, incorporated in this prospectus by
reference to Chesapeake's annual report on Form 10-K/A for the year ended
December 31, 2000, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
Estimates of the oil and gas reserves of Chesapeake Energy Corporation
and related future net cash flows and the present values thereof, included in
Chesapeake's annual report on Form 10-K for the year ended December 31, 2001,
were based upon reserve reports prepared by Williamson Petroleum Consultants,
Inc., Ryder Scott Company, L.P. and Lee Keeling and Associates, Inc.,
independent petroleum engineers. We have incorporated these estimates in
reliance on the authority of each such firm as experts in such matters.
32
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of this offering (all of which are to be paid by the
registrant) are estimated to be as follows:
<Table>
Securities and Exchange Commission registration fee..................................... $ 46,000
Legal fees and expenses................................................................. 40,000
Accounting fees and expenses............................................................ 10,000
Printing expenses....................................................................... 5,000
Miscellaneous........................................................................... 4,000
-----------
TOTAL.............................................................................. $ 105,000
===========
</Table>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1031 of the Oklahoma General Corporation Act, under which
Chesapeake is incorporated, authorizes the indemnification of directors and
officers under certain circumstances. Article VIII of the Certificate of
Incorporation of Chesapeake and Article VI of the Bylaws of Chesapeake also
provide for indemnification of directors and officers under certain
circumstances. These provisions, together with Chesapeake's indemnification
obligations under individual indemnity agreements with its directors and
officers, may be sufficiently broad to indemnify such persons for liabilities
under the Securities Act of 1933 (the "Securities Act"), as amended. In
addition, Chesapeake maintains insurance, which insures its directors and
officers against certain liabilities.
The Oklahoma General Corporation Act provides for indemnification of
each of Chesapeake's officers and directors against (a) expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by them in connection with any action, suit or proceeding
brought by reason of such person being or having been a director, officer,
employee or agent of Chesapeake, or of any other corporation, partnership, joint
venture, trust or other enterprise at the request of Chesapeake, other than an
action by or in the right of Chesapeake. To be entitled to indemnification, the
individual must have acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interest of Chesapeake, and with respect to
any criminal action, the person seeking indemnification had no reasonable cause
to believe that the conduct was unlawful and (b) expenses, including attorneys'
fees, actually and reasonably incurred in connection with the defense or
settlement of any action or suit by or in the right of Chesapeake brought by
reason of the person seeking indemnification being or having been a director,
officer, employee or agent of Chesapeake, or any other corporation, partnership,
joint venture, trust or other enterprise at the request of Chesapeake, provided
the actions were in good faith and were reasonably believed to be in or not
opposed to the best interest of Chesapeake, except that no indemnification shall
be made in respect of any claim, issue or matter as to which the individual
shall have been adjudged liable to Chesapeake, unless and only to the extent
that the court in which such action was decided has determined that the person
is fairly and reasonably entitled to indemnity for such expenses which the court
deems proper. Article VIII of Chesapeake's Certificate of Incorporation provides
for indemnification of Chesapeake's director and officers. The Oklahoma General
Corporation Act also permits Chesapeake to purchase and maintain insurance on
behalf of Chesapeake's directors and officers against any liability arising out
of their status as such, whether or not Chesapeake would have the power to
indemnify them against such liability. These provisions may be sufficiently
broad to indemnify such persons for liabilities arising under the Securities
Act.
Chesapeake has entered into indemnity agreements with each of its
directors and executive officers. Under each indemnity agreement, Chesapeake
will pay on behalf of the indemnitee any amount which he is or becomes legally
obligated to pay because of (a) any claim or claims from time to time threatened
or made against him by any person because of any act or omission or neglect or
breach of duty, including any actual or alleged error or misstatement or
misleading statement, which he commits or suffers while acting in his capacity
as a director and/or officer of Chesapeake or an affiliate or (b) being a party,
or being threatened to be made a party, to any threatened, pending or
contemplated action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was an officer, director,
employee or agent of Chesapeake or an affiliate or is or was serving at the
request of Chesapeake as a director, officer, employee or agent of another
corporation, partnership,
II-1
joint venture, trust or other enterprise. The payments which Chesapeake would be
obligated to make under an indemnification agreement could include damages,
charges, judgments, fines, penalties, settlements and costs, cost of
investigation and cost of defense of legal, equitable or criminal actions,
claims or proceedings and appeals therefrom, and costs of attachment,
supersedeas, bail, surety or other bonds. Chesapeake also provides liability
insurance for each of its directors and executive officers.
ITEM 16. EXHIBITS
The following exhibits are filed herewith pursuant to the requirements
of Item 601 of Regulation S-K:
EXHIBIT
NO. DESCRIPTION
1.1+ Form of Underwriting Agreement.
3.1* Chesapeake's Restated Certificate of Incorporation together
with the Certificate of Designation for the 6.75% Cumulative
Convertible Preferred Stock of Chesapeake and the
Certificate of Designation for the Series A Junior
Participating Preferred Stock of Chesapeake.
3.2 Chesapeake's Bylaws. Incorporated herein by reference to
Exhibit 3.2 to Chesapeake's quarterly report on Form 10-Q
for the quarter ended June 30, 2001.
4.1* Form of Indenture.
4.2+ Form of Debt Securities.
4.3 Rights Agreement dated as of July 15, 1998 between
Chesapeake and UMB Bank, N.A., as rights agent. Incorporated
herein by reference to Exhibit 1 to Chesapeake's
registration statement on Form 8-A filed July 16, 1998.
5.1* Opinion of Vinson & Elkins L.L.P. regarding the validity of
the securities being registered.
5.2* Opinion of Commercial Law Group, P.C. regarding the validity
of the securities being registered.
12.1* Computation of Ratios of Earnings and Fixed Charges.
23.1* Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Williamson Petroleum Consultants, Inc.
23.3* Consent of Ryder Scott Company L.P.
23.4* Consent of Lee Keeling and Associates, Inc.
23.5* Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
23.6* Consent of Commercial Law Group, P.C. (included in Exhibit
5.2).
24.1* Power of Attorney (included in the signature pages of this
Registration Statement).
25.1* Statement of Eligibility on Form T-1 of The Bank of New
York.
- ----------
* Filed herewith.
+ To be filed by amendment or as an exhibit to a current report on Form 8-K
of the registrant.
ITEM 17. UNDERTAKINGS
Each undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
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(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by registrants pursuant to
section 13 or section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Exchange Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
any registrant, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by any registrant of expenses incurred
or paid by a director, officer or controlling person of such registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, such registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma
City, State of Oklahoma on July 12, 2002.
CHESAPEAKE ENERGY CORPORATION
By: /s/ Aubrey K. McClendon
---------------------------
Aubrey K. McClendon
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Aubrey K. McClendon and Marcus C.
Rowland, and each of them, either one of whom may act without joinder of the
other, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all pre- and post-effective amendments
to this Registration Statement (including any Registration Statement for the
same offering that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, and each of them, or the substitute or substitutes of any or all of
them, may lawfully do or cause to be done by virtue hereof. Pursuant to the
requirements of the Securities Act of 1933, this Registration Statement has been
signed by the following persons, in the capacities and on the date indicated.
<Table>
<Caption>
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ Aubrey K. McClendon Chairman of the Board, Chief July 12, 2002
- ------------------------------------------------- Executive Officer and Director
Aubrey K. McClendon (Principal Executive Officer)
President, Chief Operating July 12, 2002
/s/ Tom L. Ward Officer and Director (Principal
- ------------------------------------------------- Executive Officer)
Tom L. Ward
/s/ Marcus C. Rowland Executive Vice President and July 12, 2002
- ------------------------------------------------- Chief Financial Officer
Marcus C. Rowland (Principal Financial Officer)
Senior Vice President -- July 12, 2002
/s/ Michael A. Johnson Accounting, Controller and Chief
- ------------------------------------------------- Accounting Officer (Principal
Michael A. Johnson Accounting Officer)
/s/ Edgar F. Heizer, Jr. Director July 12, 2002
- -------------------------------------------------
Edgar F. Heizer, Jr.
/s/ Breene M. Kerr Director July 12, 2002
- -------------------------------------------------
Breene M. Kerr
/s/ Shannon T. Self Director July 12, 2002
- -------------------------------------------------
Shannon T. Self
/s/ Frederick B. Whittemore Director July 12, 2002
- -------------------------------------------------
Frederick B. Whittemore
</Table>
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma
City, State of Oklahoma on July 12, 2002.
THE AMES COMPANY, INC.
CARMEN ACQUISITION CORP.
CHESAPEAKE ACQUISITION CORPORATION
CHESAPEAKE MOUNTAIN FRONT CORP.
CHESAPEAKE ROYALTY COMPANY
CHESAPEAKE OPERATING, INC.
GOTHIC ENERGY CORPORATION
GOTHIC PRODUCTION CORPORATION
NOMAC DRILLING CORPORATION
SAP ACQUISITION CORP.
CHESAPEAKE KNAN ACQUISITION CORPORATION
CHESAPEAKE ALPHA CORP.
CHESAPEAKE BETA CORP.
CHESAPEAKE DELTA CORP.
CHESAPEAKE FOCUS CORP.
By: /s/ Marcus C. Rowland
-----------------------------
Name: Marcus C. Rowland
Title: Vice President
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Aubrey K. McClendon and Marcus C.
Rowland, and each of them, either one of whom may act without joinder of the
other, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all pre- and post-effective amendments
to this Registration Statement (including any Registration Statement for the
same offering that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, and each of them, or the substitute or substitutes of any or all of
them, may lawfully do or cause to be done by virtue hereof. Pursuant to the
requirements of the Securities Act of 1933, this Registration Statement has been
signed by the following persons, in the capacities and on the date indicated.
<Table>
<Caption>
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ Aubrey K. McClendon President and Director (Principal July 12, 2002
- ------------------------------------------------- Executive Officer)
Aubrey K. McClendon
/s/ Tom L. Ward Vice President and Director July 12, 2002
- -------------------------------------------------
Tom L. Ward
/s/ Marcus C. Rowland Vice President (Principal Financial July 12, 2002
- ------------------------------------------------- and Accounting Officer)
Marcus C. Rowland
</Table>
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma
City, State of Oklahoma on July 12, 2002.
CHESAPEAKE ENERGY LOUISIANA CORPORATION
By: /s/ Aubrey K. McClendon
---------------------------
Name: Aubrey K. McClendon
Title: Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Aubrey K. McClendon and Marcus C.
Rowland, and each of them, either one of whom may act without joinder of the
other, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all pre- and post-effective amendments
to this Registration Statement (including any Registration Statement for the
same offering that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, and each of them, or the substitute or substitutes of any or all of
them, may lawfully do or cause to be done by virtue hereof. Pursuant to the
requirements of the Securities Act of 1933, this Registration Statement has been
signed by the following persons, in the capacities and on the date indicated.
<Table>
<Caption>
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ Aubrey K. McClendon Chief Executive Officer and Director July 12, 2002
- --------------------------------------------- (Principal Executive Officer)
Aubrey K. McClendon
/s/ Tom L. Ward President, Chief Operating Officer July 12, 2002
- --------------------------------------------- and Director
Tom L. Ward
/s/ Marcus C. Rowland Vice President and Chief Financial July 12, 2002
- --------------------------------------------- Officer (Principal Financial and
Marcus C. Rowland Accounting Officer)
</Table>
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Oklahoma
City, State of Oklahoma on July 12, 2002.
CHESAPEAKE OPERATING, INC.
CHESAPEAKE EXPLORATION LIMITED PARTNERSHIP
CHESAPEAKE LOUISIANA, L.P.
CHESAPEAKE PANHANDLE LIMITED PARTNERSHIP
CHESAPEAKE-STAGHORN ACQUISITION L.P.
CHESAPEAKE SIGMA, L.P.
By: Chesapeake Operating, Inc., in its
own capacity and as general partner
of each other entity listed above
By: /s/ Aubrey K. McClendon
---------------------------------
Name: Aubrey K. McClendon
Title: Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Aubrey K. McClendon and Marcus C.
Rowland, and each of them, either one of whom may act without joinder of the
other, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all pre- and post-effective amendments
to this Registration Statement (including any Registration Statement for the
same offering that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, and each of them, or the substitute or substitutes of any or all of
them, may lawfully do or cause to be done by virtue hereof. Pursuant to the
requirements of the Securities Act of 1933, this Registration Statement has been
signed by the following persons, in the capacities and on the date indicated..
<Table>
<Caption>
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ Aubrey K. McClendon Chief Executive Officer and July 12, 2002
----------------------------------------------- Director of Chesapeake
Aubrey K. McClendon Operating, Inc. (Principal
Executive Officer)
President, Chief Operating July 12, 2002
/s/ Tom L. Ward Officer and Director of
----------------------------------------------- Chesapeake Operating, Inc.
Tom L. Ward
/s/ Marcus C. Rowland Executive Vice President -- July 12, 2002
----------------------------------------------- Finance and Chief Financial
Marcus C. Rowland Officer of Chesapeake
Operating, Inc. (Principal
Financial and Accounting
Officer)
</Table>
II-7
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
1.1+ Form of Underwriting Agreement.
3.1* Chesapeake's Restated Certificate of Incorporation together
with the Certificate of Designation for the 6.75% Cumulative
Convertible Preferred Stock of Chesapeake and the
Certificate of Designation for the Series A Junior
Participating Preferred Stock of Chesapeake.
3.2 Chesapeake's Bylaws. Incorporated herein by reference to
Exhibit 3.2 to Chesapeake's quarterly report on Form 10-Q
for the quarter ended June 30, 2001.
4.1* Form of Indenture.
4.2+ Form of Debt Securities.
4.3 Rights Agreement dated as of July 15, 1998 between
Chesapeake and UMB Bank, N.A., as rights agent. Incorporated
herein by reference to Exhibit 1 to Chesapeake's
registration statement on Form 8-A filed July 16, 1998.
5.1* Opinion of Vinson & Elkins L.L.P. regarding the validity of
the securities being registered.
5.2* Opinion of Commercial Law Group, P.C. regarding the validity
of the securities being registered.
12.1* Computation of Ratios of Earnings and Fixed Charges.
23.1* Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Williamson Petroleum Consultants, Inc.
23.3* Consent of Ryder Scott Company L.P.
23.4* Consent of Lee Keeling and Associates, Inc.
23.5* Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
23.6* Consent of Commercial Law Group, P.C. (included in Exhibit
5.2).
24.1* Power of Attorney (included in the signature pages of this
Registration Statement).
25.1* Statement of Eligibility on Form T-1 of The Bank of New
York.
</Table>
- ----------
* Filed herewith.
+ To be filed by amendment or as an exhibit to a current report on Form 8-K
of the registrant.