EXHIBIT 10.3
SALE AND PARTICIPATION AGREEMENT
between
CHESAPEAKE GOTHIC CORP.
and
GOTHIC ENERGY CORPORATION,
GOTHIC ENERGY OF TEXAS, INC.
and
GOTHIC PRODUCTION COMPANY
Effective March 31, 1998
SELF, XXXXXXX & XXXX, INC.
ATTORNEYS AND COUNSELORS
2725 Oklahoma Tower . 000 Xxxx Xxxxxx . Xxxxxxxx Xxxx, Xxxxxxxx 00000-0000
Telephone (000) 000-0000 . Telecopier (000) 000-0000
TABLE OF CONTENTS
Page
----
1. Sale............................................................. 2
1.1 Existing Acreage.......................................... 2
1.2 Related Interests......................................... 2
1.3 Reconveyance Obligation................................... 3
2. Additional Purchase Price........................................ 3
3. Initial Closing.................................................. 3
3.1 Closing Date.............................................. 3
3.2 Gothic Parties' Deliveries................................ 3
3.3 Chesapeake's Deliveries................................... 4
3.4 Possession................................................ 4
3.5 Cost...................................................... 4
4. Representations and Warranties................................... 4
4.1 Organization, Good Standing, Etc.......................... 4
4.2 Authority................................................. 5
4.3 No Assumption of Obligations.............................. 5
4.4 Absence of Liabilities.................................... 5
4.5 Contracts................................................. 5
4.6 Consents and Approvals.................................... 6
4.7 Litigation................................................ 6
4.8 Title..................................................... 6
4.9 Oil and Gas Leases in Good Standing....................... 7
4.10 Taxes..................................................... 7
4.11 Contracts, Consents and Preferential Rights............... 7
4.12 Environmental and Safety Matters.......................... 7
4.13 Payout and Gas Balancing.................................. 8
4.14 Affiliate Transactions.................................... 8
4.15 Full Disclosure........................................... 8
5. Chesapeake's Representations and Warranties...................... 8
6. Covenants........................................................ 9
6.1 Access to Information..................................... 9
6.2 Inspection................................................ 9
6.3 Consents.................................................. 9
6.4 Conditions................................................ 9
6.5 Subordination............................................. 9
6.6 Title and Information..................................... 10
7. Gothic Party Acquisitions........................................ 10
7.1 Existing Agreements....................................... 11
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7.2 Acquisition Acreage Option................................ 11
7.3 Acquisition Acreage....................................... 12
7.4 Acquisition Costs......................................... 12
7.5 Acquisition Closings...................................... 12
8. Chesapeake AMI Acquisitions...................................... 13
8.1 Gothic Parties' Option.................................... 13
8.2 Definitions............................................... 14
8.3 Acquisition Closings...................................... 14
9. Lease Maintenance................................................ 14
9.1 Maintenance............................................... 14
9.2 Renewals; Re-leasing...................................... 15
10. Development...................................................... 15
10.1 Proposed Well Information................................. 15
10.2 Participation Election.................................... 16
10.3 Resubmissions............................................. 16
10.4 Operations................................................ 17
10.5 Third Party Xxxxx......................................... 17
10.6 Limitations............................................... 18
11. Chesapeake's Conditions Precedent................................ 18
12. Gothic Parties' Conditions Precedent............................. 19
13. Default; Remedy.................................................. 20
14. Term............................................................. 20
15. Confidentiality.................................................. 21
16. Audits, Access and Information................................... 21
17. Gothic Parties' Indemnification.................................. 21
18. Chesapeake's Indemnification..................................... 22
19. No Partnership................................................... 22
20. Miscellaneous.................................................... 22
20.1 Notices................................................... 22
20.2 Entire Agreement.......................................... 23
20.3 Binding Effect............................................ 23
20.4 Severability.............................................. 23
20.5 Counterpart Execution..................................... 23
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20.6 Survival.................................................. 24
20.7 Assignment................................................ 24
20.8 Governing Law............................................. 24
20.9 Construction.............................................. 24
20.10 Memorandum of Agreement................................... 24
20.11 Press Release............................................. 24
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SALE AND PARTICIPATION AGREEMENT
--------------------------------
THIS AGREEMENT is entered into effective the 31st day of March, 1998, between
CHESAPEAKE GOTHIC CORP., an Oklahoma corporation ("Chesapeake"), and GOTHIC
ENERGY CORPORATION, an Oklahoma corporation ("Gothic"), GOTHIC ENERGY OF TEXAS,
INC., an Oklahoma corporation ("Gothic Texas"), and GOTHIC PRODUCTION COMPANY,
an Oklahoma corporation ("Gothic Production").
W I T N E S S E T H :
WHEREAS, Gothic and Chesapeake Energy Corporation, an Oklahoma corporation,
entered into that certain letter of intent dated March 18, 1998 (the "Letter of
Intent"), in order to provide funding to allow the Gothic Parties to fund the
development of the Gothic Parties' oil and gas interests (the "Financing
Transaction") by: (i) issuing Gothic preferred stock to Chesapeake (the
"Preferred Stock"), (ii) issuing warrants for Gothic common stock to Chesapeake,
(iii) conveying to Chesapeake fifty percent (50%) of the Gothic Parties' oil and
gas assets in the Arkoma Basin and (iv) conveying to Chesapeake fifty percent
(50%) of the Gothic Parties' undeveloped oil and gas assets in the Participation
Area;
WHEREAS, Gothic, Gothic Texas and Gothic Production together with various
affiliate corporations, partnerships, limited liability companies and other
entities (jointly and severally the "Gothic Parties") own as of the date of this
Agreement interests in oil, gas and mineral leases (the "Existing Acreage")
covering lands located in whole or in part in Oklahoma, Texas, New Mexico,
Arkansas and Kansas including, without implied limitation, the oil, gas and
mineral leases described at Schedule "A" attached as a part hereof;
WHEREAS, as part of the Financing Transaction and subject to the terms and
conditions of this Agreement, Chesapeake has agreed to acquire and Gothic has
agreed to convey to Chesapeake on the terms set forth in this Agreement an
undivided fifty percent (50%) interest in the Existing Acreage, the Related
Interests (as hereinafter defined) and the Acquisition Acreage (as hereinafter
defined); and
WHEREAS, Gothic and Chesapeake also desire to provide for the development of
all of the Existing Acreage, the Related Interests and the Acquisition Acreage
(collectively, the "Gothic Interests") covering lands (the "Participation Area")
located in whole or in part in Oklahoma, Texas, New Mexico, Arkansas and Kansas,
but excluding lands described as the Pecos Slope Acreage as outlined in the plat
at Schedule "B" attached hereof.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Sale. The purchase and sale of the Existing Acreage and the Related
Interests will be consummated on the following terms:
1.1 Existing Acreage. The Gothic Parties agree to sell and Chesapeake
agrees to purchase an undivided fifty percent (50%) interest of the
Gothic Parties' right, title and interest in and to the Existing
Acreage as of the date of this Agreement less and except: (a) the
interest of the Gothic Parties in any existing wellbore which on the
date of the Letter of Intent was producing oil and gas in commercial
quantities which interest includes oil, gas and other hydrocarbons
produced from such well bore and any revenue related thereto; (b) the
interest of the Gothic Parties in the wellbore of xxxxx drilling and
or completed as of the date of this Agreement which are listed at
Schedule 1.1 attached as a part hereof which interest includes oil,
gas and other hydrocarbons produced from such wellbore and any revenue
related thereto; and (c) any Gothic Interest that is covered by that
certain Oil and Gas Asset Purchase Agreement of even date herewith
between Chesapeake and Gothic covering oil and gas interests in the
Arkoma Basin (the "Arkoma Purchase Agreement"). Notwithstanding the
foregoing, the Gothic Parties agree to convey to Chesapeake a non-
exclusive easement to utilize for the further development of the
Gothic Interests any such producing wellbore that the Gothic Parties
intend to plug or abandon. For purposes of this Agreement a well will
be deemed to be "producing oil and gas in commercial quantities" if
such well has produced or is capable of producing oil and gas in
sufficient quantities to yield a return in excess of lifting expenses
for the ninety (90) days prior to the determination date.
1.2 Related Interests. The Gothic Parties agree to sell and Chesapeake
agrees to purchase an undivided fifty percent (50%) interest of the
Gothic Parties' right, title and interest in and to any Related
Interests as of the date of this Agreement less and except: (a) any
interest of the Gothic Parties in any wellbore which on the date of
the Letter of Intent was producing oil and gas in commercial
quantities which interest includes oil, gas and other hydrocarbons
produced from such well bore and any revenue related thereto; (b) the
interest of the Gothic Parties in the wellbore of xxxxx drilling and
or completed as of the date of this Agreement which are listed at
Schedule 1.1 attached as a part hereof which interest includes oil,
gas and other hydrocarbons produced from such wellbore and any revenue
related thereto; and (c) any Gothic Interest that is covered by the
Arkoma Purchase Agreement. For purposes of this Agreement "Related
Interests" means a non-cost bearing interest in oil, gas and other
hydrocarbons owned by the Gothic Parties on the date of this Agreement
which covers lands located in whole or in part in: (a) a governmental
production unit containing Existing Acreage; and (b) lands covered by
the Existing Acreage. The term Related Interests also includes,
without implied limitation, mineral interests, royalty interests,
overriding royalty interests, net profits interests, production
payments, any such interests acquired from Amoco Production Company
under that certain Purchase and Sale Agreement with Gothic dated
November 24, 1997 (the "Amoco Agreement"), and the interests described
at Schedule "1.2" attached as a part hereof.
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1.3 Reconveyance Obligation. Effective on April 30, 2003, (the
"Reconveyance Date"), Chesapeake hereby agrees to reconvey to the
Gothic Parties any Gothic Interests conveyed to Chesapeake under
paragraphs 1.1 or 1.2 of this Agreement other than the Gothic
Interests that: (a) cover any lands included in a governmental
production unit for a Proposed Well (as hereinafter defined) proposed
prior to the Reconveyance Date and spudded prior to December 31, 2003;
(b) cover any lands included in a governmental production unit for any
well spudded after the date of this Agreement but prior to the
Reconveyance Date; (c) were reconveyed to the Gothic Parties, sold by
Chesapeake in accordance with this Agreement or farmed out by
Chesapeake (or otherwise conveyed) in accordance with this Agreement
prior to the Reconveyance Date; or (d) were acquired by Chesapeake
pursuant to the Arkoma Purchase Agreement. To consummate the foregoing
reconveyance Chesapeake will execute and deliver to the Gothic Parties
an assignment in substantially the form at Schedule "1.3" attached as
a part hereof and will warrant title by, through and under Chesapeake,
but not otherwise. For purposes of this Agreement the term
"governmental production unit" means the area of land as to which
parties with interest therein are bound to share the minerals produced
from a well on a specified basis and as to which those having the
right to conduct drilling or mining operations therein are bound to
share investment and operating costs on a specified basis. A
governmental production unit may be formed by agreement or by order of
an agency of the state or federal government empowered to do so and
includes drilling units, spacing units, pooled units and proration
units.
2. Additional Purchase Price. In addition to the Financing Transaction and any
consideration relating thereto Chesapeake agrees to pay to the Gothic Parties as
additional consideration for the Gothic Interests to be conveyed to Chesapeake
the sum of Ten Million, Five Hundred Thousand Dollars ($10,500,000.00) (the
"Additional Purchase Price"). The Additional Purchase Price will be paid by
Chesapeake to the Gothic Parties on the Closing Date as hereinafter defined.
3. Initial Closing. Subject to the terms and conditions set forth in this
Agreement, the Gothic Parties and Chesapeake agree that the purchase and sale of
the Gothic Parties' interest in the Existing Acreage and the Related Interests
will be consummated as follows:
3.1 Closing Date. The sale will close on or before April 27, 1998 (the
"Closing Date"). The closing will take place by wire transfer of funds
and telefacsimile of documents with next day delivery of hard copies
of closing documents.
3.2 Gothic Parties' Deliveries. On the Closing Date the Gothic Parties
will deliver or cause to be delivered: (a) special warranty
assignments and conveyances in substantially the form of Schedule
"3.2" attached as a part hereof conveying to Chesapeake the fifty
percent (50%) interest in the Existing Acreage and the Related
Interests; (b) any title curative documents required by this Agreement
including, without implied limitation, the Subordination Agreement (as
hereinafter defined); (c) any letters in lieu of transfer covering the
interests to be assigned to Chesapeake and reasonably acceptable to
Chesapeake; and (d) such additional
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documents as might be reasonably requested by Chesapeake. Where
appropriate each of the foregoing documents will be duly executed,
acknowledged and filed by Chesapeake.
3.3 Chesapeake's Deliveries. On the Closing Date Chesapeake will: (a) pay
the Additional Purchase Price in immediately available funds; and (b)
deliver or cause to be delivered any documents reasonably requested by
the Gothic Parties. Where appropriate each of the foregoing documents
will be duly executed, acknowledged and filed by Chesapeake.
3.4 Possession. Possession of the interests to be conveyed to Chesapeake
in the Existing Acreage and the Related Interests together with
unrestricted access to any information required to be provided under
this Agreement will be provided to Chesapeake on the Closing Date,
free from all parties claiming rights to possession of or having
claims against such Gothic Interests arising by, through or under the
Gothic Parties. Effective on the Closing Date, beneficial ownership
and the risk of loss of the interests in the Existing Acreage and the
Related Interests to be conveyed to Chesapeake under this Agreement
will pass from the Gothic Parties to Chesapeake.
3.5 Cost. The Gothic Parties will pay the following closing costs: (a) the
Gothic Parties' attorneys' fees; (b) any investment banking fees
incurred in connection with this transaction; (c) the cost of
documentary stamps to be affixed to any deeds conveying title to
Chesapeake; and (d) any other charge imposed for the transfer of any
item comprising the Existing Acreage or the Related Interests.
Chesapeake will pay only the following closing costs: (y) Chesapeake's
attorneys' fees; and (z) the cost of recording all documents.
4. Representations and Warranties. As an inducement to Chesapeake to enter
into this Agreement, the Gothic Parties represent and warrant to Chesapeake that
as of the date of this Agreement and the Closing Date:
4.1 Organization, Good Standing, Etc. Each of the Gothic Parties is a
corporation duly organized, validly existing and in good standing
under the laws of the state of the formation for such party and has
the corporate power to own such party's property and to carry on such
party's business as now being conducted. Each of the Gothic Parties
has the power to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. Each of the Gothic Parties is
duly qualified and/or licensed, as may be required, and in good
standing in each of the jurisdictions in which the Gothic Interests
are located. The Gothic Parties are not in default under or in
violation of any provision of the Gothic Parties' certificates of
incorporation or bylaws.
4.2 Authority. Each of the Gothic Parties has taken all necessary action
to authorize the execution, delivery and performance of this Agreement
and has adequate power, authority and legal right to enter into,
execute, deliver and perform the transactions contemplated by this
Agreement. This Agreement is legal, valid and
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binding with respect to the Gothic Parties and is enforceable in
accordance with its terms. On execution, delivery and performance of
this Agreement in accordance with its terms, Chesapeake will acquire
all of the Gothic Interests to be conveyed to Chesapeake free of all
claims, liens, encumbrances and liabilities by, through or under the
Gothic Parties including, without limitation, any mortgages, liens or
security interests granted by the Gothic Parties in connection with
the BancOne Loan (as hereinafter defined).
4.3 No Assumption of Obligations. Except as set forth in Schedule "4.3"
attached as a part hereof, the execution and consummation of this
Agreement by Chesapeake will not obligate Chesapeake with respect to
(or result in the assumption by Chesapeake of) any obligation of the
Gothic Parties arising prior to the Closing Date under or with respect
to, any liability, agreement or commitment relating to the Gothic
Interests including, without implied limitation, any obligation to pay
to or share with any third party any portion of the hydrocarbons
attributable to the Gothic Interests to be conveyed to Chesapeake.
4.4 Absence of Liabilities. Except as set forth in Schedule "4.4" attached
as a part hereof: (a) the Gothic Parties have no debt, liability,
obligation or commitment, absolute or contingent, known or unknown,
relating to or connected with the Gothic Interests to be conveyed to
Chesapeake; (b) neither Chesapeake nor the Gothic Interests will be
subject to or liable for any claim, debt, liability, lien,
encumbrance, obligation, guaranty, commitment or gas imbalance on the
Closing Date; and (c) any such claims, debts, liabilities, obligations
or commitments will be the sole responsibility of the Gothic Parties
and the Gothic Parties hereby agree to indemnify and hold harmless
Chesapeake from all such matters. The Gothic Parties have complied and
will continue to comply with all applicable federal, state or local
statutes, laws and regulations.
4.5 Contracts. The Gothic Parties have delivered copies or provided
unrestricted access to Chesapeake of true copies (or descriptions, in
the case of oral agreements) of all of the contracts and agreements
relating to the Gothic Interests, including, without limitation, all
marketing and production sales contracts. Except as set forth in
Schedule "4.5" attached as a part hereof, there are no other material
contracts, commitments or agreements in effect related to the Gothic
Interests that have not been disclosed to Chesapeake in writing
including, without implied limitation, marketing or production sales
contracts that will in any way prevent or hinder Chesapeake from
taking in kind Chesapeake's share of production from the Gothic
Interests and selling such production to the person selected by
Chesapeake. Except as set forth in Schedule "4.5" attached as a part
hereof: (a) such contracts and agreements are in full force and
effect; (b) no event of default or event which would become an event
of default with the giving of notice or passage of time has occurred;
and (c) no condition presently exists which would give any party to
any such contract the right to terminate such contract. There are no
other material contracts, commitments or agreements in effect related
to the Gothic Interests that have not been disclosed to Chesapeake in
writing.
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4.6 Consents and Approvals. No notice to, filing with, or authorization,
consent or approval of any governmental entity, person or other entity
is necessary for the consummation of the transactions contemplated by
this Agreement. The execution, delivery, performance and consummation
of this Agreement does not and will not: (a) violate, conflict with or
constitute a default or an event that, with notice or lapse of time or
both, would be a default, breach or violation under any term or
provision of any instrument, agreement, contract, commitment, license,
promissory note, conditional sales contract, indenture, mortgage, deed
of trust, lease or other agreement, instrument or arrangement to which
the Gothic Parties are a party or by which the Gothic Parties or the
Gothic Interests are bound; (b) violate, conflict with or constitute a
breach of any statute, regulation or judicial or administrative order,
award, judgment or decree to which the Gothic Parties are a party or
to which the Gothic Parties or the Gothic Interests are bound; or (c)
result in the creation or imposition of any adverse claim or interest,
lien, encumbrance, charge, equity or restriction of any nature
whatsoever, upon or affecting the Gothic Parties, the Gothic Interests
or Chesapeake.
4.7 Litigation. Except as disclosed in Schedule "4.7" attached as a part
hereof, there is: (a) no action, suit or proceeding pending,
threatened or contemplated against the Gothic Parties or the Gothic
Interests; and (b) no proceeding, investigation, charges, audit or
inquiry threatened or pending before or by any federal, state,
municipal or other governmental court, department, commission, board,
bureau, agency or instrumentality which might result in an adverse
effect on the Gothic Parties or the Gothic Interests. The Gothic
Parties hereby agree to indemnify and hold harmless Chesapeake with
respect to any and all litigation and proceedings including, without
limitation, the matters described in Schedule "4.7."
4.8 Title. Except as set forth in Schedule "4.8" attached as a part
hereof, the Gothic Parties own, possess and hold good and defensible
title beneficially and of record in and to the respective Gothic
Interests free and clear of all claims, liens, encumbrances,
conditions, gas imbalances, restrictions, calls on production,
obligations to pay to or share with third parties any revenue or other
matter adversely affecting the value or ownership of the Gothic
Interests. All of the oil, gas and related interests of every kind and
character owned by the Gothic Parties or any of the Gothic Parties'
direct or indirect subsidiaries which are located in the Participation
Area are described in Schedules "A" and "1.2" attached as a part
hereof. There does not exist any lien, claim, encumbrance, restriction
or other matter which might cause Chesapeake to not receive for its
own account free and clear of all liens, claims and encumbrances the
percentage of the fair market value of all hydrocarbons produced,
saved or used from each of the Gothic Interests to be conveyed to
Chesapeake.
4.9 Oil and Gas Leases in Good Standing. Except as disclosed in Schedule
"4.9" attached as a part hereof: (a) to the best of the Gothic
Parties' knowledge all oil and gas leases which were acquired by the
Gothic Parties under the Amoco Agreement are in full force and effect,
and the Gothic Parties are not in default
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thereunder; and (b) all other oil and gas leases which are material
singly or in the aggregate are in full force and effect, and the
Gothic Parties are not in default thereunder.
4.10 Taxes. All ad valorem, property, production, severance and similar
taxes and assessments based on or measured by the ownership of
property comprising the Gothic Interests or the production or removal
of hydrocarbons or the receipt of proceeds therefrom have been timely
paid when due and are not in arrears.
4.11 Contracts, Consents and Preferential Rights. The Gothic Parties have
described in Schedule "4.11" attached as a part hereof: (a) all
partnership, joint venture, farmin/farmout, dry hole, bottom hole,
acreage contribution, area of mutual interest, purchase and/or
acquisition agreements of which any terms remain executory which
materially affect the Gothic Interests; (b) all other executory
contracts to which the Gothic Parties are a party which materially
affect any item of the Gothic Interests; (c) all governmental or court
approvals and third party contractual consents required in order to
consummate the transactions contemplated by this Agreement; (d) all
agreements pursuant to which third parties have preferential rights or
similar rights to acquire any portion of the Gothic Interests upon the
sale contemplated by this Agreement; and (e) all other contracts and
agreements which are in any single case or in the aggregate of
material importance to the Gothic Interests.
4.12 Environmental and Safety Matters. Except as set forth in Schedule
"4.12" attached as a part hereof and insofar as it pertains to the
Gothic Inter ests:
4.12.1 The Gothic Parties are not aware, and have not received notice
from any person, entity or governmental body, agency or
commission, of any release, disposal, event, condition,
circumstance, activity, practice or incident concerning any
land, facility, asset or property that: (a) interferes with
or prevents compliance or continued compliance by the Gothic
Parties (or by Chesapeake after the Closing Date) with any
United States, state or local law, regulation, code or
ordinance or the terms of any license or permit issued
pursuant thereto; or (b) gives rise to or results in any
common law or other liability of the Gothic Parties to any
person, entity or governmental body, agency or commission
for damage or injury to natural resources, wildlife, human
health or the environment which would have a material
adverse effect on the Gothic Parties in each case.
4.12.2 The Gothic Parties are not aware of any civil, criminal or
administrative action, lawsuit, demand, litigation, claim,
hearing, notice of violation, investigation or proceeding,
pending or threatened, against the Gothic Parties or the
operator of any of the lands, facilities, assets and
properties owned or formerly owned, operated, leased or used
by the Gothic Parties as a result of the
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violation or breach of any federal, state or local law,
regulation, code or ordinance or any duty arising at common
law to any person, entity or governmental body, singly or in
the aggregate, which if determined adversely would have a
material adverse effect on the Gothic Parties.
4.13 Payout and Gas Balancing. Schedule "4.13" attached as a part hereof,
contains a complete and accurate list of: (a) the status of any
"payout" balance as of December 31, 1997, for each of the Gothic
Interests that is subject to a reversion or other adjustment at some
level of cost recovery or payout (or passage of time or other event,
other than cessation of production); and (b) all over or under gas
imbalances relating to the Gothic Interests as of December 31, 1997.
4.14 Affiliate Transactions. There are no transactions affecting any of the
Gothic Interests between the Gothic Parties and any of the Gothic
Parties' affiliates, except as set forth in Schedule "4.14" attached
as a part hereof.
4.15 Full Disclosure. This Agreement, any schedule referenced in or
attached to this Agreement, any document furnished to Chesapeake under
this Agreement and any certification furnished to Chesapeake under
this Agreement does not contain any untrue statement of a material
fact and does not omit to state a material fact necessary to make the
statements made, in the circumstances under which they were made, not
misleading. To the best knowledge of each Seller all of the
representations, warranties and covenants in this Agreement: (a) are
true and correct as of the date made; (b) will be true and correct as
of the Closing Date; and (c) will survive and not be waived,
discharged, released, modified, terminated or affected by any due
diligence by Chesapeake.
5. Chesapeake's Representations and Warranties. Chesapeake is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Oklahoma and has all requisite corporate power and authority to own,
lease, and operate its properties and to conduct its business as now being
conducted. Chesapeake has full corporate power and authority to execute, deliver
and perform this Agreement.
6. Covenants. The parties agree to perform the following prior to the Closing
Date:
6.1 Access to Information. During the period commencing on the date of
this Agreement and ending on the Closing Date, the Gothic Parties will
afford Chesapeake and Chesapeake's authorized representatives full
access during normal business hours to the properties, books, records,
employees, accountants and lawyers of the Gothic Parties to make such
investigation as Chesapeake desires regarding the Gothic Interests and
furnish such financial, operating data, information and responses as
Chesapeake might reasonably request with respect to the Gothic
Interests.
6.2 Inspection. Prior to the Closing Date Chesapeake will conduct such
investigation and inspection with respect to the Gothic Interests as
Chesapeake deems
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appropriate. If Chesapeake determines in good faith that the Gothic
Interests are unsatisfactory for any reason whatsoever, Chesapeake
will provide written notice to the Gothic Parties setting forth
Chesapeake's objections. The Gothic Parties agree to use the Gothic
Parties' best efforts to satisfy Chesapeake's objections.
6.3 Consents. The parties will use their best efforts to obtain all
licenses, permits, consents, approvals, authorizations, qualifications
and orders of governmental authorities and parties to contracts with
the Gothic Parties as are necessary for the consummation of the
transactions contemplated by this Agreement. However, no contract will
be amended to increase the amount payable thereunder and no burden to
the Gothic Parties or Chesapeake will be increased to obtain any
consent, approval or authorization.
6.4 Conditions. The Gothic Parties and Chesapeake will use their
respective best efforts to cause the conditions in paragraphs 11 and
12 to be satisfied.
6.5 Subordination. Certain lenders have extended or will extend credit to
the Gothic Parties which is secured by one (1) or more mortgages,
liens, security interests and encumbrances covering all or part of the
Gothic Interests, including, without implied limitation, the credit
extended pursuant to that certain Third Amended and Restated Credit
Agreement between the Gothic Parties and BancOne, N.A. dated March 30,
1998 (the "BancOne Loan") and the notes to be issued by the Gothic
Parties as a condition precedent under paragraph 4.1(j) of the
Securities Purchase Agreement. The Gothic Parties hereby agree as
follows with respect to the BancOne Loan and any other loan secured by
the Gothic Interests: (a) any and all mortgages, liens, security
interests or other encumbrances granted in connection with or securing
the BancOne Loan or any other loan will be terminated and released
with respect to any Gothic Interest to be assigned or conveyed to
Chesapeake in connection with this Agreement on or before the date
such Gothic Interest is conveyed to Chesapeake; (b) the Gothic Parties
will cause to be delivered and executed on or before the Closing Date
a subordination agreement (the "Subordination Agreement") in form and
substance satisfactory to Chesapeake subordinating any claim,
mortgage, lien, security interest or other encumbrance on the Gothic
Interests to be conveyed to Chesapeake after the Closing Date securing
the BancOne Loan or any other loan to the Chesapeake Claims; and (c)
the Gothic Parties will take such commercially reasonable actions as
might be requested by Chesapeake to ensure that all amounts owing by
the Gothic Parties with respect to any well drilled on the Gothic
Interests will be paid in full in accordance with this Agreement and
any related agreements. For purposes of this Agreement "Chesapeake
Claims" means any interest in or claim against the Gothic Parties or
the Gothic Interests which is owned or claimed by Chesapeake
including, without implied limitation, any ownership interest in the
Gothic Interests, any right to acquire one (1) or more of the Gothic
Interests and any interest or amounts claimed by Chesapeake or any
other person with respect to the acquisition, ownership or development
of the Gothic Interests whether as operator or owner.
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6.6 Title and Information. During the term of this Agreement the Gothic
Parties agree to provide to Chesapeake unrestricted access to and
permit Chesapeake to make copies of the following (whether in paper or
computerized form): (a) all title information relating to the Gothic
Interests which is in the possession of or available to the Gothic
Parties; (b) any additional title information relating to the Gothic
Interests, if as and when obtained by or made available to the Gothic
Parties; and (c) any technical information relating to the Gothic
Interests which is in the possession of or available to the Gothic
Parties including, without implied limitation, geological, seismic,
engineering and land information, data, records or files. The Gothic
Parties will convey title to the Gothic Interests free and clear from
all liens, security interests and mortgages securing the BancOne Loan
or any other loans or liabilities and will warrant title by, through
or under the Gothic Parties but not otherwise. The Gothic Parties
agree that none of the Gothic Interests will be subject to any
overriding royalty interests in favor of the Gothic Parties or their
respective affiliates, employees or consultants. As used in this
Agreement: (i) "affiliate" means, as to any person, each officer or
director of such person and each other person that directly or
indirectly (through one (1) or more intermediaries) controls, is
controlled by or is under common control with such person; and (ii)
"person" means an individual, corporation, partnership, limited
liability company, association, joint stock company, trust, associate
(as defined in regulations promulgated by the Securities and Exchange
Commission) or other legally recognizable entity.
7. Gothic Party Acquisitions. Chesapeake and the Gothic Parties agree to the
creation of the Participation Area and the right of Chesapeake to participate in
future acquisitions on the following terms:
7.1 Existing Agreements. The Gothic Parties represent and warrant that:
(a) the Existing Acreage and the Related Interests constitute all oil,
gas and mineral interests owned by the Gothic Parties in the
Participation Area as of the date of this Agreement; (b) except as
disclosed in Schedule "7.1" attached as a part hereof the Gothic
Parties have not entered into, are not parties to or in any way
subject to any option, participation agreement, area of mutual
interest agreement or similar agreement which burdens any acreage
within the Participation Area as of the date hereof; and (c) except in
connection with a third party farmin (which applies only to the
acreage being acquired under such farmin agreement) the Gothic Parties
will not enter into any option, participation agreement, area of
mutual interest agreement or similar agreement covering the
Participation Area which has an adverse effect on Chesapeake or any of
Chesapeake's rights or benefits under this Agreement. Notwithstanding
the foregoing, the Gothic Parties and Chesapeake hereby agree that the
Pecos Slope Acreage is excluded from the Participation Area and will
not be governed by or subject to the provisions of this Agreement.
7.2 Acquisition Acreage Option. The Gothic Parties hereby grant to
Chesapeake the option to purchase up to an undivided fifty percent
(50%) interest in all Acquisition Acreage acquired or to be acquired
by the Gothic Parties after the date hereof. If during the term of
this Agreement the Gothic Parties or any affiliate of
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the Gothic Parties (a) enter into a definitive purchase and sale
agreement, contract, lease or other agreement providing for the
acquisition of any Acquisition Acreage; (b) have the right to acquire
Acquisition Acreage including, without implied limitation, any right
under any joint operating agreement, any unitization order or
agreement, any forced pooling order, area of mutual interest agreement
or any other agreement or order, or (c) actually acquires Acquisition
Acreage for which a prior notice has not been provided to Chesapeake,
then the Gothic Parties will give written notice to Chesapeake of such
acquisition within ten (10) days after such agreement is executed and
the xxxxxxx money deposit, if any, is paid by the Gothic Parties (an
"Acquisition Notice"). The Acquisition Notice will set forth and
include: (a) the location of all of the Acquisition Acreage as
reflected on an accompanying plat; (b) an itemized statement of
Acquisition Costs (as hereinafter defined) and amount of acreage
covered by the Acquisition Notice; (c) the date of the acquisition and
a copy of any letters of intent, purchase contracts, agreements,
mineral leases and assignments; (d) all of the terms of such
acquisition (including leasehold burdens and drilling commitments);
(e) all title information in the possession of or available to the
Gothic Parties; (f) all seismic, geological or engineering information
relating to such Acquisition Acreage which is in the possession of or
available to the Gothic Parties; and (g) any other information
reasonably requested by Chesapeake. The foregoing information will be
made available to Chesapeake for review and photocopying. At
Chesapeake's option, to be exercised within fifteen (15) days after
receipt of a complete Acquisition Notice, Chesapeake will have the
right to acquire up to an undivided fifty percent (50%) interest in
the Acquisition Acreage acquired or to be acquired by the Gothic
Parties. The purchase price (the "Acquisition Price") for the
Acquisition Acreage to be acquired by Chesapeake will be the amount
equal to the portion of the Acquisition Costs equal to the percentage
of the Acquisition Acreage which Chesapeake elects to acquire under
this paragraph 7.2.
7.3 Acquisition Acreage. As used in this Agreement "Acquisition Acreage"
will mean and include any and all right, title or interest acquired by
the Gothic Parties in any manner (whether owned directly, indirectly,
beneficially or otherwise) in and to the following property,
contractual or other interests located in whole or in part within the
Participation Area: (i) any right of, contract for or lease for the
development and/or production of oil, gas and other hydrocarbons
including, without limitation, leasehold interests, working interests,
net revenue interests, overriding royalty interests, net profits
interests and production payments; (ii) any mineral, royalty or non-
participating royalty interests; (iii) any interests of the type
described in (i) or (ii) which may be earned or acquired by conducting
drilling, seismic or other operations or activities; and (iv) any
ownership interest in, indebtedness of and any option or other right
to acquire any of the foregoing in any person which owns any of the
foregoing interests in oil, gas and other hydrocarbons which are
located in whole or in part in the Participation Area including,
without implied limitation, any stock in any person, any membership
interests in partnerships or limited liability companies or interests
in business trusts.
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7.4 Acquisition Costs. As used in this Agreement "Acquisition Costs" means
the sum of the amounts paid to unaffiliated third parties for: (a)
leases or interests in oil and gas, including, but not limited to
bonuses, brokers' commissions, geological consulting fees, engineering
fees and the costs of any equipment or other assets purchased in
conjunction with the acquisition of such leases; (b) title insurance
or title examination costs, filing fees, recording costs, transfer
taxes, if any, and like charges in connection with the acquisition of
such leases; and (c) geological, geophysical, seismic, land,
engineering, drafting, accounting, legal and other like costs and
expenses incurred in connection with the acquisition of such leases.
As soon as practical after delivery of an Acquisition Notice, but in
any event not later than five (5) business days prior to the payment
of the Acquisition Price by Chesapeake, the Gothic Parties will
deliver to Chesapeake documentation supporting the calculation of the
Acquisition Costs for verification by Chesapeake.
7.5 Acquisition Closings. In the event Chesapeake elects to acquire all or
part of the Acquisition Acreage covered by an Acquisition Notice,
within fifteen (15) days after Chesapeake provides the notice of its
election to participate (or the next business day, if such day does
not fall on a business day) the acquisition will be closed by
Chesapeake paying the Acquisition Price for such Acquisition Acreage
and the Gothic Parties assigning to Chesapeake the Acquisition Acreage
to be acquired by Chesapeake by delivering an assignment in
substantially the form attached at Schedule "7.5" attached as a part
hereof. Chesapeake will record such assignment with appropriate
governmental authorities at Chesapeake's expense. If the Gothic
Parties are waiting on a farmout or third party assignment, the Gothic
Parties will make the assignment to Chesapeake within twenty (20) days
after the Gothic Parties receive such farmout or assignment or at
Chesapeake's request direct such assignment to be made by the seller
of the Acquisition Acreage directly to Chesapeake.
8. Chesapeake AMI Acquisitions. Chesapeake and the Gothic Parties agree to the
creation of the area of mutual interest (the "Chesapeake AMI") covering the
Gothic Parties' current 3D seismic projects in Oklahoma in the East Cement
Field, the West Cement Field, the Coyote Hill Prospect, the Northern Canadian
Prospect and the Calumet Prospects as outlined at Schedule "8" attached as a
part hereof and the right of the Gothic Parties to participate in future
acquisitions on the following terms:
8.1 Gothic Parties' Option. Chesapeake hereby grants to the Gothic Parties
as a group the option to purchase up to an undivided fifty percent
(50%) interest in Chesapeake Acreage (as hereinafter defined) to be
acquired by Chesapeake pursuant to an agreement entered into with an
unaffiliated third party after the Closing Date reduced by any
existing or future area of mutual interest agreement which Chesapeake
enters into with an unaffiliated third party covering all or part of
the Chesapeake Acreage. If Chesapeake or any affiliate of Chesapeake
enters into a definitive agreement or contract during the term of this
Agreement providing for the acquisition of any Chesapeake Acreage in
the Chesapeake AMI, Chesapeake will give written notice to the Gothic
Parties of the acquisition within ten (10) days after such agreement
is executed and the xxxxxxx money deposit, if
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any, is paid by Chesapeake (a "CGC Acquisition Notice"). The CGC
Acquisition Notice will set forth and include: (a) the location of all
of the Chesapeake Acreage as reflected on an accompanying plat; (b) an
itemized statement of CGC Acquisition Costs (as hereinafter defined)
and amount of acreage covered by the CGC Acquisition Notice; (c) the
date of the acquisition and a copy of any letters of intent, purchase
contracts, agreements, mineral leases and assignments; (d) all of the
terms of such acquisition (including leasehold burdens and drilling
commitments); (e) all title information in the possession of or
available to Chesapeake; and (f) and any other information reasonably
requested by the Gothic Parties. The foregoing information will be
made available to the Gothic Parties for review and photocopying. At
the Gothic Parties' option, to be exercised within fifteen (15) days
after receipt of each CGC Acquisition Notice, the Gothic Parties will
have the right to acquire up to an undivided fifty percent (50%)
interest in the Chesapeake Acreage acquired by Chesapeake as reduced
by any existing or future area of mutual interest agreement which
Chesapeake enters into with an unaffiliated third party covering all
or part of the Chesapeake Acreage. The purchase price (the "Gothic
Price") for the Chesapeake Acreage to be acquired by the Gothic
Parties will be the amount equal to the portion of the CGC Acquisition
Costs equal to the percentage of the Chesapeake Acreage which the
Gothic Parties elect to acquire under this paragraph 8.1.
8.2 Definitions. As used in this Agreement "Chesapeake Acreage" will mean
and include any and all right, title or interest acquired by
Chesapeake or Chesapeake's affiliates in and to the following
undeveloped interests in oil and gas located within the Chesapeake
AMI: (a) any contract or lease for the development and/or production
of oil, gas and other hydrocarbons including, without limitation,
leasehold interests, working interests, net revenue interests,
overriding royalty interests, net profits interests and production
payments; (b) any mineral, royalty or non-participating royalty
interests; and (c) any interests of the type described in (a) or (b)
which may be earned or acquired by conducting drilling, seismic or
other operations or activities. To qualify as Chesapeake Acreage the
oil and gas interest (x) must be a direct undeveloped interest in oil
and gas rather than an interest in a person, (y) cannot lie within the
governmental production unit for a well producing oil and gas in
commercial quantities in which Chesapeake is acquiring an interest in
the same transaction and (z) must be acquired by Chesapeake directly
from the landowner or from a person or company selling the oil and gas
interest in the ordinary course of business pursuant to a farmout
arrangement or pursuant to a pooling order entered by the appropriate
governmental authority. As used in this Agreement "CGC Acquisition
Costs" means any Acquisition Costs incurred by Chesapeake in the
acquisition of Chesapeake Acreage.
8.3 Acquisition Closings. In the event the Gothic Parties elect to acquire
all or part of the Chesapeake Acreage covered by a CGC Acquisition
Notice, within fifteen (15) days after the Gothic Parties provide
their election to participate (or the next business day, if such day
does not fall on a business day) the acquisition will be closed by the
Gothic Parties paying the Gothic Price for such Chesapeake Acreage and
Chesapeake assigning to the Gothic Parties the Chesapeake Acreage to
be
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acquired by the Gothic Parties by delivering an assignment in
substantially the form attached at Schedule "8.3" attached as a part
hereof. The Gothic Parties will record such assignment with the
appropriate governmental authorities at the Gothic Parties' expense.
If Chesapeake is waiting on a farmout or third party assignment,
Chesapeake will make the assignment to the Gothic Parties within
twenty (20) days after Chesapeake receives such farmout or assignment
or at the Gothic Parties' request direct such assignment to be made by
the seller of the Chesapeake Acreage directly to the Gothic Parties.
9. Lease Maintenance. During the term of this Agreement, except as otherwise
provided herein, the Gothic Parties agree to maintain the Existing Acreage,
the Related Interests and the Acquisition Acreage as follows:
9.1 Maintenance. The Gothic Parties agree to take the actions necessary to
maintain the oil and gas leases covering the Existing Acreage, the
Related Interests and the Acquisition Acreage in which Chesapeake and
the Gothic Parties own an interest in full force and effect for the
respective terms thereof, including, without implied limitation,
payment of delay rentals, taxes and other reasonable expenses
(collectively, the "Maintenance Expenses") necessary to maintain the
rights of Chesapeake and the Gothic Parties under the Existing
Acreage, the Related Interests and the Acquisition Acreage. Not less
than sixty (60) days prior to the date the Maintenance Expenses are
due, the Gothic Parties will inform Chesapeake whether the Gothic
Parties are going to take the actions necessary to maintain such
Existing Acreage, Related Interests or Acquisition Acreage. In the
event the Gothic Parties notify Chesapeake of the Gothic Parties'
intent to take the actions necessary to maintain the Existing Acreage,
the Related Interests or the Acquisition Acreage, within twenty (20)
days after receipt of an invoice therefor, Chesapeake will: (a) pay to
the Gothic Parties an amount equal to Chesapeake's proportionate share
of such Maintenance Expenses based on Chesapeake's percentage
ownership of the affected Existing Acreage, Related Interests and
Acquisition Acreage; or (b) assign all of Chesapeake's interest in
such Existing Acreage, Related Interests and Acquisition Acreage to
the Gothic Parties pursuant to the form of assignment at Schedule
"9.1A" attached as a part hereof. In the event the Gothic Parties
decide not to maintain any Existing Acreage, Related Interests or
Acquisition Acreage, within twenty (20) days after written request by
Chesapeake, the Gothic Parties will assign all of the Gothic Parties'
interest in such Existing Acreage, Related Interests or Acquisition
Acreage to Chesapeake pursuant to the form of assignment at Schedule
"9.1B" attached as a part hereof.
9.2 Renewals; Re-leasing. If prior to the reconveyance by Chesapeake under
paragraph 1.3 of this Agreement any of the Existing Acreage, the
Related Interests or Acquisition Acreage is renewed or any of the
acreage covered thereby is re-leased by the Gothic Parties, the Gothic
Parties will offer Chesapeake its pro rata share thereof at a price
equal to the Acquisition Costs for such renewal or re-leasing.
10. Development. The Gothic Parties and Chesapeake agree to jointly develop and
operate
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the Existing Acreage, the Related Interests and the Acquisition Acreage on
the terms and conditions set forth in this paragraph 10. From time to time
during the term of this Agreement, either Chesapeake or the Gothic Parties
(the "Proposing Party") may by written notice to the other party: (a)
designate a governmental production unit from the Existing Acreage and/or
the Acquisition Acreage (a "Prospect"); and (b) subject to the limitations
in paragraph 10.6 propose the drilling and completion of one (1) or more
xxxxx on such Prospect (a "Proposed Well").
10.1 Proposed Well Information. With respect to each Proposed Well, the
Proposing Party will deliver to the other party to this Agreement (the
"Receiving Party") a Proposed Well information package with the notice
which will include the following: a brief geological presentation, a
map designating the Prospect, an AFE for the Proposed Well, signature
pages for the joint operating agreement (the "Joint Operating
Agreement") for the Proposed Well and signature pages for the
Memorandum of Joint Operating Agreement. The Joint Operating Agreement
will be in the form at Schedule "10.1" attached as a part hereof.
10.2 Participation Election. The Receiving Party will notify the Proposing
Party in writing whether the Receiving Party elects to participate in
the Proposed Well with all or part of the Receiving Party's interest
in any Existing Acreage, Related Interests and Acquisition Acreage
within fifteen (15) days after receipt of the Proposed Well
information package, unless otherwise extended in writing by the
Proposing Party. If the Receiving Party elects to participate in the
Proposed Well, the Receiving Party will deliver to the Proposing
Party: (a) an executed Joint Operating Agreement signature page for
such Proposed Well; (b) an executed AFE for such Proposed Well; and
(c) an executed Memorandum of Joint Operating Agreement for such well
which will be promptly filed by the Proposing Party in the appropriate
governmental office. In the event the Receiving Party is a Gothic
Party and the Gothic Party elects not to participate with all or part
of the Existing Acreage, Related Interests or Acquisition Acreage
retained by the Gothic Parties (the "Retained Interest") in any
Proposed Well or fails to elect to participate within the required
time period, the Gothic Parties will be deemed to have: (i) elected
not to participate in the Proposed Well; and (ii) agreed to farmout
all of the Retained Interest included in the Prospect for such
Proposed Well to Chesapeake at a net revenue interest equal to the
existing net revenue interest of such Gothic Party with no overriding
royalty interest being retained by the Gothic Party. The acreage
earned pursuant to any such farmout will be limited to the Retained
Interest included in the governmental production unit for the Proposed
Well as finally approved by the appropriate governmental authority and
will be deemed earned on the earlier of the completion of such well as
a producing well or the drilling of such well to the total proposed
depth. The Gothic Parties agree to assign to Chesapeake the interest
earned under the foregoing farmout within thirty (30) days after such
interest is earned and to execute such additional documents as
Chesapeake, as the Proposing Party, reasonable requests to evidence
and convey any farmouts earned pursuant to this Agreement including an
outright assignment to Chesapeake of such interest coupled with an
obligation to reconvey such interest if such interest is not earned in
accordance with this paragraph 10.2.
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10.3 Resubmissions. In the event the Proposed Well is not spudded within
one hundred eighty (180) days following the Receiving Party's
election, or deemed election, to participate or not participate
therein, the Receiving Party's election under paragraph 10.2 will be
voided and the Proposing Party will be required to repropose such
Proposed Well in accordance with this paragraph 10.3. On such
reproposal the Receiving Party will be entitled to make a new
election under paragraph 10.2 of this Agreement.
10.4 Operations. Except for the Proposed Xxxxx in which Chesapeake elects
not to participate or a well containing Gothic Interests for which a
third party not affiliated with the Gothic Parties was previously
appointed and is continuing to act as the operator, Chesapeake will
be appointed the operator on all Proposed Xxxxx pursuant to the Joint
Operating Agreement and the parties agree to vote all of their
interests in such Proposed Well for Chesapeake as operator. With
respect to each Proposed Well in which the Gothic Parties have
elected to participate with at least twenty-five percent (25%) of the
Existing Acreage and Acquisition Acreage in the Retained Interest for
such well, the Gothic Parties will have the right to provide a
request for a resignation to Chesapeake within five (5) days after
the later of the following to occur: (a) first sale of production
from such Proposed Well; or (b) the completion of all proposed
drilling and completion of the Proposed Well as a producing oil or
gas well. If the Gothic Parties and Chesapeake have sufficient votes
together to ensure that a Gothic Party will be appointed as the
operator of such Proposed Well, Chesapeake agrees to resign as the
operator of such Proposed Well on the appointment of such Gothic
Party as the operator of the Proposed Well which resignation and
appointment will be effective on the first day of the month following
the satisfaction of all the foregoing conditions. The right of the
Gothic Parties to require Chesapeake to resign as operator will in no
event apply to any xxxxx now or hereafter drilled or operated in the
Townships 4N-19E, 4N-20E, 5N-19E and 5N-20E except for Sections 1-7
in Township 5N-19E in the Arkoma Basin. If the Gothic Party appointed
as operator of a Proposed Well subsequently proposes to resign as the
operator of such Proposed Well, the Gothic Parties agree to use the
Gothic Parties' best efforts to cause Chesapeake or Chesapeake's
designee to be appointed as successor operator including, without
implied limitation, voting all of the Gothic Parties' interests in
such Proposed Well for Chesapeake as successor operator.
10.5 Third Party Xxxxx. In the event an independent third party proposes a
well in a governmental production unit that includes Retained
Interests the Gothic Parties will within five (5) days after the
Gothic Parties receive notice of the proposal provide written notice
of the well proposal to Chesapeake and will, thereafter, notify
Chesapeake in writing in not less than ten (10) days after the Gothic
Parties receive the proposal if the Gothic Parties elect to
participate in such third party well or elect not to participate in
such third party well. For purposes of this Agreement the term
Proposal includes any forced pooling action or other unitization by
order of any governmental agency. In the event the Gothic Parties do
not elect to participate with all or part of the Retained Interest in
such well or fail to notify Chesapeake of the Gothic Parties'
decision to participate within the
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required time period, the Gothic Parties will at Chesapeake's
election be deemed to have agreed to farmout the Retained Interest
included in the Prospect for such third party well to Chesapeake on
terms no less favorable to Chesapeake than the terms the third party
proposing the well offered to the Gothic Parties in the initial
written well proposal. Notwithstanding the foregoing, a well will not
be a third party proposed well and will be deemed a Proposed Well and
subsequent to the farmout provisions at paragraph 10.2 of this
Agreement if: (a) Chesapeake or the Gothic Parties propose the well
in accordance with this Agreement prior to receipt of the written
well proposal from a third party; (b) after the well is proposed by
the third party Chesapeake or the Gothic Parties are or have the
right to become the operator of the well; or (c) the well is proposed
by the third party at the instigation of the Gothic Parties or
Chesapeake. The acreage earned pursuant to any such farmout will be
limited to the Retained Interest included in the governmental
production unit for the third party well as finally approved by the
appropriate governmental authority and will be deemed earned on the
earlier of the completion of such Proposed Well as a producing well
or the drilling of such Proposed Well to the total proposed depth.
The Gothic Parties agree to execute such additional documents as
Chesapeake reasonably requests, to assign to Chesapeake the interest
earned under the foregoing farmout within thirty (30) days after such
interest is earned and to execute such additional documents as
Chesapeake, reasonably requests to evidence and convey any farmouts
earned pursuant to this Agreement including an outright assignment to
Chesapeake of such interest coupled with an obligation to reconvey
such interest if such interest is not earned in accordance with this
paragraph. The Gothic Parties agree to cooperate with Chesapeake in
order to permit Chesapeake to exercise the rights under this
paragraph 10.5 including providing notice to Chesapeake of the Gothic
Parties' election not to participate in such well in sufficient time
for Chesapeake to elect to acquire such interest under this paragraph
10.5.
10.6 Limitations. The parties agree that the number of Proposed Xxxxx to
be proposed by Chesapeake under this paragraph 10 will be limited to
the number of Proposed Xxxxx proposed during such period under this
paragraph 10 that result in a Gothic AFE Amount of not more than: (a)
Fifteen Million Dollars ($15,000,000.00) during calendar year 1998;
and (b) Twenty-five Million Dollars ($25,000,000.00) during calendar
year 1999. The Gothic AFE Amount for any year will be equal to the
cumulative sum of the following amounts for each Proposed Well
proposed by Chesapeake to be drilled during such year: (y) the AFE
for such Proposed Well, multiplied by (z) the Gothic Parties'
percentage Retained Interest in such Proposed Well at the time the
proposal is made by Chesapeake. Chesapeake will be entitled to
withdraw a Proposed Well before such Proposed Well is spudded in
order to substitute a different Proposed Well in order to minimize
any adverse impact from this paragraph 10.6.
11. Chesapeake's Conditions Precedent. The obligation of Chesapeake to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction or waiver (subject to applicable law) on or before the Closing Date
of each of the following conditions:
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11.1 No preliminary or permanent injunction or other order will have
been issued by any court of competent jurisdiction or any regulatory
body preventing consummation of the transactions contemplated by this
Agreement;
11.2 No action will have been commenced or threatened against the
Gothic Parties, Chesapeake or any of their respective affiliates,
associates, officers or directors seeking damages arising from, or to
prevent or challenge the transactions contemplated by this Agreement;
11.3 All representations and warranties of the Gothic Parties
contained herein will be true and correct in all material respects;
11.4 The Gothic Parties will have performed or satisfied as of the
Closing Date all obligations, covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the
Gothic Parties;
11.5 All actions, proceedings, instruments and documents required to
carry out the transactions contemplated hereby will have been
reasonably satisfactory to Chesapeake's counsel, including, without
limitation, releases of any and all liens, claims, security interests
or other encumbrances covering any of the Gothic Interests, and the
Gothic Parties will have delivered such additional certificates and
other documents as Chesapeake reasonably requests including, without
limitation, such certificates of the Gothic Parties dated as of the
Closing Date evidencing compliance with the conditions set forth in
this paragraph 11;
11.6 Chesapeake shall have received and reviewed all schedules to be
provided by the Gothic Parties and such schedules shall not be
materially different than reasonably anticipated by Chesapeake; and
11.7 All of the transactions contemplated by the Arkoma Purchase
Agreement and the Securities Purchase Agreement of even date herewith
between the Gothic Parties and Chesapeake (the "Related Agreements")
shall have been consummated on the terms and conditions set forth in
the Related Agreements.
12. Gothic Parties' Conditions Precedent. The obligation of the Gothic Parties
to consummate the transactions contemplated by this Agreement is subject to the
satisfaction, on or before the Closing Date of each of the following conditions,
any or all of which may be waived in whole or in part:
12.1 No preliminary or permanent injunction or other order will have been
issued by any court of competent jurisdiction or any governmental or
regulatory body preventing consummation of the transactions
contemplated by this Agreement;
12.2 No action will have been commenced or threatened against the
Gothic Parties, Chesapeake or any of their respective affiliates,
associates, officers or directors seeking damages arising from, to
prevent or to challenge the transactions contemplated by this
Agreement;
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12.3 All representations and warranties of Chesapeake contained herein
will be true and correct in all material respects;
12.4 Chesapeake will have performed in all material respects all
obligations, agreements and conditions contained in this Agreement to
be performed or complied with by Chesapeake; and
12.5 The Gothic Parties will have received such certificates of
Chesapeake, dated the Closing Date, signed by officers of Chesapeake
and others to evidence compliance with the conditions set forth in
this paragraph 12.
12.6 All of the transactions contemplated by the Related Agreements
shall have been consummated on the terms and conditions set forth in
the Related Agreements.
13. Default; Remedy. In the event that either party fails to perform such
party's obligations hereunder (except as excused by the other party's default),
the party claiming default will make written demand for performance. If the
defaulting party fails to comply with such written demand within five (5)
business days after receipt thereof, the non-defaulting party will have the
option to waive such default or to exercise any other remedy available at law or
in equity. The remedies provided by this Agreement are cumulative and will not
exclude any other remedy to which a party might be entitled under this
Agreement. In the event that a party elects to selectively and successfully
enforce such party's rights under this Agreement, such action will not be deemed
a waiver or discharge of any other remedy. During the pendency of any default
or disputes, this Agreement will be deemed to be in full force and effect except
with respect to information to be provided under paragraph 16 hereof which on a
material default will be limited to the information required to be provided
under the Joint Operating Agreement and drilling proposals as provided in this
Agreement.
14. Term. Except as otherwise provided in this Agreement, the terms of this
Agreement relating to the rights and obligations of the parties to offer to sell
and to acquire interests in the Acquisition Acreage in the Participation Area
under paragraph 7 hereof and interests in the Chesapeake Acreage in the
Chesapeake AMI under paragraph 8 hereof will commence on March 31, 1998, and
continue until April 30, 2003 (the "Termination Date"). The remaining terms of
this Agreement relating to the Participation Area and the development of the
Existing Acreage, the Related Interests and the Acquisition Acreage will
continue until the earlier of the following to occur: (i) the development or
expiration of all of the Existing Acreage, the Related Interests and the
Acquisition Acreage; or (ii) the mutual agreement of the parties. Termination of
this Agreement will not affect any rights, titles or interests of the Gothic
Parties or Chesapeake in any Proposed Well for which drilling operations have
been proposed, committed, commenced or completed or the obligation of the Gothic
Parties or Chesapeake to fund such party's share of costs and make assignments
with respect thereto pursuant to this Agreement. Notwithstanding the foregoing,
any lease, contract or letter of intent entered into by the Gothic Parties prior
to the Termination Date, will be offered to Chesapeake in accordance with the
terms hereof.
15. Confidentiality. Until April 30, 2003, absent the other party's written
consent, neither party to this Agreement, or any of its affiliates, successors
or assigns, will release to any person,
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not an interest owner, any geological, geophysical, reservoir, engineering,
production, title, cost or technical information pertaining to the progress,
tests or results of any well or any other written or documentary proprietary
information. Any announcements, news releases or disclosures of proprietary
information to the public concerning the proposed or actual operations and/or
actions taken or being considered pursuant to this Agreement will be made only
after notification to the other party hereto. This confidentiality provision
will not apply to: (a) reports to governmental agencies or others to which a
party is required by law to disclose such information; (b) disclosures to
reputable engineering firms, financial institutions, gas transmission companies
or other bona fide potential purchasers of hydrocarbon reserves; (c) disclosures
to other working interest owners or potential working interest owners or either
party's or any such interest owner's respective advisors, consultants or
potential funding sources; or (d) reports or disclosures to shareholders or
pursuant to SEC regulations or guidelines; or (e) disclosures pursuant to
existing exploration or area of mutual interest agreements to which one of the
parties to this agreement are parties as of the date of this Agreement.
16. Audits, Access and Information. The Gothic Parties will provide Chesapeake
reasonable access during normal business hours to information acquired in the
course of performance of this Agreement, including relevant seismic information,
if any, done for each Proposed Well. With respect to any Proposed Well, if any
party makes or causes to be made logs, cores, formation tests, drill stem tests
or production or other tests, each will promptly furnish the results thereof to
the other party hereto. The Gothic Parties and Chesapeake will have access to
any Proposed Well, including the xxxxxxx floor, at all reasonable times, but at
the Gothic Parties' or Chesapeake's sole risk and expense, to witness all
activities conducted by the operator of such well. Unless otherwise mutually
agreed, the Gothic Parties and Chesapeake will have no less than twelve (12)
operations meetings per calendar year. In addition, Chesapeake will have access
to the Gothic Parties' personnel including, without implied limitation, any
employees and consultants that provide services regarding land, geology,
operations, finance, marketing and legal.
17. Gothic Parties' Indemnification. The Gothic Parties agree to defend,
indemnify and hold harmless Chesapeake and its directors, officers, agents and
employees (the "CGC Indemnified Parties") for, from and against all losses,
diminution in value, damages, claims, liabilities, debts, obligations and
expenses (including interest, reasonable legal fees, and expenses of litigation)
in any way related to, arising from or connected with (whether known or
unknown): (a) any of the Gothic Interests or the operation thereof and arising
or related to the period before such Gothic Interest is assigned or conveyed to
Chesapeake of record; (b) any of the Retained Interests and the operation or
ownership thereof; (c) any of the wellbores or other interests and rights which
are retained by the Gothic Parties and not assigned to Chesapeake; (d) any
contractual liability or obligation assumed or entered into by the Gothic
Parties prior to the date of this Agreement; and (e) any breach or default in
performance by the Gothic Parties of any covenant or obligation set forth in
this Agreement or any related document. In addition to the foregoing, the
Gothic Parties will pay to the CGC Indemnified Parties interest on the amount of
any loss, damage, claim, liability, debt, obligation or expense the payment of
which is or becomes due to the CGC Indemnified Parties by the Gothic Parties,
such interest to be at a floating rate of interest equal to the prime rate
published from time to time in The Wall Street Journal. The remedies provided
by this paragraph 18 are in addition to, and not in lieu of, such other remedies
as may be available under applicable laws. Claims for indemnification will be
paid by the Gothic Parties within ten
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(10) days after notification thereof. At the election of the CGC Indemnified
Parties the Gothic Parties agree to assume the defense of the CGC Indemnified
Parties on terms and conditions reasonably acceptable to the CGC Indemnified
Parties.
18. Chesapeake's Indemnification. Chesapeake agrees to defend, indemnify and
hold harmless the Gothic Parties and their directors, officers, agents and
employees (the "Gothic Indemnified Parties") for, from and against all losses,
damages, claims, liabilities, debts, obligations and expenses (including
interest, reasonable legal fees, and expenses of litigation) in any way related
to, arising from or connected with (whether known or unknown): (a) any of the
Gothic Interests conveyed to Chesapeake under this Agreement or the operation
thereof and arising after such Gothic Interest is assigned or conveyed to
Chesapeake of record; and (b) any breach of default in performance by Chesapeake
of any covenant or obligation set forth in this Agreement or any related
document. In addition to the foregoing, Chesapeake will pay to the Gothic
Indemnified Parties interest on the amount of any loss, damage, claim,
liability, debt, obligation or expense the payment of which is or becomes due to
the Gothic Indemnified Parties by Chesapeake, such interest to be at a floating
rate of interest equal to the prime rate published from time to time in The Wall
Street Journal. The remedies provided by this paragraph 18 are in addition to,
and not in lieu of, such other remedies as may be available under applicable
laws. Claims for indemnification will be paid by Chesapeake within ten (10) days
after notification thereof.
19. No Partnership. Neither this Agreement nor any other agreement between the
Gothic Parties and Chesapeake creates, nor will it be construed as creating, a
mining partnership, commercial partnership, partnership relationship or joint
venture. The liability of the parties hereto will be several and not joint or
collective. Each of the parties hereto elects under the Internal Revenue Code of
1986, as amended (the "Code"), to be excluded from the application of all of the
provisions of Subchapter K of Chapter 1 of Subtitle A of the Code. Subject to
the Gothic Parties' obligations under this Agreement to assign the Gothic
Interests to Chesapeake, the parties may engage in or possess any interest in
any other business venture of any nature or description, independently or with
others, including, but not limited to, the acquisition ownership, financing,
leasing, operation, or development of oil and gas interests. The Gothic Parties
will not have any right to participate in any such venture or activity conducted
or to be conducted by Chesapeake or the property, oil and gas interests, income
or profits related thereto or derived therefrom.
20. Miscellaneous. It is further agreed as follows:
20.1 Notices. Any notice, payment, demand or communication required or
permitted to be given by any provision of this Agreement will be in
writing and will be deemed to have been given when delivered
personally to the party designated to receive such notice, or on the
first business day following the date sent by overnight courier or
telefacsimile, or on the third (3rd) business day after the same is
sent by certified mail, postage and charges prepaid, directed to the
following addresses or to such other or additional addresses as any
party might designate by written notice to the other party:
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To Chesapeake: Chesapeake Gothic Corp.
0000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxx Xxxx, Xxxxxxxx 00000
Attn: Xxxxxx X. XxXxxxxxx
Telephone (000) 000-0000
Fax No. (000) 000-0000
To Gothic Parties: Gothic Energy Corporation
0000 Xxxxx Xxxxx, Xxxxx 000
Xxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxxx X. Xxxxx
Telephone (000) 000-0000
Fax No. (000) 000-0000
20.2 Entire Agreement. This Agreement, the Related Agreements and the
instruments to be delivered pursuant to the foregoing constitute the
entire agreement between Chesapeake and the Gothic Parties relating
to the sale and development of the Gothic Interests and there are no
agreements, understandings, warranties or representations between the
Gothic Parties and Chesapeake except as set forth therein. Neither
this Agreement nor any of the provisions hereof can be changed,
waived, discharged or terminated, except by an instrument in writing
signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought. The failure by any party to
insist on strict performance of the obligations created by this
Agreement will not be a waiver of any right to demand strict
compliance with this Agreement at any later time.
20.3 Binding Effect. This Agreement will inure to the benefit of and bind
the respective successors and permitted assigns of the parties
hereto, including, without limitation, any party deemed to become an
affiliate of the Gothic Parties either by merger or the acquisition
of capital stock or equity interests.
20.4 Severability. If any clause or provision of this Agreement is
illegal, invalid or unenforceable under any present or future law,
the remainder of this Agreement will not be affected thereby. It is
the intention of the parties that if any such provision is held to be
illegal, invalid or unenforceable, there will be added in lieu
thereof a provision as similar in terms to such provision as is
possible to make such provision legal, valid and enforceable.
20.5 Counterpart Execution. This Agreement may be executed in
counterparts, each of which will be deemed an original document but
all of which will constitute a single document. This Agreement will
not be binding on or constitute evidence of a contract between the
parties until such time as a counterpart of this Agreement has been
executed by each party and a copy thereof delivered to the other
parties to this Agreement.
20.6 Survival. The covenants, representations and warranties of the
parties herein contained will be effective on the Closing Date and
will survive closing.
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20.7 Assignment. The rights and obligations of the Gothic Parties under
this Agreement and the Gothic Parties interest in the Gothic
Interests cannot be assigned in whole or in part without the prior
written consent of Chesapeake.
20.8 Governing Law. This Agreement is executed, delivered and intended to
be performed in the State of Oklahoma, and the substantive laws of
the State of Oklahoma will govern the validity, construction and
enforcement of the Agreement.
20.9 Construction. Nothing contained in this Agreement will be construed
to constitute the parties as joint venturers or to constitute a
partnership. The descriptive headings of the paragraphs of this
Agreement are for convenience only and are not to be used in the
construction of the content of this Agreement. In the event of a
conflict between the provisions of this Agreement and the provisions
of the Joint Operating Agreement, this Agreement will control to the
extent of such conflict.
20.10 Memorandum of Agreement. For purposes of public notification,
Chesapeake and the Gothic Parties will execute and file of record in
each county where the Gothic Interests are located a Memorandum of
Agreement in the form at Schedule "20.10" attached as a part hereof.
20.11 Press Release. Each party will prepare and issue its own press
releases relating to this Agreement, provided, however, each party
will have the right to approve the other party's proposed press
release.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
on the dates hereafter indicated to be effective on the date first above
written.
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CHESAPEAKE GOTHIC CORP., an Oklahoma corporation
By
----------------------------------------------
Xxxxxx X. XxXxxxxxx, President
Date Executed:
----------------------------------
("Chesapeake")
GOTHIC ENERGY CORPORATION, an Oklahoma
corporation
By
----------------------------------------------
Xxxxxxx X. Xxxxx, President
Date Executed:
----------------------------------
("Gothic")
GOTHIC ENERGY OF TEXAS, INC., an Oklahoma
corporation
By
----------------------------------------------
Xxxxxxx X. Xxxxx, President
Date Executed:
----------------------------------
("Gothic Texas)
GOTHIC PRODUCTION COMPANY, an Oklahoma
corporation
By
----------------------------------------------
Xxxxxxx X. Xxxxx, President
Date Executed:
----------------------------------
("Gothic Production")
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