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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2004

¨	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No. 1-13726

Chesapeake Energy Corporation

(Exact Name of Registrant as Specified in Its Charter)


Oklahoma		73-1395733
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6100 North Western Avenue Oklahoma City, Oklahoma		73118
(Address of principal executive offices)		(Zip Code)

(405) 848-8000

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES x NO ¨

As of August 6, 2004, there were 267,585,340 shares of our $0.01 par value common stock outstanding.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

INDEX TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2004


		Page
PART I.
Financial Information

Item 1.	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003	3
	Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2004 and 2003	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003	5
	Condensed Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2004 and 2003	6
	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	40

PART II.
Other Information

Item 1.	Legal Proceedings	41

Item 2.	Changes in Securities and Use of Proceeds	41

Item 3.	Defaults Upon Senior Securities	41

Item 4.	Submission of Matters to a Vote of Security Holders	41

Item 5.	Other Information	42

Item 6.	Exhibits and Reports on Form 8-K	42

PART I. FINANCIAL INFORMATION

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2004			December 31, 2003
	($ in thousands)
ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	76,237		$	40,581
Accounts receivable:
Oil and gas sales		277,451			173,792
Joint interest, net of allowances of $4,248,000 and $2,669,000, respectively		50,141			37,789
Short-term derivatives		—			1,777
Related parties		5,994			2,983
Other		34,118			26,830
Deferred income tax asset		72,122			36,705
Short-term derivative instruments		104			2,690
Inventory and other		21,760			19,257

Total Current Assets		537,927			342,404

PROPERTY AND EQUIPMENT:
Oil and gas properties, at cost based on full-cost accounting:
Evaluated oil and gas properties		7,788,768			6,221,576
Unevaluated properties		445,269			227,331
Less: accumulated depreciation, depletion and amortization of oil and gas properties		(2,734,825	)		(2,480,261	)

Total oil and gas properties, at cost based on full-cost accounting		5,499,212			3,968,646
Other property and equipment		278,854			225,891
Less: accumulated depreciation and amortization of other property and equipment		(72,037	)		(61,420	)

Total Property and Equipment		5,706,029			4,133,117

OTHER ASSETS:
Long-term derivative instruments		4,461			17,493
Long-term investments		33,788			31,544
Other assets		58,519			47,733

Total Other Assets		96,768			96,770

TOTAL ASSETS	$	6,340,724		$	4,572,291

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable	$	244,580		$	164,264
Accrued interest		66,562			46,648
Short-term derivative instruments		193,451			92,651
Other accrued liabilities		130,011			108,020
Revenues and royalties due others		166,498			101,573

Total Current Liabilities		801,102			513,156

LONG-TERM LIABILITIES:
Long-term debt, net		2,464,078			2,057,713
Revenues and royalties due others		21,038			13,921
Asset retirement obligation		64,490			48,812
Long-term derivative instruments		39,982			4,736
Deferred income tax liability		497,990			191,026
Other liabilities		12,860			10,117

Total Long-term Liabilities		3,100,438			2,326,325

CONTINGENCIES AND COMMITMENTS (Note 3)
STOCKHOLDERS’ EQUITY:
Preferred Stock, 20,000,000 and 10,000,000 shares authorized as of June 30, 2004 and December 31, 2003, respectively:
6.75% cumulative convertible preferred stock, 2,997,800 and 2,998,000 shares issued and outstanding as of June 30, 2004 and December 31, 2003, respectively, entitled in liquidation to $149,890,000 and $149,900,000		149,890			149,900
6.00% cumulative convertible preferred stock, 4,600,000 shares issued and outstanding as of June 30, 2004 and December 31, 2003, entitled in liquidation to $230,000,000		230,000			230,000
5.00% cumulative convertible preferred stock, 1,725,000 shares issued and outstanding as of June 30, 2004 and December 31, 2003, entitled in liquidation to $172,500,000		172,500			172,500
4.125% cumulative convertible preferred stock, 313,250 and 0 shares issued and outstanding as of June 30, 2004 and December 31, 2003, respectively, entitled in liquidation to $313,250,000		313,250			—
Common Stock, $.01 par value, 500,000,000 and 350,000, 000 shares authorized, 247,861,197 and 221,855,894 shares issued as of June 30, 2004 and December 31, 2003, respectively		2,479			2,218
Paid-in capital		1,694,548			1,389,212
Accumulated deficit		(349	)		(168,617	)
Accumulated other comprehensive income (loss), net of tax of $56,837,000 and $12,449,000, respectively		(101,043	)		(20,312	)
Less: treasury stock, at cost; 5,071,571 common shares as of June 30, 2004 and December 31, 2003		(22,091	)		(22,091	)

Total Stockholders’ Equity		2,439,184			1,732,810

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,340,724		$	4,572,291

The accompanying notes are an integral part of these condensed consolidated financial statements.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	($ in thousands, except per share data)
REVENUES:
Oil and gas sales	$	399,665		$	319,519		$	819,458		$	605,538
Oil and gas marketing sales		174,627			110,296			317,963			200,604

Total Revenues		574,292			429,815			1,137,421			806,142

OPERATING COSTS:
Production expenses		49,595			34,263			94,398			65,720
Production taxes		22,751			17,101			37,687			35,698
General and administrative expenses:
General and administrative (excluding stock based compensation)		7,420			5,635			15,586			11,014
Stock based compensation		672			365			2,541			365
Oil and gas marketing expenses		171,115			106,857			310,779			196,215
Oil and gas depreciation, depletion and amortization		136,743			91,570			256,651			168,184
Depreciation and amortization of other assets		6,716			4,122			12,455			7,806
Provisions for legal settlements		—			—			—			286

Total Operating Costs		395,012			259,913			730,097			485,288

INCOME FROM OPERATIONS		179,280			169,902			407,324			320,854

OTHER INCOME (EXPENSE):
Interest and other income		1,335			781			2,678			1,544
Interest expense		(28,806	)		(38,036	)		(75,351	)		(75,040	)
Loss on repurchases or exchanges of Chesapeake debt		—			—			(6,925	)		—

Total Other Income (Expense)		(27,471	)		(37,255	)		(79,598	)		(73,496	)

INCOME BEFORE INCOME TAX AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE		151,809			132,647			327,726			247,358
INCOME TAX EXPENSE:
Current		—			—			—			—
Deferred		54,654			50,407			117,981			93,998

Total Income Tax Expense		54,654			50,407			117,981			93,998

NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE		97,155			82,240			209,745			153,360
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF INCOME TAXES OF $1,464,000		—			—			—			2,389

NET INCOME		97,155			82,240			209,745			155,749
PREFERRED STOCK DIVIDENDS		(11,344	)		(5,979	)		(19,512	)		(9,505	)

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	85,811		$	76,261		$	190,233		$	146,244

EARNINGS PER COMMON SHARE — BASIC:
Income before cumulative effect of accounting change	$	0.36		$	0.36		$	0.80		$	0.70
Cumulative effect of accounting change		—			—			—			0.01

	$	0.36		$	0.36		$	0.80		$	0.71

EARNINGS PER COMMON SHARE — ASSUMING DILUTION:
Income before cumulative effect of accounting change	$	0.31		$	0.31		$	0.69		$	0.62
Cumulative effect of accounting change		—			—			—			0.01

	$	0.31		$	0.31		$	0.69		$	0.63

CASH DIVIDEND DECLARED PER COMMON SHARE	$	0.045		$	0.035		$	0.080		$	0.065

WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING (in thousands):
Basic		241,147			214,341			239,016			205,995

Assuming dilution		303,483			263,919			301,400			247,391

The accompanying notes are an integral part of these condensed consolidated financial statements.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2004			2003
	($ in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME	$	209,745		$	155,749
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation, depletion and amortization		266,715			172,543
Deferred income taxes		117,729			95,462
Unrealized (gains) losses on derivatives		33,829			(30,794	)
Amortization of loan costs and bond discount		4,488			4,110
Cumulative effect of accounting change		—			(3,853	)
Loss on repurchases or exchanges of Chesapeake debt		6,925			—
Income from equity investments		(1,017	)		—
Stock-based compensation		2,541			—
Other		772			565

Cash provided by operating activities before changes in assets and liabilities		641,727			393,782
Changes in assets and liabilities		28,830			(17,149	)

Cash provided by operating activities		670,557			376,633

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of oil and gas companies, proved properties and unproved properties, net of cash acquired		(1,002,341	)		(976,550	)
Exploration and development of oil and gas properties		(535,059	)		(316,712	)
Additions to buildings and other fixed assets		(44,985	)		(22,387	)
Divestitures of oil and gas properties		271			19,667
Cash paid for other investments		(10,000	)		(20,000	)
Additions to drilling rig equipment		(7,683	)		(45	)
Other		347			253

Cash used in investing activities		(1,599,450	)		(1,315,774	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings		767,000			296,000
Payments on long-term borrowings		(611,000	)		(270,000	)
Proceeds from issuance of senior notes, net of offering costs		288,557			290,939
Proceeds from issuance of preferred stock, net of offering costs		304,936			222,893
Proceeds from issuance of common stock, net of offering costs		298,028			177,444
Cash paid to purchase or exchange senior notes, including redemption premium		(57,271	)		—
Cash paid for common stock dividend		(16,014	)		(12,125	)
Cash paid for preferred stock dividend		(18,891	)		(8,893	)
Cash paid for treasury stock		—			(2,109	)
Net increase in outstanding payments in excess of cash balances		11,125			29,474
Cash paid on financing cost of credit facilities		(8,291	)		(2,314	)
Other financing costs		(218	)		(222	)
Cash received from exercise of stock options		6,588			6,326

Cash provided by financing activities		964,549			727,413

Net increase (decrease) in cash and cash equivalents		35,656			(211,728	)
Cash and cash equivalents, beginning of period		40,581			247,637

Cash and cash equivalents, end of period	$	76,237		$	35,909

The accompanying notes are an integral part of these condensed consolidated financial statements.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	($ in thousands)
Net Income	$	97,155		$	82,240		$	209,745		$	155,749
Other comprehensive income, net of income tax:
Change in fair value of derivative instruments, net of income tax (benefit) expense of ($25,758,000), $7,169,000, ($62,562,000) and ($22,591,000)		(45,792	)		11,696			(111,222	)		(36,859	)
Reclassification of loss on settled contracts, net of income tax expense of $18,249,000, $1,508,000, $11,669,000 and $32,700,000		32,443			2,461			20,744			53,352
Ineffective portion of derivatives qualifying for cash flow hedge accounting, net of income tax (benefit) expense of $2,891,000, ($157,000), $5,483,000 and ($175,000)		5,140			(256	)		9,747			(286	)

Comprehensive Income	$	88,946		$	96,141		$	129,014		$	171,956

The accompanying notes are an integral part of these condensed consolidated financial statements.

CHESAPEAKE ENERGY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements of Chesapeake Energy Corporation and its subsidiaries have been prepared in accordance with the instructions to Form 10-Q as prescribed by the Securities and Exchange Commission. All material adjustments (consisting solely of normal recurring adjustments) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods have been reflected. The results for the three and six months ended June 30, 2004 are not necessarily indicative of the results to be expected for the full year. This Form 10-Q relates to the three and six months ended June 30, 2004 (the “Current Quarter” and “Current Period”, respectively) and the three and six months ended June 30, 2003 (the “Prior Quarter” and “Prior Period”, respectively).

Stock Based Compensation

Stock Options - - Chesapeake has elected to follow APB No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee and director stock options. Under APB No. 25, compensation expense is recognized for the difference between the option price and market value on the measurement date. The original issuance of stock options has not resulted in the recognition of compensation expense because the exercise price of the stock options granted under the plans has equaled the market price of the underlying stock on the date of grant. Pursuant to Financial Accounting Standards Board Interpretation No. 44 (FIN 44), however, we recognized stock based compensation expense (a sub-category of general and administrative costs) in the condensed consolidated statements of operations of $0.2 million, $0.2 million, $0.4 million, and $0.4 million in the Current Quarter, Current Period, Prior Quarter and Prior Period, respectively, as a result of modifications to fixed-price stock options that were made during 2000, 2001 and 2003.

Restricted Stock - During the Current Period, Chesapeake issued 1.2 million shares of restricted common stock to employees. The total value of restricted shares granted is recorded as unearned compensation in stockholders’ equity based on the fair market value of the shares on the date of grant. This value is amortized over the vesting period, which is four years from the date of grant. To the extent amortization of compensation cost relates to employees directly involved in acquisition, exploration and development activities, such amounts are capitalized to oil and gas properties. Amounts not associated with oil and gas properties are recognized in stock based compensation expense (a sub-category of general and administrative costs). Chesapeake recognized amortization of compensation cost related to the restricted stock totaling $1.6 million and $3.5 million in the Current Quarter and Current Period, respectively. Of these amounts, $0.5 million and $2.3 million are reflected in stock based compensation expense (a subcategory of general and administrative costs) in the Current Quarter and Current Period, respectively, with the remaining $1.1 million and $1.2 million capitalized to oil and gas properties. As of June 30, 2004 the unamortized balance of unearned compensation recorded as a reduction of stockholders’ equity was $11.8 million.

Presented below is pro forma financial information assuming Chesapeake had applied the fair value method under SFAS No. 123:


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	($ in thousands, except per share amounts)
Net Income
As reported	$	97,155		$	82,240		$	209,745		$	155,749
Add stock based compensation expense included in Net Income, net of tax		430			226			1,626			226
Less compensation expense, net of tax		(3,256	)		(2,765	)		(7,495	)		(5,240	)

Pro forma	$	94,329		$	79,701		$	203,876		$	150,735

Basic earnings per common share
As reported	$	0.36		$	0.36		$	0.80		$	0.71

Pro forma	$	0.34		$	0.35		$	0.77		$	0.69

Diluted earnings per common share
As reported	$	0.31		$	0.31		$	0.69		$	0.63

Pro forma	$	0.30		$	0.30		$	0.67		$	0.61

For purposes of the pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period, which is four years.

Critical Accounting Policies

We consider accounting policies related to stock options, hedging, oil and gas properties, income taxes and business combinations to be critical policies. These policies are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the year ended December 31, 2003, except for our accounting policy related to stock options which is summarized in Note 1 of the notes to the consolidated financial statements included in our annual report on Form 10-K.

Statement of Financial Accounting Standards No. 141, Business Combinations and Statement of Financial Accounting Standards No. 142, Goodwill and Intangible Assets were issued by the Financial Accounting Standards Board in June 2001 and became effective for us on July 1, 2001 and January 1, 2002, respectively. SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Additionally, SFAS 141 requires companies to disaggregate and report separately from goodwill certain intangible assets. SFAS 142 sets forth guidelines for accounting for goodwill and other intangible assets. Under SFAS 142, goodwill and certain other intangible assets are not amortized, but rather are reviewed annually for impairment.

Consistent with oil and gas accounting and industry practice, Chesapeake classifies the cost of oil and gas mineral rights as property and equipment and not as intangible assets. If oil and gas mineral rights were considered intangible assets and subject to the applicable classification and disclosure provisions of SFAS 142, we estimate that $420.3 million and $227.3 million would have been classified on our condensed consolidated balance sheets as “intangible undeveloped leasehold” and $2.4 billion and $1.4 billion would have been classified as “intangible developed leasehold” as of June 30, 2004 and December 31, 2003, respectively. These amounts are net of accumulated depreciation, depletion and amortization. There would have been no effect on the condensed consolidated statements of operations or cash flows as the intangible assets related to oil and gas mineral rights would continue to be amortized under the full-cost method of accounting.

In July 2004, the FASB issued a proposed FASB Staff Position, FSP SFAS 142-b, “Application of FASB Statement No. 142 to Oil and Gas Producing Entities.” The proposed FSP clarifies that an exception in SFAS 142 includes the balance sheet classification and disclosures for drilling and mineral rights of oil and gas producing entities. The FASB staff acknowledges that the existing accounting framework for oil and gas producers is based on the level of established reserves, not whether an asset is tangible or intangible. If adopted as written, the proposed FSP would confirm Chesapeake’s historical treatment of these costs. Chesapeake will continue to monitor this issue.

2. Financial Instruments and Hedging Activities

Oil and Gas Hedging Activities

Our results of operations and operating cash flows are impacted by changes in market prices for oil and gas. To mitigate a portion of the exposure to adverse market changes, we have entered into various derivative instruments. As of June 30, 2004, our oil and gas derivative instruments were comprised of swaps, cap-swaps, basis protection swaps, call options and collars. These instruments allow us to predict with greater certainty the effective oil and gas prices to be received for our hedged production. Although derivatives often fail to achieve 100% effectiveness for accounting purposes, we believe our derivative instruments continue to be highly effective in achieving the risk management objectives for which they were intended.

•

For swap instruments, Chesapeake receives a fixed price for the hedged commodity and pays a floating market price, as defined in each instrument, to the counterparty. The fixed-price payment and the floating-price payment are netted, resulting in a net amount due to or from the counterparty.

•

For cap-swaps, Chesapeake receives a fixed price and pays a floating market price. The fixed price received by Chesapeake includes a premium in exchange for a “cap” limiting the counterparty’s exposure. In other words, there is no limit to Chesapeake’s exposure but there is a limit to the downside exposure of the counterparty. Because this derivative includes a written put option (i.e., the cap), cap-swaps do not qualify for designation as cash flow hedges (in accordance with SFAS 133) since the combination of the hedged item and the written put option does not provide as much potential for favorable cash flows as exposure to unfavorable cash flows.

•

Basis protection swaps are arrangements that guarantee a price differential of oil or gas from a specified delivery point. Chesapeake receives a payment from the counterparty if the price differential is greater than the stated terms of the contract and pays the counterparty if the price differential is less than the stated terms of the contract.

•

For call options, Chesapeake receives a cash premium from the counterparty in exchange for the sale of a call option. If the market price exceeds the fixed price of the call option, then Chesapeake pays the counterparty such excess. If the market price settles below the fixed price of the call option, no payment is due from Chesapeake.

•

Collars contain a fixed floor price (put) and ceiling price (call). If the market price exceeds the call strike price or falls below the put strike price, then Chesapeake receives the fixed price and pays the market price. If the market price is between the call and the put strike price, then no payments are due from either party.

Chesapeake enters into counter-swaps from time to time for the purpose of locking in the value of a swap. Under the counter-swap, Chesapeake receives a floating price for the hedged commodity and pays a fixed price to the counterparty. The counter-swap is 100% effective in locking in the value of a swap since subsequent changes in the market value of the swap are entirely offset by subsequent changes in the market value of the counter-swap. We refer to this locked-in value as a locked swap. At the time Chesapeake enters into a counter-swap, Chesapeake removes the original swap’s designation as a cash flow hedge and classifies the original swap as a non-qualifying hedge under SFAS 133. The reason for this designation is that collectively the swap and the counter-swap no longer hedge the exposure to variability in expected future cash flows. Instead, the swap and counter-swap effectively lock in a specific gain (or loss) that will be unaffected by subsequent variability in oil and gas prices. Any locked-in gain or loss is recorded in accumulated other comprehensive income and reclassified to oil and gas sales in the month of related production.

With respect to counter-swaps that are designed to lock-in the value of cap-swaps, the counter-swap is effective in locking-in the value of the cap-swap until the floating price reaches the cap (or floor) stipulated in the cap-swap agreement. The value of a counter-swap will increase (or decrease), but in the opposite direction, as the value of the cap-swap decreases (or increases) until the floating price reaches the pre-determined cap (or floor) stipulated in the cap-swap agreement. However, because of the written put option embedded in the cap-swap, the changes in value of the cap-swap are not completely effective in offsetting changes in the value of the corresponding counter-swap. Changes in the value of cap-swaps and the counter swaps are recorded as adjustments to oil and gas sales.

In accordance with FASB Interpretation No. 39, Chesapeake nets the value of its derivative arrangements with the same counterparty in the accompanying condensed consolidated balance sheets, to the extent that a legal right of setoff exists.

Gains or losses from derivative transactions are reflected as adjustments to oil and gas sales on the condensed consolidated statements of operations. Pursuant to SFAS 133, certain derivatives do not qualify for designation as cash flow hedges. Changes in the fair value of these non-qualifying derivatives that occur prior to their maturity (i.e., temporary fluctuations in value) are reported currently in the condensed consolidated statements of operations as unrealized gains (losses) within oil and gas sales. Unrealized gains (losses) included in oil and gas sales were ($20.2) million, ($34.2) million, $3.3 million and $33.0 million in the Current Quarter, Current Period, Prior Quarter and Prior Period, respectively. These amounts include gains (losses) on ineffectiveness discussed below.

Following provisions of SFAS 133, changes in the fair value of derivative instruments designated as cash flow hedges, to the extent they are effective in offsetting cash flows attributable to the hedged risk, are recorded in other comprehensive income until the hedged item is recognized in earnings. Any change in fair value resulting from ineffectiveness is recognized currently in oil and gas sales as an unrealized gain (loss). We recorded a gain (loss) on ineffectiveness of ($8.0) million, ($15.2) million, $0.4 million and $0.5 million in the Current Quarter, Current Period, Prior Quarter and Prior Period, respectively.

The estimated fair values of our oil and gas derivative instruments as of June 30, 2004 and December 31, 2003 are provided below. The associated carrying values of these instruments are equal to the estimated fair values.


	June 30, 2004			December 31, 2003
	($ in thousands)
Derivative assets (liabilities):
Fixed-price gas swaps	$	(84,365	)	$	(44,794	)
Fixed-price gas locked swaps		(88,088	)		1,777
Fixed-price gas cap-swaps		(58,826	)		(18,608	)
Fixed-price gas counter-swaps		(15	)		—
Gas basis protection swaps		83,511			46,205
Gas call options (a)		(18,718	)		(17,876	)
Fixed-price gas collars		(7,236	)		—
Fixed-price oil swaps		(3,218	)		—
Fixed-price crude oil cap-swaps		(19,182	)		(11,692	)

Estimated fair value	$	(196,137	)	$	(44,988	)

(a)	After adjusting for the remaining $10.8 million and $16.8 million premium paid to Chesapeake by the counterparty, the cumulative unrealized loss related to these call options as of June 30, 2004 and December 31, 2003 was ($7.9) million and ($1.1) million, respectively.

Based upon the market prices as of June 30, 2004, we expect to transfer a loss of approximately $68.0 million from accumulated other comprehensive income to earnings during the next 12 months when the hedged transactions actually close. All hedged transactions as of June 30, 2004 are expected to mature by December 31, 2007, with the exception of the basis protection swaps which extend through 2009.

In May 2004, we entered into a secured natural gas hedging facility with a nationally recognized counterparty which matures in May 2009. Under this hedging facility, we can enter into cash-settled natural gas commodity transactions, valued by the counterparty, for up to $600 million. Outstanding transactions under the facility are collateralized by certain oil and gas properties, exclusive of the oil and gas properties that collateralize our revolving bank credit facility. The hedging facility is subject to an annual fee of 0.30% of the maximum total capacity and a 1.0% exposure fee, which is assessed quarterly on the average of the daily negative fair market value amounts, if any, during the quarter. As of June 30, 2004, the fair market value of the natural gas hedging transactions related to the hedging facility was $0.1 million.

The hedging facility contains the standard representations and default provisions that are typical of such agreements. The agreement also contains various restrictive provisions which govern the aggregate gas production volumes that we are permitted to hedge under all of our agreements at any one time. The hedging facility is guaranteed by Chesapeake and all of the same subsidiaries that guarantee our senior notes and the revolving bank credit facility.

Interest Rate Derivatives

We also utilize hedging strategies to manage our exposure to changes in interest rates. To the extent the interest rate swaps have been designated as fair value hedges, changes in the fair value of the derivative instrument and the corresponding debt are reflected as adjustments to interest expense in the corresponding months covered by the derivative agreement. Changes in the fair value of derivative instruments not qualifying as fair value hedges are recorded currently as adjustments to interest expense.

In March 2004, Chesapeake entered into an interest rate swap which requires Chesapeake to pay a fixed rate of 8.68% while the counterparty pays Chesapeake a floating rate of six month LIBOR plus 0.75%. The counterparty may elect to terminate the swap and cause it to be settled at the then current estimated fair value of the interest rate swap on March 15, 2005 and annually thereafter through March 15, 2011. The interest rate swap expires on March 15, 2012. Chesapeake may elect to terminate the swap and cause it to be settled at the then current estimated fair value of the interest rate swap at any time during the term of the swap.

As of June 30, 2004, the fair value of the interest rate swap was a liability of $32.5 million. Because the interest rate swap is not designated as a fair value hedge, changes in the fair value of the swap are recorded as adjustments to interest expense. The Current Quarter and Current Period include an unrealized gain of $8.8 million and $1.1 million, respectively, and a realized loss of $0.6 million and $0.8 million, respectively, in interest expense.

In January 2004, Chesapeake acquired a $50 million interest rate swap as part of the purchase of Concho Resources Inc. Under the terms of the interest rate swap, the counterparty pays Chesapeake a floating three month LIBOR rate and Chesapeake pays a fixed rate of 2.875%. Payments are made quarterly and the interest rate swap extends through September 2005. An initial liability of $0.6 million was recorded based on the fair value of the interest rate swap at the time of acquisition. As of June 30, 2004, the interest rate swap had a fair value of ($0.2) million. Because this instrument is not designated as a fair value hedge, an unrealized gain of $0.6 million and an unrealized gain of $0.2 million were recognized in the Current Quarter and Current Period, respectively, as part of interest expense.

Fair Value of Financial Instruments

The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments. We have determined the estimated fair value amounts by using available market information and valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.

The carrying values of items comprising current assets and current liabilities approximate fair values due to the short-term maturities of these instruments. We estimate the fair value of our long-term, fixed-rate debt using primarily quoted market prices. Our carrying amount for such debt, excluding discounts for interest rate swaps, as of June 30, 2004 and December 31, 2003 was $2,308.1 million and $2,058.1 million, respectively, compared to approximate fair values of $2,480.4 million and $2,279.5 million, respectively. The carrying amounts for our 6.75% convertible preferred stock, 6.00% convertible preferred stock, 5.00% convertible preferred stock and 4.125% convertible preferred stock as of June 30, 2004 were $149.9 million, $230.0 million, $172.5 million and $313.3 million, respectively, with a fair value of $289.0 million, $308.2 million, $191.5 million and $313.3 million, respectively.

Concentration of Credit Risk

A significant portion of our liquidity is concentrated in cash and cash equivalents and derivative instruments that enable us to hedge a portion of our exposure to price volatility from producing oil and natural gas. These arrangements expose us to credit risk from our counterparties. Other financial instruments which potentially subject us to concentrations of credit risk consist principally of equity investments and accounts receivable. Our accounts receivable are primarily from purchasers of oil and natural gas products and exploration and production companies which own interests in properties we operate. The industry concentration has the potential to impact our overall exposure to credit risk, either positively or negatively, in that our customers may be similarly affected by changes in economic, industry or other conditions. We generally require letters of credit for receivables from customers which are judged to have sub-standard credit, unless the credit risk can otherwise be mitigated. Cash and cash equivalents are deposited with major banks or institutions and generally exceed the federally insured limits.

3. Contingencies and Commitments

Litigation. Chesapeake is currently involved in various disputes incidental to its business operations. Management, after consultation with legal counsel, is of the opinion that the final resolution of all such currently pending or threatened litigation is not likely to have a material adverse effect on our consolidated financial position or results of operations.

Employment Agreements with Officers. Chesapeake has employment agreements with its chief executive officer, chief operating officer, chief financial officer and various other senior management personnel, which provide for annual base salaries, bonus compensation and various benefits. The agreements provide for the continuation of salary and benefits for varying terms in the event of termination of employment without cause. The agreements with the chief executive officer and chief operating officer have terms of five years commencing January 1, 2004. The term of each agreement is automatically extended for one additional year on each January 31 unless the company provides 30 days prior notice of non-extension or the parties otherwise terminate the agreement. The agreements with the chief financial officer and other senior managers expire on September 30, 2006. The company’s employment agreements with the executive officers provide for payments in the event of a change in control. The chief executive officer and chief operating officer are each entitled to receive a payment in the amount of five times his base compensation and the prior year’s benefits, plus a tax gross-up payment, and the chief financial officer and other officers are each entitled to receive a payment in the amount of two times the sum of his or her base compensation and bonuses paid during the prior year.

Environmental Risk. Due to the nature of the oil and gas business, Chesapeake and its subsidiaries are exposed to possible environmental risks. Chesapeake has implemented various policies and procedures to avoid environmental contamination and risks from environmental contamination. Chesapeake conducts periodic reviews, on a company-wide basis, to identify changes in our environmental risk profile. These reviews evaluate whether there is a probable liability, its amount, and the likelihood that the liability will be incurred. The amount of any potential liability is determined by considering, among other matters, incremental direct costs of any likely remediation and the proportionate cost of employees who are expected to devote a significant amount of time directly to any possible remediation effort. We manage our exposure to environmental liabilities on properties to be acquired by identifying existing problems and assessing the potential liability. Depending on the extent of an identified environmental problem, Chesapeake may exclude a property from the acquisition, require the seller to remediate the property to our satisfaction, or agree to assume liability for the remediation of the property. Chesapeake has historically not experienced any significant environmental liability, and is not aware of any potential material environmental issues or claims as of June 30, 2004.

4. Net Income Per Share

Statement of Financial Accounting Standards No. 128, Earnings Per Share, requires presentation of “basic” and “diluted” earnings per share, as defined, on the face of the statements of operations for all entities with complex capital structures. SFAS 128 requires a reconciliation of the numerator and denominator of the basic and diluted EPS computations.

The following securities were not included in the calculation of diluted earnings per share, as the effect was antidilutive:

•

For the Current Quarter, the Prior Quarter, Current Period and Prior Period outstanding warrants to purchase 0.3 million, 0.4 million, 0.3 million and 0.4 million shares of common stock at a weighted-average exercise price of $15.72, $14.55, $15.72 and $14.55, respectively, were antidilutive because the exercise prices of the warrants were greater than the average market price of the common stock.

•

For the Current Quarter, the Prior Quarter, Current Period and Prior Period outstanding options to purchase 0.1 million, 0.4 million, 0.2 million and 0.3 million shares of common stock at a weighted-average exercise price of $26.73, $15.47, $19.93 and $16.33, respectively, were antidilutive because the exercise prices of the options were greater than the average market price of the common stock.

We did not assume the conversion of the 313,250 shares of 4.125% cumulative convertible preferred stock outstanding during the Current Quarter and Current Period because the holders did not have the right to convert. A holder’s right to convert will only arise when the closing sales price of our common stock reaches, or the trading price of the preferred stock falls below, specified thresholds or upon the occurrence of specified corporate transactions.

Reconciliations for the three months ended June 30, 2004 and 2003 and the six months ended June 30, 2004 and 2003 are as follows:


	Income (Numerator)			Shares (Denominator)	Per Share Amount
	(in thousands, except per share data)
For the Three Months Ended June 30, 2004:
Basic EPS
Income available to common shareholders	$	85,811		241,147	$	0.36

Effect of Dilutive Securities
Assumed conversion as of the beginning of the period of preferred shares outstanding during the period:
Common shares assumed issued for 5.00% convertible preferred stock		—		10,516
Common shares assumed issued for 6.00% convertible preferred stock		—		22,358
Common shares assumed issued for 6.75% convertible preferred stock		—		19,466
Preferred stock dividends		11,344		—
Preferred stock dividend on 4.125% convertible preferred stock		(3,208	)	—
Restricted stock		—		149
Employee stock options		—		9,838
Warrants assumed in Gothic Acquisition		—		9

Diluted EPS Income available to common shareholders and assumed conversions	$	93,947		303,483	$	0.31

For the Three Months Ended June 30, 2003:
Basic EPS
Income available to common shareholders	$	76,261		214,341	$	0.36

Effect of Dilutive Securities
Assumed conversion as of the beginning of the period of preferred shares outstanding during the period:
Preferred stock dividends		5,979		—
Common shares assumed issued for 6.00% convertible preferred stock		—		22,358
Common shares assumed issued for 6.75% convertible preferred stock		—		19,468
Employee stock options		—		7,752

Diluted EPS Income available to common shareholders and assumed conversions	$	82,240		263,919	$	0.31

For the Six Months Ended June 30, 2004:
Basic EPS
Income available to common shareholders	$	190,233		239,016	$	0.80

Effect of Dilutive Securities
Assumed conversion as of the beginning of the period of preferred shares outstanding during the period:
Common shares assumed issued for 5.00% convertible preferred stock		—		10,516
Common shares assumed issued for 6.00% convertible preferred stock		—		22,358
Common shares assumed issued for 6.75% convertible preferred stock		—		19,466
Preferred stock dividends		19,512		—
Preferred stock dividend on 4.125% convertible preferred stock		(3,240	)	—
Restricted stock		—		180
Employee stock options		—		9,858
Warrants assumed in Gothic Acquisition		—		6

Diluted EPS Income available to common shareholders and assumed conversions	$	206,505		301,400	$	0.69


	Income (Numerator)			Shares (Denominator)	Per Share Amount
	(in thousands, except per share data)
For the Six Months Ended June 30, 2003:
Income before cumulative effect of accounting change, net of tax	$	153,360
Preferred stock dividends		(9,505	)

Basic EPS
Income available to common shareholders before cumulative effect Of accounting change, net of tax	$	143,855		205,995	$	0.70

Effect of Dilutive Securities
Assumed conversion as of the beginning of the period of preferred shares outstanding during the period:
Preferred stock dividends		9,505		—
Common shares assumed issued for 6.00% convertible preferred stock		—		14,576
Common shares assumed issued for 6.75% convertible preferred stock		—		19,468
Employee stock options		—		7,352

Diluted EPS Income available to common shareholders before cumulative effect of accounting change, net of tax	$	153,360		247,391	$	0.62

5. Notes Payable and Revolving Credit Facility

Notes payable and long-term debt consist of the following:


	June 30, 2004			December 31, 2003
	($ in thousands)
8.375% Senior Notes due 2008	$	209,815		$	209,815
8.125% Senior Notes due 2011		245,407			728,255
9.0% Senior Notes due 2012		300,000			300,000
7.5% Senior Notes due 2013		363,823			363,823
7.5% Senior Notes due 2014		300,000			—
7.75% Senior Notes due 2015		300,408			236,691
6.875% Senior Notes due 2016		670,487			200,000
7.875% Senior Notes due 2004		—			42,137
8.5% Senior Notes due 2012		—			4,290
Revolving bank credit facility		156,000			—
Discount of senior notes		(81,862	)		(26,959	)
Discount for interest rate swap and swaption		—			(339	)

Total notes payable and long-term debt	$	2,464,078		$	2,057,713

On May 27, 2004, we issued $300 million principal amount of 7.5% Senior Notes due 2014 in a private placement. These notes were exchanged on August 6, 2004 for substantially identical notes registered under the Securities Act of 1933.

On January 14, 2004, we completed a public exchange offer in which we retired $458.5 million of our 8.125% Senior Notes due 2011 and $10.8 million of accrued interest and issued $72.8 million of our 7.75% Senior Notes due 2015 and $2.8 million of accrued interest and $433.5 million of our 6.875% Senior Notes due 2016 and $4.1 million of accrued interest. In connection with this exchange, we recorded a pre-tax charge of $6.0 million, consisting of a $5.7 million underwriters fee and $0.3 million in other transaction costs.

In January and February of 2004, we issued an additional $37.0 million of our 6.875% Senior Notes due 2016 and $0.5 million of accrued interest in exchange for $24.3 million of our 8.125% Senior Notes due 2011 and $0.7 million of accrued interest and $9.1 million of our 7.75% Senior Notes due 2015 and $0.1 million of accrued interest in four private exchange transactions.

On November 12, 2003, we commenced a tender offer to purchase for cash our $110.7 million aggregate principal amount of 8.5% Senior Notes due 2012 and concurrently conducted a consent solicitation to amend the indenture governing the 8.5% Senior Notes. On December 10, 2003, we purchased $106.4 million principal amount of 8.5% Senior Notes tendered, which represented approximately 96% of the outstanding aggregate principal amount of the 8.5% Senior Notes, and we amended the indentures eliminating substantially all of the restrictive covenants. We redeemed the remaining $4.3 million of 8.5% Senior Notes on March 15, 2004. In connection with the redemption, we recorded a pre-tax loss of $0.9 million, consisting of $0.2 million of redemption premium, $0.1 million of unamortized debt issue costs and discount on senior notes and $0.6 million carried as a discount on the 8.5% Senior Notes based on the hedging relationship between the notes and a swaption.

On March 15, 2004, we paid $42.1 million to retire the balance outstanding on our 7.875% Senior Notes that matured on that date.

We have a $600 million revolving bank credit facility (with a committed borrowing base of $500 million) which matures in June 2008. As of June 30, 2004, we had $156 million of outstanding borrowings under this facility and utilized $70.9 million of the facility for various letters of credit. Borrowings under the facility are collateralized by certain producing oil and gas properties and bear interest at either (i) the greater of the reference rate of Union Bank of California, N.A. or the federal funds effective rate plus 0.50% or (ii) the London Interbank Offered Rate (LIBOR), at our option, plus a margin that varies according to our senior unsecured long-term debt ratings. The collateral value and borrowing base are redetermined periodically. The unused portion of the facility is subject to an annual commitment fee that also varies according to our senior unsecured long-term debt ratings. Currently, the annual commitment fee rate is 0.30%. Interest is payable quarterly or, if LIBOR applies, it may be payable at more frequent intervals.

The credit facility agreement contains various covenants and restrictive provisions which govern our ability to incur additional indebtedness, sell properties, purchase or redeem our capital stock, make investments or loans, and create liens. The credit facility agreement requires us to maintain a current ratio (as defined) of at least 1 to 1 and a fixed charge coverage ratio (as defined) of at least 2.5 to 1. As of June 30, 2004, our current ratio was 1.3 to 1 and our fixed charge coverage ratio was 5.3 to 1. If we should fail to perform our obligations under these and other covenants, the revolving credit commitment could be terminated and any outstanding borrowings under the facility could be declared immediately due and payable. Such acceleration, if involving a principal amount of $10 million or more, would constitute an event of default under our senior note indentures, which could in turn result in the acceleration of our senior note indebtedness. The credit facility agreement also has cross default provisions that apply to other indebtedness we may have with an outstanding principal amount in excess of $35.0 million.

Chesapeake is a holding company and owns no operating assets and has no significant operations independent of its subsidiaries. Our obligations under our outstanding senior notes have been fully and unconditionally guaranteed, on a joint and several basis, by each of our “restricted subsidiaries” (as defined in the respective indentures governing these notes) (collectively, the “guarantor subsidiaries”). Each guarantor subsidiary is a direct or indirect wholly-owned subsidiary.

The senior note indentures permit us to redeem the senior notes at any time at specified make-whole or redemption prices. The indentures contain covenants limiting us and the guarantor subsidiaries with respect to asset sales; the incurrence of additional indebtedness and the issuance of preferred stock; liens; sale and leaseback transactions; lines of business; dividend and other payment restrictions; mergers or consolidations; and transactions with affiliates.

Set forth below are condensed consolidating financial statements of the parent, guarantor subsidiaries and non-guarantor subsidiaries. Chesapeake Energy Marketing, Inc., Mayfield Processing, L.L.C. and MidCon Compression, L.P. are wholly-owned subsidiaries which are not guarantors of the senior notes. Chesapeake Energy Marketing, Inc. was a non-guarantor subsidiary for all quarters presented. Mayfield Processing, L.L.C. and MidCon Compression, L.P. were established as non-guarantor subsidiaries during the third quarter of 2003. All of our other wholly-owned subsidiaries were guarantor subsidiaries during all periods presented.

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 30, 2004

($ in thousands)

(Unaudited)


	Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Parent			Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	10,423		$	63,682		$	2,132		$	—		$	76,237
Accounts receivable		290,892			196,767			960			(120,915	)		367,704
Short-term derivative instruments		104			—			—			—			104
Deferred income tax asset		—			—			72,122			—			72,122
Inventory and other		20,833			917			10			—			21,760

Total Current Assets		322,252			261,366			75,224			(120,915	)		537,927

PROPERTY AND EQUIPMENT:
Evaluated oil and gas properties		7,788,768			—			—			—			7,788,768
Unevaluated leasehold		445,269			—			—			—			445,269
Other property and equipment		99,174			75,981			103,699			—			278,854
Less: accumulated depreciation, depletion and Amortization		(2,771,425	)		(27,352	)		(8,085	)		—			(2,806,862	)

Net Property and Equipment		5,561,786			48,629			95,614			—			5,706,029

OTHER ASSETS:
Investments in subsidiaries and intercompany advances		—			—			1,703,923			(1,703,923	)		—
Long-term derivative instruments		4,461			—			—			—			4,461
Long-term investments - other		6,929			—			26,859			—			33,788
Long-term note receivable		1,154			9			10,000			(9	)		11,154
Other assets		17,368			—			29,997			—			47,365

Total Other Assets		29,912			9			1,770,779			(1,703,932	)		96,768

TOTAL ASSETS	$	5,913,950		$	310,004		$	1,941,617		$	(1,824,847	)	$	6,340,724

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	241,515		$	188,542		$	—		$	(185,477	)	$	244,580
Accrued interest		185			—			66,377			—			66,562
Short-term derivative instruments		160,960			—			32,491			—			193,451
Other accrued liabilities		100,207			7,777			22,251			(224	)		130,011
Revenues and royalties due others		101,936			—			—			64,562			166,498

Total Current Liabilities		604,803			196,319			121,119			(121,139	)		801,102

OTHER LIABILITIES:
Long-term debt, net		156,000			—			2,308,078			—			2,464,078
Revenues and royalties due others		21,038			—			—			—			21,038
Asset retirement obligation		64,490			—			—			—			64,490
Long-term derivative instruments		39,982			—			—			—			39,982
Deferred income tax liability		357,182			4,246			136,562			—			497,990
Other liabilities		12,602			258			—			—			12,860
Intercompany payables (receivables)		3,045,318			17,793			(3,063,326	)		215			—

Total Other Liabilities		3,696,612			22,297			(618,686	)		215			3,100,438

STOCKHOLDERS’ EQUITY:
Common stock		56			1			2,479			(57	)		2,479
Preferred stock		—			—			865,640			—			865,640
Other		1,612,479			91,387			1,571,065			(1,703,866	)		1,571,065

Total Stockholders’ Equity		1,612,535			91,388			2,439,184			(1,703,923	)		2,439,184

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	5,913,950		$	310,004		$	1,941,617		$	(1,824,847	)	$	6,340,724

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2003

($ in thousands)

(Unaudited)


	Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Parent			Eliminations			Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	248		$	32,131		$	8,202		$	—		$	40,581
Accounts receivable		181,538			127,717			11,000			(78,861	)		241,394
Short-term derivative receivable		1,777			—			—			—			1,777
Short-term derivative instruments		—			—			2,690			—			2,690
Deferred income tax asset		—			—			36,705			—			36,705
Inventory and other		17,368			1,770			119			—			19,257

Total Current Assets		200,931			161,618			58,716			(78,861	)		342,404

PROPERTY AND EQUIPMENT:
Evaluated oil and gas properties		6,221,576			—			—			—			6,221,576
Unevaluated leasehold		227,331			—			—			—			227,331
Other property and equipment		82,230			58,083			85,578			—			225,891
Less: accumulated depreciation, depletion and amortization		(2,511,382	)		(23,982	)		(6,317	)		—			(2,541,681	)

Net Property and Equipment		4,019,755			34,101			79,261			—			4,133,117

OTHER ASSETS:
Investments in subsidiaries and intercompany advances		—			—			853,184			(853,184	)		—
Long-term derivative instruments		17,493			—			—			—			17,493
Long-term investments and other		5,000			—			26,544			—			31,544
Other assets		23,641			14			24,092			(14	)		47,733

Total Other Assets		46,134			14			903,820			(853,198	)		96,770

TOTAL ASSETS	$	4,266,820		$	195,733		$	1,041,797		$	(932,059	)	$	4,572,291

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	160,422		$	120,369		$	—		$	(116,527	)	$	164,264
Accrued interest		—			—			46,648			—			46,648
Short-term derivative instruments		60,050			—			32,601			—			92,651
Other accrued liabilities		86,759			5,553			15,751			(43	)		108,020
Revenues and royalties due others		63,907			—			—			37,666			101,573

Total Current Liabilities		371,138			125,922			95,000			(78,904	)		513,156

OTHER LIABILITIES:
Long-term debt, net		—			—			2,057,713			—			2,057,713
Revenues and royalties due others		13,921			—			—			—			13,921
Asset retirement obligation		48,812			—			—			—			48,812
Long-term derivative instruments		4,209			—			527			—			4,736
Deferred income tax liability (asset)		278,914			3,772			(91,660	)		—			191,026
Other liabilities		10,117			—			—			—			10,117
Intercompany payables (receivables)		2,753,590			(1,026	)		(2,752,593	)		29			—

Total Other Liabilities		3,109,563			2,746			(786,013	)		29			2,326,325

STOCKHOLDERS’ EQUITY:
Common stock		56			1			2,218			(57	)		2,218
Preferred stock		—			—			552,400			—			552,400
Other		786,063			67,064			1,178,192			(853,127	)		1,178,192

Total Stockholders’ Equity		786,119			67,065			1,732,810			(853,184	)		1,732,810

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,266,820		$	195,733		$	1,041,797		$	(932,059	)	$	4,572,291

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

($ in thousands)

(Unaudited)


	Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Parent			Eliminations			Consolidated
For the Three Months Ended June 30, 2004:
REVENUES:
Oil and gas sales	$	399,665		$	—	$	—		$	—		$	399,665
Oil and gas marketing sales		—			484,974		—			(310,347	)		174,627

Total Revenues		399,665			484,974		—			(310,347	)		574,292

OPERATING COSTS:
Production expenses		49,595			—		—			—			49,595
Production taxes		22,751			—		—			—			22,751
General and administrative expenses:
General and administrative (excluding stock based compensation)		5,864			1,449		107			—			7,420
Stock based compensation		—			—		672			—			672
Oil and gas marketing expenses		—			481,462		—			(310,347	)		171,115
Oil and gas depreciation, depletion and amortization		136,743			—		—			—			136,743
Depreciation and amortization of other assets		3,124			1,884		1,708			—			6,716

Total Operating Costs		218,077			484,795		2,487			(310,347	)		395,012

INCOME (LOSS) FROM OPERATIONS		181,588			179		(2,487	)		—			179,280

OTHER INCOME (EXPENSE):
Interest and other income		543			164		42,806			(42,178	)		1,335
Interest expense		(35,537	)		—		(35,447	)		42,178			(28,806	)
Equity in net earnings of subsidiaries		—			—		94,037			(94,037	)		—

Total Other Income (Expense)		(34,994	)		164		101,396			(94,037	)		(27,471	)

INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE		146,594			343		98,909			(94,037	)		151,809
Income tax expense (benefit)		52,776			124		1,754			—			54,654

NET INCOME	$	93,818		$	219	$	97,155		$	(94,037	)	$	97,155


	Guarantor Subsidiaries			Non-Guarantor Subsidiary		Parent			Eliminations			Consolidated
For the Three Months Ended June 30, 2003:
REVENUES:
Oil and gas sales	$	319,519		$	—	$	—		$	—		$	319,519
Oil and gas marketing sales		—			336,392		—			(226,096	)		110,296

Total Revenues		319,519			336,392		—			(226,096	)		429,815

OPERATING COSTS:
Production expenses		34,263			—		—			—			34,263
Production taxes		17,101			—		—			—			17,101
General and administrative expenses:
General and administrative (excluding stock based compensation)		4,762			661		212			—			5,635
Stock based compensation		—			—		365			—			365
Oil and gas marketing expenses		—			332,953		—			(226,096	)		106,857
Oil and gas depreciation, depletion and amortization		91,570			—		—			—			91,570
Depreciation and amortization of other assets		2,469			595		1,058			—			4,122

Total Operating Costs		150,165			334,209		1,635			(226,096	)		259,913

INCOME (LOSS) FROM OPERATIONS		169,354			2,183		(1,635	)		—			169,902

OTHER INCOME (EXPENSE):
Interest and other income		(20	)		372		41,080			(40,651	)		781
Interest expense		(38,111	)		—		(40,576	)		40,651			(38,036	)
Equity in net earnings of subsidiaries		—			—		82,942			(82,942	)		—

Total Other Income (Expense)		(38,131	)		372		83,446			(82,942	)		(37,255	)

INCOME (LOSS) BEFORE INCOME TAXES		131,223			2,555		81,811			(82,942	)		132,647
Income tax expense (benefit)		49,865			971		(429	)		—			50,407

NET INCOME (LOSS)	$	81,358		$	1,584	$	82,240		$	(82,942	)	$	82,240

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

($ in thousands)

(Unaudited)


	Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Parent			Eliminations			Consolidated
For the Six Months Ended June 30, 2004:
REVENUES:
Oil and gas sales	$	819,458		$	—	$	—		$	—		$	819,458
Oil and gas marketing sales		—			900,365		—			(582,402	)		317,963

Total Revenues		819,458			900,365		—			(582,402	)		1,137,421

OPERATING COSTS:
Production expenses		94,398			—		—			—			94,398
Production taxes		37,687			—		—			—			37,687
General and administrative expenses:
General and administrative (excluding stock based compensation)		12,520			2,883		183			—			15,586
Stock based compensation		—			—		2,541			—			2,541
Oil and gas marketing expenses		—			893,181		—			(582,402	)		310,779
Oil and gas depreciation, depletion and amortization		256,651			—		—			—			256,651
Depreciation and amortization of other assets		5,782			3,352		3,321			—			12,455

Total Operating Costs		407,038			899,416		6,045			(582,402	)		730,097

INCOME (LOSS) FROM OPERATIONS		412,420			949		(6,045	)		—			407,324

OTHER INCOME (EXPENSE):
Interest and other income		1,091			364		84,821			(83,598	)		2,678
Interest expense		(73,771	)		—		(85,178	)		83,598			(75,351	)
Loss on repurchase or exchanges of Chesapeake debt		—			—		(6,925	)		—			(6,925	)
Equity in net earnings of subsidiaries		—			—		218,274			(218,274	)		—

Total Other Income (Expense)		(72,680	)		364		210,992			(218,274	)		(79,598	)

INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE		339,740			1,313		204,947			(218,274	)		327,726
Income tax expense (benefit)		122,306			473		(4,798	)		—			117,981

NET INCOME	$	217,434		$	840	$	209,745		$	(218,274	)	$	209,745


	Guarantor Subsidiaries			Non-Guarantor Subsidiary		Parent			Eliminations			Consolidated
For the Six Months Ended June 30, 2003:
REVENUES:
Oil and gas sales	$	605,538		$	—	$	—		$	—		$	605,538
Oil and gas marketing sales		—			630,543		—			(429,939	)		200,604

Total Revenues		605,538			630,543		—			(429,939	)		806,142

OPERATING COSTS:
Production expenses		65,720			—		—			—			65,720
Production taxes		35,698			—		—			—			35,698
General and administrative expenses:
General and administrative (excluding stock based compensation)		9,709			1,244		200			—			11,153
Stock based compensation		—			—		512			—			512
Oil and gas marketing expenses		—			626,154		—			(429,939	)		196,215
Oil and gas depreciation, depletion and amortization		168,184			—		—			—			168,184
Depreciation and amortization of other assets		4,767			1,120		1,919			—			7,806

Total Operating Costs		284,078			628,518		2,631			(429,939	)		485,288

INCOME (LOSS) FROM OPERATIONS		321,460			2,025		(2,631	)		—			320,854

OTHER INCOME (EXPENSE):
Interest and other income		(2	)		466		76,745			(75,665	)		1,544
Interest expense		(71,945	)		—		(78,760	)		75,665			(75,040	)
Equity in net earnings of subsidiaries		—			—		158,630			(158,630	)		—

Total Other Income (Expense)		(71,947	)		466		156,615			(158,630	)		(73,496	)

INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE		249,513			2,491		153,984			(158,630	)		247,358
Income tax expense (benefit)		94,816			947		(1,765	)		—			93,998

INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE		154,697			1,544		155,749			(158,630	)		153,360
Cumulative effect of accounting change, net of tax		2,389			—		—			—			2,389

NET INCOME (LOSS)	$	157,086		$	1,544	$	155,749		$	(158,630	)	$	155,749

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

($ in thousands)

(Unaudited)


	Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Parent			Eliminations			Consolidated
For the Six Months Ended June 30, 2004:
CASH FLOWS FROM OPERATING ACTIVITIES	$	582,163		$	74,309		$	232,359		$	(218,274	)	$	670,557

CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas properties, net		(1,042,489	)		—			(494,640	)		—			(1,537,129	)
Cash paid for other investments		—			—			(10,000	)		—			(10,000	)
Additions to buildings and other fixed assets and drilling rig equipment		(16,653	)		(17,810	)		(18,205	)		—			(52,668	)
Other		307			—			40			—			347

Cash (used in) provided by investing activities		(1,058,835	)		(17,810	)		(522,805	)		—			(1,599,450	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings		767,000			—			—			—			767,000
Payments on long-term borrowings		(611,000	)		—			—			—			(611,000	)
Proceeds received from issuance of senior notes, net of offering costs		—			—			288,557			—			288,557
Proceeds from issuance of preferred stock, net of issuance costs		—			—			304,936			—			304,936
Proceeds from issuance of common stock, net of issuance costs		—			—			298,028			—			298,028
Cash paid to repurchase senior notes, including redemption premium		—			—			(57,271	)		—			(57,271	)
Cash paid for common and preferred stock dividends		—			—			(34,905	)		—			(34,905	)
Cash paid on financing cost of credit facilities		(8,291	)		—			—			—			(8,291	)
Other financing costs		—			—			(218	)		—			(218	)
Net increase in outstanding payments in excess of cash balances		11,125			—			—			—			11,125
Cash received from exercise of stock options		—			—			6,588			—			6,588
Intercompany advances, net		328,013			(24,948	)		(521,339	)		218,274			—

Cash provided by (used in) financing activities		486,847			(24,948	)		284,376			218,274			964,549

NET INCREASE IN CASH AND CASH EQUIVALENTS		10,175			31,551			(6,070	)		—			35,656
CASH, BEGINNING OF PERIOD		248			32,131			8,202			—			40,581

CASH, END OF PERIOD	$	10,423		$	63,682		$	2,132		$	—		$	76,237


	Guarantor Subsidiaries			Non-Guarantor Subsidiary			Parent			Eliminations			Consolidated
For the Six Months Ended June 30, 2003:
CASH FLOWS FROM OPERATING ACTIVITIES	$	490,841		$	(119,599	)	$	164,021		$	(158,630	)	$	376,633

CASH FLOWS FROM INVESTING ACTIVITIES:
Oil and gas properties, net		(343,997	)		—			(929,598	)		—			(1,273,595	)
Cash paid for other investments		—			—			(20,000	)		—			(20,000	)
Other		(6,062	)		(4,260	)		(11,857	)		—			(22,179	)

Cash (used in) provided by investing activities		(350,059	)		(4,260	)		(961,455	)		—			(1,315,774	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings		296,000			—			—			—			296,000
Payments on long-term borrowings		(270,000	)		—			—			—			(270,000	)
Net increase in outstanding payments in excess of cash balances		29,474			—			—			—			29,474
Proceeds received from issuance of senior notes, net of offering costs		—			—			290,939			—			290,939
Cash paid for treasury stocks		—			—			(2,109	)		—			(2,109	)
Proceeds from issuance of common stock, net of issuance costs		—			—			177,444			—			177,444
Proceeds from issuance of preferred stock, net of issuance costs		—			—			222,893			—			222,893
Cash dividends paid on preferred stock and common stock		—			—			(21,018	)		—			(21,018	)
Exercise of stock options and warrants		—			—			6,326			—			6,326
Cash paid on financing cost of credit facilities		(2,314	)		—			—			—			(2,314	)
Other financing costs		—			—			(222	)		—			(222	)
Intercompany advances, net		(162,460	)		135,772			(131,942	)		158,630			—

Cash provided by (used in) financing activities		(109,300	)		135,772			542,311			158,630			727,413

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		31,482			11,913			(255,123	)		—			(211,728	)
CASH, BEGINNING OF PERIOD		(31,975	)		24,448			255,164			—			247,637

CASH, END OF PERIOD	$	(493	)	$	36,361		$	41		$	—		$	35,909

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

($ in thousands)

(Unaudited)


	Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Parent			Eliminations			Consolidated
For the Three Months Ended June 30, 2004:
Net Income	$	93,818		$	219	$	97,155		$	(94,037	)	$	97,155
Other comprehensive income (loss) - net of income tax:
Change in fair value of derivative instruments		(45,792	)		—		—			—			(45,792	)
Reclassification of loss on settled contracts		32,443			—		—			—			32,443
Ineffective portion of derivatives qualifying for cash flow hedge accounting		5,140			—		—			—			5,140
Equity in net other comprehensive income (loss) of subsidiaries		—			—		(8,209	)		8,209			—

Comprehensive Income	$	85,609		$	219	$	88,946		$	(85,828	)	$	88,946


	Guarantor Subsidiaries			Non-Guarantor Subsidiary		Parent			Eliminations			Consolidated
For the Three Months Ended June 30, 2003:
Net Income	$	81,358		$	1,584	$	82,240		$	(82,942	)	$	82,240
Other comprehensive income (loss), net of income tax:
Change in fair value of derivative instruments		11,696			—		—			—			11,696
Reclassification of loss on settled contracts		2,461			—		—			—			2,461
Ineffective portion of derivatives qualifying for cash flow hedge accounting		(256	)		—		—			—			(256	)
Equity in net other comprehensive income (loss) of subsidiaries		—			—		13,901			(13,901	)		—

Comprehensive Income	$	95,259		$	1,584	$	96,141		$	(96,843	)	$	96,141


	Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Parent			Eliminations			Consolidated
For the Six Months Ended June 30, 2004:
Net Income	$	217,434		$	840	$	209,745		$	(218,274	)	$	209,745
Other comprehensive income (loss) - net of income tax:
Change in fair value of derivative instruments		(111,222	)		—		—			—			(111,222	)
Reclassification of loss on settled contracts		20,744			—		—			—			20,744
Ineffective portion of derivatives qualifying for cash flow hedge accounting		9,747			—		—			—			9,747
Equity in net other comprehensive income (loss) of subsidiaries		—			—		(80,731	)		80,731			—

Comprehensive Income	$	136,703		$	840	$	129,014		$	(137,543	)	$	129,014


	Guarantor Subsidiaries			Non-Guarantor Subsidiary		Parent			Eliminations			Consolidated
For the Six Months Ended June 30, 2003:
Net Income	$	157,086		$	1,544	$	155,749		$	(158,630	)	$	155,749
Other comprehensive income (loss), net of income tax:
Change in fair value of derivative instruments		(36,859	)		—		—			—			(36,859	)
Reclassification of loss on settled contracts		53,352			—		—			—			53,352
Ineffective portion of derivatives qualifying for cash flow hedge accounting		(286	)		—		—			—			(286	)
Equity in net other comprehensive income (loss) of subsidiaries		—			—		16,207			(16,207	)		—

Comprehensive Income	$	173,293		$	1,544	$	171,956		$	(174,837	)	$	171,956

6. Segment Information

Chesapeake has two reportable segments under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, consisting of oil and gas exploration and production and oil and gas marketing. The reportable segment information can be derived from Note 5 as Chesapeake Energy Marketing, Inc., Mayfield Processing, L.L.C. and MidCon Compression, L.P., which are our marketing subsidiaries, are the only non-guarantor subsidiaries. Chesapeake Energy Marketing, Inc. was a non-guarantor subsidiary for all periods presented. Mayfield Processing, L.L.C. and MidCon Compression, L.P. were established as non-guarantor subsidiaries during the third quarter of 2003.

7. Acquisitions and Related Financing

We completed the acquisition of Concho Resources Inc. in January 2004 to acquire oil and gas interests primarily in the Permian Basin and the Mid-Continent. We paid $420 million in cash for these assets, $10 million of which was paid in 2003. We also paid $12 million in employee severance and other transaction costs at closing. We recorded a $130 million deferred tax liability to reflect the tax effect of the cost in excess of the tax basis acquired. We also completed an acquisition of Texas Gulf Coast properties in January 2004 from a private company. We paid $65 million for these assets, $3.3 million of which was paid in 2003. On January 14, 2004, we issued 23,000,000 shares of common stock at a price to the public of $13.51 per share. We used the net proceeds of approximately $298.1 million to finance a portion of the acquisitions completed in January 2004.

On March 30, 2004, we issued 275,000 shares of 4.125% convertible preferred stock having a liquidation preference of $1,000 per share in a private placement. In April 2004, the original purchasers exercised their option to purchase an additional 38,250 shares of 4.125% convertible preferred stock on the same terms and conditions. We used the net proceeds from these issuances of approximately $304.9 million to pay the outstanding borrowings under our bank credit facility which were incurred to finance a portion of the acquisitions completed in the first quarter of 2004. As of June 30, 2004, 18.8 million shares of common stock were reserved for issuance upon conversion of the 4.125% convertible preferred stock.

We completed a $425 million acquisition of privately-held Greystone Petroleum, LLC in June 2004 to acquire natural gas assets in the Ark-La-Tex region of northern Louisiana. We recorded a $44 million deferred tax liability to reflect the tax effect of the cost in excess of the tax basis acquired. On May 27, 2004, we issued $300.0 million principal amount of 7.5% senior notes due 2014 in a private placement. We used the net proceeds of approximately $288.6 million, along with borrowings from the bank credit facility and cash on hand, to finance the Greystone acquisition.

8. Subsequent Events

In June and July 2004, we entered into agreements to acquire natural gas assets in the Mid-Continent and South Texas regions through transactions with three private companies for $590 million in cash. The transactions involve the acquisition of privately-held Bravo Natural Resources, Inc. and substantially all of the assets of privately-held Legend Natural Gas, LP and Tilford Pinson Exploration, LLC. The Tilford Pinson and Bravo acquisitions closed on July 1, 2004 and August 2, 2004, respectively. The Legend acquisition is expected to close on August 31, 2004 and is subject to customary closing conditions.

On August 2, 2004 we completed a private offering of $300 million in aggregate principal amount of 7.0% Senior Notes due 2014 and issued 20 million shares of common stock at a price to the public of $14.75 per share. On August 6, 2004, we issued an additional 3 million shares of common stock upon an exercise of an option we granted to the original purchasers of the August 2, 2004 issuance. Net proceeds of $620.8 million from these transactions were used to finance the Bravo acquisition and to repay amounts outstanding under our bank credit facility, a portion of which was incurred to finance the Tilford Pinson acquisition. Remaining proceeds will be used to complete the Legend acquisition.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following table sets forth certain information regarding the production volumes, oil and gas sales, average sales prices received and expenses for the periods indicated:


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Net Production:
Oil (mbbl)		1,673			1,224			3,138			2,284
Gas (mmcf)		76,510			59,990			146,608			110,382
Gas equivalent (mmcfe)		86,548			67,334			165,436			124,086
Oil and Gas Sales ($ in thousands):
Oil sales	$	59,930		$	32,763		$	107,961		$	67,903
Oil derivatives – realized gains (losses)		(12,878	)		(641	)		(21,208	)		(6,879	)
Oil derivatives – unrealized gains (losses)		(1,470	)		(1,101	)		(7,489	)		(1,178	)

Total oil sales		45,582			31,021			79,264			59,846

Gas sales		415,216			282,239			775,317			596,289
Gas derivatives – realized gains (losses)		(42,453	)		1,811			(8,462	)		(84,809	)
Gas derivatives – unrealized gains (losses)		(18,680	)		4,448			(26,661	)		34,212

Total gas sales		354,083			288,498			740,194			545,692

Total oil and gas sales	$	399,665		$	319,519		$	819,458		$	605,538

Average Sales Price (excluding all gains (losses) on derivatives):
Oil ($ per bbl)	$	35.82		$	26.77		$	34.40		$	29.73
Gas ($ per mcf)	$	5.43		$	4.70		$	5.29		$	5.40
Gas equivalent ($ per mcfe)	$	5.49		$	4.68		$	5.34		$	5.35
Average Sales Price (excluding unrealized gains (losses) on derivatives):
Oil ($ per bbl)	$	28.12		$	26.24		$	27.65		$	26.72
Gas ($ per mcf)	$	4.87		$	4.73		$	5.23		$	4.63
Gas equivalent ($ per mcfe)	$	4.85		$	4.70		$	5.16		$	4.61
Expenses ($ per mcfe):
Production expenses	$	0.57		$	0.51		$	0.57		$	0.53
Production taxes (a)	$	0.26		$	0.25		$	0.23		$	0.29
General and administrative expenses:
General and administrative expenses (excluding stock based compensation)	$	0.09		$	0.08		$	0.09		$	0.09
Stock based compensation	$	0.01		$	0.01		$	0.02		$	—
Oil and gas depreciation, depletion and amortization	$	1.58		$	1.36		$	1.55		$	1.36
Depreciation and amortization of other assets	$	0.08		$	0.06		$	0.08		$	0.06
Interest expense (b)	$	0.44		$	0.56		$	0.46		$	0.59

Interest Expense ($ in thousands):
Interest expense	$	37,513		$	38,452		$	76,077		$	74,156
Interest rate derivatives – realized (gains) losses		353			(682	)		(405	)		(1,356	)
Interest rate derivatives – unrealized (gains) losses		(9,060	)		266			(321	)		2,240

Total interest expense	$	28,806		$	38,036		$	75,351		$	75,040

Net Wells Drilled		131			102			240			196
Net Producing Wells as of the End of Period		7,348			5,591			7,348			5,591

(a)	Current Period includes a pre-tax benefit of $6.8 million, or $0.04 per mcfe, from prior period severance tax credits.

(b)	Includes the effects of realized gains or (losses) from hedging, but does not include the effects of unrealized gains or (losses) from hedging.

Chesapeake is among the five largest independent natural gas companies in the U.S. in terms of natural gas produced, owning interests in approximately 18,000 (7,348 net) producing oil and gas wells. 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 we are building significant operating areas in the Permian Basin of western Texas and eastern New Mexico, in the Ark-La-Tex basin of eastern Texas and northern Louisiana and in the South Texas and Texas Gulf Coast regions.

Oil and natural gas production for the Current Quarter of 2004 was 86.5 bcfe, an increase of 19.2 bcfe, or 29%, over the 67.3 bcfe produced in the Prior Quarter of 2003. The 19.2 bcfe increase in production consisted of 7.7 bcfe generated from organic growth through drilling and 11.5 bcfe generated from acquisitions.

We have increased our production annually for 15 consecutive years and the 2004 second quarter was Chesapeake’s twelfth consecutive quarter of sequential production growth. During these twelve quarters, Chesapeake’s production has increased 121%, for an average compound quarterly growth rate of 6.8% and an average annualized growth rate of 30%.

In addition to increased oil and natural gas production, the prices we received were higher in the Current Quarter than in the Prior Quarter. On a natural gas equivalent basis, weighted average prices (excluding the effect of unrealized gains or losses on derivatives) were $4.85 per mcfe in the Current Quarter compared to $4.70 per mcfe in the Prior Quarter. The increase in prices resulted in an increase in revenue of $13.0 million, and increased production resulted in an increase in revenue of $90.6 million, for a total increase in revenue of $103.6 million (excluding the effect of unrealized gains or losses on derivatives).

During the Current Quarter, the company replaced its 86.5 bcfe of production with an internally estimated 429 bcfe of new proved reserves, for a reserve replacement rate of 496%. Reserve replacement through the drillbit was 143 bcfe, or 165%, and reserve replacement through acquisitions was 286 bcfe, or 331%. As of June 30, 2004, our estimated proved reserves were 3.8 tcfe.

Chesapeake drilled 143 (103.3 net) operated wells and participated in another 204 (27.3 net) wells operated by other companies during the Current Quarter. Chesapeake’s drilling costs were $149 million for operated wells and $52 million for non-operated wells. The company’s success rate was 98% for operated wells and 99% for non-operated wells. Our investment in leasehold and 3-D seismic data totaled $101 million and our acquisition expenditures totaled $525.7 million during the Current Quarter.

Our revenues, operating results, profitability and future growth depend on our ability to find, develop and acquire oil and gas reserves that are economically recoverable based on prevailing prices for natural gas and oil. The company favors gas over oil, strives to establish regional dominance in our operating areas, has grown through a combination of drilling and acquisitions and manages price risk through opportunistic oil and natural gas hedging.

During the Current Period, we raised $298 million of common equity, $305 million of preferred equity (4.125% convertible preferred stock) and we issued $300 million principal amount of 7.5% Senior Notes. As of June 30, 2004, the company’s total debt as a percentage of total capitalization (total capitalization is the sum of total debt and stockholders’ equity) was 50%, compared to 65% as of January 1, 2003. Additionally, through debt repurchases and exchanges completed in the second half of 2003 and the Current Period, we have extended the average maturity of our long-term debt to over nine years and have lowered our average interest rate to 7.7%.

We intend to continue to focus on improving the strength of our balance sheet. The company’s secured credit facility is currently rated as investment grade by two rating agencies. We believe our business strategy and operational performance will lead to an investment grade credit rating for our unsecured debt in the future.

Recent Developments

Liquidity and Capital Resources

Sources of Liquidity

Our primary source of liquidity to meet operating expenses and fund capital expenditures (other than for large acquisitions) is cash flow from operations. Based on our current production, price and expense assumptions, we expect cash flow from operations will exceed our budgeted drilling capital expenditures in 2004. Our budget for drilling, land and seismic activities for 2004 is currently between $1.0 billion and $1.1 billion. While we believe this level of exploration and development will be sufficient to increase our reserves in 2004 and achieve our target of a 10%—20% increase in production over 2003 production (inclusive of acquisitions completed through August 2004), higher drilling and field operating costs, drilling results that alter planned development schedules, acquisitions or other factors could cause us to revise our drilling program, which is largely discretionary. Any cash flow from operations not needed to fund our drilling program will be available for acquisitions, debt repayment or other general corporate purposes in 2004.

Cash flows from operating activities (exclusive of changes in assets and liabilities) were $641.7 million in the Current Period, compared to $393.8 million in the Prior Period. The $247.9 million increase in the Current Period was primarily due to higher realized prices and higher volumes of oil and gas production. We expect that 2004 production volumes will be higher than in 2003 and that cash flows from operating activities in 2004 will exceed 2003 levels. While a precipitous decline in gas prices during the remainder of 2004 would significantly affect the amount of cash flow that would be generated from operations, we have 95% of our expected oil production remaining in 2004 hedged at an average NYMEX price of $30.21 per barrel of oil and 67% of our expected natural gas production remaining in 2004 hedged at an average NYMEX price of $5.43 per mcf. This level of hedging provides certainty of the cash flow we will receive for a substantial portion of our remaining 2004 production. Depending on changes in oil and gas futures markets and management’s view of underlying oil and natural gas supply and demand trends, however, we may increase or decrease our current hedging positions.

Another source of liquidity is our $600 million revolving bank credit facility (with a committed borrowing base of $500 million) which matures in June 2008. As of June 30, 2004, we had $156 million of outstanding borrowings under the bank credit facility. We use the facility to fund daily operating activities and acquisitions as needed. We borrowed $767.0 million and repaid $611.0 million in the Current Period and borrowed $296.0 million and repaid $270.0 million in the Prior Period under the facility.

We believe that our available cash, cash flows from operating activities and funds available under our bank credit facility will be sufficient to fund our operating, interest and general and administrative expenses, our capital expenditure budget, our short-term contractual obligations and dividend payments at current levels for the foreseeable future.

The public markets have been our principal source of capital to finance large acquisitions. We have sold debt and equity in both public and private offerings in the past, and we expect that these sources of capital will continue to be available to us in the future for acquisitions. Nevertheless, we caution you that ready access to capital on reasonable terms and the availability of desirable acquisition targets at attractive prices are subject to many uncertainties, as explained under “Risk Factors” in Item 1—Business of our Form 10-K for the year ended December 31, 2003. The following table reflects the proceeds from sales of securities we issued in the Current Period and the Prior Period ($ in millions):


	For the Six Months Ended June 30,
	2004				2003
	Total Proceeds		Net Proceeds		Total Proceeds		Net Proceeds
Convertible preferred stock	$	313.3	$	304.9	$	230.0	$	222.9
Common stock		310.7		298.0		186.3		177.4
Unsecured senior notes guaranteed by subsidiaries		300.0		288.6		300.0		290.9

Total	$	924.0	$	891.5	$	716.3	$	691.2

We filed a $600 million “universal shelf” registration statement with the Securities and Exchange Commission on April 27, 2004. Securities issued under this shelf may be in the form of common stock, preferred stock, depository shares representing fractional shares of preferred stock or debt securities of Chesapeake, which will be guaranteed by certain Chesapeake subsidiaries. The net proceeds from a sale of securities from this shelf, which is expected to occur from time to time over the next two years, would be used for future business acquisitions and other general corporate purposes, including the retirement of existing debt. A prospectus supplement will be

prepared at the time of a debt or equity offering and will contain specific information about the security issued and the use of proceeds. The 23 million shares of common stock we issued in August 2004 at a price to the public of $14.75 per share were the first offering made under the shelf registration statement.

In June 2004, we amended our certificate of incorporation to increase authorized capital stock. The number of authorized shares of our common stock increased from 350 million to 500 million and the number of authorized shares of our preferred stock increased from 10 million to 20 million.

We paid common stock dividends of $16.0 million and $12.1 million in the Current Period and in the Prior Period, respectively, and we paid dividends of $18.9 million and $8.9 million on our preferred stock in the Current Period and in the Prior Period, respectively. We received $6.6 million and $6.3 million from the exercise of employee and director stock options in the Current Period and in the Prior Period, respectively. We used $2.1 million to purchase treasury stock in the Prior Period to fund our matching contributions to the 401(k) Make-Up Plan.

Historically, we have used significant amounts of funds to purchase and retire our obligations under outstanding Senior Notes. In March 2004, we retired $42.1 million of our 7.875% Senior Notes at maturity and we redeemed the remaining $4.3 million of our 8.5% Senior Notes for $4.5 million, including a redemption premium of $0.2 million. We paid $4.6 million of cash in lieu of issuing fractional notes on our exchange of $458.5 million of 8.125% Senior Notes for $72.8 million of 7.75% Senior Notes and $433.5 million of 6.875% Senior Notes in January 2004. We paid $6.0 million in transaction costs related to this exchange.

Cash used in investing activities increased to $1,599.5 million during the Current Period, compared to $1,315.8 million during the Prior Period. The following table shows our capital expenditures during these periods ($ in millions):


	Six Months Ended June 30,
	2004			2003
Acquisitions of oil and gas properties and companies	$	1,002.3		$	976.6
Exploration and development of oil and gas properties		535.1			316.7
Additions to drilling rig equipment		7.7			0.1
Cash paid for other investments		10.0			20.0
Additions to building and other fixed assets		45.0			22.4
Divestitures of oil and gas properties		(0.3	)		(19.7	)
Other		(0.3	)		(0.3	)

Total	$	1,599.5		$	1,315.8

Our accounts receivable are primarily from purchasers of oil and natural gas ($277.5 million as of June 30, 2004) and exploration and production companies which own interests in properties we operate ($50.1 million as of June 30, 2004). This industry concentration has the potential to impact our overall exposure to credit risk, either positively or negatively, in that our customers may be similarly affected by changes in economic, industry or other conditions. We generally require letters of credit for receivables from customers which are judged to have sub-standard credit, unless the credit risk can otherwise be mitigated.

Our liquidity is not dependent on the use of off-balance sheet financing arrangements, such as the securitization of receivables or obtaining access to assets through special purpose entities. We have not relied on off-balance sheet financing arrangements in the past and we do not intend to rely on such arrangements in the future as a source of liquidity. We are not a commercial paper issuer.

Investing and Financing Transactions

The following describes significant investing and financing transactions that we completed in the Current Period and through the filing date:

Investing Transactions:

July and August 2004 (through August 6, 2004)

•

Acquired Bravo Natural Resources, Inc. (Mid-Continent oil and gas assets) and Mid-Continent gas properties from Tilford Pinson Exploration, LLC. for cash consideration of approximately $355 million.

Second Quarter 2004

•

Acquired Greystone Petroleum, LLC (natural gas assets in Ark-La-Tex region of northern Louisiana) for cash consideration of approximately $425 million.

•

Acquired Permian Resources Holdings, Inc. (Permian Basin oil and gas assets) for cash consideration of approximately $69 million.

•

Acquired Mid-Continent oil and gas assets in three smaller transactions for total cash consideration of approximately $31 million.

First Quarter 2004

•

Acquired Concho Resources Inc. (Permian Basin and Mid-Continent oil and gas assets) for cash consideration of approximately $420 million, of which $10 million was paid in 2003. We also paid $12 million in employee severance and other transaction costs at closing.

•

Acquired Texas Gulf Coast properties for cash consideration of approximately $65 million, of which $3.3 million was paid in 2003.

Financing Transactions:

August 2004 (through August 6, 2004)

•

Completed a public offering of 23 million shares of common stock at $14.75 per share. Net proceeds of approximately $326.3 million were used to finance a portion of the Bravo, Legend and Tilford Pinson acquisitions completed or scheduled to be completed in July and August 2004 and to repay amounts outstanding under our bank credit facility.

•

Completed a private placement of $300 million 7.0% Senior Notes due 2014. Net proceeds of approximately $294.5 million were used to finance a portion of the Bravo, Legend and Tilford Pinson acquisitions completed or scheduled to be completed by August 31, 2004 and to repay amounts outstanding under our bank credit facility.

Second Quarter 2004

•

Completed a private placement of $300 million 7.5% Senior Notes due 2014. Net proceeds of approximately $288.6 million were used to finance a portion of the Greystone acquisition completed in June 2004.

•

Issued an additional 38,250 shares of 4.125% convertible preferred stock upon exercise of an option we granted to the original purchasers in a private placement of such stock completed in March 2004 for net proceeds of $37.2 million.

First Quarter 2004

•

Completed a public offering of 23 million shares of common stock at $13.51 per share. Net proceeds of approximately $298.1 million were used to finance a portion of the acquisitions completed in January 2004.

•

Issued 275,000 shares of 4.125% convertible preferred stock at $1,000 per share in a private placement. Net proceeds of approximately $267.7 million were used to pay outstanding borrowings under our revolving bank credit facility which were incurred as a result of acquisitions completed in the first quarter of 2004.

•

Completed a public exchange offer in which we retired $458.5 million of our 8.125% Senior Notes due 2011 and $10.8 million of accrued interest and issued $72.8 million of our 7.75% Senior Notes due 2015 and $2.8 million of accrued interest and $433.5 million of our 6.875% Senior Notes due 2016 and $4.1 million of accrued interest.

•

Issued an additional $37.0 million of our 6.875% Senior Notes due 2016 and $0.5 million of accrued interest in exchange for $24.3 million of our 8.125% Senior Notes due 2011 and $0.7 million of accrued interest and $9.1 million of our 7.75% Senior Notes due 2015 and $0.1 million of accrued interest in four private exchange transactions.

•

Paid $4.5 million (including a premium of $0.2 million) to redeem $4.3 million of 8.5% Senior Notes due 2012 representing all outstanding notes which were not tendered pursuant to a cash tender offer completed in December 2003.

•

Paid $42.1 million representing the balance outstanding on our 7.875% Senior Notes that matured on March 15, 2004.

Contractual Obligations

We have a $600 million revolving bank credit facility (with a committed borrowing base of $500 million) which matures in June 2008. As of June 30, 2004, we had $156 million of outstanding borrowings under this facility and utilized $70.9 million of the facility for various letters of credit. Borrowings under the facility are collateralized by certain producing oil and gas properties and bear interest at either (i) the greater of the reference rate of Union Bank of California, N.A. or the federal funds effective rate plus 0.50% or (ii) the London Interbank Offered Rate (LIBOR), at our option, plus a margin that varies according to our senior unsecured long-term debt ratings. The collateral value and borrowing base are redetermined periodically. The unused portion of the facility is subject to an annual commitment fee that also varies according to our senior unsecured long-term debt ratings. Currently the annual commitment fee rate is 0.30%. Interest is payable quarterly or, if LIBOR applies, it may be payable at more frequent intervals.

The credit facility agreement contains various covenants and restrictive provisions which govern our ability to incur additional indebtedness, sell properties, purchase or redeem our capital stock, make investments or loans and create liens. In addition, the agreement requires us to maintain a current ratio (as defined) of at least 1 to 1 and a fixed charge coverage ratio (as defined) of at least 2.5 to 1. As of June 30, 2004, our current ratio was 1.3 to 1 and our fixed charge coverage ratio was 5.3 to 1. If we should fail to perform our obligations under these and other covenants, the revolving credit commitment could be terminated and any outstanding borrowings under the facility could be declared immediately due and payable. Such acceleration, if involving a principal amount of $10 million or more, would constitute an event of default under our senior note indentures, which could in turn result in the acceleration of our senior note indebtedness. The credit facility agreement also has cross default provisions that apply to other indebtedness we may have with an outstanding principal amount in excess of $35.0 million.

Some of our commodity price and financial risk management arrangements require us to deliver cash collateral or other assurances of performance to the counterparties in the event that our payment obligations exceed certain levels. As of June 30, 2004, we were required to post $69 million of collateral in the form of letters of credit and as of August 6, 2004 we were required to post $72 million of collateral with respect to these commodity price and financial risk management transactions. Future collateral requirements are uncertain and will depend on arrangements with our counterparties and fluctuations in natural gas and oil prices and interest rates.

As of June 30, 2004, senior notes of approximately $2.3 billion consisted of the following ($ in thousands):


8.375% senior notes due 2008	$	209,815
8.125% senior notes due 2011		245,407
9.0% senior notes due 2012		300,000
7.5% senior notes due 2013		363,823
7.5% senior notes due 2014		300,000
7.75% senior notes due 2015		300,408
6.875% senior notes due 2016		670,487
Discount on senior notes		(81,862	)

	$	2,308,078

No scheduled principal payments are required on any of the senior notes until 2008, when $209.8 million is due.

Debt ratings for the senior notes are Ba3 by Moody’s Investor Service, BB- by Standard & Poor’s Ratings Services and BB by Fitch Ratings. Debt ratings for our secured bank credit facility are BB+ by Standard & Poor’s Ratings Services and BBB- by Fitch Ratings.

Our senior notes are unsecured senior obligations of Chesapeake and rank equally with all of our other unsecured indebtedness. All of our wholly-owned subsidiaries except Chesapeake Energy Marketing, Inc., Mayfield Processing, L.L.C. and MidCon Compression, L.P. guarantee the notes. The indentures permit us to redeem the senior notes at any time at specified make-whole or redemption prices. The indentures contain covenants limiting our ability and our restricted subsidiaries’ ability to incur additional indebtedness; pay dividends on our capital stock or redeem, repurchase or retire our capital stock or subordinated indebtedness; make investments and other restricted payments; create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries; incur liens; engage in transactions with affiliates; sell assets; and consolidate, merge or transfer assets. The debt incurrence covenants do not affect our ability to borrow under or expand our secured credit facility. As of June 30, 2004, we estimate that secured bank indebtedness of approximately $1.4 billion could have been incurred under the most restrictive indenture covenant. The indenture covenants do not apply to our non-guarantor subsidiaries.

Results of Operations — Three Months Ended June 30, 2004 (“Current Quarter”) vs. June 30, 2003 (“Prior Quarter”)

General. For the Current Quarter, Chesapeake had net income of $97.2 million, or $0.31 per diluted common share, on total revenues of $574.3 million. This compares to net income of $82.2 million, or $0.31 per diluted common share, on total revenues of $429.8 million during the Prior Quarter. The Current Quarter net income includes, on a pre-tax basis, $11.1 million in net unrealized losses on oil and gas and interest rate derivatives. The Prior Quarter net income included, on a pre-tax basis, $3.1 million in net unrealized gains on oil and gas and interest rate derivatives.

Oil and Gas Sales. During the Current Quarter, oil and gas sales were $399.7 million compared to $319.5 million in the Prior Quarter. In the Current Quarter, Chesapeake produced 86.5 bcfe at a weighted average price of $4.85 per mcfe, compared to 67.3 bcfe produced in the Prior Quarter at a weighted average price of $4.70 per mcfe (weighted average prices for both quarters discussed exclude the effect of unrealized gains or (losses) on derivatives of ($20.2) million and $3.3 million in the Current Quarter and Prior Quarter, respectively). The increase in prices in the Current Quarter resulted in an increase in revenue of $13.0 million and increased production resulted in a $90.6 million increase, for a total increase in revenues of $103.6 million (excluding unrealized gains or losses on oil and gas derivatives). The increase in production from the Prior Quarter to the Current Quarter is due to the combination of production growth generated from drilling as well as acquisitions completed in 2003 and in 2004.

The change in oil and gas prices has a significant impact on our oil and gas revenues and cash flows. Assuming the Current Quarter production levels, a change of $0.10 per mcf of gas produced would result in an increase or decrease in revenues and cash flow of approximately $7.7 million and $7.2 million, respectively, and a change of $1.00 per barrel of oil produced would result in an increase or decrease in revenues and cash flow of approximately $1.7 million and $1.6 million, respectively, without considering the effect of derivative activities.

For the Current Quarter, we realized an average price per barrel of oil of $28.12, compared to $26.24 in the Prior Quarter (weighted average prices for both quarters discussed exclude the effect of unrealized gains or losses on derivatives). Natural gas prices realized per mcf (excluding unrealized gains or losses on derivatives) were $4.87 and $4.73 in the Current Quarter and Prior Quarter, respectively. Realized gains or losses from our oil and gas derivatives resulted in a net decrease in oil and gas revenues of $55.3 million or $0.64 per mcfe in the Current Quarter and a net increase of $1.2 million or $0.02 per mcfe in the Prior Quarter.

The following table shows our production by region for the Current Quarter and the Prior Quarter:


	For the Three Months Ended June 30,
	2004			2003
	Mmcfe	Percent		Mmcfe	Percent
Mid-Continent	64,064	74	%	59,210	88	%
South Texas and Texas Gulf Coast	13,895	16		5,249	8
Permian Basin	7,947	9		2,143	3
Williston Basin and Other	642	1		732	1

Total Production	86,548	100	%	67,334	100	%

Natural gas production represented approximately 88% of our total production volume on an equivalent basis in the Current Quarter, compared to 89% in the Prior Quarter.

Oil and Gas Marketing Sales. Chesapeake realized $174.6 million in oil and gas marketing sales for third parties in the Current Quarter, with corresponding oil and gas marketing expenses of $171.1 million, for a net margin of $3.5 million. Marketing activities are substantially for third parties that are owners in Chesapeake operated wells. This compares to sales of $110.3 million, expenses of $106.9 million and a net margin of $3.4 million in the Prior Quarter. In the Current Quarter, Chesapeake realized an increase in oil and gas marketing sales volumes and an increase in oil and gas prices.

Production Expenses. Production expenses, which include lifting costs and ad valorem taxes, were $49.6 million in the Current Quarter compared to $34.3 million in the Prior Quarter. On a unit-of-production basis, production expenses were $0.57 per mcfe in the Current Quarter compared to $0.51 per mcfe in the Prior Quarter. The increase in the Current Quarter was primarily due to higher field service costs. We expect that production expenses per mcfe during the remainder of 2004 will range from $0.57 to $0.62.

Production Taxes. Production taxes were $22.8 million and $17.1 million in the Current Quarter and the Prior Quarter, respectively. On a unit-of-production basis, production taxes were $0.26 per mcfe in the Current Quarter compared to $0.25 per mcfe in the Prior Quarter. The increase in production taxes in the Current Quarter is due primarily to approximately 19.2 bcfe of increased production. In general, production taxes are calculated using value-based formulas that produce higher per unit costs when oil and gas prices are higher. We expect production taxes per mcfe to range from $0.34 to $0.38 during the remainder of 2004 based on an assumption that oil and natural gas wellhead prices range from $5.25 to $5.75 per mcfe.

General and Administrative Expenses (excluding stock based compensation). General and administrative expenses, which are net of internal payroll and non-payroll costs capitalized in our oil and gas properties, were $7.4 million, or $0.09 per mcfe, in the Current Quarter and $5.6 million, or $0.08 per mcfe, in the Prior Quarter. The increase in the Current Quarter of $1.8 million is the result of additional costs associated with the company’s growth. This growth has resulted in an increase in employees and related costs. We anticipate that general and administrative expenses for 2004 will be between $0.10 and $0.11 per mcfe produced, which is approximately the same level as the Current Quarter.

Chesapeake follows the full-cost method of accounting under which all costs associated with property acquisition, exploration and development activities are capitalized. We capitalize internal costs that can be directly identified with our acquisition, exploration and development activities and do not include any costs related to production, general corporate overhead or similar activities. We capitalized $12.4 million and $8.5 million of internal costs in the Current Quarter and the Prior Quarter, respectively, directly related to our oil and gas exploration and development efforts.

Stock Based Compensation. During the Current Quarter, 28,000 shares of restricted stock were issued to employees under our 2003 stock incentive plan. The cost of all outstanding restricted shares is amortized over a four-year period which resulted in the recognition of $1.6 million of stock based compensation costs during the Current Quarter. Of this amount, $0.5 million is reflected as stock based compensation expense (a sub-category of general and administrative costs) in the condensed consolidated statements of operations, and the remaining $1.1 million is capitalized to oil and gas properties. Chesapeake’s stock based compensation did not include restricted stock awards prior to 2004. Additionally, we recognized $0.2 million and $0.4 million in stock based compensation expense in the Current Quarter and Prior Quarter, respectively, as a result of modifications made to previously issued stock options. Stock based compensation was $0.01 per mcfe for the Current Quarter and $0.01 per mcfe for the Prior Quarter. We anticipate that stock based compensation expense for 2004 will be between $0.02 and $0.04 per mcfe produced.

Oil and Gas Depreciation, Depletion and Amortization. Depreciation, depletion and amortization of oil and gas properties was $136.7 million and $91.6 million during the Current Quarter and the Prior Quarter, respectively. The average DD&A rate per mcfe, which is a function of capitalized costs, future development costs, and the related underlying reserves in the periods presented, was $1.58 and $1.36 in the Current Quarter and in the Prior Quarter, respectively. The increase in the average rate from $1.36 to $1.58 is primarily the result of higher drilling costs and higher costs associated with acquisitions. We expect the DD&A rate for the remainder of 2004 to be between $1.60 and $1.65 per mcfe produced.

Depreciation and Amortization of Other Assets. Depreciation and amortization of other assets was $6.7 million in the Current Quarter, compared to $4.1 million in the Prior Quarter. The increase in the Current Quarter was primarily the result of higher depreciation costs resulting from the acquisition of a processing plant, various gathering facilities, construction of new buildings at our corporate headquarters and the purchase of additional information technology equipment and software in 2003 and the Current Period. Other property and equipment costs are depreciated on a straight-line basis. Buildings are depreciated over 39 years, drilling rigs are depreciated over 15 years and all other property and equipment are depreciated over the estimated useful lives of the assets, which range from two to fifteen years. To the extent drilling rigs are used to drill our wells, a substantial portion of the depreciation is capitalized in oil and gas properties as exploration or development costs. We expect depreciation and amortization of other assets to be between $0.08 and $0.10 per mcfe produced for the remainder of 2004.

Interest and Other Income. Interest and other income was $1.3 million and $0.8 million in the Current Quarter and the Prior Quarter, respectively. The Current Quarter income consisted of $0.5 million of interest income, $0.6 million related to earnings of equity investees, and $0.2 million of miscellaneous income. The Prior Quarter income consisted of $0.2 million of interest income and $0.6 million of miscellaneous income.

Interest Expense. Interest expense decreased to $28.8 million in the Current Quarter compared to $38.0 million in the Prior Quarter. The decrease in the Current Quarter is due primarily to an unrealized gain of $9.1 million related to interest rate derivatives recognized in the Current Quarter compared to a $0.3 million unrealized loss recognized in the Prior Quarter (see below). Additionally, we capitalized $7.4 million of interest during the Current Quarter compared to $3.5 million capitalized in the Prior Quarter on significant investments in unproved properties that were not being currently depreciated, depleted or amortized and on which exploration activities were in progress. Interest is capitalized using the weighted average effective interest rate on our outstanding borrowings. The decrease in interest expense was partially offset by a $1.9 million increase in interest expense resulting from a $255 million increase in average long-term borrowings under our senior notes in the Current Quarter compared to the Prior Quarter and the increases in amortization of bond discount from $0.3 million in the Prior Quarter to $1.1 million in the Current Quarter as a result of new debt issuances and exchanges of senior notes in 2003 and 2004.

From time to time, we enter into derivative instruments designed to mitigate our exposure to the volatility in interest rates. For interest rate derivative instruments designated as fair value hedges (in accordance with SFAS 133), changes in fair value of interest rate derivatives are recorded on the condensed consolidated balance sheets as assets (liabilities) and the debt’s carrying value amount is adjusted by the change in the fair value of the debt subsequent to the initiation of the derivative. Any resulting differences are recorded currently as ineffectiveness in the condensed consolidated statements of operations as an adjustment to interest expense. Changes in the fair value of derivative instruments not qualifying as fair value hedges are recorded currently as adjustments to interest expense. Included in interest expense in the Current Quarter are a realized loss of $0.4 million related to interest rate derivatives and an unrealized gain on interest rate derivatives of $9.1 million. Included in interest expense in the Prior Quarter are a realized gain of $0.7 million related to interest rate derivates and an unrealized loss on interest rate derivatives of $0.3 million. A detailed explanation of our interest rate derivative activity appears below in Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest expense, excluding unrealized (gains) losses on derivatives, was $0.44 per mcfe in the Current Quarter compared to $0.56 per mcfe in the Prior Quarter. We expect 2004 interest expense to be between $0.45 and $0.49 per mcfe produced.

Income Tax Expense. Chesapeake recorded income tax expense of $54.7 million in the Current Quarter, compared to income tax expense of $50.4 million in the Prior Quarter. During the Current Quarter, our effective income tax rate decreased to 36% compared to 38% in the Prior Quarter to reflect our assessment of the impact state income taxes have on our overall effective rates.

Results of Operations — Six Months Ended June 30, 2004 (“Current Period”) vs. June 30, 2003 (“Prior Period”)

General. For the Current Period, Chesapeake had net income of $209.7 million, or $0.69 per diluted common share, on total revenues of $1,137.4 million. This compares to net income of $155.7 million, or $0.63 per diluted common share, on total revenues of $806.1 million during the Prior Period. The Current Period net income includes, on a pre-tax basis, a $6.9 million loss on repurchases or exchanges of debt and $33.8 million in net unrealized losses on oil and gas and interest rate derivatives. The Prior Period net income included, on a pre-tax basis, $30.8 million in net unrealized gains on oil and gas and interest rate derivatives.

Oil and Gas Sales. During the Current Period, oil and gas sales were $819.5 million compared to $605.5 million in the Prior Period. In the Current Period, Chesapeake produced 165.4 bcfe at a weighted average price of $5.16 per mcfe, compared to 124.1 bcfe produced in the Prior Period at a weighted average price of $4.61 per mcfe (weighted average prices for both periods discussed exclude the effect of unrealized gains or (losses) on derivatives of ($34.2) million and $33.0 million in the Current Period and Prior Period, respectively). The increase in prices in the Current Period resulted in an increase in revenue of $91.0 million and increased production resulted in a $190.1 million increase, for a total increase in revenues of $281.1 million (excluding unrealized gains or losses on oil and gas derivatives). The increase in production from the Prior Period to the Current Period is due to the combination of production growth generated from drilling as well as acquisitions completed in 2003 and the Current Period.

The change in oil and gas prices has a significant impact on our oil and gas revenues and cash flows. Assuming the Current Period production levels, a change of $0.10 per mcf of gas produced would result in an increase or decrease in revenues and cash flow of approximately $14.7 million and $14.0 million, respectively, and a change of $1.00 per barrel of oil produced would result in an increase or decrease in revenues and cash flow of approximately $3.1 million and $3.0 million, respectively, without considering the effect of derivative activities.

For the Current Period, we realized an average price per barrel of oil of $27.65, compared to $26.72 in the Prior Period (weighted average prices for both periods discussed exclude the effect of unrealized gains or losses on derivatives). Natural gas prices realized per mcf (excluding unrealized gains or losses on derivatives) were $5.23 and $4.63 in the Current Period and Prior Period, respectively. Realized gains or losses from our oil and gas derivatives resulted in a net decrease in oil and gas revenues of $29.7 million or $0.18 per mcfe in the Current Period and a net decrease of $91.7 million or $0.74 per mcfe in the Prior Period.

The following table shows our production by region for the Current Period and the Prior Period:


	For the Six Months Ended June 30,
	2004			2003
	Mmcfe	Percent		Mmcfe	Percent
Mid-Continent	126,640	77	%	107,989	87	%
South Texas and Texas Gulf Coast	24,125	15		10,597	9
Permian Basin	13,365	8		3,994	3
Williston Basin and Other	1,306	—		1,506	1

Total Production	165,436	100	%	124,086	100	%

Natural gas production represented approximately 89% of our total production volume on an equivalent basis in the Current Period and in the Prior Period.

Oil and Gas Marketing Sales. Chesapeake realized $318.0 million in oil and gas marketing sales for third parties in the Current Period, with corresponding oil and gas marketing expenses of $310.8 million, for a net margin of $7.2 million. Marketing activities are substantially for third parties that are owners in Chesapeake operated wells. This compares to sales of $200.6 million, expenses of $196.2 million and a net margin of $4.4 million in the Prior Period. In the Current Period, Chesapeake realized an increase in oil and gas marketing sales volumes which was partially offset by a decrease in oil and gas prices.

Production Expenses. Production expenses, which include lifting costs and ad valorem taxes, were $94.4 million in the Current Period compared to $65.7 million in the Prior Period. On a unit-of-production basis, production expenses were $0.57 per mcfe in the Current Period compared to $0.53 per mcfe in the Prior Period. The increase in the Current Period was primarily due to higher field service costs. We expect that production expenses per mcfe during the remainder of 2004 will range from $0.57 to $0.62.

Production Taxes. Production taxes were $37.7 million and $35.7 million in the Current Period and the Prior Period, respectively. On a unit-of-production basis, production taxes were $0.23 per mcfe in the Current Period

compared to $0.29 per mcfe in the Prior Period. Included in the Current Period is a credit of $6.8 million related to certain Oklahoma severance tax abatements for the period July 2003 through December 2003. In April 2004, the Oklahoma Tax Commission concluded that a pre-determined oil and gas price cap for 2003 sales had not been exceeded (on a statewide basis) and notified the company that it was eligible to receive certain severance tax abatements for the period from July 1, 2003 through June 30, 2004. The company had previously estimated that the average oil and gas sales prices in Oklahoma (on a statewide basis) could exceed the price cap, and did not reflect the benefit from these potential severance tax abatements until the first quarter of 2004. The decrease in production taxes in the Current Period is partially offset by an increase of approximately 41.4 bcfe of increased production. In general, production taxes are calculated using value-based formulas that produce higher per unit costs when oil and gas prices are higher. We expect production taxes per mcfe to range from $0.34 to $0.38 during the remainder of 2004 based on an assumption that oil and natural gas wellhead prices range from $5.25 to $5.75 per mcfe.

General and Administrative Expenses (excluding stock based compensation). General and administrative expenses, which are net of internal payroll and non-payroll costs capitalized in our oil and gas properties, were $15.6 million in the Current Period, or $0.09 per mcfe, and $11.0 million in the Prior Period, or $0.09 per mcfe. The increase in the Current Period of $4.6 million is the result of additional costs associated with the company’s growth. This growth has resulted in an increase in employees and related costs. We anticipate that general and administrative expenses for 2004 will be between $0.10 and $0.11 per mcfe produced, which is approximately the same level as the Current Period.

Chesapeake follows the full-cost method of accounting under which all costs associated with property acquisition, exploration and development activities are capitalized. We capitalize internal costs that can be directly identified with our acquisition, exploration and development activities and do not include any costs related to production, general corporate overhead or similar activities. We capitalized $23.3 million and $15.8 million of internal costs in the Current Period and the Prior Period, respectively, directly related to our oil and gas exploration and development efforts.

Stock Based Compensation. During the Current Period, 1.2 million shares of restricted stock were issued to employees under our 2003 stock incentive plan. The cost of all outstanding restricted shares is amortized over a four-year period which resulted in the recognition of $3.5 million of stock based compensation costs during the Current Period. Of this amount, $2.3 million is reflected as stock based compensation expense (a sub-category of general and administrative costs) in the condensed consolidated statements of operations, and the remaining $1.2 million is capitalized to oil and gas properties. Chesapeake’s stock based compensation did not include restricted stock awards prior to 2004. Additionally, we recognized $0.2 million and $0.4 million in stock based compensation expense in the Current Period and Prior Period, respectively, as a result of modifications made to previously issued stock options. Stock based compensation was $0.02 per mcfe for the Current Period and $0.00 per mcfe for the Prior Period. We anticipate that stock based compensation expense for 2004 will be between $0.02 and $0.04 per mcfe produced.

Provision for Legal Settlements. During the Prior Period, we accrued and subsequently paid into the court $0.3 million related to a legal proceeding brought against us by certain royalty owners. The case was subsequently dismissed pursuant to a settlement agreement effective December 31, 2003. The settlement is described in note 4 to the consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2003.

Oil and Gas Depreciation, Depletion and Amortization. Depreciation, depletion and amortization of oil and gas properties was $256.7 million and $168.2 million during the Current Period and the Prior Period, respectively. The average DD&A rate per mcfe, which is a function of capitalized costs, future development costs, and the related underlying reserves in the periods presented, was $1.55 and $1.36 in the Current Period and in the Prior Period, respectively. The increase in the average rate from $1.36 to $1.55 is primarily the result of higher drilling costs and higher costs associated with acquisitions. We expect the DD&A rate for the remainder of 2004 to be between $1.60 and $1.65 per mcfe produced.

Depreciation and Amortization of Other Assets. Depreciation and amortization of other assets was $12.5 million in the Current Period, compared to $7.8 million in the Prior Period. The increase in the Current Period was primarily the result of higher depreciation costs resulting from the acquisition of a processing plant, various gathering facilities, construction of new buildings at our corporate headquarters and the purchase of additional information technology equipment and software in 2003 and the Current Period. Other property and equipment costs are depreciated on a straight-line basis. Buildings are depreciated over 39 years, drilling rigs are depreciated over 15 years and all other property and equipment are depreciated over the estimated useful lives of the assets,

which range from two to fifteen years. To the extent drilling rigs are used to drill our wells, a substantial portion of the depreciation is capitalized in oil and gas properties as exploration or development costs. We expect depreciation and amortization of other assets to be between $0.08 and $0.10 per mcfe produced for the remainder of 2004.

Interest and Other Income. Interest and other income was $2.7 million and $1.5 million in the Current Period and the Prior Period, respectively. The Current Period income consisted of $0.9 million of interest income, $1.1 million related to earnings of equity investees, and $0.7 million of miscellaneous income. The Prior Period income consisted of $0.7 million of interest income and $0.8 million of miscellaneous income.

Interest Expense. Interest expense increased to $75.4 million in the Current Period compared to $75.0 million in the Prior Period. Interest on our long-term senior notes increased in the Current Period by $6.4 million as a result of our average long-term borrowings under our senior notes increasing by $332 million. We also had an increase in the amortization of bond discount from $0.7 million in the Prior Period to $2.1 million in the Current Period as a result of new debt issuances and exchanges of senior notes in 2003 and 2004. These increases were partially offset by an increase in the amount of interest capitalized in the Current Period of $12.7 million compared to $5.4 million in the Prior Period. Interest is capitalized using the weighted average effective interest rate on our outstanding borrowings based on significant investments in unproved properties that were not being currently depreciated, depleted or amortized and on which exploration activities were in progress. In addition, the increases in interest expense were offset by the recognition of an unrealized gain on interest rate derivatives of $0.3 million in the Current Period compared to a $2.2 million unrealized loss in the Prior Period (see below) and a decrease in the avereage interest rate on our senior notes from 8.2% in the Prior Period to 7.7% in the Current Period.

From time to time, we enter into derivative instruments designed to mitigate our exposure to the volatility in interest rates. For interest rate derivative instruments designated as fair value hedges (in accordance with SFAS 133), changes in fair value of interest rate derivatives are recorded on the condensed consolidated balance sheets as assets (liabilities) and the debt’s carrying value amount is adjusted by the change in the fair value of the debt subsequent to the initiation of the derivative. Any resulting differences are recorded currently as ineffectiveness in the condensed consolidated statements of operations as an adjustment to interest expense. Changes in the fair value of derivative instruments not qualifying as fair value hedges are recorded currently as adjustments to interest expense. Included in interest expense in the Current Period are a realized gain of $0.4 million related to interest rate derivatives and an unrealized gain on interest rate derivatives of $0.3 million. Included in interest expense in the Prior Period are a realized gain of $1.4 million related to interest rate derivatives and an unrealized loss on interest rate derivatives of $2.2 million. A detailed explanation of our interest rate derivative activity appears below in Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest expense, excluding unrealized (gains) losses on derivatives, was $0.46 per mcfe in the Current Period compared to $0.59 per mcfe in the Prior Period. We expect 2004 interest expense to be between $0.45 and $0.49 per mcfe produced.

Loss on Repurchases or Exchanges of Debt. In the Current Period, we completed a public exchange offer in which we retired $458.5 million of our 8.125% Senior Notes due 2011 and $10.8 million of accrued interest and issued $72.8 million of our 7.75% Senior Notes due 2015 and $2.8 million of accrued interest and $433.5 million of our 6.875% Senior Notes due 2016 and $4.1 million of accrued interest. In connection with this exchange, we recorded a pre-tax loss of $6.0 million, consisting of $5.7 million of underwriting fees and $0.3 million in other transaction costs. During the Current Period, we redeemed $4.3 million of our 8.5% Senior Notes due 2012 for a total consideration of $4.5 million. In connection with this transaction, we recorded a pre-tax loss of $0.9 million, consisting of $0.2 million of redemption premium, $0.1 million of unamortized debt issue costs and discount on senior notes and $0.6 million carried as a discount on the 8.5% Senior Notes based on the hedging relationship between the notes and a swaption.

Income Tax Expense. Chesapeake recorded income tax expense of $118.0 million in the Current Period, compared to income tax expense of $94.0 million in the Prior Period. During the Current Period, our effective income tax rate decreased to 36% compared to 38% in the Prior Period to reflect our assessment of the impact state income taxes have on our overall effective rates.

Cumulative Effect of Accounting Change. Effective January 1, 2003, Chesapeake adopted SFAS No. 143, Accounting For Asset Retirement Obligations. Upon adoption of SFAS 143 in the Prior Period, we recorded the discounted fair value of our expected future obligations of $30.5 million, a cumulative effect of the change in accounting principle, as an increase to earnings of $2.4 million (net of income taxes) and an increase in net oil and gas properties of $34.3 million.

Critical Accounting Policies

Forward-Looking Statements

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements give our current expectations or forecasts of future events. They include estimates of oil and gas reserves, expected oil and gas production and future expenses, projections of future oil and gas prices, planned capital expenditures for drilling, leasehold acquisitions and seismic data, and statements concerning anticipated cash flow and liquidity, our business strategy and other plans and objectives for future operations. In addition, statements concerning the fair value 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.

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 “Supplemental Risk Factors” in our prospectus supplement dated July 28, 2004 filed with the Securities and Exchange Commission on July 29, 2004. They include

•

the volatility of oil and gas prices;

•

adverse effects our substantial indebtedness and preferred stock obligations could have on our operations and future growth and on our ability to make debt service and preferred stock dividend payments as they become due;

•

our ability to compete effectively against strong independent oil and gas companies and majors;

•

financial losses and significant collateral requirements as a result of our commodity price and interest rate risk management activities;

•

uncertainties inherent in estimating quantities of oil and gas reserves, including reserves we acquire, projecting future rates of production and the timing of development expenditures;

•

exposure to potential liabilities of acquired properties and companies;

•

our ability to replace reserves;

•

the availability of capital;

•

writedowns of oil and gas carrying values if commodity prices decline;

•

environmental and other claims in excess of insured amounts resulting from drilling and production operations; and

•

the loss of key personnel.

We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report, and we undertake no obligation to update this information. We urge you to carefully review and consider the disclosures made in this and our other filings with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Oil and Gas Hedging Activities

•

For cap-swaps, Chesapeake receives a fixed price and pays a floating market price. The fixed price received by Chesapeake includes a premium in exchange for a “cap” limiting the counterparty’s exposure. In other words, there is no limit to Chesapeake’s exposure but there is a limit to the downside exposure of the counterparty. Because this derivative includes a written put option (i.e., the cap), cap-swaps do not qualify for designation as cash flow hedges (in accordance with SFAS 133) since the combination of the hedged item and the written put option do not provide as much potential for favorable cash flows as exposure to unfavorable cash flows.

•

Following provisions of SFAS 133, changes in the fair value of derivative instruments designated as cash flow hedges, to the extent they are effective in offsetting cash flows attributable to the hedged risk, are recorded in other comprehensive income until the hedged item is recognized in earnings. Any change in fair value resulting from ineffectiveness is recognized currently in oil and gas sales as unrealized gains (losses). We recorded a gain (loss) on ineffectiveness of ($8.0) million, ($15.2) million, $0.4 million and $0.5 million in the Current Quarter, Current Period, Prior Quarter and Prior Period, respectively.

As of June 30, 2004, we had the following open oil and gas derivative instruments designed to hedge a portion of our oil and gas production for periods after June 2004:


	Volume mmbtu/bbls	Weighted- Average Strike Price	Weighted- Average Put Strike Price	Weighted- Average Call Strike Price	Weighted Average Differential		SFAS 133 Hedge	Premiums Received		Fair Value at June 30, 2004 (in thousands)
Natural Gas (mmbtu):

Swaps:
2004	71,940,000	5.40	—	—	—		Yes	$	—	$	(61,244	)
2005	22,945,000	5.41	—	—	—		Yes		—		(23,121	)

Basis Protection Swaps:
2004	79,120,000	—	—	—	(0.17	)	No		—		16,368
2005	109,500,000	—	—	—	(0.16	)	No		—		26,938
2006	47,450,000	—	—	—	(0.16	)	No		—		9,574
2007	63,875,000	—	—	—	(0.17	)	No		—		12,786
2008	64,050,000	—	—	—	(0.17	)	No		—		11,637
2009	36,500,000	—	—	—	(0.16	)	No		—		6,208

Cap-Swaps:
2004	19,320,000	5.30	3.82	—	—		No		—		(19,859	)
2005	38,325,000	5.33	3.84	—	—		No		—		(34,918	)
2006	7,300,000	5.36	3.75	—	—		No		—		(4,049	)

Counter Swaps:
2006	7,300,000	5.59	—	—	—		No		—		(15	)

Call Options:
2004	27,360,000	—	—	6.19	—		No		7,598		(13,168	)
2005	7,300,000	—	—	6.00	—		No		3,249		(5,550	)

Collars:
2004	1,464,000	—	3.10	4.44	—		Yes		—		(2,087	)
2005	4,380,000	—	3.10	4.44	—		Yes		—		(5,149	)

Locked Swaps:
2004	19,290,000	5.45	—	—	—		No		—		(15,259	)
2005	35,550,000	6.11	—	—	—		No		—		(38,602	)
2006	25,550,000	5.89	—	—	—		No		—		(22,601	)
2007	25,550,000	5.22	—	—	—		No		—		(11,626	)

Total Natural Gas									10,847		(173,737	)

Oil (bbls):

Swaps:
2004	797,000	32.70	—	—	—		Yes		—		(3,218	)

Cap-Swaps:
2004	2,240,000	29.32	22.33	—	—		No		—		(16,953	)
2005	547,500	31.56	26.00	—	—		No		—		(2,229	)

Total Oil									—		(22,400	)

Total Natural Gas and Oil								$	10,847	$	(196,137	)

We have established the fair value of all derivative instruments using estimates of fair value reported by our counterparties and subsequently evaluated internally using established index prices and other sources. The actual contribution to our future results of operations will be based on the market prices at the time of settlement and may be more or less than the fair value estimates used as of June 30, 2004.

Based upon the market prices as of June 30, 2004, we expect to transfer approximately $68.0 million of the loss included in the balance in accumulated other comprehensive income to earnings during the next 12 months when the hedged transactions actually occur. All hedge transactions as of June 30, 2004 are expected to mature by December 31, 2007, with the exception of the basis protection swaps which extend through 2009.

Additional information concerning the fair value of our oil and gas derivative instruments is as follows:


	2004
	($ in thousands)
Fair value of contracts outstanding as of January 1	$	(44,988	)
Change in fair value of contracts during the period		(178,112	)
Contracts realized or otherwise settled during the period		29,670
Fair value of new contracts when entered into during the period		(5,369	)
Fair value of contracts when closed during the period		2,662

Fair value of contracts outstanding as of June 30	$	(196,137	)

The change in the fair value of our derivative instruments since January 1, 2004 resulted from an increase in market prices for natural gas and crude oil relative to the hedged price. Derivative instruments reflected as current in the consolidated balance sheet represent the estimated fair value of derivative instrument settlements scheduled to occur over the subsequent twelve-month period based on market prices for oil and gas as of the condensed consolidated balance sheet date. The derivative settlement amounts are not due and payable until the month in which the related underlying hedged transaction occurs.

Interest Rate Risk

The table below presents principal cash flows and related weighted average interest rates by expected maturity dates. The fair value of the fixed-rate long-term debt has been estimated based on quoted market prices.


	June 30, 2004
	Years of Maturity
	2005		2006		2007		2008			2009		Thereafter			Total			Fair Value
	($ in millions)
Liabilities:
Long-term debt, including current portion — fixed-rate	$	—	$	—	$	—	$	209.8		$	—	$	2,180.1		$	2,389.9	⁽¹⁾	$	2,480.4
Average interest rate		—		—		—		8.4	%		—		7.6	%		7.7	%		7.7	%
Long-term debt-variable-rate	$	—	$	—	$	—	$	156.0		$	—	$	—		$	156.0		$	156.0
Average interest rate		—		—		—		3.0	%		—		—			3.0	%		3.0	%

(1)	This amount does not include the discount included in long-term debt of ($81.9) million.

Changes in interest rates affect the amount of interest we earn on our cash, cash equivalents and short-term investments and the interest rate we pay on borrowings under our revolving credit facility. All of our other long-term indebtedness is fixed-rate and therefore does not expose us to the risk of earnings or cash flow loss due to changes in market interest rates. However, changes in interest rates do affect the fair value of our debt.

Interest Rate Derivatives

In January 2004, Chesapeake acquired a $50 million interest rate swap as part of the purchase of Concho Resources Inc. Under the terms of the interest rate swap, the counterparty pays Chesapeake a floating three month LIBOR rate and Chesapeake pays a fixed rate of 2.875%. Payments are made quarterly and the interest rate swap extends through September 2005. An initial liability of $0.6 million was recorded based on the fair value of the interest rate swap at the time of acquisition. As of June 30, 2004, the interest rate swap had a fair value of ($0.2) million. Because this instrument is not designated as a fair value hedge, an unrealized gain of $0.6 million and an unrealized gain of $.02 million were recognized in the Current Quarter and Current Period, respectively, as part of interest expense.

ITEM 4. Controls and Procedures

Our chief executive officer and chief financial officer, after evaluating the effectiveness of the company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of June 30, 2004, have concluded the company’s disclosure controls and procedures are effective. No changes in the company’s internal control over financial reporting occurred during the Current Quarter that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Chesapeake is currently involved in various disputes incidental to its business operations. Management is of the opinion that the final resolution of all such currently pending or threatened litigation is not likely to have a material adverse effect on our consolidated financial position or results of operations.

Item 2. Changes in Securities and Use of Proceeds

The sale of 313,250 shares of our 4.125% cumulative convertible preferred stock in private placements on March 30, 2004 and April 5, 2004 was reported in our Form 10-Q for the quarter ended March 31, 2004.

Certain of our employees have purchased shares of our common stock in 401(k) plans maintained by the company which were not registered under the Securities Act of 1933. These include 17,056 shares in the Chesapeake 401(k) plan which exceeded the number of shares previously registered under Form S-8 registration statements for the plan. Plan participants purchased the shares at prices ranging from $13.33 to $15.50 between May 2004 and August 2004. Participants in the 401(k) plan of our wholly-owned subsidiary Nomac Drilling Corporation purchased an additional 4,737 of unregistered shares at prices ranging from $9.35 to $15.69 between July 2003 and August 2004. All such shares were acquired by the trustee of the plans on behalf of participants through open market purchases, and the company received no proceeds from these transactions. We will file registration statements on Form S-8 to increase the shares of Chesapeake common stock registered for the Chesapeake 401(k) plan and to register shares for the 401(k) plan of Nomac Drilling Corporation.

The following table presents information about repurchases of our common stock during the six months ended June 30, 2004:


Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share⁽¹⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
January 1, 2004 through January 31, 2004	111,230	$	13.39	—	—
February 1, 2004 through February 29, 2004	84,496	$	12.41	—	—
March 1, 2004 through March 31, 2004	69,518	$	13.19	—	—

Total	265,244	$	13.02	—	—

April 1, 2004 through April 30, 2004	52,610	$	13.81	—	—
May 1, 2004 through May 31, 2004	57,651	$	13.69	—	—
June 1, 2004 through June 30, 2004	57,229	$	14.00	—	—

Total	167,490	$	13.83	—	—

(1)	Includes shares purchased in the open market for the matching contributions we make to our 401(k) plans and the deemed surrender to the company of shares of common stock to pay the exercise price in connection with the exercise of employee stock options.

(2)

We make matching contributions to our 401(k) plans and 401(k) make-up plan using Chesapeake common stock which is held in treasury or is purchased by the respective plan trustees in the open market. The plans contain no limitation on the number of shares that may be purchased for purposes of company contributions. There are no other repurchase plans or programs currently authorized by the Board of Directors.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Three matters were submitted to a vote of the shareholders at Chesapeake’s annual meeting of shareholders held on June 4, 2004: the election of directors, the approval of an amendment to our Certificate of Incorporation to increase the number of authorized shares of common stock and the approval of an amendment to our Certificate of Incorporation to increase the number of authorized shares of preferred stock.

In the election of directors, Frank A. Keating received 219,097,331 votes for election and 5,355,594 votes were withheld from voting for Mr. Keating; Tom L. Ward received 212,146,974 votes for election and 12,305,950

votes were withheld from voting for Mr. Ward; and Frederick B. Whittemore received 207,273,863 votes for election and 17,179,061 votes were withheld from voting for Mr. Whittemore. There were no broker non-votes for the election of directors. The other directors whose terms continued after the meeting are Aubrey K. McClendon, Shannon T. Self, Breene M. Kerr and Charles T. Maxwell.

On the proposal to amend our Certificate of Incorporation to increase the number of authorized shares of common stock, 219,520,585 votes were received for the approval of the amendment, 4,621,801 votes were received against approval of the amendment and holders of 310,537 shares abstained from voting on this proposal. There were no broker non-votes on this proposal.

On the proposal to amend our Certificate of Incorporation to increase the number of authorized shares of preferred stock, 130,943,451 votes were received for the approval of the amendment, 25,968,354 votes were received against approval of the amendment and holders of 382,073 shares abstained from voting on this proposal. There were 67,159,046 broker non-votes on this proposal.

Item 5. Other Information

Not applicable.

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits

The following exhibits are filed as a part of this report:

Exhibit

Number

Description

3.1*

Chesapeake’s Restated Certificate of Incorporation, as amended, together with the Certificates of Designation for the Series A Junior Participating Preferred Stock, 6.75% Cumulative Convertible Preferred Stock, 6.0% Cumulative Convertible Preferred Stock, 5.0% Cumulative Convertible Preferred Stock and 4.125% Cumulative Convertible Preferred Stock.


4.11		Indenture dated as of May 27, 2004 among Chesapeake, as issuer, the subsidiaries signatory thereto, as Subsidiary Guarantors, and The Bank of New York, as Trustee, with respect to 7.5% senior notes due 2014. Incorporated herein by reference to Exhibit 4.1 to Chesapeake’s registration statement of Form S-4 (No. 333-116555).

12*		Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends.

21*		Subsidiaries of Chesapeake.

31.1*		Aubrey K. McClendon, Chairman and Chief Executive Officer, Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Marcus C. Rowland, Executive Vice President and Chief Financial Officer, Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Aubrey K. McClendon, Chairman and Chief Executive Officer, Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Marcus C. Rowland, Executive Vice President and Chief Financial Officer, Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Filed herewith.

**	Furnished as provided in Item 601 of Regulation S-K.

(b)	Reports on Form 8-K

During the quarter ended June 30, 2004, we filed the following current reports on Form 8-K:

On April 7, 2004, we filed a current report on Form 8-K, reporting under Item 5 that we issued a press release on April 5, 2004 announcing our first quarter 2004 earnings release and conference call dates.

On April 27, 2004, we filed a current report on Form 8-K, furnishing under Item 9 and Item 12 a press release we issued on April 26, 2004 announcing financial and operating results for the first quarter 2004 and updated 2004 guidance.

On May 12, 2004, we filed a current report on Form 8-K, reporting under Item 5 that we issued two press releases on May 11, 2004 announcing an agreement to acquire $425 million on natural gas properties and a conference call to discuss the release. In addition, we furnished under Item 9 additional information concerning the proposed acquisition, our hedging positions and updated 2004 production forecasts.

On May 18, 2004, we filed a current report on Form 8-K, reporting under Item 5 that we issued a press release on May 17, 2004 announcing the declaration of a cash dividend on our 4.125% Cumulative Convertible Preferred Stock.

On May 20, 2004, we filed a current report on Form 8-K, reporting under Item 5 that we issued a press release on May 19, 2004 announcing a private offering of senior notes.

On May 21,2004, we filed a current report on Form 8-K, reporting under Item 5 that we issued a press release on May 20, 2004 announcing the pricing of $300 million of $7.5% Senior Notes due 2014.

On June 2, 2004, we filed a current report on Form 8-K, reporting under Item 5 that we issued a press release on June 1, 2004 announcing an extension of our offer to exchange our 6.875% Senior Notes due 2016.

On June 3, 2004, we filed a current report on Form 8-K, reporting under Item 5 that Chesapeake Exploration Limited Partnership, a wholly owned subsidiary of Chesapeake Energy Corporation, entered into an International Swap Dealers Association, Inc. (ISDA) Master Agreement with Deutsche Bank AG on May 28, 2004.

On June 10, 2004, we filed a current report on Form 8-K, reporting under Item 5 that we issued a press release on June 9, 2004 announcing the declaration of quarterly common and preferred stock dividends.

On June 22, 2004, we filed a current report on Form 8-K, reporting under Item 5 that we issued a press release on June 21, 2004 announcing our second quarter 2004 earnings release and conference call dates.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


CHESAPEAKE ENERGY CORPORATION
(Registrant)

By:		/s/ AUBREY K. MCCLENDON
		Aubrey K. McClendon
		Chairman and Chief Executive Officer

By:		/s/ MARCUS C. ROWLAND
		Marcus C. Rowland
		Executive Vice President and Chief Financial Officer

Date: August 9, 2004

INDEX TO EXHIBITS


Exhibit Number		Description
3.1*		Chesapeake’s Restated Certificate of Incorporation, as amended, together with the Certificates of Designation for the Series A Junior Participating Preferred Stock, 6.75% Cumulative Convertible Preferred Stock, 6.0% Cumulative Convertible Preferred Stock, 5.0% Cumulative Convertible Preferred Stock and 4.125% Cumulative Convertible Preferred Stock.

4.11		Indenture dated as of May 27, 2004 among Chesapeake, as issuer, the subsidiaries signatory thereto, as Subsidiary Guarantors, and The Bank of New York, as Trustee, with respect to 7.5% senior notes due 2014. Incorporated herein by reference to Exhibit 4.1 to Chesapeake’s registration statement on Form S-4 (No. 333-116555).

12*		Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends.

21*		Subsidiaries of Chesapeake.

31.1*		Aubrey K. McClendon, Chairman and Chief Executive Officer, Certification pursuant to Section 302 of the Sarbarnes-Oxley Act of 2002.

31.2*		Marcus C. Rowland, Executive Vice President and Chief Financial Officer, Certification pursuant to Section 302 of the Sarbarnes-Oxley Act of 2002.

32.1**		Aubrey K. McClendon, Chairman and Chief Executive Officer, Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Marcus C. Rowland, Executive Vice President and Chief Financial Officer, Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Filed herewith.

**	Furnished as provided in Item 601 of Regulation S-K.

Restated Certificate of Incorporation, as amended



                                                                     EXHIBIT 3.1

                       RESTATED CERTIFICATE OF INCORPORATION
                                        OF
                          CHESAPEAKE ENERGY CORPORATION

TO THE SECRETARY OF STATE OF THE STATE OF OKLAHOMA:


     Chesapeake Energy Corporation (the "Corporation"), a corporation organized
and existing under and by virtue of the Oklahoma General Corporation Act (the
"Act"), for the purpose of restating its certificate of incorporation, does
hereby submit the following:

A.   The name of the Corporation is Chesapeake Energy Corporation. The name
     under which the Corporation was originally incorporated was Chesapeake
     Oklahoma Corporation.

B.   The original Certificate of Incorporation of the Corporation was filed with
     the Secretary of State of Oklahoma on November 19, 1996 (as amended from
     time to time, the "Certificate of Incorporation").

C.   This Restated Certificate of Incorporation was duly adopted in accordance
     with the provisions of Section 1080 of the Act after being adopted by the
     directors and only restates and integrates, but does not further amend, the
     provisions of the Certificate of Incorporation as amended and supplemented
     as of this date, there being no discrepancy between those provisions and
     the provisions hereof.

D.   The Certificate of Designations of Series A Junior Participating Preferred
     Stock of the Corporation, filed with the Secretary of State of Oklahoma on
     July 17, 1998, and attached hereto as Exhibit "A," will remain in full
     force and effect.

E.   The Certificate of Incorporation is hereby restated to read in its entirety
     as follows:

                                     ARTICLE I

                                       Name

     The name of the Corporation is:


                           CHESAPEAKE ENERGY CORPORATION


                                    ARTICLE II

                            Registered Office and Agent

     The address of the Corporation's registered office in the State of Oklahoma
is 735 First National Building, 120 North Robinson, Oklahoma City, Oklahoma
73102. The Corporation's registered agent at such address is The Corporation
Company.

                                    ARTICLE III

                                     Purposes

     The nature of the business and the purpose of the Corporation shall be to
engage in any lawful act or activity and to pursue any lawful purpose for which
a corporation may be formed under the Oklahoma General Corporation Act (the
"Act"). The Corporation is authorized to exercise and enjoy all powers, rights
and privileges which corporations organized under the Act may have as in force
from time to time, including, without limitation, all powers, rights and
privileges necessary or convenient to carry out the purposes of the Corporation.

                                    ARTICLE IV

                                   Capital Stock

     The total number of shares of capital stock which the Corporation shall
have authority to issue is Three Hundred Sixty Million (360,000,000) shares,
consisting of Ten Million (10,000,000) shares of Preferred Stock, par value
$0.01 per share, and Three Hundred Fifty



Million (350,000,000) shares of Common Stock, par value $0.01 per share. The
preferences, qualifications, limitations, restrictions and the special or
relative rights in respect of the shares of each class are as follows:

     Section 1. Preferred Stock. The Preferred Stock may be issued from time to
time in one or more series. All shares of Preferred Stock shall be of equal rank
and shall be identical, except in respect of the matters that may be fixed and
determined by the Board of Directors as hereinafter provided, and each share of
each series shall be identical with all other shares of such series, except as
to the date from which dividends are cumulative. The Board of Directors hereby
is authorized to cause such shares to be issued in one or more series and with
respect to each such series prior to the issuance thereof to fix and determine
the designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions thereof.

     The authority of the Board of Directors with respect to each series shall
include, but not be limited to, determination of the following:

     A.   The number of shares constituting a series, the distinctive
          designation of a series and the stated value of the series, if
          different from the par value;

     B.   Whether the shares of a series are entitled to any fixed or
          determinable dividends, the dividend rate (if any) on the shares,
          whether the dividends are cumulative and the relative rights of
          priority of dividends on shares of that series;

     C.   Whether a series has voting rights in addition to the voting rights
          provided by law and the terms and conditions of such voting rights;

     D.   Whether a series will have or receive conversion or exchange
          privileges and the terms and conditions of such conversion or exchange
          privileges;

     Dividends on outstanding shares of Preferred Stock shall be paid or set
apart for payment before any dividends shall be paid or declared or set apart
for payment on the common shares with respect to the same dividend period.

     If upon any voluntary or involuntary liquidation, dissolution or winding up
of the Corporation the assets available for distribution to holders of shares of
Preferred Stock of all series shall be insufficient to pay such holders the full
preferential amount to which they are entitled, then such assets shall be
distributed ratably among the shares of all series in accordance with the
respective preferential amounts (including unpaid cumulative dividends, if any)
payable with respect thereto.

     Section 2. Common Stock. The Common Stock shall be subject to the express
terms of the Preferred Stock and any series thereof. Each share of Common Stock
shall be equal to every other share of Common Stock. The holders of shares of
Common Stock shall be entitled to one vote for each share of such stock upon all
matters presented to the shareholders. Shares of Common Stock authorized hereby
shall not be subject to preemptive rights. The holders of shares of Common Stock
now or hereafter outstanding shall have no preemptive right to purchase or have
offered to them for purchase any of such authorized but unissued shares. The
holders of shares of Common Stock now or hereafter outstanding shall have no
preemptive right to purchase or have offered to them for purchase any shares of
Preferred Stock, Common Stock or other equity securities issued or to be issued
by the Corporation.

     Subject to the preferential and other dividend rights applicable to the
Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive such dividends (payable in cash, stock or otherwise) as may be declared
on the Common Stock by the Board of Directors at any time or from time to time
out of any funds legally available therefor.

     In the event of any voluntary or involuntary liquidation, distribution or
winding up of the Corporation, after distribution in full of the preferential
and/or other amounts to be distributed to the holders of shares of Preferred
Stock, the holders of shares of Common Stock shall be entitled to receive all of
the remaining assets of the Corporation available for distribution to its
shareholders, ratably in proportion to the number of shares of Common Stock held
by them.


                                    ARTICLE V


                        Limitation of Director Liability

     A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for damages for breach of fiduciary duty as a
director, except for personal liability for: (i) acts or omissions by such
director not in good faith or which involve intentional misconduct or a knowing
violation of law; (ii) the payment of dividends or the redemption or purchase of
stock in violation of Section 1053 of the Act; (iii) any breach of such
director's duty of loyalty to the Corporation or its shareholders; or (iv) any
transaction from which such director derived an improper personal benefit.



                                   ARTICLE VI

                             Certain Stock Purchases

     Section 1. Certain Definitions. For the purposes of this Article VI:

     "Continuing Director" means any member of the Board of Directors of the
Corporation (the "Board") who is unaffiliated with the Interested Shareholder
and was a member of the Board prior to the time that the Interested Shareholder
became an Interested Shareholder, and any successor of a Continuing Director who
is unaffiliated with the Interested Shareholder and is recommended to succeed a
Continuing Director by a majority of Continuing Directors then on the Board.

     "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

     "Fair Market Value" means in the case of stock, the highest closing sale
price during the 30-day period ending on the date in question of a share of such
stock on a principal United States securities exchange registered under the
Exchange Act on which such stock is listed or in the national market system
maintained by the National Association of Securities Dealers, Inc., or, if the
stock is not listed on any such exchange or designated as a national market
system security, the highest closing bid quotation with respect to a share of
such stock during the 30-day period ending on the date in question on the
National Association of Securities Dealers, Inc. Automated Quotations system or
any system then in use, or if no such quotations are available, the fair market
value on the date in question of a share of such stock as determined by the
Board in good faith.

     "Interested Shareholder" shall have the meaning ascribed to such term under
Section 1090.3 of the Act.

     Section 2. Vote Required for Certain Stock Purchases.

     A. Any direct or indirect purchase by the Corporation, or any subsidiary of
the Corporation, of any capital stock from a person or persons known by a
majority of the Continuing Directors of the Corporation to be an Interested
Shareholder who has beneficially owned such capital stock for less than three
years prior to the date of such purchase, or any agreement in respect thereof,
at a price in excess of the Fair Market Value shall require the affirmative vote
of no less than 66 2/3% of the votes cast by the holders, voting together as a
single class, of all then outstanding shares of capital stock, excluding for
this purpose the votes by the Interested Shareholder, unless a greater vote
shall be required by law.

     B. Such affirmative vote shall not be required for a purchase or other
acquisition of securities of the same class made on substantially the same terms
to all holders of such securities and complying with the applicable requirements
of the Exchange Act, and the rules and regulations thereunder (or any subsequent
provisions replacing the Exchange Act, rules or regulations). Furthermore, such
affirmative vote shall not be required for any purchase effected on the open
market and not the result of a privately-negotiated transaction.

     Section 3. Powers of Continuing Directors. The Continuing Directors of the
Corporation shall have the power and duty to determine for the purposes of this
Article VI, on the basis of information known to them after reasonable inquiry,
whether a person is an Interested Shareholder, and the number of shares of
capital stock owned beneficially by any person.

                                   ARTICLE VII

                               Board of Directors

     Section 1. Management by Board of Directors. The business and affairs of
the Corporation shall be under the direction of the Board of Directors.

     Section 2. Number of Directors. Subject to the addition of any directors
elected by a class of preferred stock as provided in Section 3 of this Article
VII, the number of directors which shall constitute the whole board shall not be
less than three nor more than nine, and shall be determined by resolution
adopted by a vote of two-thirds (2/3) of the entire board, or at an annual or
special meeting of shareholders by the affirmative vote of sixty-six and
two-thirds percent (66 2/3%) of the outstanding stock entitled to vote. No
reduction in number shall have the effect of removing any director prior to the
expiration of his term.

     Section 3. Classes of Directors; Election by Shareholders; Vacancies. The
directors shall be divided into three classes, designated Class I, Class II and
Class III. Each class shall consist, as nearly as may be possible, of one-third
of the total number of directors constituting the entire Board of Directors. The
term of the initial Class I directors shall terminate on the date of the 1997
annual meeting of shareholders, the term of the initial Class II directors shall
terminate on the date of the 1998 annual meeting of shareholders and the term of
the initial Class III directors shall terminate on the date of the 1999 annual
meeting of shareholders. At each annual meeting of shareholders beginning in
1997, successors to the class of directors whose term expires at that annual
meeting shall be elected for a three-year term. If the number of directors is
changed, any increase or decrease shall be apportioned among the


classes so as to maintain the number of directors in each class as nearly equal
as possible, and any additional directors of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that shall
coincide with the remaining term of that class, but in no case will a decrease
in the number of directors shorten the term of any incumbent director. A
director shall hold office until the annual meeting for the year in which his
term expires and until his successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification or
removal from office. Any vacancy on the Board of Directors, however resulting,
may be filled by a majority of the directors then in office, even if less than a
quorum, or by a sole remaining director. Any director elected to fill a vacancy
shall hold office for a term that shall coincide with the term of the class to
which such director shall have been elected. No election of directors need be by
written ballot.

     Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of shareholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the Certificate of Designation attributable to such Preferred Stock or
the resolution or resolutions adopted by the Board of Directors pursuant to
Section 2 of this Article VII applicable thereto, and such directors so elected
shall not be divided into classes pursuant to this Article VII unless expressly
provided by such terms.

                                  ARTICLE VIII

                                    Indemnity

     Section 1. Third Party Claims. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture or other enterprise against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the Corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not of itself create a presumption that the person did not act
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interest of the Corporation and with respect to any criminal
action or proceeding had reasonable cause to believe that his conduct was
unlawful.

     Section 2. Derivative Claims. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the Corporation; except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the court in which such action or suit was brought shall determine,
upon application, that despite the adjudication of liability, but in the view of
all the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which the court shall deem proper.

     Section 3. Expenses. Expenses, including fees and expenses of counsel,
incurred in defending a civil, criminal, administrative or investigative action,
suit or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized herein.

     Section 4. Insurance. The Corporation may purchase (upon resolution duly
adopted by the Board of Directors) and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation



would have the power to indemnify him against such liability.


     Section 5. Reimbursement. To the extent that a director, officer, employee
or agent of, or any other person entitled to indemnity hereunder by, the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to herein or in defense of any claim, issue
or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.

     Section 6. Enforcement. Every such person shall be entitled, without demand
by him upon the Corporation or any action by the Corporation, to enforce his
right to such indemnity in an action at law against the Corporation. The right
of indemnification and advancement of expenses hereinabove provided shall not be
deemed exclusive of any rights to which any such person may now or hereafter be
otherwise entitled and specifically, without limiting the generality of the
foregoing, shall not be deemed exclusive of any rights pursuant to statute or
otherwise, of any such person in any such action, suit or proceeding to have
assessed or allowed in his favor against the Corporation or otherwise, his costs
and expenses incurred therein or in connection therewith or any part hereof.

                                   ARTICLE IX

             Amendments; Bylaws; Control Shares Act; Written Consent

     Section 1. Amendments to Certificate of Incorporation. Notwithstanding
anything contained in this Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the issued and outstanding stock having voting power, voting together
as a single class, shall be required to amend, repeal or adopt any provision
inconsistent with Articles V, VI, VII, VIII and this Article IX of this
Certificate of Incorporation.

     Section 2. Bylaws. Prior to the receipt of any payment for any of the
Corporation's stock, the Bylaws of the Corporation shall be adopted, amended or
repealed by the Incorporator. Thereafter, in furtherance and not in limitation
of the powers conferred by statute, the Board of Directors is expressly
authorized to adopt, repeal, alter, amend or rescind the Bylaws of the
Corporation. In addition, the Bylaws of the Corporation may be adopted,
repealed, altered, amended or rescinded by the affirmative vote of the holders
of sixty-six and two-thirds percent (66 2/3%) of the outstanding stock of the
Corporation entitled to vote thereon.

     Section 3. Control Shares Act. The Corporation shall not be subject to the
Oklahoma Control Shares Act as codified at Sections 1145-1155 of the Act. This
election shall be effective on the date of filing this Certificate.

     Section 4. Action By Written Consent. Any action required or permitted to
be taken at a meeting of the shareholders may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes which would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of corporate action without
a meeting by less than unanimous written consent shall be given to those
shareholders who have not consented in writing.

     IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its Chairman of the Board and Chief Executive Officer and attested to
by its Secretary this 13th day of August, 2001.

                                 CHESAPEAKE ENERGY CORPORATION,
                                 an Oklahoma corporation

                                 By /s/ Aubrey K. McClendon
                                   -----------------------------------------
                                   Aubrey K. McClendon
                                   Chairman of the Board and Chief
                                   Executive Officer


ATTEST:

/s/ Patricia J. Murano
- -----------------------------
Patricia J. Murano,
Assistant Secretary

AMENDMENT TO CERTIFICATE OF INCORPORATION

CHESAPEAKE ENERGY CORPORATION

TO THE SECRETARY OF STATE OF THE STATE OF OKLAHOMA:

Chesapeake Energy Corporation (the “Corporation”), a corporation organized and existing under and by virtue of the Oklahoma General Corporation Act (the “Act”), for the purpose of amending its certificate of incorporation, does hereby submit the following:

A.	The name of the Corporation is Chesapeake Energy Corporation. The name under which the Corporation was originally incorporated was Chesapeake Oklahoma Corporation.

B.	The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of Oklahoma on November 19, 1996 (as amended from time to time, the “Certificate of Incorporation”).

This Amendment to Certificate of Incorporation was duly adopted in accordance with the provisions of Section 1077 of the Act at the Corporation’s annual meeting by a majority of the outstanding capital stock of the Corporation entitled to vote thereon. Written notice of the Corporation’s annual meeting was given to the stockholders of the Corporation in accordance with the provisions of Section 1067 of the Act.

D.	The Certificate of Incorporation is hereby amended as follows:

1. Amendment to Article IV. The first sentence of Article IV of the Certificate of Incorporation starting with the words “The total number of shares of capital stock…” is hereby deleted in its entirety and the following sentence is substituted therefore:

The total number of shares of capital stock which the Corporation shall have authority to issue is Five Hundred Twenty Million (520,000,000) shares, consisting of Twenty Million (20,000,000) shares of Preferred Stock, par value $0.01 per share, and Five Hundred Million (500,000,000) shares of Common Stock, par value $0.01 per share.

IN WITNESS WHEREOF, the Corporation has caused this Amendment to Certificate of Incorporation to be signed by its Chief Executive Officer and attested to by its Secretary this 9^th day of June, 2004.


ATTEST:		CHESAPEAKE ENERGY CORPORATION, an Oklahoma corporation

/s/ JENNIFER M. GRIGSBY	By:	/s/ AUBREY K. MCCLENDON
Jennifer M. Grigsby, Secretary		Aubrey K. McClendon, Chief Executive Officer


                         CERTIFICATE OF DESIGNATIONS OF


                SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF
                          CHESAPEAKE ENERGY CORPORATION


                    (PURSUANT TO SECTION 1032 OF THE GENERAL
                   CORPORATION ACT OF THE STATE OF OKLAHOMA)


                           --------------------------


     Chesapeake Energy Corporation, a corporation organized and existing under
the General Corporation Law of the State of Oklahoma (hereinafter called the
"Company"), hereby certifies that the following resolution was duly adopted by
the Board of Directors of the Company as required by Section 1032 of the General
Corporation Act of the State of Oklahoma and in accordance with Article IV of
the Company's Certificate of Incorporation, as amended, at a meeting duly called
and held on July 7, 1998:

     WHEREAS, pursuant to the Company's Certificate of Incorporation, as amended
to date (hereinafter called the "Certificate of Incorporation"), the Company is
authorized to issue up to 10,000,000 shares of preferred stock, par value $0.01
per share (the "Preferred Stock") from time to time, of which 4,600,000 shares
have been designated as the 7% Cumulative Convertible Preferred Stock and are
currently outstanding; and

     WHEREAS, pursuant to the authority vested in the Board of Directors of the
Company in accordance with the General Corporation Act of the State of Oklahoma
and the Company's Certificate of Incorporation, the Board of Directors is
authorized by resolution duly adopted, to designate shares of Preferred Stock to
be issued, in one or more series, to provide for the designation thereof of the
powers, designations, preferences and relative, participating, optional or other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof;

     RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of the Company (hereinafter called the "Board of Directors" or the
"Board") in accordance with the provisions of the Company's Certificate of
Incorporation, the Board of Directors on July 7, 1998 adopted the following
resolutions to create a new series of Preferred Stock; and be it further

     RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the provisions of the Oklahoma General
Corporation Act and the


     Certificate of Incorporation, a Series A Junior Participating Preferred
Stock of the Corporation is hereby created, and 250,000 shares of Preferred
Stock shall be reserved for issuance as Series A Junior Participating Preferred
Stock in accordance with this Certificate of Designation with the designations
thereof and the powers, designations, preferences and relative, participating,
optional or other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof as set forth below:

     Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 250,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Company convertible
into Series A Preferred Stock.

     Section 2. Dividends and Distributions.


     (A) Subject to the rights of the holders of any shares of any series of
Preferred Stock of the Company (the "Preferred Stock") (or any similar stock)
ranking prior and superior to the Series A Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred Stock, in preference to
the holders of Common Stock, par value $0.01 per share, of the Company (the
"Common Stock") and of any other stock of the Company ranking junior to the
Series A Preferred Stock, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available therefor, quarterly
dividends payable in cash on the last day of January, April, July, and October
in each year (each such date being referred to herein as a "Dividend Payment
Date"), commencing on the first Dividend Payment Date after the first issuance
of a share or fraction of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $10.00 and (b)
subject to the provision for adjustment hereinafter set forth, 1,000 times the
aggregate per share amount of all cash dividends, and 1,000 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock, declared
on the Common Stock since the immediately preceding Dividend Payment Date or,
with respect to the first Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event that the
Company shall at any time after July 27, 1998 declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

                                       2


     (B) The Company shall declare a dividend or distribution on the Series A
Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Dividend Payment Date and the next subsequent Dividend
Payment Date, a dividend of $10.00 per share on the Series A Preferred Stock
shall nevertheless be payable, when, as and if declared, on such subsequent
Dividend Payment Date.

     (C) Dividends shall begin to accrue and be cumulative, whether or not
earned or declared, on outstanding shares of Series A Preferred Stock from the
Dividend Payment Date next preceding the date of issue of such shares, unless
the date of issue of such shares is prior to the record date for the first
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive a quarterly
dividend and before such Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.

     Section 3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:

     (A) Subject to the provision for adjustment hereinafter set forth and
except as otherwise provided in the Certificate of Incorporation or required by
law, each share of Series A Preferred Stock shall entitle the holder thereof to
1,000 votes on all matters upon which the holders of the Common Stock of the
Company are entitled to vote. In the event the Company shall at any time after
July 27, 1998 declare or pay any dividend on the Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the number of votes per share
to which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.

     (B) Except as otherwise provided herein, in the Certificate of
Incorporation or in any other Certificate of Designations creating a series of
Preferred Stock or any similar stock, and except

                                       3


as otherwise required by law, the holders of shares of Series A Preferred Stock
and the holders of shares of Common Stock and any other capital stock of the
Company having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Company.

     (C) Except as set forth herein, or as otherwise provided by law or the
Certificate of Incorporation, holders of Series A Preferred Stock shall have no
special voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.

     Section 4. Certain Restrictions.

     (A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not earned or declared, on shares of Series A Preferred Stock outstanding
shall have been paid in full, the Company shall not:

          (i) declare or pay dividends, or make any other distributions, on any
     shares of stock ranking junior (as to dividends) to the Series A Preferred
     Stock;

          (ii) declare or pay dividends, or make any other distributions, on any
     shares of stock ranking on a parity (as to dividends) with the Series A
     Preferred Stock, except dividends paid ratably on the Series A Preferred
     Stock and all such parity stock on which dividends are payable or in
     arrears in proportion to the total amounts to which the holders of all such
     shares are then entitled;

          (iii) redeem or purchase or otherwise acquire for consideration shares
     of any stock ranking junior (either as to dividends or upon liquidation,
     dissolution or winding up) to the Series A Preferred Stock, provided that
     the Company may at any time redeem, purchase or otherwise acquire shares of
     any such junior stock in exchange for shares of any stock of the Company
     ranking junior (as to dividends and upon dissolution, liquidation or
     winding up) to the Series A Preferred Stock or rights, warrants or options
     to acquire such junior stock;

          (iv) redeem or purchase or otherwise acquire for consideration any
     shares of Series A Preferred Stock, or any shares of stock ranking on a
     parity (either as to dividends or upon liquidation, dissolution or winding
     up) with the Series A Preferred Stock, except in accordance with a purchase
     offer made in writing or by publication (as determined by the Board of
     Directors) to all holders of such shares upon such terms as the Board of
     Directors, after consideration of the respective annual dividend rates and
     other relative rights and preferences of the respective series and classes,
     shall determine in good faith will result in fair and equitable treatment
     among the respective series or classes.

     (B) The Company shall not permit any subsidiary of the Company to purchase
or otherwise acquire for consideration any shares of stock of the Company unless
the Company could,

                                       4



under paragraph (A) of this Section 4, purchase or otherwise acquire such shares
at such time and in such manner.

     Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their retirement become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to any
conditions and restrictions on issuance set forth herein.

     Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Company, no distribution shall be made (A) to
the holders of the Common Stock or of shares of any other stock of the Company
ranking junior, upon liquidation, dissolution or winding up, to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $10.00 per share, plus an amount equal to
accrued and unpaid dividend distributions thereon, whether or not earned or
declared, to the date of such payment, provided that the holders of shares of
Series A Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
1,000 times the aggregate amount to be distributed per share to holders of
shares of Common Stock, or (B) to the holders of shares of stock ranking on a
parity upon liquidation, dissolution or winding up with the Series A Preferred
Stock, except distributions made ratably on the Series A Preferred Stock and all
such parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding up. In
the event, however, that there are not sufficient assets available to permit
payment in full of the Series A Preferred Stock liquidation preference and the
liquidation preferences of all other classes and series of stock of the Company,
if any, that rank on a parity with the Series A Preferred Stock in respect
thereof, then the assets available for such distribution shall be distributed
ratably to the holders of the Series A Preferred Stock and the holders of such
parity shares in the proportion to their respective liquidation preferences. In
the event the Company shall at any time after July 27, 1998 declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under the proviso
in clause (A) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

     Section 7. Consolidation, Merger, etc. In the case the Company shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are converted into, exchanged for or changed into other
stock or securities, cash and/or any property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly


                                       5


converted into, exchanged for or changed into an amount per share (subject to
the provision for adjustment hereinafter set forth) equal to 1,000 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common Stock
is converted, exchanged or converted. In the event the Company shall at any time
after July 27, 1998 declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the conversion, exchange or change of
shares of Series A Preferred Stock shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.

     Section 8. No Redemption. The shares of Series A Preferred Stock shall not
be redeemable from any holder.


     Section 9. Rank. The Series A Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up of the Company, junior to all other series of
Preferred Stock and senior to the Common Stock.

     Section 10. Amendment. If any proposed amendment to the Certificate of
Incorporation (including this Certificate of Designations) would alter, change
or repeal any of the preferences, powers or special rights given to the Series A
Preferred Stock so as to affect the Series A Preferred Stock adversely, then the
holders of the Series A Preferred Stock shall be entitled to vote separately as
a class upon such amendment, and the affirmative vote of two- thirds of the
outstanding shares of the Series A Preferred Stock, voting separately as a
class, shall be necessary for the adoption thereof, in addition to such other
vote as may be required by the General Corporation Act of the State of Oklahoma.

     Section 11. Fractional Shares. Series A Preferred Stock may be issued in
fractions of a share that shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.

                                       6


     IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Company by its Chairman of the Board and Chief Executive Officer and
attested by its Secretary this 7th day of July, 1998.

                              /s/ Aubrey K. McClendon
                              ----------------------------------------
                              Aubrey K. McClendon Chairman of the Board
                              and Chief Executive Officer


Attest: /s/ Janice A. Dobbs
       --------------------------
       Janice A. Dobbs
       Corporate Secretary

                                       7

FIRST AMENDMENT TO

CERTIFICATE OF DESIGNATIONS OF

SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF

CHESAPEAKE ENERGY CORPORATION

(Pursuant to Section 1032 of the General

Corporation Act of the State of Oklahoma)

Chesapeake Energy Corporation, a corporation organized and existing under the General Corporation Act of the State of Oklahoma (hereinafter called the “Company”), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Company as required by Section 1032 of the General Corporation Act of the State of Oklahoma (hereinafter called the “Act”) and in accordance with Article IV of the Company’s Certificate of Incorporation, as amended (hereinafter called the “Certificate of Incorporation”), at a meeting duly called and held on April 23, 2004:

WHEREAS, pursuant to the authority vested in the Board of Directors of the Company in accordance with the Act and the Certificate of Incorporation, the Board of Directors is authorized by resolution duly adopted, to designate shares of preferred stock to be issued, in one or more series, to provide for the designation thereof of the powers, designations, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof;

WHEREAS, pursuant to the Certificate of Incorporation, the Company is authorized to issue up to 10,000,000 shares of preferred stock, par value $0.01 per share (the “Preferred Stock”) from time to time, of which 250,000 shares have been designated as the Series A Junior Participating Preferred Stock, 313,250 shares have been designated as the 4.125% Cumulative Convertible Preferred Stock, 1,725,000 shares have been designated as the 5.0% Cumulative Convertible Preferred Stock, 4,600,000 shares have been designated as the 6.0% Cumulative Convertible Preferred Stock and 2,997,800 shares have been designated as the 6.75% Cumulative Convertible Preferred Stock; and

WHEREAS, on July 7, 1998, the Board of Directors approved and on July 17, 1998, the Company filed with the Oklahoma Secretary of State the Certificate of Designations of Series A Junior Participating Preferred Stock (the “Initial Certificate”) and as a result of an increase in the authorized shares of the Company’s common stock, par value $0.01 per share, the Board of Directors

desires to increase the number of shares of Series A Junior Participating Preferred Stock designated by the Initial Certificate.

NOW THEREFORE BE IT RESOLVED, that pursuant to the authority vested in the Board of Directors of the Company in accordance with the provisions of the Act and the Certificate of Incorporation, the Initial Certificate is amended as follows:

1. Increase in Shares. In order to increase the number of shares of Series A Junior Participating Preferred Stock, Section 1 of the Initial Certificate is deleted in its entirety and the following is substituted therefore:

Section 1. Designation and Amount. The shares of such series shall be designated as “Series A Junior Participating Preferred Stock” (the “Series A Preferred Stock”) and the number of shares constituting the Series A Preferred Stock shall be 350,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series A Preferred Stock.

2. Full Force and Effect. Except as specifically amended herein, all other terms and provisions of the Initial Certificate remain in full force and effect.

IN WITNESS WHEREOF, this First Amendment to Certificate of Designations is executed on behalf of the Company by its Chairman of the Board and Chief Executive Officer and attested by its Secretary this 7th day of May, 2004.

/s/ Aubrey K. McClendon

Aubrey K. McClendon

Chairman of the Board and

Chief Executive Officer



Attest:		/s/ Jennifer M. Grigsby
		Jennifer M. Grigsby Corporate Secretary



                                                                  EXECUTION COPY

                           CERTIFICATE OF DESIGNATION
                                       OF
                  6.75% CUMULATIVE CONVERTIBLE PREFERRED STOCK
                                       OF
                          CHESAPEAKE ENERGY CORPORATION

     Pursuant to Section 1032(G) of the Oklahoma General Corporation Act

     CHESAPEAKE ENERGY CORPORATION, an Oklahoma corporation (the "Company"),
does hereby certify that the following resolution was duly adopted by action of
the Board of Directors of the Company, with the provisions thereof fixing the
number of shares of the series and the dividend rate being set by action of the
Board of Directors of the Company:

     RESOLVED that pursuant to the authority expressly granted to and vested in
the Board of Directors of the Company by the provisions of Article IV, Section 1
of the Certificate of Incorporation of the Company, as amended from time to time
(the "Certificate of Incorporation"), and pursuant to Section 1032(G) of the
Oklahoma General Corporation Act, the Board of Directors hereby creates a series
of preferred stock of the Company and hereby states that the voting powers,
designations, preferences and relative, participating, optional or other special
rights of which, and qualifications, limitations or restrictions thereof (in
addition to the provisions set forth in the Certificate of Incorporation which
are applicable to the preferred stock of all classes and series), shall be as
follows:

     1. Designation and Amount; Ranking. (a) There shall be created from the
10,000,000 shares of preferred stock, par value $0.01 per share, of the Company
authorized to be issued pursuant to the Certificate of Incorporation, a series
of preferred stock, designated as the "6.75% Cumulative Convertible Preferred
Stock," par value $0.01 per share (the "Preferred Stock"), and the number of
shares of such series shall be 3,000,000. Such number of shares may be decreased
by resolution of the Board of Directors; provided that no decrease shall reduce
the number of shares of Preferred Stock to a number less than that of the shares
of Preferred Stock then outstanding plus the number of shares issuable upon
exercise of options or rights then outstanding.

                                                                               2

     (b) The Preferred Stock will, with respect to dividend rights or rights
upon the liquidation, winding-up or dissolution of the Company rank (i) senior
to all Junior Stock, (ii) on a parity with all Parity Stock and (iii) junior to
all Senior Stock.

     2. Definitions. As used herein, the following terms shall have the
following meanings:

          (1) "Accrued Dividends" shall mean, with respect to any share of
Preferred Stock, as of any date, the accrued and unpaid dividends on such share
from and including the most recent Dividend Payment Date (or the Issue Date, if
such date is prior to the first Dividend Payment Date) to but not including such
date.

          (2) "Accumulated Dividends" shall mean, with respect to any share of
Preferred Stock, as of any date, the aggregate accumulated and unpaid dividends
on such share from the Issue Date until the most recent Dividend Payment Date on
or prior to such date. There shall be no Accumulated Dividends with respect to
any share of Preferred Stock prior to the first Dividend Payment Date.

          (3) "Affiliate" shall have the meaning ascribed to it, on the date
hereof, under Rule 405 of the Securities Act of 1933, as amended.

          (4) "Board of Directors" shall mean the Board of Directors of the
Company or, with respect to any action to be taken by the Board of Directors,
any committee of the Board of Directors duly authorized to take such action.

          (5) "Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in The City of New York are authorized or
required by law or executive order to close.

          (6) "Change of Control" shall mean any of the following events: (i)
the sale, lease or transfer, in one or a series of related transactions, of all
or substantially all of the Company's 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; (ii) the adoption of a plan the
consummation of which would result in the liquidation or dissolution of the
Company; (iii) 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 the aggregate voting power of the Voting Stock
of the Company; 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
the Voting Stock of the Company than such other Person or group and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the

                                                                               3

Board of Directors (for the purposes of this definition, such other Person or
group shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such other Person or group 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 the Board of Directors of such parent corporation); or (iv) during
any period of two consecutive years, individuals who at the beginning of such
period composed the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by a vote of 66 2/3% of
the directors of the Company 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 the
Board of Directors of the Company then in office. For purposes of this
definition of "Change of Control," the term "Permitted Holders" means Aubrey K.
McClendon and Tom L. Ward and their respective Affiliates.

          (7) "Change of Control Date" shall mean the date on which the Change
of Control event occurs.

          (8) "Conversion Price" shall mean $7.70, subject to adjustment as set
forth in Section 7(c).

          (9) "Common Stock" shall mean the common stock, par value $0.01 per
share, of the Company, or any other class of stock resulting from successive
changes or reclassifications of such common stock consisting solely of changes
in par value, or from par value to no par value, or as a result of a
subdivision, combination, or merger, consolidation or similar transaction in
which the Company is a constituent corporation.

          (10) "DTC" or "Depository" means The Depository Trust Company.

          (11) "Dividend Payment Date" shall mean February 15, May 15, August 15
and November 15 of each year, commencing February 15, 2002.

          (12) "Dividend Record Date" shall mean February 1, May 1, August 1 and
November 1 of each year.

          (13) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

                                                                               4

          (14) "Holder" or "holder" shall mean a holder of record of the
Preferred Stock.

          (15) "Issue Date" shall mean November 13, 2001, the original date of
issuance of the Preferred Stock.

          (16) "Junior Stock" shall mean all classes of common stock of the
Company and the Series A Junior Participating Convertible Preferred Stock and
each other class of capital stock or series of preferred stock established after
the Issue Date, by the Board of Directors, the terms of which do not expressly
provide that such class or series ranks senior to or on parity with the
Preferred Stock as to dividend rights or rights upon the liquidation, winding-up
or dissolution of the Company.

          (17) "Liquidation Preference" shall mean, with respect to each share
of Preferred Stock, $50.

          (18) "Market Value" shall mean the average closing price of the Common
Stock for a five consecutive trading day period on the NYSE (or such other
national securities exchange or automated quotation system on which the Common
Stock is then listed or authorized for quotation or, if the Common Stock is not
so listed or authorized for quotation, an amount determined in good faith by the
Board of Directors to be the fair value of the Common Stock).

          (19) "NYSE" shall mean the New York Stock Exchange, Inc.

          (20) "Officer" means the Chairman of the Board of Directors, the
President, any Vice President, the Treasurer, the Secretary or any Assistant
Secretary of the Company.

          (21) "Officers' Certificate" means a certificate signed by two
Officers.

          (22) "Opinion of Counsel" means a written opinion from legal counsel
who is acceptable to the Transfer Agent. The counsel may be an employee of or
counsel to the Company or the Transfer Agent.

          (23) "Parity Stock" shall mean any class of capital stock or series of
preferred stock established after the Issue Date by the Board of Directors, the
terms of which expressly provide that such class or series will rank on parity
with the Preferred Stock as to dividend rights or rights upon the liquidation,
winding-up or dissolution of the Company.

          (24) "Person" shall mean any individual, corporation, general
partnership, limited partnership, limited liability partnership, joint venture,
association,

                                                                               5

joint-stock company, trust, limited liability company, unincorporated
organization or government or any agency or political subdivision thereof.

          (25) "Purchase Agreement" shall mean that certain Purchase Agreement
with respect to the Preferred Stock, dated as of November 6, 2001 among the
Company, Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc.,
Lehman Brothers Inc. and Salomon Smith Barney Inc.

          (26) "Registration Rights Agreement" means the Registration Rights
Agreement dated November 6, 2001 among the Company, Credit Suisse First Boston
Corporation, Bear, Stearns & Co. Inc., Lehman Brothers Inc. and Salomon Smith
Barney Inc. with respect to the Preferred Stock.

          (27) "SEC" or "Commission" shall mean the Securities and Exchange
Commission.

          (28) "Securities Act" means the Securities Act of 1933, as amended.

          (29) "Senior Stock" shall mean each class of capital stock or series
of preferred stock established after the Issue Date by the Board of Directors,
the terms of which expressly provide that such class or series will rank senior
to the Preferred Stock as to dividend rights or rights upon the liquidation,
winding-up or dissolution of the Company.

          (30) "Shelf Registration Statement" shall mean a shelf registration
statement filed with the SEC to cover resales of Transfer Restricted Securities
by holders thereof, as required by the Registration Rights Agreement.

          (31) "Transfer Agent" shall mean UMB Bank, N.A., the Company's duly
appointed transfer agent, registrar and conversion and dividend disbursing agent
for the Preferred Stock. The Company may, in its sole discretion, remove the
Transfer Agent with 10 days' prior notice to the Transfer Agent; provided, that
the Company shall appoint a successor Transfer Agent who shall accept such
appointment prior to the effectiveness or such removal.

          (32) "Transfer Restricted Securities" shall mean each share of
Preferred Stock (or the shares of Common Stock into which such share of
Preferred Stock is convertible) until (i) the date on which such security or its
predecessor has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (ii) the date
on which such security or predecessor is distributed to the public pursuant to
Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under
the Securities Act.


                                                                               6

          (33) "Voting Rights Triggering Event" shall mean the failure of the
Company to pay dividends on the Preferred Stock with respect to six or more
quarterly periods (whether or not consecutive).

          (34) "Voting Stock" shall mean, with respect to any Person, securities
of any class or classes of Capital Stock in such Person entitling the holders
thereof (whether at all times or only so long as no senior class of stock has
voting power by reason of contingency) to vote in the election of members of the
Board of Directors or other governing body of such Person. For purposes of this
definition, "Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
corporate stock or partnership interests and any and all warrants, options and
rights with respect thereto (whether or not currently exercisable), including
each class of common stock and preferred stock of such Person.

     3. Dividends.

          (1) The holders of shares of the outstanding Preferred Stock shall be
entitled, when, as and if declared by the Board of Directors out of funds of the
Company legally available therefor, to receive cumulative cash dividends at the
rate per annum of 6.75% per share on the Liquidation Preference (equivalent to
$3.375 per annum per share, payable quarterly in arrears (the "Dividend Rate").
The Dividend Rate may be increased in the circumstances described in Section
3(b) below. Dividends payable for each full dividend period will be computed by
dividing the Dividend Rate by four and shall be payable in arrears on each
Dividend Payment Date (commencing February 15, 2002) for the quarterly period
ending immediately prior to such Dividend Payment Date, to the holders of record
of Preferred Stock at the close of business on the Dividend Record Date
applicable to such Dividend Payment Date. Such dividends shall be cumulative
from the most recent date as to which dividends shall have been paid or, if no
dividends have been paid, from the Issue Date (whether or not in any dividend
period or periods there shall be funds of the Company legally available for the
payment of such dividends) and shall accrue on a day-to-day basis, whether or
not earned or declared, from and after the Issue Date. Dividends payable for any
partial dividend period shall be computed on the basis of actual days elapsed
over a 360-day year consisting of twelve 30-day months. Accumulations of
dividends on shares of Preferred Stock shall not bear interest.

          (2) If (i) by January 12, 2002, the Shelf Registration Statement has
not been filed with the Commission, (ii) by May 12, 2002, the Shelf Registration
Statement has not been declared effective by the Commission or (iii) after the
Shelf Registration Statement has been declared effective, (A) the Shelf
Registration Statement thereafter ceases to be effective or (B) the Shelf
Registration Statement or the related prospectus ceases to be usable (in each
case, subject to the exceptions described below) in connection with resale of
Transfer Restricted Securities during the period that any Transfer Restricted
Securities remain outstanding (each such event referred to in clauses

                                                                               7

(i), (ii) and (iii), a "Registration Default"), additional dividends shall
accrue on the Preferred Stock at the rate of .50% per annum (resulting in a
Dividend Rate of 7.25% per annum during the continuance of a Registration
Default), from and including the date on which any such Registration Default
shall occur to but excluding the date on which all Registration Defaults have
been cured. At all other times, dividends shall accumulate on the Preferred
Stock at the Dividend Rate as described in Section 3(a).

          A Registration Default referred to in clause (iii) of Section 3(b)
shall be deemed not to have occurred and be continuing in relation to the Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to the Shelf Registration Statement to incorporate annual audited
financial information with respect to the Company where such post-effective
amendment is not yet effective and needs to be declared effective to permit
Holders to use the related prospectus or (y) other material events, with respect
to the Company that would need to be described in the Shelf Registration
Statement or the related prospectus and (ii) in the case of clause (y), the
Company is proceeding promptly and in good faith to amend or supplement such
Shelf Registration Statement and related prospectus to describe such events;
provided, however, that in any case if such Registration Default referred to in
clause (iii) of Section 3(b) occurs for a continuous period in excess of 30
days, additional dividends as described in Section 3(b) shall be payable in
accordance therewith from the day such Registration Default occurs until such
Registration Default is cured.

          (3) No dividend will be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding share of the 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
Preferred Stock.

          (4) 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 other
than cash paid 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 or on behalf of the Company
(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 full Accumulated Dividends shall 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 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

                                                                               8

paid on the Preferred Stock and any Parity Stock, dividends may be declared and
paid on the 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 Preferred Stock and such Parity Stock will in all cases bear to each
other the same ratio that accumulated and unpaid dividends on the shares of
Preferred Stock and such other Parity Stock bear to each other.

          (5) Holders of shares of Preferred Stock shall not be entitled to any
dividends on the Preferred Stock, whether payable in cash, property or stock, in
excess of full cumulative dividends. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Preferred Stock which may be in arrears.

          (6) The holders of shares of Preferred Stock at the close of business
on a Dividend Record Date will be entitled to receive the dividend payment on
those shares on the corresponding Dividend Payment Date notwithstanding the
subsequent conversion thereof or the Company's default in payment of the
dividend due on that Dividend Payment Date. However, shares of Preferred Stock
surrendered for conversion during the period between the close of business on
any Dividend Record Date and the close of business on the day immediately
preceding the applicable Dividend Payment Date must be accompanied by payment of
an amount equal to the dividend payable on the shares on that Dividend Payment
Date. A holder of shares of Preferred Stock on a Dividend Record Date who (or
whose transferee) tenders any shares for conversion on the corresponding
Dividend Payment Date will receive the dividend payable by the Company on the
Preferred Stock on that date, and the converting holder need not include payment
in the amount of such dividend upon surrender of shares of Preferred Stock for
conversion. Except as provided above with respect to a voluntary conversion
pursuant to Section 7, the Company shall make no payment or allowance for unpaid
dividends, whether or not in arrears, on converted shares or for dividends on
the shares of Common Stock issued upon conversion.

                                                                               9

     4. Change of Control.

          (1) Upon the occurrence of a Change of Control, each holder of
Preferred Stock shall, in the event that the Market Value for the period ending
on the Change of Control Date is less than the Conversion Price, have a one-time
option (the "Change of Control Option") to convert all of such holder's
outstanding shares of Preferred Stock into fully paid and nonassessable shares
of Common Stock at an adjusted Conversion Price equal to the greater of (i) the
Market Value for the period ending on the Change of Control Date and (ii)
$4.0733. The Change of Control Option must be exercised, if at all, during the
period of not less than 30 days nor more than 60 days commencing on the third
Business Day after notice of a Change in Control has been given by the Company
in accordance with Section 4(b). In lieu of issuing the shares of Common Stock
issuable upon conversion in the event of a Change of Control, the Company may,
at its 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 the occurrence of a
Change of Control in which (i) each holder of 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 (ii)
all the 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 factional shares), and the Preferred Stock becomes convertible solely into
such common stock, the Conversion Price will not be adjusted as described in
this Section 4(a).

          (2) In the event of a Change of Control (other than a Change of
Control described in the last sentence of Section 4(a)), notice of such Change
of Control shall be given, within five Business Days of the Change of Control
Date, by the Company by first-class mail to each record holder of shares of
Preferred Stock, at such holder's address as the same appears on the books of
the Company. Each such notice shall state (i) that a Change of Control has
occurred; (ii) the last day on which the Change of Control Option may be
exercised (the "Expiration Date") pursuant to the terms hereof; (iii) the name
and address of the Transfer Agent; and (iv) the procedures that holders must
follow to exercise the Change of Control Option.

          (3) On or before the Expiration Date, each holder of shares of
Preferred Stock wishing to exercise the Change of Control Option shall surrender
the certificate or certificates representing the shares of Preferred Stock to be
converted, in the manner and at the place designated in the notice described in
Section 4(b), and on such date the cash or shares of Common Stock due to such
holder shall be delivered to the Person whose name appears on such certificate
or certificates as the owner thereof and the shares represented by each
surrendered certificate shall be returned to authorized but unissued shares.
Upon surrender (in accordance with the notice described in Section 4(b))

                                                                              10

of the certificate or certificates representing any shares to be so converted
(properly endorsed or assigned for transfer, if the Company shall so require and
the notice shall so state), such shares shall be converted by the Company at the
adjusted Conversion Price, if applicable, as described in Section 4(a).

          (4) The rights of holders of Preferred Stock pursuant to this Section
4 are in addition to, and not in lieu of, the rights of holders of Preferred
Stock provided for in Section 7 hereof.

     5. Voting.

          (1) The shares of Preferred Stock shall have no voting rights except
as set forth below or as otherwise required by Oklahoma law from time to time:

          (i) If and whenever at any time or times a Voting Rights Triggering
Event occurs, then the holders of shares of Preferred Stock, voting as a single
class with any other preferred stock or preference securities having similar
voting rights that are exercisable (the "Voting Rights Class"), will be entitled
at the next regular or special meeting of stockholders of the Company to elect
two additional directors of the Company, unless the Board of Directors is
comprised of fewer than six directors at such time, in which case the Voting
Rights Class shall be entitled to elect one additional director. Upon the
election of any such additional directors, the number of directors that compose
the Board of Directors shall be increased by such number of additional
directors.

          (ii) Such voting rights may be exercised at a special meeting of the
holders of the shares of the Voting Rights Class, called as hereinafter
provided, or at any annual meeting of stockholders held for the purpose of
electing directors, and thereafter at each such annual meeting until such time
as all dividends in arrears on the shares of Preferred Stock shall have been
paid in full, at which time or times such voting rights and the term of the
directors elected pursuant to Section 5(a)(i) shall terminate.

          (iii) At any time when such voting rights shall have vested in holders
of shares of the Voting Rights Class, an Officer of the Company may call, and,
upon written request of the record holders of shares representing at least
twenty-five percent (25%) of the voting power of the shares then outstanding of
the Voting Rights Class, addressed to the Secretary of the Company, shall call a
special meeting of the holders of shares of the Voting Rights Class. Such
meeting shall be held at the earliest practicable date upon the notice required
for annual meetings of stockholders at the place for holding annual meetings of
stockholders of the Company, or, if none, at a place designated by the Board of
Directors. Notwithstanding the provisions of this Section 5(a)(iii), no such
special meeting shall be called during a period within the 60 days immediately
preceding the date fixed for the next annual meeting of stockholders in which
such case, the election of directors pursuant to Section 5(a)(i) shall be held
at such annual meeting of stockholders.

                                                                              11

          (iv) At any meeting held for the purpose of electing directors at
which the holders of the Voting Rights Class shall have the right to elect
directors as provided herein, the presence in person or by proxy of the holders
of shares representing more than fifty percent (50%) in voting power of the then
outstanding shares of the Voting Rights Class shall be required and shall be
sufficient to constitute a quorum of such class for the election of directors by
such class. The affirmative vote of the holders of shares of Preferred Stock
constituting a majority of the shares of Preferred Stock present at such
meeting, in person or by proxy, shall be sufficient to elect any such director.

          (v) Any director elected pursuant to the voting rights created under
this Section 5(a) shall hold office until the next annual meeting of
stockholders (unless such term has previously terminated pursuant to Section 5
(a)(ii)) and any vacancy in respect of any such director shall be filled only by
vote of the remaining director so elected by holders of the Voting Rights Class,
or if there be no such remaining director, by the holders of shares of the
Voting Rights Class at a special meeting called in accordance with the
procedures set forth in this Section 5, or, if no such special meeting is
called, at the next annual meeting of stockholders. Upon any termination of such
voting rights, the term of office of all directors elected pursuant to this
Section 5 shall terminate.

          (vi) So long as any shares of Preferred Stock remain outstanding,
unless a greater percentage shall then be required by law, the Company shall
not, without the affirmative vote or consent of the holders of at least 66 2/3%
of the outstanding Preferred Stock voting or consenting, as the case may be,
separately as one class, (i) create, authorize or issue any class or series of
Senior Stock (or any security convertible into Senior Stock) or (ii) amend the
Certificate of Incorporation so as to affect adversely the specified rights,
preferences, privileges or voting rights of holders of shares of Preferred
Stock.

          (vii) In exercising the voting rights set forth in this Section 5(a),
each share of Preferred Stock shall be entitled to one vote.

          (2) The Company may authorize, increase the authorized amount of, or
issue any shares of Parity Stock or Junior Stock, without the consent of the
holders of Preferred Stock, and in taking such actions the Company shall not be
deemed to have affected adversely the rights, preferences, privileges or voting
rights of holders of shares of Preferred Stock.

     6. Liquidation Rights.

                                                                              12

          (1) In the event of any liquidation, winding-up or dissolution of the
Company, whether voluntary of involuntary, each holder of shares of Preferred
Stock shall be entitled to receive and to be paid out of the assets of the
Company available for distribution to its stockholders the Liquidation
Preference plus Accumulated Dividends and Accrued Dividends thereon in
preference to the holders of, and before any payment or distribution is made on,
any Junior Stock, including, without limitation, on any Common Stock.

          (2) Neither the sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially all
the assets or business of the Company (other than in connection with the
liquidation, winding-up or dissolution of its business) nor the merger or
consolidation of the Company into or with any other Person shall be deemed to be
a liquidation, winding-up or dissolution, voluntary or involuntary, for the
purposes of this Section 6.

          (3) After the payment to the holders of the shares of Preferred Stock
of full preferential amounts provided for in this Section 6, the holders of
Preferred Stock as such shall have no right or claim to any of the remaining
assets of the Company.

          (4) In the event the assets of the Company available for distribution
to the holders of shares of Preferred Stock upon any liquidation, winding-up or
dissolution of the Company, whether voluntary or involuntary, shall be
insufficient to pay in full all amounts to which such holders are entitled
pursuant to Section 6(a), no such distribution shall be made on account of any
shares of Parity Stock upon such liquidation, dissolution or winding-up unless
proportionate distributable amounts shall be paid on account of the shares of
Preferred Stock, ratably, in proportion to the full distributable amounts for
which holders of all Preferred Stock and of any Parity Stock are entitled upon
such liquidation, winding-up or dissolution.

     7. Conversion.

          (a) Each holder of Preferred Stock shall have the right, at its
option, exercisable at any time and from time to time from the Issue Date to
convert, subject to the terms and provisions of this Section 7, any or all of
such holder's shares of Preferred Stock. In such case, the shares of Preferred
Stock shall be converted into such whole number of fully paid and nonassessable
shares of Common Stock as is equal, subject to Section 7(g), to the product of
the number of shares of Preferred Stock being so converted multiplied by the
quotient of (i) the Liquidation Preference divided by (ii) the Conversion Price
(as defined below) then in effect. The Conversion Price initially shall be
$7.70, subject to adjustment as set forth in Section 7(c).

          The conversion right of a holder of Preferred Stock shall be exercised
by the holder by the surrender to the Company of the certificates representing
shares to be

                                                                              13

converted at any time during usual business hours at its principal place of
business or the offices of its duly appointed Transfer Agent to be maintained by
it, accompanied by written notice to the Company in the form of Exhibit B that
the holder elects to convert all or a portion of the shares of Preferred Stock
represented by such certificate and specifying the name or names (with address)
in which a certificate or certificates for shares of Common Stock are to be
issued and (if so required by the Company or its duly appointed Transfer Agent)
by a written instrument or instruments of transfer in form reasonably
satisfactory to the Company or its duly appointed Transfer Agent duly executed
by the holder or its duly authorized legal representative and transfer tax
stamps or funds therefor, if required pursuant to Section 7(i). Immediately
prior to the close of business on the date of receipt by the Company or its duly
appointed Transfer Agent of notice of conversion of shares of Preferred Stock,
each converting holder of Preferred Stock shall be deemed to be the holder of
record of Common Stock issuable upon conversion of such holder's Preferred Stock
notwithstanding that the share register of the Company shall then be closed or
that certificates representing such Common Stock shall not then be actually
delivered to such holder. Upon notice from the Company, each holder of Preferred
Stock so converted shall promptly surrender to the Company, at any place where
the Company shall maintain a Transfer Agent, certificates representing the
shares so converted, duly endorsed in blank or accompanied by proper instruments
of transfer. On the date of any conversion, all rights with respect to the
shares of Preferred Stock so converted, including the rights, if any, to receive
notices, will terminate, except only the rights of holders thereof to (i)
receive certificates for the number of whole shares of Common Stock into which
such shares of Preferred Stock have been converted and cash, in lieu of any
fractional shares as provided in Section 7(f); and (ii) exercise the rights to
which they are entitled as holders of Common Stock.

          (b) If the last day for the exercise of the conversion right shall not
be a Business Day, then such conversion right may be exercised on the next
preceding Business Day.

                                                                              14

          (c) The Conversion Price shall be subject to adjustment as follows:

               (i) In case the Company shall at any time or from time to time
(A) pay a dividend (or other distribution) payable in shares of Common Stock on
any class of capital stock (which, for purposes of this Section 7(c) shall
include, without limitation, any dividends or distributions in the form of
options, warrants or other rights to acquire capital stock) of the Company
(other than the issuance of shares of Common Stock in connection with the
payment of dividends on or the conversion of Preferred Stock); (B) subdivide the
outstanding shares of Common Stock into a larger number of shares; (C) combine
the outstanding shares of Common Stock into a smaller number of shares; (D)
issue any shares of its capital stock in a reclassification of the Common Stock;
or (E) pay a dividend or make a distribution to all holders of shares of Common
Stock (other than a dividend or distribution subject to Section 7(c)(ii))
pursuant to a stockholder rights plan, "poison pill" or similar arrangement and
excluding dividends payable on the Preferred Stock then, and in each such case,
the Conversion Price in effect immediately prior to such event shall be adjusted
(and any other appropriate actions shall be taken by the Company) so that the
holder of any share of Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number of shares of Common Stock that such
holder would have owned or would have been entitled to receive upon or by reason
of any of the events described above, had such share of Preferred Stock been
converted into shares of Common Stock immediately prior to the occurrence of
such event. An adjustment made pursuant to this Section 7(c)(i) shall become
effective retroactively (x) in the case of any such dividend or distribution, to
the day immediately following the close of business on the record date for the
determination of holders of Common Stock entitled to receive such dividend or
distribution or (y) in the case of any such subdivision, combination or
reclassification, to the close of business on the day upon which such corporate
action becomes effective.

(ii) In case the Company shall at any time or from time to time issue to all
holders of its Common Stock rights, options or warrants entitling the holders
thereof to subscribe for or purchase shares of Common Stock (or securities
convertible into or exchangeable for shares of Common Stock) at a price per
share less than the Market Value for the period ending on the date of issuance
(treating the price per share of any security convertible, or exchangeable or
exercisable into Common Stock as equal to (A) the sum of the price paid to
acquire such security convertible, exchangeable or exercisable into Common Stock
plus any additional consideration payable (without regard to any anti-dilution
adjustments) upon the conversion, exchange or exercise of such security into
Common Stock divided by (B) the number of shares of Common Stock into which such
convertible, exchangeable or exercisable security is initially convertible,
exchangeable or exercisable), other than (I) issuances of such rights, options
or warrants if the holder of Preferred Stock would be entitled to receive such
rights, options or warrants upon conversion at any time of shares of Preferred
Stock into Common Stock and (II) issuances that are subject to certain
triggering events (until such time as such triggering events

                                                                              15

occur), then, and in each such case, the Conversion Price then in effect shall
be adjusted by dividing the Conversion Price in effect on the day immediately
prior to the record date of such issuance by a fraction (y) the numerator of
which shall be the sum of the number of shares of Common Stock outstanding on
such record date plus the number of additional shares of Common Stock issued or
to be issued upon or as a result of the issuance of such rights, options or
warrants (or the maximum number into or for which such convertible or
exchangeable securities initially may convert or exchange or for which such
options, warrants or other rights initially may be exercised) and (z) the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock which
the aggregate consideration for the total number of such additional shares of
Common Stock so issued (or into or for which such convertible or exchangeable
securities may convert or exchange or for which such options, warrants or other
rights may be exercised plus the aggregate amount of any additional
consideration initially payable upon the conversion, exchange or exercise of
such security) would purchase at the Market Value for the period ending on the
date of conversion; provided, that if the Company distributes rights or warrants
(other than those referred to above in this subparagraph (c)(ii)) pro rata to
the holders of Common Stock, so long as such rights or warrants have not expired
or been redeemed by the Company, (y) the holder of any Preferred Stock
surrendered for conversion shall be entitled to receive upon such conversion, in
addition to the shares of Common Stock then issuable upon such conversion (the
"Conversion Shares"), a number of rights or warrants to be determined as
follows: (i) if such conversion occurs on or prior to the date for the
distribution to the holders of rights or warrants of separate certificates
evidencing such rights or warrants (the "Distribution Date"), the same number of
rights or warrants to which a holder of a number of shares of Common Stock equal
to the number of Conversion Shares is entitled at the time of such conversion in
accordance with the terms and provisions applicable to the rights or warrants
and (ii) if such conversion occurs after the Distribution Date, the same number
of rights or warrants to which a holder of the number of shares of Common Stock
into which such Preferred Stock was convertible immediately prior to such
Distribution Date would have been entitled on such Distribution Date had such
Preferred Stock been converted immediately prior to such Distribution Date in
accordance with the terms and provisions applicable to the rights and warrants,
and (z) the Conversion Price shall not be subject to adjustment on account of
any declaration, distribution or exercise of such rights or warrants.

(iii) In case the Company shall at any time or from time to time (A) make a pro
rata distribution to all holders of shares of its Common Stock consisting
exclusively of cash (excluding any cash portion of distributions referred to in
clause (E) of paragraph (c)(i) above, or cash distributed upon a merger or
consolidation to which paragraph (g) below applies), that, when combined
together with (x) all other such all-cash distributions made within the
then-preceding 12 months in respect of which no adjustment has been made and (y)
any cash and the fair market value of other consideration paid or payable in
respect of any tender offer by the Company or any of its subsidiaries for shares
of


                                                                              16

Common Stock concluded within the then-preceding 12 months in respect of which
no adjustment pursuant to this Section 7(c) has been made, in the aggregate
exceeds 15% of the Company's market capitalization (defined as the product of
the Market Value for the period ending on the record date of such distribution
times the number of shares of Common Stock outstanding on such record date) on
the record date of such distribution; (B) complete a tender or exchange offer by
the Company or any of its subsidiaries for shares of Common Stock that involves
an aggregate consideration that, together with (I) any cash and other
consideration payable in a tender or exchange offer by the Company or any of its
subsidiaries for shares of Common Stock expiring within the then-preceding 12
months in respect of which no adjustment pursuant to this Section 7(c) has been
made and (II) the aggregate amount of any such all-cash distributions referred
to in clause (A) above to all holders of shares of Common Stock within the
then-preceding 12 months in respect of which no adjustments have been made,
exceeds 15% of the Company's market capitalization on the expiration of such
tender offer; or (C) make a distribution to all holders of its Common Stock
consisting of evidences of indebtedness, shares of its capital stock other than
Common Stock or assets (including securities, but excluding those dividends,
rights, options, warrants and distributions referred to in paragraphs (c)(i),
(c)(ii) above or this (c)(iii)), then, and in each such case, the Conversion
Price then in effect shall be adjusted by dividing the Conversion Price in
effect immediately prior to the date of such distribution or completion of such
tender or exchange offer, as the case may be, by a fraction (x) the numerator of
which shall be the Market Value for the period ending on the record date
referred to below, or, if such adjustment is made upon the completion of a
tender or exchange offer, on the payment date for such offer, and (y) the
denominator of which shall be such Market Value less the then fair market value
(as determined by the Board of Directors of the Company) of the portion of the
cash, evidences of indebtedness, securities or other assets so distributed or
paid in such tender or exchange offer, applicable to one share of Common Stock
(but such denominator shall not be less than one); provided, however, that no
adjustment shall be made with respect to any distribution of rights to purchase
securities of the Company if the holder of shares of Preferred Stock would
otherwise be entitled to receive such rights upon conversion at any time of
shares of Preferred Stock into shares of Common Stock unless such rights are
subsequently redeemed by the Company, in which case such redemption shall be
treated for purposes of this Section 7(c)(iii) as a dividend on the Common
Stock. Such adjustment shall be made whenever any such distribution is made or
tender or exchange offer is completed, as the case may be, and shall become
effective retroactively to a date immediately following the close of business on
the record date for the determination of stockholders entitled to receive such
distribution.

(iv) In the case the Company at any time or from time to time shall take any
action affecting its Common Stock (it being understood that the issuance or sale
of shares of Common Stock (or securities convertible into or exchangeable for
shares of Common Stock, or any options, warrants or other rights to acquire
shares of Common Stock) to any Person at a price per share less than the
Conversion Price then in effect shall not be

                                                                              17

deemed such an action), other than an action described in any of Section 7(c)(i)
through Section 7(c)(iii), inclusive, or Section 7(g), then the Conversion Price
shall be adjusted in such manner and at such time as the Board of Directors of
the Company in good faith determines to be equitable in the circumstances (such
determination to be evidenced in a resolution, a certified copy of which shall
be mailed to the holders of the Preferred Stock).

               (v) Notwithstanding anything herein to the contrary, no
adjustment under this Section 7(c) need be made to the Conversion Price unless
such adjustment would require an increase or decrease of at least 1% of the
Conversion Price then in effect. Any lesser adjustment shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment, if any, which, together with any adjustment or adjustments so
carried forward, shall amount to an increase or decrease of at least 1% of such
Conversion Price.

               (vi) The Company reserves the right to make such reductions in
the Conversion Price in addition to those required in the foregoing provisions
as it considers advisable in order that any event treated for Federal income tax
purposes as a dividend of stock or stock rights will not be taxable to the
recipients. In the event the Company elects to make such a reduction in the
Conversion Price, the Company will comply with the requirements of Rule 14e-1
under the Exchange Act, and any other securities laws and regulations thereunder
if and to the extent that such laws and regulations are applicable in connection
with the reduction of the Conversion Price.

          (d) If the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter (and before the dividend or distribution has
been paid or delivered to stockholders) legally abandon its plan to pay or
deliver such dividend or distribution, then thereafter no adjustment in the
Conversion Price then in effect shall be required by reason of the taking of
such record.

          (e) Upon any increase or decrease in the Conversion Price, then, and
in each such case, the Company promptly shall deliver to each holder of
Preferred Stock a certificate signed by an authorized officer of the Company,
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the increased or
decreased Conversion Price then in effect following such adjustment.

          (f) No fractional shares or securities representing fractional shares
of Common Stock shall be issued upon the conversion of any shares of Preferred
Stock, whether voluntary or mandatory. If more than one share of Preferred Stock
shall be surrendered for conversion at one time by the same holder, the number
of full shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the


                                                                              18

aggregate Liquidation Preference of the shares of Preferred Stock so
surrendered. If the conversion of any share or shares of Preferred Stock results
in a fraction, an amount equal to such fraction multiplied by the last reported
sale price of the Common Stock on the NYSE (or on such other national securities
exchange or automated quotation system on which the Common Stock is then listed
for trading or authorized for quotation or, if the Common Stock is not then so
listed or authorized for quotation, an amount determined in good faith by the
Board of Directors to be the fair value of the Common Stock) at the close of
business on the trading day next preceding the day of conversion shall be paid
to such holder in cash by the Company.

          (g) In the event of any reclassification of outstanding shares of
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value), or in the event of any consolidation
or merger of the Company with or into another Person or any merger of another
Person with or into the Company (other than a consolidation or merger in which
the Company is the resulting or surviving Person and which does not result in
any reclassification or change of outstanding Common Stock), or in the event of
any sale or other disposition to another Person of all or substantially all of
the assets of the Company (computed on a consolidated basis) (any of the
foregoing, a "Transaction"), each share of Preferred Stock then outstanding
shall, without the consent of any holder of Preferred Stock, become convertible
at any time, at the option of the holder thereof, only into the kind and amount
of securities (of the Company or another issuer), cash and other property
receivable upon such Transaction by a holder of the number of shares of Common
Stock into which such share of Preferred Stock could have been converted
immediately prior to such Transaction, after giving effect to any adjustment
event. The provisions of this Section 7(g) and any equivalent thereof in any
such securities similarly shall apply to successive Transactions. The provisions
of this Section 7(g) shall be the sole right of holders of Preferred Stock in
connection with any Transaction and such holders shall have no separate vote
thereon.

          (h) The Company shall at all times reserve and keep available for
issuance upon the conversion of the Preferred Stock such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Preferred
Stock, and shall take all action required to increase the authorized number of
shares of Common Stock if at any time there shall be insufficient unissued
shares of Common Stock to permit such reservation or to permit the conversion of
all outstanding shares of Preferred Stock.

          (i) The issuance or delivery of certificates for Common Stock upon the
conversion of shares of Preferred Stock shall be made without charge to the
converting holder of shares of Preferred Stock for such certificates or for any
tax in respect of the issuance or delivery of such certificates or the
securities represented thereby, and such certificates shall be issued or
delivered in the respective names of, or in such names as may be directed by,
the holders of the shares of Preferred Stock converted; provided,

                                                                              19

however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate in a name other than that of the holder of the shares of
Preferred Stock converted, and the Company shall not be required to issue or
deliver such certificate unless or until the Person or Persons requesting the
issuance or delivery thereof shall have paid to the Company the amount of such
tax or shall have established to the reasonable satisfaction of the Company that
such tax has been paid.

     8. Mandatory Conversion.

          (a) At any time on or after November 20, 2004, the Company shall have
the right, at its option, to cause the Preferred Stock, in whole but not in
part, to be automatically converted into that number of whole shares of Common
Stock for each share of Preferred Stock equal to the quotient of (i) the
Liquidation Preference divided by (ii) the Conversion Price then in effect, with
any resulting fractional shares of Common Stock to be settled in accordance with
Section 7(f). The Company may exercise its right to cause a mandatory conversion
pursuant to this Section 8(a) only if the closing price of the Common Stock
equals or exceeds 130% of the Conversion Price then in effect for at least 20
trading days in any consecutive 30-day trading period on the NYSE (or such other
national securities exchange or automated quotation system on which the Common
Stock is then listed or authorized for quotation or, if the Common Stock is not
so listed or authorized for quotation, an amount determined in good faith by the
Board of Directors to be the fair value of the Common Stock), including the last
trading day of such 30-day period, ending on the trading day prior to the
Company's issuance of a press release announcing the mandatory conversion as
described in Section 8(b).

          (b) To exercise the mandatory conversion right described in Section
8(a), the Company must issue a press release for publication on the Dow Jones
News Service prior to the opening of business on the first trading day following
any date on which the conditions described in Section 8(a) are met, announcing
such a mandatory conversion. The Company shall also give notice by mail or by
publication (with subsequent prompt notice by mail) to the holders of Preferred
Stock (not more than four Business Days after the date of the press release) of
the mandatory conversion announcing the Company's intention to convert the
Preferred Stock. The conversion date will be a date selected by the Company (the
"Mandatory Conversion Date") and will be no more than five days after the date
on which the Company issues the press release described in this Section 8(b).

          (c) In addition to any information required by applicable law or
regulation, the press release and notice of a mandatory conversion described in
Section 8(b) shall state, as appropriate: (i) the Mandatory Conversion Date;
(ii) the number of shares of Common Stock to be issued upon conversion of each
share of Preferred Stock; (iii) the number of shares of Preferred Stock to be
converted; and (iv) that dividends on

                                                                              20

the Preferred Stock to be converted will cease to accrue on the Mandatory
Conversion Date.

          (d) On and after the Mandatory Conversion Date, dividends will cease
to accrue on the Preferred Stock called for a mandatory conversion pursuant to
Section 8(a) and all rights of holders of such Preferred Stock will terminate
except for the right to receive the whole shares of Common Stock issuable upon
conversion thereof and cash, in lieu of any fractional shares of Common Stock in
accordance with Section 7(f). The dividend payment with respect to the Preferred
Stock called for a mandatory conversion pursuant to Section 8(a) on a date
during the period between the close of business on any Dividend Record Date to
the close of business on the corresponding Dividend Payment Date will be payable
on such Dividend Payment Date to the record holder of such share on such
Dividend Record Date if such share has been converted after such Dividend Record
Date and prior to such Dividend Payment Date. Except as provided in the
immediately preceding sentence with respect to a mandatory conversion pursuant
to Section 8(a), no payment or adjustment will be made upon conversion of
Preferred Stock for Accrued Dividends or for dividends with respect to the
Common Stock issued upon such conversion.

          (e) The Company may not authorize, issue a press release or give
notice of any mandatory conversion pursuant to Section 8(a) unless, prior to
giving the conversion notice, all Accumulated Dividends on the Preferred Stock
for periods ended prior to the date of such conversion notice shall have been
paid in cash.

          (f) In addition to the mandatory conversion right described in Section
8(a), if there are less than 250,000 shares of Preferred Stock outstanding, the
Company shall have the right, at any time on or after November 20, 2006, at its
option, to cause the Preferred Stock to be automatically converted into that
number of whole shares of Common Stock equal to the quotient of (i) the
Liquidation Preference divided by (ii) the lesser of (A) the Conversion Price
then in effect and (B) the Market Value for the period ending on the second
trading day immediately prior to the Mandatory Conversion Date, with any
resulting fractional shares of Common Stock to be settled in cash in accordance
with Section 7(f). The provisions of clauses (b), (c), (d) and (e) of this
Section 8 shall apply to any mandatory conversion pursuant to this clause (f);
provided that (i) the Mandatory Conversion Date described in Section 8(b) shall
not be less than 15 days nor more than 30 days after the date on which the
Company issues a press release pursuant to Section 8(b) announcing such
mandatory conversion and (ii) the press release and notice of mandatory
conversion described in Section 8(c) will not state the number of shares of
Common Stock to be issued upon conversion of each share of Preferred Stock.

     9. Consolidation, Merger and Sale of Assets.

                                                                              21

          (a) The Company, without the consent of the holders of any of the
outstanding Preferred Stock, may consolidate with or merge into any other Person
or convey, transfer or lease all or substantially all its assets to any Person
or may permit any Person to consolidate with or merge into, or transfer or lease
all or substantially all its properties to, the Company; provided, however, that
(a) the successor, transferee or lessee is organized under the laws of the
United States or any political subdivision thereof; (b) the shares of Preferred
Stock will become shares of such successor, transferee or lessee, having in
respect of such successor, transferee or lessee the same powers, preferences and
relative participating, optional or other special rights and the qualification,
limitations or restrictions thereon, the Preferred Stock had immediately prior
to such transaction; and (c) the Company delivers to the Transfer Agent an
Officers' Certificate and an Opinion of Counsel stating that such transaction
complies with this Certificate of Designation.

          (b) Upon any consolidation by the Company with, or merger by the
Company into, any other person or any conveyance, transfer or lease of all or
substantially all the assets of the Company as described in Section 9(a), the
successor resulting from such consolidation or into which the Company is merged
or the transferee or lessee to which such conveyance, transfer or lease is made,
will succeed to, and be substituted for, and may exercise every right and power
of, the Company under the shares of Preferred Stock, and thereafter, except in
the case of a lease, the predecessor (if still in existence) will be released
from its obligations and covenants with respect to the Preferred Stock.


     10.  SEC Reports.

          Whether or not the Company is required to file reports with the
Commission, if any shares of Preferred Stock are outstanding, the Company shall
file with the Commission all such reports and other information as it would be
required to file with the Commission by Sections 13(a)or 15(d) under the
Exchange Act. The Company shall supply each holder of Preferred Stock, upon
request, without cost to such holder, copies of such reports or other
information.

     11.  Certificates.

          (a) Form and Dating. The Preferred Stock and the Transfer Agent's
certificate of authentication shall be substantially in the form of Exhibit A,
which is hereby incorporated in and expressly made a part of this Certificate of
Designation. The Preferred Stock certificate may have notations, legends or
endorsements required by law, stock exchange rule, agreements to which the
Company is subject, if any, or usage (provided that any such notation, legend or
endorsement is in a form acceptable to the Company). Each Preferred Stock
certificate shall be dated the date of its authentication. The terms of the
Preferred Stock certificate set forth in Exhibit A are part of the terms of this
Certificate of Designation.

                                                                              22

          (i) Global Preferred Stock. The Preferred Stock shall be issued
initially in the form of one or more fully registered global certificates with
the global securities legend and restricted securities legend set forth in
Exhibit A hereto (the "Global Preferred Stock"), which shall be deposited on
behalf of the purchasers represented thereby with the Transfer Agent, as
custodian for DTC (or with such other custodian as DTC may direct), and
registered in the name of DTC or a nominee of DTC, duly executed by the Company
and authenticated by the Transfer Agent as hereinafter provided. The number of
shares of Preferred Stock represented by Global Preferred Stock may from time to
time be increased or decreased by adjustments made on the records of the
Transfer Agent and DTC or its nominee as hereinafter provided. With respect to
shares of Preferred Stock that are not "restricted securities" as defined in
Rule 144 on a conversion date, all shares of Common Stock distributed on such
conversion date will be freely transferable without restriction under the
Securities Act (other than by affiliates), and such shares will be eligible for
receipt in global form through the facilities of DTC.

          (ii) Book-Entry Provisions. In the event Global Preferred Stock is
deposited with or on behalf of DTC, the Company shall execute and the Transfer
Agent shall authenticate and deliver initially one or more Global Preferred
Stock certificates that (a) shall be registered in the name of DTC for such
Global Preferred Stock or the nominee of DTC and (b) shall be delivered by the
Transfer Agent to DTC or pursuant to DTC's instructions or held by the Transfer
Agent as custodian for DTC.

          Members of, or participants in, DTC ("Agent Members") shall have no
rights under this Certificate of Designation with respect to any Global
Preferred Stock held on their behalf by DTC or by the Transfer Agent as the
custodian of DTC or under such Global Preferred Stock, and DTC may be treated by
the Company, the Transfer Agent and any agent of the Company or the Transfer
Agent as the absolute owner of such Global Preferred Stock for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Transfer Agent or any agent of the Company or the Transfer Agent
from giving effect to any written certification, proxy or other authorization
furnished by DTC or impair, as between DTC and its Agent Members, the operation
of customary practices of DTC governing the exercise of the rights of a holder
of a beneficial interest in any Global Preferred Stock.

          (iii) Certificated Preferred Stock; Certificated Common Stock. Except
as provided in this paragraph 11(a) or in paragraph 11 (c), owners of beneficial
interests in Global Preferred Stock will not be entitled to receive physical
delivery of Preferred Stock in fully registered certificated form ("Certificated
Preferred Stock"). With respect to shares of Preferred Stock that are
"restricted securities" as defined in Rule 144 on a conversion date, all shares
of Common Stock issuable on conversion of such shares on such conversion date
will be issued in fully registered certificated form ("Certificated Common
Stock"). Certificates of Certificated Common Stock will be mailed or made

                                                                              23

available at the office of the Transfer Agent for the Preferred Stock on or as
soon as reasonably practicable after the relevant conversion date to the
converting holder.

          After a transfer of any Preferred Stock or Certificated Common Stock
during the period of the effectiveness of a Shelf Registration Statement with
respect to such Preferred Stock or such Certificated Common Stock, all
requirements pertaining to legends on such Preferred Stock (including Global
Preferred Stock) or Certificated Common Stock will cease to apply, the
requirements requiring that any such Certificated Common Stock issued to Holders
be issued in certificated form, as the case may, will cease to apply, and
Preferred Stock or Common Stock, as the case may be, in global or fully
registered certificated form, in either case without legends, will be available
to the transferee of the Holder of such Preferred Stock or Certificated Common
Stock upon exchange of such transferring Holder's Preferred Stock or Common
Stock or directions to transfer such Holder's interest in the Global Preferred
Stock, as applicable.

(b) Execution and Authentication. One Officer shall sign the Preferred Stock
certificate for the Company by manual or facsimile signature.

          If an Officer whose signature is on a Preferred Stock certificate no
longer holds that office at the time the Transfer Agent authenticates the
Preferred Stock certificate, the Preferred Stock certificate shall be valid
nevertheless.

          A Preferred Stock certificate shall not be valid until an authorized
signatory of the Transfer Agent manually signs the certificate of authentication
on the Preferred Stock certificate. The signature shall be conclusive evidence
that the Preferred Stock certificate has been authenticated under this
Certificate of Designation.

          The Transfer Agent shall authenticate and deliver certificates for up
to 3,000,000 shares of Preferred Stock for original issue upon a written order
of the Company signed by two Officers or by an Officer and an Assistant
Treasurer of the Company. Such order shall specify the number of shares of
Preferred Stock to be authenticated and the date on which the original issue of
Preferred Stock is to be authenticated.

          The Transfer Agent may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the certificates for Preferred Stock.
Unless limited by the terms of such appointment, an authenticating agent may
authenticate certificates for Preferred Stock whenever the Transfer Agent may do
so. Each reference in this Certificate of Designation to authentication by the
Transfer Agent includes authentication by such agent. An authenticating agent
has the same rights as the Transfer Agent or agent for service of notices and
demands.

                                                                              24

          (c) Transfer and Exchange. (i) Transfer and Exchange of Certificated
Preferred Stock. When Certificated Preferred Stock is presented to the Transfer
Agent with a request to register the transfer of such Certificated Preferred
Stock or to exchange such Certificated Preferred Stock for an equal number of
shares of Certificated Preferred Stock, the Transfer Agent shall register the
transfer or make the exchange as requested if its reasonable requirements for
such transaction are met; provided, however, that the Certificated Preferred
Stock surrendered for transfer or exchange:

               (1) shall be duly endorsed or accompanied by a written instrument
          of transfer in form reasonably satisfactory to the Company and the
          Transfer Agent, duly executed by the Holder thereof or its attorney
          duly authorized in writing; and

               (2) is being transferred or exchanged pursuant to an effective
          registration statement under the Securities Act or pursuant to clause
          (I) or (II) below, and is accompanied by the following additional
          information and documents, as applicable:

                           (I) if such Certificated Preferred Stock is being
                  delivered to the Transfer Agent by a Holder for registration
                  in the name of such Holder, without transfer, a certification
                  from such Holder to that effect in substantially the form of
                  Exhibit C hereto; or

                           (II) if such Certificated Preferred Stock is being
                  transferred to the Company or to a "qualified institutional
                  buyer" ("QIB") in accordance with Rule 144A under the
                  Securities Act or pursuant to an exemption from registration
                  in accordance with Rule 144 under the Securities Act, (i) a
                  certification to that effect (in substantially the form of
                  Exhibit C hereto) and (ii) if the Company so requests, an
                  Opinion of Counsel or other evidence reasonably satisfactory
                  to it as to the compliance with the restrictions set forth in
                  the legend set forth in paragraph 11 (c) (vii).

                                                                              25

          (ii) Restrictions on Transfer of Certificated Preferred Stock for a
Beneficial Interest in Global Preferred Stock. Certificated Preferred Stock may
not be exchanged for a beneficial interest in Global Preferred Stock except upon
satisfaction of the requirements set forth below. Upon receipt by the Transfer
Agent of Certificated Preferred Stock, duly endorsed or accompanied by
appropriate instruments of transfer, in form reasonably satisfactory to the
Company and the Transfer Agent, together with written instructions directing the
Transfer Agent to make, or to direct DTC to make, an adjustment on its books and
records with respect to such Global Preferred Stock to reflect an increase in
the number of shares of Preferred Stock represented by the Global Preferred
Stock, then the Transfer Agent shall cancel such Certificated Preferred Stock
and cause, or direct DTC to cause, in accordance with the standing instructions
and procedures existing between DTC and the Transfer Agent, the number of shares
of Preferred Stock represented by the Global Preferred Stock to be increased
accordingly. If no Global Preferred Stock is then outstanding, the Company shall
issue and the Transfer Agent shall authenticate, upon written order of the
Company in the form of an Officers' Certificate, a new Global Preferred Stock
representing the appropriate number of shares.

          (iii) Transfer and Exchange of Global Preferred Stock. The transfer
and exchange of Global Preferred Stock or beneficial interests therein shall be
effected through DTC, in accordance with this Certificate of Designation
(including applicable restrictions on transfer set forth herein, if any) and the
procedures of DTC therefor.

          (iv)  Transfer of a Beneficial Interest in Global Preferred Stock for
a Certificated Preferred Stock.

          (1) Any Person having a beneficial interest in Preferred Stock that is
     being transferred or exchanged pursuant to an effective registration
     statement under the Securities Act or pursuant to an exemption from
     registration in accordance with Rule 144 may upon request, but only with
     the consent of the Company, and if accompanied by a certification from such
     Person to that effect (in substantially the form of Exhibit C hereto),
     exchange such beneficial interest for Certificated Preferred Stock
     representing the same number of shares of Preferred Stock. Upon receipt by
     the Transfer Agent of written instructions or such other form of
     instructions as is customary for DTC from DTC or its nominee on behalf of
     any Person having a beneficial interest in Global Preferred Stock and upon
     receipt by the Transfer Agent of a written order or such other form of
     instructions as is customary for DTC or the Person designated by DTC as
     having such a beneficial interest in a Transfer Restricted Security only,
     then, the Transfer Agent or DTC, at the direction of the Transfer Agent,
     will cause, in accordance with the standing instructions and procedures
     existing between DTC and the Transfer Agent, the number of shares of
     Preferred Stock represented by Global Preferred Stock to be reduced on its
     books and records and, following such reduction, the Company will

                                                                              26

     execute and the Transfer Agent will authenticate and deliver to the
     transferee Certificated Preferred Stock.

          (2) Certificated Preferred Stock issued in exchange for a beneficial
     interest in a Global Preferred Stock pursuant to this paragraph 11 (c) (iv)
     shall be registered in such names and in such authorized denominations as
     DTC, pursuant to instructions from its direct or indirect participants or
     otherwise, shall instruct the Transfer Agent. The Transfer Agent shall
     deliver such Certificated Preferred Stock to the Persons in whose names
     such Preferred Stock are so registered in accordance with the instructions
     of DTC.

          (v) Restrictions on Transfer and Exchange of Global Preferred Stock.

          (1) Notwithstanding any other provisions of this Certificate of
     Designation (other than the provisions set forth in paragraph 11 (c) (vi)),
     Global Preferred Stock may not be transferred as a whole except by DTC to a
     nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or
     by DTC or any such nominee to a successor depository or a nominee of such
     successor depository.

          (2) In the event that the Global Preferred Stock is exchanged for
     Preferred Stock in definitive registered form pursuant to paragraph 11
     (c)(vi) prior to the effectiveness of a Shelf Registration Statement with
     respect to such securities, such Preferred Stock may be exchanged only in
     accordance with such procedures as are substantially consistent with the
     provisions of this paragraph 11 (c) (including the certification
     requirements set forth in the Exhibits to this Certificate of Designation
     intended to ensure that such transfers comply with Rule 144A or such other
     applicable exemption from registration under the Securities Act, as the
     case may be) and such other procedures as may from time to time be adopted
     by the Company.

          (vi) Authentication of Certificated Preferred Stock. If at any time:

          (1) DTC notifies the Company that DTC is unwilling or unable to
     continue as depository for the Global Preferred Stock and a successor
     depository for the Global Preferred Stock is not appointed by the Company
     within 90 days after delivery of such notice;

          (2) DTC ceases to be a clearing agency registered under the Exchange
     Act;

          (3) there shall have occurred and be continuing a Voting Rights
     Triggering Event; or

                                                                              27

               (4) the Company, in its sole discretion, notifies the Transfer
          Agent in writing that it elects to cause the issuance of Certificated
          Preferred Stock under this Certificate of Designation,

     then the Company will execute, and the Transfer Agent, upon receipt of a
     written order of the Company signed by two Officers or by an Officer and an
     Assistant Treasurer of the Company requesting the authentication and
     delivery of Certificated Preferred Stock to the Persons designated by the
     Company, will authenticate and deliver Certificated Preferred Stock equal
     to the number of shares of Preferred Stock represented by the Global
     Preferred Stock, in exchange for such Global Preferred Stock.

          (vii) Legend. (1) Except as permitted by the following paragraph (2)
     and in paragraph 11 (a) (iii), each certificate evidencing the Global
     Preferred Stock, the Certificated Preferred Stock and Certificated Common
     Stock shall bear a legend in substantially the following form:

                                                                              28

          "THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) (AND THE COMMON
          STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) WAS ORIGINALLY ISSUED
          IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES
          SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND THIS SECURITY MAY
          NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
          REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
          THE SECURITY EVIDENCED HEREBY (OR THE COMMON STOCK INTO WHICH THIS
          SECURITY IS CONVERTIBLE) IS HEREBY NOTIFIED THAT THE SELLER MAY BE
          RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
          SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
          SECURITY EVIDENCED HEREBY (AND OF THE COMMON STOCK INTO WHICH THIS
          SECURITY IS CONVERTIBLE ) AGREES FOR THE BENEFIT OF THE COMPANY THAT
          (A) SUCH SECURITY (AND THE COMMON STOCK INTO WHICH THIS SECURITY IS
          CONVERTIBLE) MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED,
          ONLY (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
          INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
          PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
          INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
          144A, (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
          SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (3) TO
          THE COMPANY OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
          UNDER THE SECURITIES ACT, IN EACH OF CASES (1) THROUGH (4) IN
          ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE
          UNITED STATES AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
          REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE
          RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE."/1/

- --------------
/1/ Subject to removal upon registration under the Securities Act of 1933 or
otherwise when the security shall no longer be a Transfer Restricted Security.

                                                                              29

          (2) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by Global Preferred
Stock) pursuant to Rule 144 under the Securities Act or an effective
registration statement under the Securities Act:

               (I) in the case of any Transfer Restricted Security that is a
          Certificated Preferred Stock, the Transfer Agent shall permit the
          Holder thereof to exchange such Transfer Restricted Security for
          Certificated Preferred Stock that does not bear the legend set forth
          above and rescind any restriction on the transfer of such Transfer
          Restricted Security; and

               (II) in the case of any Transfer Restricted Security that is
          represented by a Global Preferred Stock, with the consent of the
          Company, the Transfer Agent shall permit the Holder thereof to
          exchange such Transfer Restricted Security for Certificated Preferred
          Stock that does not bear the legend set forth above and rescind any
          restriction on the transfer of such Transfer Restricted Security, if
          the Holder's request for such exchange was made in reliance on Rule
          144 and the Holder certifies to that effect in writing to the Transfer
          Agent (such certification to be in the form set forth in Exhibit C
          hereto).

          (viii) Cancelation or Adjustment of Global Preferred Stock. At such
time as all beneficial interests in Global Preferred Stock have either been
exchanged for Certificated Preferred Stock, converted or canceled, such Global
Preferred Stock shall be returned to DTC for cancelation or retained and
canceled by the Transfer Agent. At any time prior to such cancelation, if any
beneficial interest in Global Preferred Stock is exchanged for Certificated
Preferred Stock, converted or canceled, the number of shares of Preferred Stock
represented by such Global Preferred Stock shall be reduced and an adjustment
shall be made on the books and records of the Transfer Agent with respect to
such Global Preferred Stock, by the Transfer Agent or DTC, to reflect such
reduction.

          (ix) Obligations with Respect to Transfers and Exchanges of Preferred
Stock. (1) To permit registrations of transfers and exchanges, the Company shall
execute and the Transfer Agent shall authenticate Certificated Preferred Stock
and Global Preferred Stock as required pursuant to the provisions of this
paragraph 11 (c).

               (2) All Certificated Preferred Stock and Global Preferred Stock
          issued upon any registration of transfer or exchange of Certificated
          Preferred Stock or Global Preferred Stock shall be the valid
          obligations of the Company, entitled to the same benefits under this
          Certificate of Designation as the Certificated Preferred Stock or
          Global Preferred Stock surrendered upon such registration of transfer
          or exchange.

                                                                              30

               (3) Prior to due presentment for registration of transfer of any
          shares of Preferred Stock, the Transfer Agent and the Company may deem
          and treat the Person in whose name such shares of Preferred Stock are
          registered as the absolute owner of such Preferred Stock and neither
          the Transfer Agent nor the Company shall be affected by notice to the
          contrary.

               (4) No service charge shall be made to a Holder for any
          registration of transfer or exchange upon surrender of any Preferred
          Stock certificate or Common Stock certificate at the office of the
          Transfer Agent maintained for that purpose. However, the Company may
          require payment of a sum sufficient to cover any tax or other
          governmental charge that may be imposed in connection with any
          registration of transfer or exchange of Preferred Stock certificates
          or Common Stock certificates.

               (5) Upon any sale or transfer of shares of Preferred Stock
          (including any Preferred Stock represented by a Global Preferred Stock
          Certificate) or of Certificated Common Stock pursuant to an effective
          registration statement under the Securities Act, pursuant to Rule 144
          under the Securities Act or pursuant to an Opinion of Counsel
          reasonably satisfactory to the Company that no legend is required:

               (A)  in the case of any Certificated Preferred Stock or
                    Certificated Common Stock, the Company and the Transfer
                    Agent shall permit the holder thereof to exchange such
                    Preferred Stock or Certificated Common Stock for
                    Certificated Preferred Stock or Certificated Common Stock,
                    as the case may be, that does not bear the legend set forth
                    in paragraph (c)(vii) above and rescind any restriction on
                    the transfer of such Preferred Stock or Common Stock
                    issuable in respect of the conversion of the Preferred
                    Stock; and

               (B)  in the case of any Global Preferred Stock, such Preferred
                    Stock shall not be required to bear the legend set forth in
                    paragraph (c)(vii) above but shall continue to be subject to
                    the provisions of paragraph (c) (iv) hereof; provided,
                    however, that with respect to any request for an exchange of
                    Preferred Stock that is represented by Global Preferred
                    Stock for Certificated Preferred Stock that does not bear
                    the legend set forth in paragraph (c)(vii) above in
                    connection with a sale or transfer thereof pursuant to Rule
                    144 (and based upon an Opinion of Counsel if the Company so
                    requests), the Holder thereof shall certify in writing to
                    the Transfer Agent that such request is being made pursuant
                    to Rule 144 (such certification to be substantially in the
                    form of Exhibit C hereto).

                                                                              31

               (x)  No Obligation of the Transfer Agent.

                    (1) The Transfer Agent shall have no responsibility or
               obligation to any beneficial owner of Global Preferred Stock, a
               member of, or a participant in DTC or any other Person with
               respect to the accuracy of the records of DTC or its nominee or
               of any participant or member thereof, with respect to any
               ownership interest in the Preferred Stock or with respect to the
               delivery to any participant, member, beneficial owner or other
               Person (other than DTC) of any notice or the payment of any
               amount, under or with respect to such Global Preferred Stock. All
               notices and communications to be given to the Holders and all
               payments to be made to Holders under the Preferred Stock shall be
               given or made only to the Holders (which shall be DTC or its
               nominee in the case of the Global Preferred Stock). The rights of
               beneficial owners in any Global Preferred Stock shall be
               exercised only through DTC subject to the applicable rules and
               procedures of DTC. The Transfer Agent may rely and shall be fully
               protected in relying upon information furnished by DTC with
               respect to its members, participants and any beneficial owners.

               (2) The Transfer Agent shall have no obligation or duty to
               monitor, determine or inquire as to compliance with any
               restrictions on transfer imposed under this Certificate of
               Designation or under applicable law with respect to any transfer
               of any interest in any Preferred Stock (including any transfers
               between or among DTC participants, members or beneficial owners
               in any Global Preferred Stock) other than to require delivery of
               such certificates and other documentation or evidence as are
               expressly required by, and to do so if and when expressly
               required by, the terms of this Certificate of Designation, and to
               examine the same to determine substantial compliance as to form
               with the express requirements hereof.

(d) Replacement Certificates. If a mutilated Preferred Stock certificate is
surrendered to the Transfer Agent or if the Holder of a Preferred Stock
certificate claims that the Preferred Stock certificate has been lost, destroyed
or wrongfully taken, the Company shall issue and the Transfer Agent shall
countersign a replacement Preferred Stock certificate if the reasonable
requirements of the Transfer Agent and of Section 8-405 of the Uniform
Commercial Code as in effect in the State of New York are met. If required by
the Transfer Agent or the Company, such Holder shall furnish an indemnity bond
sufficient in the judgment of the Company and the Transfer Agent to protect the
Company and the Transfer Agent from any loss which either of them may suffer if
a Preferred Stock certificate is replaced. The Company and the Transfer Agent
may charge the Holder for their expenses in replacing a Preferred Stock
certificate.

                                                                              32

          (e) Temporary Certificates. Until definitive Preferred Stock
certificates are ready for delivery, the Company may prepare and the Transfer
Agent shall countersign temporary Preferred Stock certificates. Temporary
Preferred Stock certificates shall be substantially in the form of definitive
Preferred Stock certificates but may have variations that the Company considers
appropriate for temporary Preferred Stock certificates. Without unreasonable
delay, the Company shall prepare and the Transfer Agent shall countersign
definitive Preferred Stock certificates and deliver them in exchange for
temporary Preferred Stock certificates.

          (f) Cancelation. (i) In the event the Company shall purchase or
otherwise acquire Certificated Preferred Stock, the same shall thereupon be
delivered to the Transfer Agent for cancelation.

          (ii) At such time as all beneficial interests in Global Preferred
Stock have either been exchanged for Certificated Preferred Stock, converted,
repurchased or canceled, such Global Preferred Stock shall thereupon be
delivered to the Transfer Agent for cancelation.

          (iii) The Transfer Agent and no one else shall cancel and destroy all
Preferred Stock certificates surrendered for transfer, exchange, replacement or
cancelation and deliver a certificate of such destruction to the Company unless
the Company directs the Transfer Agent to deliver canceled Preferred Stock
certificates to the Company. The Company may not issue new Preferred Stock
certificates to replace Preferred Stock certificates to the extent they evidence
Preferred Stock which the Company has purchased or otherwise acquired.

     12. Additional Rights of Holders. In addition to the rights provided to
Holders under this Certificate of Designation, Holders shall have the rights set
forth in the Registration Rights Agreement.

     13. Other Provisions.

          (1) With respect to any notice to a holder of shares of Preferred
Stock required to be provided hereunder, neither failure to mail such notice,
nor any defect therein or in the mailing thereof, to any particular holder shall
affect the sufficiency of the notice or the validity of the proceedings referred
to in such notice with respect to the other holders or affect the legality or
validity of any distribution, rights, warrant, reclassification, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding-up, or the
vote upon any such action. Any notice which was mailed in the manner herein
provided shall be conclusively presumed to have been duly given whether or not
the holder receives the notice.

          (2) Shares of Preferred Stock issued and reacquired will be retired
and canceled promptly after reacquisition thereof and, upon compliance with the
applicable

                                                                              33

requirements of Oklahoma law, have the status of authorized but unissued shares
of preferred stock of the Company undesignated as to series and may with any and
all other authorized but unissued shares of preferred stock of the Company be
designated or redesignated and issued or reissued, as the case may be, as part
of any series of preferred stock of the Corporation, except that any issuance or
reissuance of shares of Preferred Stock must be in compliance with this
Certificate of Designation.

     (3) The shares of Preferred Stock shall be issuable only in whole shares.

     (4) All notice periods referred to herein shall commence on the date of the
mailing of the applicable notice.


         IN WITNESS WHEREOF, the Company has caused this certificate to be
signed and attested this 13th day of November, 2001.

                                            CHESAPEAKE ENERGY CORPORATION


                                            By:
                                               ---------------------------------





Attest:


                                                                       EXHIBIT A


                             FORM OF PREFERRED STOCK


                                FACE OF SECURITY


     [THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) (AND THE COMMON STOCK
INTO WHICH THIS SECURITY IS CONVERTIBLE) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE
"SECURITIES ACT") AND THIS SECURITY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY (OR THE COMMON STOCK
INTO WHICH THIS SECURITY IS CONVERTIBLE) IS HEREBY NOTIFIED THAT THE SELLER MAY
BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY (AND OF THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) AGREES
FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY (AND THE COMMON STOCK INTO
WHICH THIS SECURITY IS CONVERTIBLE) MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE), (3) TO THE COMPANY OR (4) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (1) THROUGH
(4) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE
UNITED STATES AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED
TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO IN (A) ABOVE.]/2/

- -----------
     /2/ Subject to removal upon registration under the Securities Act of 1933
or otherwise when the security shall no longer be a Transfer Restricted
Security.

                                                                               2

     [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OF
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.]/3/

          [TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
CERTIFICATE OF DESIGNATION REFERRED TO BELOW.]/3/

          IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT
MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
RESTRICTIONS.

Certificate Number                                           Number of Shares of
                                                     Convertible Preferred Stock

[ ]                                                                          [ ]

                                                           CUSIP NO.:  165167404


   6.75% Cumulative Convertible Preferred Stock (par value $0.01) (liquidation
            preference $50 per share of Convertible Preferred Stock)

                                       of

                          Chesapeake Energy Corporation
- -------
/3/ Subject to removal if not a global security.

                                                                               3

          Chesapeake Energy Corporation, an Oklahoma corporation (the
"Company"), hereby certifies that [ ] (the "Holder") is the registered owner of
[ ] fully paid and non-assessable preferred securities of the Company designated
the 6.75% Cumulative Convertible Preferred Stock (par value $0.01) (liquidation
preference $50 per share of Preferred Stock) (the "Preferred Stock"). The shares
of Preferred Stock are transferable on the books and records of the Transfer
Agent, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer. The designations,
rights, privileges, restrictions, preferences and other terms and provisions of
the Preferred Stock represented hereby are issued and shall in all respects be
subject to the provisions of the Certificate of Designation dated November 13,
2001, as the same may be amended from time to time (the "Certificate of
Designation"). Capitalized terms used herein but not defined shall have the
meaning given them in the Certificate of Designation. The Company will provide a
copy of the Certificate of Designation to a Holder without charge upon written
request to the Company at its principal place of business.

          Reference is hereby made to select provisions of the Preferred Stock
set forth on the reverse hereof, and to the Certificate of Designation, which
select provisions and the Certificate of Designation shall for all purposes have
the same effect as if set forth at this place.

          Upon receipt of this certificate, the Holder is bound by the
Certificate of Designation and is entitled to the benefits thereunder.

          Unless the Transfer Agent's Certificate of Authentication hereon has
been properly executed, these shares of Preferred Stock shall not be entitled to
any benefit under the Certificate of Designation or be valid or obligatory for
any purpose.

          IN WITNESS WHEREOF, the Company has executed this certificate this [ ]
day of [ ], [ ].


                               CHESAPEAKE ENERGY CORPORATION


                                   By:
                                      -----------------------------------
                                      Name:
                                      Title:

                                                                               4

                 TRANSFER AGENT'S CERTIFICATE OF AUTHENTICATION

          These are shares of the Preferred Stock referred to in the
within-mentioned Certificate of Designation.

Dated:   November 13, 2001

                                         UMB BANK, N.A., as Transfer Agent,


                                         By:
                                            -----------------------------------
                                            Authorized Signatory

                                                                               5

                               REVERSE OF SECURITY


          Cash dividends on each share of Preferred Stock shall be payable at a
rate per annum set forth in the face hereof or as provided in the Certificate of
Designation.

          The shares of Preferred Stock shall be convertible into the Company's
Common Stock in the manner and according to the terms set forth in the
Certificate of Designation.

The Company will furnish without charge to each holder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock and the qualifications, limitations or
restrictions of such preferences and/or rights.


                                                                               6

                                   ASSIGNMENT

                  FOR VALUE RECEIVED, the undersigned assigns and transfers the
shares of Preferred Stock evidenced hereby to:
                                              -------------------------------


(Insert assignee's social security or tax identification number)





(Insert address and zip code of assignee)

and irrevocably appoints:



agent to transfer the shares of Preferred Stock evidenced hereby on the books of
the Transfer Agent. The agent may substitute another to act for him or her.

                                                                               7

Date:
     -------------------------------

Signature:
          -------------------------------------------
(Sign exactly as your name appears on the other side of this Preferred Stock
Certificate)

Signature Guarantee:/4/
                       ---------------------------------------------------------

- -----------

     /4/(Signature must be guaranteed by an "eligible guarantor institution"
that is a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Transfer Agent, which requirements include
membership or participation in the Securities Transfer Agents Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Transfer Agent in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.)


                                                                       EXHIBIT B


                              NOTICE OF CONVERSION


                          (To be Executed by the Holder
                    in order to Convert the Preferred Stock)


The undersigned hereby irrevocably elects to convert (the "Conversion") shares
of 6.75% Cumulative Convertible Preferred Stock (the "Preferred Stock"),
represented by stock certificate No(s). ______ (the "Preferred Stock
Certificates") into shares of common stock ("Common Stock") of Chesapeake Energy
Corporation (the "Company") according to the conditions of the Certificate of
Designation of the Preferred Stock (the "Certificate of Designation"), as of the
date written below. If shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith the Preferred Stock Certificates. No
fee will be charged to the holder for any conversion, except for transfer taxes,
if any. A copy of each Preferred Stock Certificate is attached hereto (or
evidence of loss, theft or destruction thereof).

The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Preferred Stock shall be made pursuant to registration of the
Common Stock under the Securities Act of 1933 (the "Act"), or pursuant to any
exemption from registration under the Act.

Any holder, upon the exercise of its conversion rights in accordance with the
terms of the Certificate of Designation and the Preferred Stock, agrees to be
bound by the terms of the Registration Rights Agreement.

Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in or pursuant to the Certificate of Designation.

                           Date of Conversion:
                                               ------------------------

                           Applicable Conversion Price:
                                                        ---------------

                           Number of shares of
                           Preferred Stock to be Converted:
                                                            -----------

                           Number of shares of
                           Common Stock to be Issued:
                                                      -----------------


                           Signature:
                                      ---------------------------------

                                                                               2

                           Name:
                                 --------------------------------------

                           Address:**
                                      ---------------------------------

                           Fax No.:
                                    -----------------------------------


*The Company is not required to issue shares of Common Stock until the original
Preferred Stock Certificate(s) (or evidence of loss, theft or destruction
thereof) to be converted are received by the Company or its Transfer Agent. The
Company shall issue and deliver shares of Common Stock to an overnight courier
not later than three business days following receipt of the original Preferred
Stock Certificate(s) to be converted.

**Address where shares of Common Stock and any other payments or certificates
shall be sent by the Company.


                                                                       EXHIBIT C


                  CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
                   REGISTRATION OF TRANSFER OF PREFERRED STOCK

Re:  6.75% Cumulative Convertible Preferred Stock (the "Preferred Stock") of
     Chesapeake Energy Corporation (the "Company")

          This Certificate relates to ____ shares of Preferred Stock held in |_|
*/ book-entry or |_| */ definitive form by _______________ (the "Transferor").

The Transferor*:

     |_| has requested the Transfer Agent by written order to deliver in
exchange for its beneficial interest in the Preferred Stock held by the
depository shares of Preferred Stock in definitive, registered form equal to its
beneficial interest in such Preferred Stock (or the portion thereof indicated
above); or

     |_| has requested the Transfer Agent by written order to exchange or
register the transfer of Preferred Stock.

          In connection with such request and in respect of such Preferred
Stock, the Transferor does hereby certify that the Transferor is familiar with
the Certificate of Designation relating to the above-captioned Preferred Stock
and that the transfer of this Preferred Stock does not require registration
under the Securities Act of 1933 (the "Securities Act") because */:

     |_| Such Preferred Stock is being acquired for the Transferor's own account
without transfer.

     |_| Such Preferred Stock is being transferred to the Company.

     |_| Such Preferred Stock is being transferred to a qualified institutional
buyer (as defined in Rule 144A under the Securities Act), in reliance on Rule
144A.

- -------------
*/ Please check applicable box.

                                                                               2

     |_| Such Preferred Stock is being transferred in reliance on and in
compliance with another exemption from the registration requirements of the
Securities Act (and based on an Opinion of Counsel if the Company so requests).


                                           [INSERT NAME OF TRANSFEROR]

                                           by

Date:
      ------------


                           CERTIFICATE OF ELIMINATION



     Chesapeake Energy Corporation (the "Corporation"), a corporation organized
and existing under the Oklahoma General Corporation Act,

DOES HEREBY CERTIFY:


     FIRST: That the Corporation has acquired 2,000 shares of its 6.75%
Cumulative Convertible Preferred Stock, par value $.01 per share (the "Acquired
Shares") through conversion by the holder.

     SECOND: That the Board of Directors of the Corporation has adopted
resolutions retiring the Acquired Shares.

     THIRD: That the Certificate of Designation for the 6.75% Cumulative
Convertible Preferred Stock (the "Certificate of Designation") prohibits the
reissuance of shares when so retired and, pursuant to the provisions of Section
1078 of the Oklahoma General Corporation Act, upon the date of the filing of
this Certificate of Elimination, the Certificate of Designation shall be amended
so as to reduce the number of authorized shares of the 6.75% Cumulative
Convertible Preferred Stock by 2,000 shares, being the total number of the
Acquired Shares retired by the Board of Directors. Accordingly, the number of
authorized but undesignated shares of preferred stock of the Company shall be
increased by 2,000 shares. The retired Acquired Shares have a par value of $.01
per share and an aggregate par value of $20.

     IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by its Executive Vice President and Chief Financial Officer and
attested to by its Secretary, this 1st day of November, 2002.

                          CHESAPEAKE ENERGY CORPORATION

                            By: /s/ Marcus C. Rowland
                               -------------------------------------------
                               Marcus C. Rowland, Executive Vice
                               President and Chief Financial Officer



ATTEST:

/s/ Jennifer M. Grigsby, Secretary

CERTIFICATE OF ELIMINATION

Chesapeake Energy Corporation (the “Corporation”), a corporation organized and existing under the Oklahoma General Corporation Act,

DOES HEREBY CERTIFY:

FIRST: That the Corporation has acquired 200 shares of its 6.75% Cumulative Convertible Preferred Stock, par value $.01 per share (the “Acquired Shares”) through conversion by the holder.

SECOND: That the Board of Directors of the Corporation has adopted resolutions retiring the Acquired Shares.

THIRD: That the Certificate of Designation for the 6.75% Cumulative Convertible Preferred Stock (the “Certificate of Designation”) prohibits the reissuance of shares when so retired and, pursuant to the provisions of Section 1078 of the Oklahoma General Corporation Act, upon the date of the filing of this Certificate of Elimination, the Certificate of Designation shall be amended so as to reduce the number of authorized shares of the 6.75% Cumulative Convertible Preferred Stock by 200 shares, being the total number of the Acquired Shares retired by the Board of Directors. Accordingly, the number of authorized but undesignated shares of preferred stock of the Company shall be increased by 200 shares. The retired Acquired Shares have a par value of $.01 per share and an aggregate par value of $20.

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed by its Executive Vice President and Chief Financial Officer and attested to by its Secretary, this 5^th day of March, 2004.

CHESAPEAKE ENERGY CORPORATION

By:

Marcus C. Rowland, Executive Vice President

and Chief Financial Officer

ATTEST:

Jennifer M. Grigsby, Secretary


                                                                  EXECUTION COPY

                           CERTIFICATE OF DESIGNATION
                                       OF
                  6.00% CUMULATIVE CONVERTIBLE PREFERRED STOCK
                                       OF
                          CHESAPEAKE ENERGY CORPORATION

     Pursuant to Section 1032(G) of the Oklahoma General Corporation Act

     CHESAPEAKE ENERGY CORPORATION, an Oklahoma corporation (the "Company"),
does hereby certify that the following resolution was duly adopted by action of
the Board of Directors of the Company, with the provisions thereof fixing the
number of shares of the series and the dividend rate being set by action of the
Board of Directors of the Company:

     RESOLVED that pursuant to the authority expressly granted to and vested in
the Board of Directors of the Company by the provisions of Article IV, Section 1
of the Certificate of Incorporation of the Company, as amended from time to time
(the "Certificate of Incorporation"), and pursuant to Section 1032(G) of the
Oklahoma General Corporation Act, the Board of Directors hereby creates a series
of preferred stock of the Company and hereby states that the voting powers,
designations, preferences and relative, participating, optional or other special
rights of which, and qualifications, limitations or restrictions thereof (in
addition to the provisions set forth in the Certificate of Incorporation which
are applicable to the preferred stock of all classes and series), shall be as
follows:

     1. Designation and Amount; Ranking. (a) There shall be created from the
10,000,000 shares of preferred stock, par value $0.01 per share, of the Company
authorized to be issued pursuant to the Certificate of Incorporation, a series
of preferred stock, designated as the "6.00% Cumulative Convertible Preferred
Stock," par value $0.01 per share (the "Preferred Stock"), and the number of
shares of such series shall be 4,600,000. Such number of shares may be decreased
by resolution of the Board of Directors; provided that no decrease shall reduce
the number of shares of Preferred Stock to a number less than that of the shares
of Preferred Stock then outstanding plus the number of shares issuable upon
exercise of options or rights then outstanding.


                                                                               2

     (b) The Preferred Stock will, with respect to both dividend rights and
rights upon the liquidation, winding-up or dissolution of the Company, rank on a
parity with the 6.75% Preferred Stock, and the Preferred Stock will, with
respect to dividend rights or rights upon the liquidation, winding-up or
dissolution of the Company rank (i) senior to all Junior Stock, (ii) on a parity
with all other Parity Stock and (iii) junior to all Senior Stock.

     2. Definitions. As used herein, the following terms shall have the
following meanings:

          (1) "Accrued Dividends" shall mean, with respect to any share of
     Preferred Stock, as of any date, the accrued and unpaid dividends on such
     share from and including the most recent Dividend Payment Date (or the
     Issue Date, if such date is prior to the first Dividend Payment Date) to
     but not including such date.

          (2) "Accumulated Dividends" shall mean, with respect to any share of
     Preferred Stock, as of any date, the aggregate accumulated and unpaid
     dividends on such share from the Issue Date until the most recent Dividend
     Payment Date on or prior to such date. There shall be no Accumulated
     Dividends with respect to any share of Preferred Stock prior to the first
     Dividend Payment Date.

          (3) "Affiliate" shall have the meaning ascribed to it, on the date
     hereof, under Rule 405 of the Securities Act of 1933, as amended.

          (4) "Board of Directors" shall mean the Board of Directors of the
     Company or, with respect to any action to be taken by the Board of
     Directors, any committee of the Board of Directors duly authorized to take
     such action.

          (5) "Business Day" shall mean any day other than a Saturday, Sunday or
     other day on which commercial banks in The City of New York are authorized
     or required by law or executive order to close.

          (6) "Change of Control" shall mean any of the following events: (i)
     the sale, lease or transfer, in one or a series of related transactions, of
     all or substantially all of the Company's 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; (ii) the
     adoption of a plan the consummation of which would result in the
     liquidation or dissolution of the Company; (iii) 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 the aggregate voting power of the Voting Stock of the Company;
     provided, however, that the Permitted Holders beneficially own (as defined
     in Rules 13d-3 and 13d-5 under the Exchange Act), directly


                                                                               3

     or indirectly, in the aggregate a lesser percentage of the total voting
     power of the Voting Stock of the Company than such other Person or group
     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 or group shall be
     deemed to beneficially own any Voting Stock of a specified corporation held
     by a parent corporation, if such other Person or group 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 the Board of Directors of such parent corporation);
     or (iv) during any period of two consecutive years, individuals who at the
     beginning of such period comprised the Board of Directors of the Company
     (together with any new directors whose election by such Board of Directors
     or whose nomination for election by the shareholders of the Company was
     approved by a vote of 66 2/3% of the directors of the Company 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 the Board of Directors of the
     Company then in office. For purposes of this definition of "Change of
     Control," the term "Permitted Holders" means Aubrey K. McClendon and Tom L.
     Ward and their respective Affiliates.

          (7) "Change of Control Date" shall mean the date on which the Change
     of Control event occurs.

          (8) "Conversion Price" shall mean $10.287, subject to adjustment as
     set forth in Section 7(c).


          (9) "Common Stock" shall mean the common stock, par value $0.01 per
     share, of the Company, or any other class of stock resulting from
     successive changes or reclassifications of such common stock consisting
     solely of changes in par value, or from par value to no par value, or as a
     result of a subdivision, combination, or merger, consolidation or similar
     transaction in which the Company is a constituent corporation.

          (10) "DTC" or "Depository" means The Depository Trust Company.

          (11) "Dividend Payment Date" shall mean March 15, June 15, September
     15 and December 15 of each year, commencing June 15, 2003.

          (12) "Dividend Record Date" shall mean March 1, June 1, September 1
     and December 1 of each year.


                                                                               4

          (13) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
     amended, and the rules and regulations promulgated thereunder.


          (14) "Holder" or "holder" shall mean a holder of record of the
     Preferred Stock.

          (15) "Issue Date" shall mean March 5, 2003, the original date of
     issuance of the Preferred Stock.

          (16) "Junior Stock" shall mean all classes of common stock of the
     Company and the Series A Junior Participating Convertible Preferred Stock
     and each other class of capital stock or series of preferred stock
     established after the Issue Date, by the Board of Directors, the terms of
     which do not expressly provide that such class or series ranks senior to or
     on parity with the Preferred Stock as to dividend rights or rights upon the
     liquidation, winding-up or dissolution of the Company.

          (17) "Liquidation Preference" shall mean, with respect to each share
     of Preferred Stock, $50.


          (18) "Market Value" shall mean the average closing price of the Common
     Stock for a five consecutive trading day period on the NYSE (or such other
     national securities exchange or automated quotation system on which the
     Common Stock is then listed or authorized for quotation or, if the Common
     Stock is not so listed or authorized for quotation, an amount determined in
     good faith by the Board of Directors to be the fair value of the Common
     Stock).

          (19) "NYSE" shall mean the New York Stock Exchange, Inc.

          (20) "Officer" means the Chairman of the Board of Directors, the
     President, any Vice President, the Treasurer, the Secretary or any
     Assistant Secretary of the Company.

          (21) "Officers' Certificate" means a certificate signed by two
     Officers.

          (22) "Opinion of Counsel" means a written opinion from legal counsel
     who is acceptable to the Transfer Agent. The counsel may be an employee of
     or counsel to the Company or the Transfer Agent.

          (23) "Parity Stock" shall mean the 6.75% Preferred Stock and any class
     of capital stock or series of preferred stock established after the Issue
     Date by the Board of Directors, the terms of which expressly provide that
     such class or series will rank on parity with the Preferred Stock as to
     dividend rights or rights upon the liquidation, winding-up or dissolution
     of the Company.


                                                                               5

          (24) "Person" shall mean any individual, corporation, general
     partnership, limited partnership, limited liability partnership, joint
     venture, association, joint-stock company, trust, limited liability
     company, unincorporated organization or government or any agency or
     political subdivision thereof.

          (25) "Purchase Agreement" shall mean that certain Purchase Agreement
     with respect to the Preferred Stock, dated February 27, 2003, among the
     Company, Credit Suisse First Boston LLC, Morgan Stanley & Co. Incorporated,
     Salomon Smith Barney Inc. and the other initial purchasers named therein.

          (26) "Registration Rights Agreement" means the Registration Rights
     Agreement dated March 5, 2003, among the Company, Credit Suisse First
     Boston LLC, Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc.
     and the other initial purchasers named in the Purchase Agreement, with
     respect to the Preferred Stock.

          (27) "SEC" or "Commission" shall mean the Securities and Exchange
     Commission.

          (28) "Securities Act" means the Securities Act of 1933, as amended.

          (29) "Senior Stock" shall mean each class of capital stock or series
     of preferred stock established after the Issue Date by the Board of
     Directors, the terms of which expressly provide that such class or series
     will rank senior to the Preferred Stock as to dividend rights or rights
     upon the liquidation, winding-up or dissolution of the Company.

          (30) "Shelf Registration Statement" shall mean a shelf registration
     statement filed with the SEC to cover resales of Transfer Restricted
     Securities by holders thereof, as required by the Registration Rights
     Agreement.

          (31) "6.75% Preferred Stock" shall mean the series of preferred stock,
     par value $0.01 per share, of the Company designated as the "6.75%
     Cumulative Convertible Preferred Stock."

          (32) "Transfer Agent" shall mean UMB Bank, N.A., the Company's duly
     appointed transfer agent, registrar and conversion and dividend disbursing
     agent for the Preferred Stock. The Company may, in its sole discretion,
     remove the Transfer Agent with 10 days' prior notice to the Transfer Agent;
     provided, that the Company shall appoint a successor Transfer Agent who
     shall accept such appointment prior to the effectiveness or such removal.


                                                                               6

          (33) "Transfer Restricted Securities" shall mean each share of
     Preferred Stock (or the shares of Common Stock into which such share of
     Preferred Stock is convertible) until (i) the date on which such security
     or its predecessor has been effectively registered under the Securities Act
     and disposed of in accordance with the Shelf Registration Statement or (ii)
     the date on which such security or predecessor is distributed to the public
     pursuant to Rule 144 under the Securities Act or is saleable pursuant to
     Rule 144(k) under the Securities Act.

          (34) "Voting Rights Triggering Event" shall mean the failure of the
     Company to pay dividends on the Preferred Stock with respect to six or more
     quarterly periods (whether or not consecutive).

          (35) "Voting Stock" shall mean, with respect to any Person, securities
     of any class or classes of Capital Stock in such Person entitling the
     holders thereof (whether at all times or only so long as no senior class of
     stock has voting power by reason of contingency) to vote in the election of
     members of the Board of Directors or other governing body of such Person.
     For purposes of this definition, "Capital Stock" shall mean, with respect
     to any Person, any and all shares, interests, participations or other
     equivalents (however designated) of corporate stock or partnership
     interests and any and all warrants, options and rights with respect thereto
     (whether or not currently exercisable), including each class of common
     stock and preferred stock of such Person.

     3. Dividends.

          (1) The holders of shares of the outstanding Preferred Stock shall be
     entitled, when, as and if declared by the Board of Directors out of funds
     of the Company legally available therefor, to receive cumulative cash
     dividends at the rate per annum of 6.00% per share on the Liquidation
     Preference (equivalent to $3.00 per annum per share), payable quarterly in
     arrears (the "Dividend Rate"). The Dividend Rate may be increased in the
     circumstances described in Section 3(b) below. Dividends payable for each
     full dividend period will be computed by dividing the Dividend Rate by four
     and shall be payable in arrears on each Dividend Payment Date (commencing
     June 15, 2003) for the quarterly period ending immediately prior to such
     Dividend Payment Date, to the holders of record of Preferred Stock at the
     close of business on the Dividend Record Date applicable to such Dividend
     Payment Date. Such dividends shall be cumulative from the most recent date
     as to which dividends shall have been paid or, if no dividends have been
     paid, from the Issue Date (whether or not in any dividend period or periods
     there shall be funds of the Company legally available for the payment of
     such dividends) and shall accrue on a day-to-day basis, whether or not
     earned or declared, from and after the Issue Date. Dividends payable for
     any partial dividend period shall be computed on the basis of days elapsed
     over a 360-day year consisting of twelve 30-day months. Accumulations of
     dividends on shares of Preferred Stock shall not bear interest.


                                                                               7

          (2) If (i) by May 5, 2003, the Shelf Registration Statement has not
     been filed with the Commission, (ii) by September 1, 2003, the Shelf
     Registration Statement has not been declared effective by the Commission or
     (iii) after the Shelf Registration Statement has been declared effective,
     (A) the Shelf Registration Statement thereafter ceases to be effective or
     (B) the Shelf Registration Statement or the related prospectus ceases to be
     usable (in each case, subject to the exceptions described below) in
     connection with resales of Transfer Restricted Securities during the period
     that any Transfer Restricted Securities remain outstanding (each such event
     referred to in clauses (i), (ii) and (iii), a "Registration Default"),
     additional dividends shall accrue on the Preferred Stock at the rate of
     .50% per annum (resulting in a Dividend Rate of 6.50% per annum during the
     continuance of a Registration Default), from and including the date on
     which any such Registration Default shall occur to but excluding the date
     on which all Registration Defaults have been cured. At all other times,
     dividends shall accumulate on the Preferred Stock at the Dividend Rate as
     described in Section 3(a).

     A Registration Default referred to in clause (iii) of Section 3(b) shall be
deemed not to have occurred and be continuing in relation to the Shelf
Registration Statement or the related prospectus if (i) such Registration
Default has occurred solely as a result of (x) the filing of a post-effective
amendment to the Shelf Registration Statement to incorporate annual audited
financial information with respect to the Company where such post-effective
amendment is not yet effective and needs to be declared effective to permit
Holders to use the related prospectus or (y) other material events, with respect
to the Company that would need to be described in the Shelf Registration
Statement or the related prospectus and (ii) in the case of clause (y), the
Company is proceeding promptly and in good faith to amend or supplement such
Shelf Registration Statement and related prospectus to describe such events;
provided, however, that in any case if such Registration Default referred to in
clause (iii) of Section 3(b) occurs for a continuous period in excess of 30
days, additional dividends as described in Section 3(b) shall be payable in
accordance therewith from the day such Registration Default occurs until such
Registration Default is cured.

          (3) No dividend will be declared or paid upon, or any sum set apart
     for the payment of dividends upon, any outstanding share of the 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 Preferred Stock.

          (4) 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
     other than cash paid 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


                                                                               8

     available for a sinking fund for the redemption of any Parity Stock or
     Junior Stock) by or on behalf of the Company (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 full
     Accumulated Dividends shall 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 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 Preferred Stock
     and any Parity Stock, dividends may be declared and paid on the 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
     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 Preferred Stock and such other Parity Stock bear to each other.

          (5) Holders of shares of Preferred Stock shall not be entitled to any
     dividends on the Preferred Stock, whether payable in cash, property or
     stock, in excess of full cumulative dividends. No interest, or sum of money
     in lieu of interest, shall be payable in respect of any dividend payment or
     payments on the Preferred Stock which may be in arrears.

          (6) The holders of shares of Preferred Stock at the close of business
     on a Dividend Record Date will be entitled to receive the dividend payment
     on those shares on the corresponding Dividend Payment Date notwithstanding
     the subsequent conversion thereof or the Company's default in payment of
     the dividend due on that Dividend Payment Date. However, shares of
     Preferred Stock surrendered for conversion during the period between the
     close of business on any Dividend Record Date and the close of business on
     the Business Day immediately preceding the applicable Dividend Payment Date
     must be accompanied by payment of an amount equal to the dividend payable
     on the shares on that Dividend Payment Date. A holder of shares of
     Preferred Stock on a Dividend Record Date who (or whose transferee) tenders
     any shares for conversion on the corresponding Dividend Payment Date will
     receive the dividend payable by the Company on the Preferred Stock on that
     date, and the converting holder need not include payment in the amount of
     such dividend upon surrender of shares of Preferred Stock for conversion.
     Except as provided above with respect to a voluntary conversion pursuant to
     Section 7, the Company shall make no payment or allowance for unpaid
     dividends, whether or not in arrears, on converted shares or for dividends
     on the shares of Common Stock issued upon conversion.


                                                                               9

     4. Change of Control.

          (1) Upon the occurrence of a Change of Control, each holder of
     Preferred Stock shall, in the event that the Market Value for the period
     ending on the Change of Control Date is less than the Conversion Price,
     have a one-time option (the "Change of Control Option") to convert all of
     such holder's outstanding shares of Preferred Stock into fully paid and
     nonassessable shares of Common Stock at an adjusted Conversion Price equal
     to the greater of (i) the Market Value for the period ending on the Change
     of Control Date and (ii) $5.47. The Change of Control Option must be
     exercised, if at all, during the period of not less than 30 days nor more
     than 60 days commencing on the third Business Day after notice of a Change
     in Control has been given by the Company in accordance with Section 4(b).
     In lieu of issuing the shares of Common Stock issuable upon conversion in
     the event of a Change of Control, the Company may, at its 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 the occurrence of a
     Change of Control in which (i) each holder of 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 (ii) all the 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 factional shares), and the Preferred Stock
     becomes convertible solely into such common stock, the Conversion Price
     will not be adjusted as described in this Section 4(a).

          (2) In the event of a Change of Control (other than a Change of
     Control described in the last sentence of Section 4(a)), notice of such
     Change of Control shall be given, within five Business Days of the Change
     of Control Date, by the Company by first-class mail to each record holder
     of shares of Preferred Stock, at such holder's address as the same appears
     on the books of the Company. Each such notice shall state (i) that a Change
     of Control has occurred; (ii) the last day on which the Change of Control
     Option may be exercised (the "Expiration Date") pursuant to the terms
     hereof; (iii) the name and address of the Transfer Agent; and (iv) the
     procedures that holders must follow to exercise the Change of Control
     Option.

          (3) On or before the Expiration Date, each holder of shares of
     Preferred Stock wishing to exercise the Change of Control Option shall
     surrender the certificate or certificates representing the shares of
     Preferred Stock to be converted, in the manner and at the place designated
     in the notice described in Section 4(b), and on such date the cash or
     shares of Common Stock due to such holder shall be delivered to the Person
     whose name appears on such certificate or certificates as the owner thereof
     and the shares represented by each surrendered certificate shall be
     returned to authorized but unissued shares. Upon surrender (in accordance
     with the notice described in Section 4(b)) of the certificate or
     certificates representing any shares to be so converted (properly endorsed
     or assigned for transfer, if the Company shall so require and the notice
     shall so


                                                                              10

     state), such shares shall be converted by the Company at the adjusted
     Conversion Price, if applicable, as described in Section 4(a).

          (4) The rights of holders of Preferred Stock pursuant to this Section
     4 are in addition to, and not in lieu of, the rights of holders of
     Preferred Stock provided for in Section 7 hereof.

     5. Voting.

          (1) The shares of Preferred Stock shall have no voting rights except
     as set forth below or as otherwise required by Oklahoma law from time to
     time:

               (i) If and whenever at any time or times a Voting Rights
          Triggering Event occurs, then the holders of shares of Preferred
          Stock, voting as a single class with any other preferred stock or
          preference securities having similar voting rights that are
          exercisable (the "Voting Rights Class"), will be entitled at the next
          regular or special meeting of stockholders of the Company to elect two
          additional directors of the Company, unless the Board of Directors is
          comprised of fewer than six directors at such time, in which case the
          Voting Rights Class shall be entitled to elect one additional
          director. Upon the election of any such additional directors, the
          number of directors that comprise the Board of Directors shall be
          increased by such number of additional directors.

               (ii) Such voting rights may be exercised at a special meeting of
          the holders of the shares of the Voting Rights Class, called as
          hereinafter provided, or at any annual meeting of stockholders held
          for the purpose of electing directors, and thereafter at each such
          annual meeting until such time as all dividends in arrears on the
          shares of Preferred Stock shall have been paid in full, at which time
          or times such voting rights and the term of the directors elected
          pursuant to Section 5(a)(i) shall terminate.

               (iii) At any time when such voting rights shall have vested in
          holders of shares of the Voting Rights Class, an Officer of the
          Company may call, and, upon written request of the record holders of
          shares representing at least twenty-five percent (25%) of the voting
          power of the shares then outstanding of the Voting Rights Class,
          addressed to the Secretary of the Company, shall call a special
          meeting of the holders of shares of the Voting Rights Class. Such
          meeting shall be held at the earliest practicable date upon the notice
          required for annual meetings of stockholders at the place for holding
          annual meetings of stockholders of the Company, or, if none, at a
          place designated by the Board of Directors. Notwithstanding the
          provisions of this Section 5(a)(iii), no such special meeting shall be
          called during a period within the 60 days immediately preceding the
          date fixed for the next annual meeting of stockholders in which such
          case, the election of directors pursuant to Section 5(a)(i) shall be
          held at such annual meeting of stockholders.


                                                                              11

               (iv) At any meeting held for the purpose of electing directors at
          which the holders of the Voting Rights Class shall have the right to
          elect directors as provided herein, the presence in person or by proxy
          of the holders of shares representing more than fifty percent (50%) in
          voting power of the then outstanding shares of the Voting Rights Class
          shall be required and shall be sufficient to constitute a quorum of
          such class for the election of directors by such class. The
          affirmative vote of the holders of shares of Preferred Stock
          constituting a majority of the shares of Preferred Stock present at
          such meeting, in person or by proxy, shall be sufficient to elect any
          such director.

               (v) Any director elected pursuant to the voting rights created
          under this Section 5(a) shall hold office until the next annual
          meeting of stockholders (unless such term has previously terminated
          pursuant to Section 5 (a)(ii)) and any vacancy in respect of any such
          director shall be filled only by vote of the remaining director so
          elected by holders of the Voting Rights Class, or if there be no such
          remaining director, by the holders of shares of the Voting Rights
          Class at a special meeting called in accordance with the procedures
          set forth in this Section 5, or, if no such special meeting is called,
          at the next annual meeting of stockholders. Upon any termination of
          such voting rights, the term of office of all directors elected
          pursuant to this Section 5 shall terminate.

               (vi) So long as any shares of Preferred Stock remain outstanding,
          unless a greater percentage shall then be required by law, the Company
          shall not, without the affirmative vote or consent of the holders of
          at least 66 2/3% of the outstanding Preferred Stock voting or
          consenting, as the case may be, separately as one class, (i) create,
          authorize or issue any class or series of Senior Stock (or any
          security convertible into Senior Stock) or (ii) amend the Certificate
          of Incorporation so as to affect adversely the specified rights,
          preferences, privileges or voting rights of holders of shares of
          Preferred Stock.

               (vii) In exercising the voting rights set forth in this Section
          5(a), each share of Preferred Stock shall be entitled to one vote.

          (2) The Company may authorize, increase the authorized amount of, or
     issue any class or series of Parity Stock or Junior Stock, without the
     consent of the holders of Preferred Stock, and in taking such actions the
     Company shall not be deemed to have affected adversely the rights,
     preferences, privileges or voting rights of holders of shares of Preferred
     Stock.


                                                                              12

     6. Liquidation Rights.

          (1) In the event of any liquidation, winding-up or dissolution of the
     Company, whether voluntary of involuntary, each holder of shares of
     Preferred Stock shall be entitled to receive and to be paid out of the
     assets of the Company available for distribution to its stockholders the
     Liquidation Preference plus Accumulated Dividends and Accrued Dividends
     thereon in preference to the holders of, and before any payment or
     distribution is made on, any Junior Stock, including, without limitation,
     on any Common Stock.

          (2) Neither the sale, conveyance, exchange or transfer (for cash,
     shares of stock, securities or other consideration) of all or substantially
     all the assets or business of the Company (other than in connection with
     the liquidation, winding-up or dissolution of its business) nor the merger
     or consolidation of the Company into or with any other Person shall be
     deemed to be a liquidation, winding-up or dissolution, voluntary or
     involuntary, for the purposes of this Section 6.

          (3) After the payment to the holders of the shares of Preferred Stock
     of full preferential amounts provided for in this Section 6, the holders of
     Preferred Stock as such shall have no right or claim to any of the
     remaining assets of the Company.

          (4) In the event the assets of the Company available for distribution
     to the holders of shares of Preferred Stock upon any liquidation,
     winding-up or dissolution of the Company, whether voluntary or involuntary,
     shall be insufficient to pay in full all amounts to which such holders are
     entitled pursuant to Section 6(a), no such distribution shall be made on
     account of any shares of Parity Stock upon such liquidation, dissolution or
     winding-up unless proportionate distributable amounts shall be paid on
     account of the shares of Preferred Stock, ratably, in proportion to the
     full distributable amounts for which holders of all Preferred Stock and of
     any Parity Stock are entitled upon such liquidation, winding-up or
     dissolution.

     7. Conversion.

          (a) Each holder of Preferred Stock shall have the right, at its
     option, exercisable at any time and from time to time from the Issue Date
     to convert, subject to the terms and provisions of this Section 7, any or
     all of such holder's shares of Preferred Stock. In such case, the shares of
     Preferred Stock shall be converted into such whole number of fully paid and
     nonassessable shares of Common Stock as is equal, subject to Section 7(g),
     to the product of the number of shares of Preferred Stock being so
     converted multiplied by the quotient of (i) the Liquidation Preference
     divided by (ii) the Conversion Price (as defined below) then in effect. The
     Conversion Price initially shall be $10.287, subject to adjustment as set
     forth in Section 7(c).


                                                                              13

     The conversion right of a holder of Preferred Stock shall be exercised by
the holder by the surrender to the Company of the certificates representing
shares to be converted at any time during usual business hours at its principal
place of business or the offices of its duly appointed Transfer Agent to be
maintained by it, accompanied by written notice to the Company in the form of
Exhibit B that the holder elects to convert all or a portion of the shares of
Preferred Stock represented by such certificate and specifying the name or names
(with address) in which a certificate or certificates for shares of Common Stock
are to be issued and (if so required by the Company or its duly appointed
Transfer Agent) by a written instrument or instruments of transfer in form
reasonably satisfactory to the Company or its duly appointed Transfer Agent duly
executed by the holder or its duly authorized legal representative and transfer
tax stamps or funds therefor, if required pursuant to Section 7(i). Immediately
prior to the close of business on the date of receipt by the Company or its duly
appointed Transfer Agent of notice of conversion of shares of Preferred Stock,
each converting holder of Preferred Stock shall be deemed to be the holder of
record of Common Stock issuable upon conversion of such holder's Preferred Stock
notwithstanding that the share register of the Company shall then be closed or
that certificates representing such Common Stock shall not then be actually
delivered to such holder. On the date of any conversion, all rights with respect
to the shares of Preferred Stock so converted, including the rights, if any, to
receive notices, will terminate, except only the rights of holders thereof to
(i) receive certificates for the number of whole shares of Common Stock into
which such shares of Preferred Stock have been converted and cash, in lieu of
any fractional shares as provided in Section 7(f); and (ii) exercise the rights
to which they are entitled as holders of Common Stock.

          (b) If the last day for the exercise of the conversion right shall not
     be a Business Day, then such conversion right may be exercised on the next
     preceding Business Day.

          (c) The Conversion Price shall be subject to adjustment as follows:


                                                                              14

               (i) In case the Company shall at any time or from time to time
          (A) pay a dividend (or other distribution) payable in shares of Common
          Stock on any class of capital stock (which, for purposes of this
          Section 7(c) shall include, without limitation, any dividends or
          distributions in the form of options, warrants or other rights to
          acquire capital stock) of the Company (other than the issuance of
          shares of Common Stock in connection with the conversion of preferred
          stock); (B) subdivide the outstanding shares of Common Stock into a
          larger number of shares; (C) combine the outstanding shares of Common
          Stock into a smaller number of shares; (D) issue any shares of its
          capital stock in a reclassification of the Common Stock; or (E) pay a
          dividend or make a distribution to all holders of shares of Common
          Stock (other than a dividend or distribution subject to Section
          7(c)(ii)) pursuant to a stockholder rights plan, "poison pill" or
          similar arrangement and excluding dividends payable on the Preferred
          Stock then, and in each such case, the Conversion Price in effect
          immediately prior to such event shall be adjusted (and any other
          appropriate actions shall be taken by the Company) so that the holder
          of any share of Preferred Stock thereafter surrendered for conversion
          shall be entitled to receive the number of shares of Common Stock that
          such holder would have owned or would have been entitled to receive
          upon or by reason of any of the events described above, had such share
          of Preferred Stock been converted into shares of Common Stock
          immediately prior to the occurrence of such event. An adjustment made
          pursuant to this Section 7(c)(i) shall become effective retroactively
          (x) in the case of any such dividend or distribution, to the day
          immediately following the close of business on the record date for the
          determination of holders of Common Stock entitled to receive such
          dividend or distribution or (y) in the case of any such subdivision,
          combination or reclassification, to the close of business on the day
          upon which such corporate action becomes effective.

               (ii) In case the Company shall at any time or from time to time
          issue to all holders of its Common Stock rights, options or warrants
          entitling the holders thereof to subscribe for or purchase shares of
          Common Stock (or securities convertible into or exchangeable for
          shares of Common Stock) at a price per share less than the Market
          Value for the period ending on the date of issuance (treating the
          price per share of any security convertible, or exchangeable or
          exercisable into Common Stock as equal to (A) the sum of the price
          paid to acquire such security convertible, exchangeable or exercisable
          into Common Stock plus any additional consideration payable (without
          regard to any anti-dilution adjustments) upon the conversion, exchange
          or exercise of such security into Common Stock divided by (B) the
          number of shares of Common Stock into which such convertible,
          exchangeable or exercisable security is initially convertible,
          exchangeable or exercisable), other than (I) issuances of such rights,
          options or warrants if the holder of Preferred Stock would be entitled
          to receive such rights, options or warrants upon conversion at any
          time of shares of Preferred Stock into Common Stock and (II) issuances
          that are subject to certain triggering events (until such time as such
          triggering events occur), then, and in each such case, the Conversion
          Price then in effect shall be adjusted by dividing the Conversion
          Price in effect on the day immediately prior to the record date


                                                                              15

          of such issuance by a fraction (y) the numerator of which shall be the
          sum of the number of shares of Common Stock outstanding on such record
          date plus the number of additional shares of Common Stock issued or to
          be issued upon or as a result of the issuance of such rights, options
          or warrants (or the maximum number into or for which such convertible
          or exchangeable securities initially may convert or exchange or for
          which such options, warrants or other rights initially may be
          exercised) and (z) the denominator of which shall be the sum of the
          number of shares of Common Stock outstanding on such record date plus
          the number of shares of Common Stock which the aggregate consideration
          for the total number of such additional shares of Common Stock so
          issued (or into or for which such convertible or exchangeable
          securities may convert or exchange or for which such options, warrants
          or other rights may be exercised plus the aggregate amount of any
          additional consideration initially payable upon the conversion,
          exchange or exercise of such security) would purchase at the Market
          Value for the period ending on the date of conversion; provided, that
          if the Company distributes rights or warrants (other than those
          referred to above in this subparagraph (c)(ii)) pro rata to the
          holders of Common Stock, so long as such rights or warrants have not
          expired or been redeemed by the Company, (y) the holder of any
          Preferred Stock surrendered for conversion shall be entitled to
          receive upon such conversion, in addition to the shares of Common
          Stock then issuable upon such conversion (the "Conversion Shares"), a
          number of rights or warrants to be determined as follows: (i) if such
          conversion occurs on or prior to the date for the distribution to the
          holders of rights or warrants of separate certificates evidencing such
          rights or warrants (the "Distribution Date"), the same number of
          rights or warrants to which a holder of a number of shares of Common
          Stock equal to the number of Conversion Shares is entitled at the time
          of such conversion in accordance with the terms and provisions
          applicable to the rights or warrants and (ii) if such conversion
          occurs after the Distribution Date, the same number of rights or
          warrants to which a holder of the number of shares of Common Stock
          into which such Preferred Stock was convertible immediately prior to
          such Distribution Date would have been entitled on such Distribution
          Date had such Preferred Stock been converted immediately prior to such
          Distribution Date in accordance with the terms and provisions
          applicable to the rights and warrants, and (z) the Conversion Price
          shall not be subject to adjustment on account of any declaration,
          distribution or exercise of such rights or warrants.

               (iii) In case the Company shall at any time or from time to time
          (A) make a pro rata distribution to all holders of shares of its
          Common Stock consisting exclusively of cash (excluding any cash
          portion of distributions referred to in clause (E) of paragraph (c)(i)
          above, or cash distributed upon a merger or consolidation to which
          paragraph (g) below applies), that, when combined together with (x)
          all other such all-cash distributions made within the then-preceding
          12 months in respect of which no adjustment has been made and (y) any
          cash and the fair market value of other consideration paid or payable
          in respect of any tender offer by the Company or any of its
          subsidiaries for shares of Common Stock concluded within the
          then-preceding 12 months in respect of which no


                                                                              16

          adjustment pursuant to this Section 7(c) has been made, in the
          aggregate exceeds 15% of the Company's market capitalization (defined
          as the product of the Market Value for the period ending on the record
          date of such distribution times the number of shares of Common Stock
          outstanding on such record date) on the record date of such
          distribution; (B) complete a tender or exchange offer by the Company
          or any of its subsidiaries for shares of Common Stock that involves an
          aggregate consideration that, together with (I) any cash and other
          consideration payable in a tender or exchange offer by the Company or
          any of its subsidiaries for shares of Common Stock expiring within the
          then-preceding 12 months in respect of which no adjustment pursuant to
          this Section 7(c) has been made and (II) the aggregate amount of any
          such all-cash distributions referred to in clause (A) above to all
          holders of shares of Common Stock within the then-preceding 12 months
          in respect of which no adjustments have been made, exceeds 15% of the
          Company's market capitalization on the expiration of such tender
          offer; or (C) make a distribution to all holders of its Common Stock
          consisting of evidences of indebtedness, shares of its capital stock
          other than Common Stock or assets (including securities, but excluding
          those dividends, rights, options, warrants and distributions referred
          to in paragraphs (c)(i), (c)(ii) above or this (c)(iii)), then, and in
          each such case, the Conversion Price then in effect shall be adjusted
          by dividing the Conversion Price in effect immediately prior to the
          date of such distribution or completion of such tender or exchange
          offer, as the case may be, by a fraction (x) the numerator of which
          shall be the Market Value for the period ending on the record date
          referred to below, or, if such adjustment is made upon the completion
          of a tender or exchange offer, on the payment date for such offer, and
          (y) the denominator of which shall be such Market Value less the then
          fair market value (as determined by the Board of Directors of the
          Company) of the portion of the cash, evidences of indebtedness,
          securities or other assets so distributed or paid in such tender or
          exchange offer, applicable to one share of Common Stock (but such
          denominator shall not be less than one); provided, however, that no
          adjustment shall be made with respect to any distribution of rights to
          purchase securities of the Company if the holder of shares of
          Preferred Stock would otherwise be entitled to receive such rights
          upon conversion at any time of shares of Preferred Stock into shares
          of Common Stock unless such rights are subsequently redeemed by the
          Company, in which case such redemption shall be treated for purposes
          of this Section 7(c)(iii) as a dividend on the Common Stock. Such
          adjustment shall be made whenever any such distribution is made or
          tender or exchange offer is completed, as the case may be, and shall
          become effective retroactively to a date immediately following the
          close of business on the record date for the determination of
          stockholders entitled to receive such distribution.

               (iv) In the case the Company at any time or from time to time
          shall take any action affecting its Common Stock (it being understood
          that the issuance or sale of shares of Common Stock (or securities
          convertible into or exchangeable for shares of Common Stock, or any
          options, warrants or other rights to acquire shares of Common Stock)
          to any Person at a price per share less than the Conversion Price then
          in effect shall not be deemed such an action), other than an action
          described in any of Section 7(c)(i) through


                                                                              17

          Section 7(c)(iii), inclusive, or Section 7(g), then the Conversion
          Price shall be adjusted in such manner and at such time as the Board
          of Directors of the Company in good faith determines to be equitable
          in the circumstances (such determination to be evidenced in a
          resolution, a certified copy of which shall be mailed to the holders
          of the Preferred Stock).

               (v) Notwithstanding anything herein to the contrary, no
          adjustment under this Section 7(c) need be made to the Conversion
          Price unless such adjustment would require an increase or decrease of
          at least 1% of the Conversion Price then in effect. Any lesser
          adjustment shall be carried forward and shall be made at the time of
          and together with the next subsequent adjustment, if any, which,
          together with any adjustment or adjustments so carried forward, shall
          amount to an increase or decrease of at least 1% of such Conversion
          Price.

               (vi) The Company reserves the right to make such reductions in
          the Conversion Price in addition to those required in the foregoing
          provisions as it considers advisable in order that any event treated
          for Federal income tax purposes as a dividend of stock or stock rights
          will not be taxable to the recipients. In the event the Company elects
          to make such a reduction in the Conversion Price, the Company will
          comply with the requirements of Rule 14e-1 under the Exchange Act, and
          any other securities laws and regulations thereunder if and to the
          extent that such laws and regulations are applicable in connection
          with the reduction of the Conversion Price.

          (d) If the Company shall take a record of the holders of its Common
     Stock for the purpose of entitling them to receive a dividend or other
     distribution, and shall thereafter (and before the dividend or distribution
     has been paid or delivered to stockholders) legally abandon its plan to pay
     or deliver such dividend or distribution, then thereafter no adjustment in
     the Conversion Price then in effect shall be required by reason of the
     taking of such record.

          (e) Upon any increase or decrease in the Conversion Price, then, and
     in each such case, the Company promptly shall deliver to each holder of
     Preferred Stock a certificate signed by an authorized officer of the
     Company, setting forth in reasonable detail the event requiring the
     adjustment and the method by which such adjustment was calculated and
     specifying the increased or decreased Conversion Price then in effect
     following such adjustment.

          (f) No fractional shares or securities representing fractional shares
     of Common Stock shall be issued upon the conversion of any shares of
     Preferred Stock, whether voluntary or mandatory. If more than one share of
     Preferred Stock shall be surrendered for conversion at one time by the same
     holder, the number of full shares of Common Stock issuable upon conversion
     thereof shall be computed on the basis of the aggregate Liquidation
     Preference of the shares of Preferred Stock so surrendered. If the


                                                                              18

     conversion of any share or shares of Preferred Stock results in a fraction,
     an amount equal to such fraction multiplied by the last reported sale price
     of the Common Stock on the NYSE (or on such other national securities
     exchange or automated quotation system on which the Common Stock is then
     listed for trading or authorized for quotation or, if the Common Stock is
     not then so listed or authorized for quotation, an amount determined in
     good faith by the Board of Directors to be the fair value of the Common
     Stock) at the close of business on the trading day next preceding the day
     of conversion shall be paid to such holder in cash by the Company.

          (g) In the event of any reclassification of outstanding shares of
     Common Stock (other than a change in par value, or from par value to no par
     value, or from no par value to par value), or in the event of any
     consolidation or merger of the Company with or into another Person or any
     merger of another Person with or into the Company (other than a
     consolidation or merger in which the Company is the resulting or surviving
     Person and which does not result in any reclassification or change of
     outstanding Common Stock), or in the event of any sale or other disposition
     to another Person of all or substantially all of the assets of the Company
     (computed on a consolidated basis) (any of the foregoing, a "Transaction"),
     each share of Preferred Stock then outstanding shall, without the consent
     of any holder of Preferred Stock, become convertible at any time, at the
     option of the holder thereof, only into the kind and amount of securities
     (of the Company or another issuer), cash and other property receivable upon
     such Transaction by a holder of the number of shares of Common Stock into
     which such share of Preferred Stock could have been converted immediately
     prior to such Transaction, after giving effect to any adjustment event. The
     provisions of this Section 7(g) and any equivalent thereof in any such
     securities similarly shall apply to successive Transactions. The provisions
     of this Section 7(g) shall be the sole right of holders of Preferred Stock
     in connection with any Transaction and such holders shall have no separate
     vote thereon.

          (h) The Company shall at all times reserve and keep available for
     issuance upon the conversion of the Preferred Stock such number of its
     authorized but unissued shares of Common Stock as will from time to time be
     sufficient to permit the conversion of all outstanding shares of Preferred
     Stock, and shall take all action required to increase the authorized number
     of shares of Common Stock if at any time there shall be insufficient
     unissued shares of Common Stock to permit such reservation or to permit the
     conversion of all outstanding shares of Preferred Stock.

          (i) The issuance or delivery of certificates for Common Stock upon the
     conversion of shares of Preferred Stock shall be made without charge to the
     converting holder of shares of Preferred Stock for such certificates or for
     any tax in respect of the issuance or delivery of such certificates or the
     securities represented thereby, and such certificates shall be issued or
     delivered in the respective names of, or in such names as may be directed
     by, the holders of the shares of Preferred Stock converted; provided,
     however, that the Company shall not be required to pay any tax which may be
     payable in


                                                                              19

     respect of any transfer involved in the issuance and delivery of any such
     certificate in a name other than that of the holder of the shares of
     Preferred Stock converted, and the Company shall not be required to issue
     or deliver such certificate unless or until the Person or Persons
     requesting the issuance or delivery thereof shall have paid to the Company
     the amount of such tax or shall have established to the reasonable
     satisfaction of the Company that such tax has been paid.

     8. Mandatory Conversion.

          (a) At any time on or after March 20, 2006, the Company shall have the
     right, at its option, to cause the Preferred Stock, in whole but not in
     part, to be automatically converted into that number of whole shares of
     Common Stock for each share of Preferred Stock equal to the quotient of (i)
     the Liquidation Preference divided by (ii) the Conversion Price then in
     effect, with any resulting fractional shares of Common Stock to be settled
     in accordance with Section 7(f). The Company may exercise its right to
     cause a mandatory conversion pursuant to this Section 8(a) only if the
     closing price of the Common Stock equals or exceeds 130% of the Conversion
     Price then in effect for at least 20 trading days in any consecutive 30-day
     trading period on the NYSE (or such other national securities exchange or
     automated quotation system on which the Common Stock is then listed or
     authorized for quotation, including the last trading day of such 30-day
     period, ending on the trading day prior to the Company's issuance of a
     press release announcing the mandatory conversion as described in Section
     8(b).

          (b) To exercise the mandatory conversion right described in Section
     8(a), the Company must issue a press release for publication on the Dow
     Jones News Service prior to the opening of business on the first trading
     day following any date on which the conditions described in Section 8(a)
     are met, announcing such a mandatory conversion. The Company shall also
     give notice by mail or by publication (with subsequent prompt notice by
     mail) to the holders of Preferred Stock (not more than four Business Days
     after the date of the press release) of the mandatory conversion announcing
     the Company's intention to convert the Preferred Stock. The conversion date
     will be a date selected by the Company (the "Mandatory Conversion Date")
     and will be no more than five days after the date on which the Company
     issues the press release described in this Section 8(b).

          (c) In addition to any information required by applicable law or
     regulation, the press release and notice of a mandatory conversion
     described in Section 8(b) shall state, as appropriate: (i) the Mandatory
     Conversion Date; (ii) the number of shares of Common Stock to be issued
     upon conversion of each share of Preferred Stock; (iii) the number of
     shares of Preferred Stock to be converted; and (iv) that dividends on the
     Preferred Stock to be converted will cease to accrue on the Mandatory
     Conversion Date.


                                                                              20

          (d) On and after the Mandatory Conversion Date, dividends will cease
     to accrue on the Preferred Stock called for a mandatory conversion pursuant
     to Section 8(a) and all rights of holders of such Preferred Stock will
     terminate except for the right to receive the whole shares of Common Stock
     issuable upon conversion thereof and cash, in lieu of any fractional shares
     of Common Stock in accordance with Section 7(f). The dividend payment with
     respect to the Preferred Stock called for a mandatory conversion pursuant
     to Section 8(a) on a date during the period between the close of business
     on any Dividend Record Date to the close of business on the corresponding
     Dividend Payment Date will be payable on such Dividend Payment Date to the
     record holder of such share on such Dividend Record Date if such share has
     been converted after such Dividend Record Date and prior to such Dividend
     Payment Date. Except as provided in the immediately preceding sentence with
     respect to a mandatory conversion pursuant to Section 8(a), no payment or
     adjustment will be made upon conversion of Preferred Stock for Accrued
     Dividends or for dividends with respect to the Common Stock issued upon
     such conversion.

          (e) The Company may not authorize, issue a press release or give
     notice of any mandatory conversion pursuant to Section 8(a) unless, prior
     to giving the conversion notice, all Accumulated Dividends on the Preferred
     Stock for periods ended prior to the date of such conversion notice shall
     have been paid in cash.

          (f) In addition to the mandatory conversion right described in Section
     8(a), if there are less than 250,000 shares of Preferred Stock outstanding,
     the Company shall have the right, at any time on or after March 20, 2008,
     at its option, to cause the Preferred Stock to be automatically converted
     into that number of whole shares of Common Stock equal to the quotient of
     (i) the Liquidation Preference divided by (ii) the lesser of (A) the
     Conversion Price then in effect and (B) the Market Value for the period
     ending on the second trading day immediately prior to the Mandatory
     Conversion Date, with any resulting fractional shares of Common Stock to be
     settled in cash in accordance with Section 7(f). The provisions of clauses
     (b), (c), (d) and (e) of this Section 8 shall apply to any mandatory
     conversion pursuant to this clause (f); provided that (i) the Mandatory
     Conversion Date described in Section 8(b) shall not be less than 15 days
     nor more than 30 days after the date on which the Company issues a press
     release pursuant to Section 8(b) announcing such mandatory conversion and
     (ii) the press release and notice of mandatory conversion described in
     Section 8(c) will not state the number of shares of Common Stock to be
     issued upon conversion of each share of Preferred Stock.

     9. Consolidation, Merger and Sale of Assets.

          (a) The Company, without the consent of the holders of any of the
     outstanding Preferred Stock, may consolidate with or merge into any other
     Person or convey, transfer or lease all or substantially all its assets to
     any Person or may permit any Person to consolidate with or merge into, or
     transfer or lease all or substantially all its


                                                                              21

     properties to, the Company; provided, however, that (a) the successor,
     transferee or lessee is organized under the laws of the United States or
     any political subdivision thereof; (b) the shares of Preferred Stock will
     become shares of such successor, transferee or lessee, having in respect of
     such successor, transferee or lessee the same powers, preferences and
     relative participating, optional or other special rights and the
     qualification, limitations or restrictions thereon, the Preferred Stock had
     immediately prior to such transaction; and (c) the Company delivers to the
     Transfer Agent an Officers' Certificate and an Opinion of Counsel stating
     that such transaction complies with this Certificate of Designation.

          (b) Upon any consolidation by the Company with, or merger by the
     Company into, any other person or any conveyance, transfer or lease of all
     or substantially all the assets of the Company as described in Section
     9(a), the successor resulting from such consolidation or into which the
     Company is merged or the transferee or lessee to which such conveyance,
     transfer or lease is made, will succeed to, and be substituted for, and may
     exercise every right and power of, the Company under the shares of
     Preferred Stock, and thereafter, except in the case of a lease, the
     predecessor (if still in existence) will be released from its obligations
     and covenants with respect to the Preferred Stock.

     10. SEC Reports.

     Whether or not the Company is required to file reports with the Commission,
if any shares of Preferred Stock are outstanding, the Company shall file with
the Commission all such reports and other information as it would be required to
file with the Commission by Section 13(a)or 15(d) under the Exchange Act. The
Company shall supply each holder of Preferred Stock, upon request, without cost
to such holder, copies of such reports or other information.

     11. Certificates.

          (a) Form and Dating. The Preferred Stock and the Transfer Agent's
     certificate of authentication shall be substantially in the form of Exhibit
     A, which is hereby incorporated in and expressly made a part of this
     Certificate of Designation. The Preferred Stock certificate may have
     notations, legends or endorsements required by law, stock exchange rule,
     agreements to which the Company is subject, if any, or usage (provided that
     any such notation, legend or endorsement is in a form acceptable to the
     Company). Each Preferred Stock certificate shall be dated the date of its
     authentication. The terms of the Preferred Stock certificate set forth in
     Exhibit A are part of the terms of this Certificate of Designation.

               (i) Global Preferred Stock. The Preferred Stock shall be issued
          initially in the form of one or more fully registered global
          certificates with the global securities legend and restricted
          securities legend set forth in Exhibit A hereto (the "Global Preferred


                                                                              22

          Stock"), which shall be deposited on behalf of the purchasers
          represented thereby with the Transfer Agent, as custodian for DTC (or
          with such other custodian as DTC may direct), and registered in the
          name of DTC or a nominee of DTC, duly executed by the Company and
          authenticated by the Transfer Agent as hereinafter provided. The
          number of shares of Preferred Stock represented by Global Preferred
          Stock may from time to time be increased or decreased by adjustments
          made on the records of the Transfer Agent and DTC or its nominee as
          hereinafter provided. With respect to shares of Preferred Stock that
          are not "restricted securities" as defined in Rule 144 on a conversion
          date, all shares of Common Stock distributed on such conversion date
          will be freely transferable without restriction under the Securities
          Act (other than by affiliates), and such shares will be eligible for
          receipt in global form through the facilities of DTC.

               (ii) Book-Entry Provisions. In the event Global Preferred Stock
          is deposited with or on behalf of DTC, the Company shall execute and
          the Transfer Agent shall authenticate and deliver initially one or
          more Global Preferred Stock certificates that (a) shall be registered
          in the name of DTC as depository for such Global Preferred Stock or
          the nominee of DTC and (b) shall be delivered by the Transfer Agent to
          DTC or pursuant to DTC's instructions or held by the Transfer Agent as
          custodian for DTC.

               Members of, or participants in, DTC ("Agent Members") shall have
          no rights under this Certificate of Designation with respect to any
          Global Preferred Stock held on their behalf by DTC or by the Transfer
          Agent as the custodian of DTC or under such Global Preferred Stock,
          and DTC may be treated by the Company, the Transfer Agent and any
          agent of the Company or the Transfer Agent as the absolute owner of
          such Global Preferred Stock for all purposes whatsoever.
          Notwithstanding the foregoing, nothing herein shall prevent the
          Company, the Transfer Agent or any agent of the Company or the
          Transfer Agent from giving effect to any written certification, proxy
          or other authorization furnished by DTC or impair, as between DTC and
          its Agent Members, the operation of customary practices of DTC
          governing the exercise of the rights of a holder of a beneficial
          interest in any Global Preferred Stock.

               (iii) Certificated Preferred Stock; Certificated Common Stock.
          Except as provided in this paragraph 11(a) or in paragraph 11(c),
          owners of beneficial interests in Global Preferred Stock will not be
          entitled to receive physical delivery of Preferred Stock in fully
          registered certificated form ("Certificated Preferred Stock"). With
          respect to shares of Preferred Stock that are "restricted securities"
          as defined in Rule 144 on a conversion date, all shares of Common
          Stock issuable on conversion of such shares on such conversion date
          will be issued in fully registered certificated form ("Certificated
          Common Stock"). Certificates of Certificated Common Stock will be
          mailed or made available at the office of the Transfer Agent for the
          Preferred Stock on or as soon as reasonably practicable after the
          relevant conversion date to the converting holder.


                                                                              23

               After a transfer of any Preferred Stock or Certificated Common
          Stock during the period of the effectiveness of a Shelf Registration
          Statement with respect to such Preferred Stock or such Certificated
          Common Stock, all requirements pertaining to legends on such Preferred
          Stock (including Global Preferred Stock) or Certificated Common Stock
          will cease to apply, the requirements requiring that any such
          Certificated Common Stock issued to Holders be issued in certificated
          form, as the case may, will cease to apply, and Preferred Stock or
          Common Stock, as the case may be, in global or fully registered
          certificated form, in either case without legends, will be available
          to the transferee of the Holder of such Preferred Stock or
          Certificated Common Stock upon exchange of such transferring Holder's
          Preferred Stock or Common Stock or directions to transfer such
          Holder's interest in the Global Preferred Stock, as applicable.

          (b) Execution and Authentication. Two Officers shall sign the
     Preferred Stock certificate for the Company by manual or facsimile
     signature.

          If an Officer whose signature is on a Preferred Stock certificate no
     longer holds that office at the time the Transfer Agent authenticates the
     Preferred Stock certificate, the Preferred Stock certificate shall be valid
     nevertheless.

          A Preferred Stock certificate shall not be valid until an authorized
     signatory of the Transfer Agent manually signs the certificate of
     authentication on the Preferred Stock certificate. The signature shall be
     conclusive evidence that the Preferred Stock certificate has been
     authenticated under this Certificate of Designation.

          The Transfer Agent shall authenticate and deliver certificates for up
     to 4,600,000 shares of Preferred Stock for original issue upon a written
     order of the Company signed by two Officers or by an Officer and an
     Assistant Treasurer of the Company. Such order shall specify the number of
     shares of Preferred Stock to be authenticated and the date on which the
     original issue of Preferred Stock is to be authenticated.

          The Transfer Agent may appoint an authenticating agent reasonably
     acceptable to the Company to authenticate the certificates for Preferred
     Stock. Unless limited by the terms of such appointment, an authenticating
     agent may authenticate certificates for Preferred Stock whenever the
     Transfer Agent may do so. Each reference in this Certificate of Designation
     to authentication by the Transfer Agent includes authentication by such
     agent. An authenticating agent has the same rights as the Transfer Agent or
     agent for service of notices and demands.


                                                                              24

          (c) Transfer and Exchange. (i) Transfer and Exchange of Certificated
     Preferred Stock. When Certificated Preferred Stock is presented to the
     Transfer Agent with a request to register the transfer of such Certificated
     Preferred Stock or to exchange such Certificated Preferred Stock for an
     equal number of shares of Certificated Preferred Stock, the Transfer Agent
     shall register the transfer or make the exchange as requested if its
     reasonable requirements for such transaction are met; provided, however,
     that the Certificated Preferred Stock surrendered for transfer or exchange:

               (1) shall be duly endorsed or accompanied by a written instrument
          of transfer in form reasonably satisfactory to the Company and the
          Transfer Agent, duly executed by the Holder thereof or its attorney
          duly authorized in writing; and

               (2) is being transferred or exchanged pursuant to an effective
          registration statement under the Securities Act or pursuant to clause
          (I) or (II) below, and is accompanied by the following additional
          information and documents, as applicable:

                    (I) if such Certificated Preferred Stock is being delivered
               to the Transfer Agent by a Holder for registration in the name of
               such Holder, without transfer, a certification from such Holder
               to that effect in substantially the form of Exhibit C hereto; or

                    (II) if such Certificated Preferred Stock is being
               transferred to the Company or to a "qualified institutional
               buyer" ("QIB") in accordance with Rule 144A under the Securities
               Act or pursuant to another exemption from registration under the
               Securities Act, (i) a certification to that effect (in
               substantially the form of Exhibit C hereto) and (ii) if the
               Company so requests, an Opinion of Counsel or other evidence
               reasonably satisfactory to it as to the compliance with the
               restrictions set forth in the legend set forth in paragraph 11
               (c) (vii).


                                                                              25

               (ii) Restrictions on Transfer of Certificated Preferred Stock for
          a Beneficial Interest in Global Preferred Stock. Certificated
          Preferred Stock may not be exchanged for a beneficial interest in
          Global Preferred Stock except upon satisfaction of the requirements
          set forth below. Upon receipt by the Transfer Agent of Certificated
          Preferred Stock, duly endorsed or accompanied by appropriate
          instruments of transfer, in form reasonably satisfactory to the
          Company and the Transfer Agent, together with written instructions
          directing the Transfer Agent to make, or to direct DTC to make, an
          adjustment on its books and records with respect to such Global
          Preferred Stock to reflect an increase in the number of shares of
          Preferred Stock represented by the Global Preferred Stock, then the
          Transfer Agent shall cancel such Certificated Preferred Stock and
          cause, or direct DTC to cause, in accordance with the standing
          instructions and procedures existing between DTC and the Transfer
          Agent, the number of shares of Preferred Stock represented by the
          Global Preferred Stock to be increased accordingly. If no Global
          Preferred Stock is then outstanding, the Company shall issue and the
          Transfer Agent shall authenticate, upon written order of the Company
          in the form of an Officers' Certificate, a new Global Preferred Stock
          representing the appropriate number of shares.

               (iii) Transfer and Exchange of Global Preferred Stock. The
          transfer and exchange of Global Preferred Stock or beneficial
          interests therein shall be effected through DTC, in accordance with
          this Certificate of Designation (including applicable restrictions on
          transfer set forth herein, if any) and the procedures of DTC therefor.

               (iv) Transfer of a Beneficial Interest in Global Preferred Stock
          for a Certificated Preferred Stock.


                    (1) Any Person having a beneficial interest in Preferred
               Stock that is being transferred or exchanged pursuant to an
               effective registration statement under the Securities Act or
               pursuant to another exemption from registration thereunder may
               upon request, but only with the consent of the Company, and if
               accompanied by a certification from such Person to that effect
               (in substantially the form of Exhibit C hereto), exchange such
               beneficial interest for Certificated Preferred Stock representing
               the same number of shares of Preferred Stock. Upon receipt by the
               Transfer Agent of written instructions or such other form of
               instructions as is customary for DTC from DTC or its nominee on
               behalf of any Person having a beneficial interest in Global
               Preferred Stock and upon receipt by the Transfer Agent of a
               written order or such other form of instructions as is customary
               for DTC or the Person designated by DTC as having such a
               beneficial interest in a Transfer Restricted Security only, then,
               the Transfer Agent or DTC, at the direction of the Transfer
               Agent, will cause, in accordance with the standing instructions
               and procedures existing between DTC and the Transfer Agent, the
               number of shares of Preferred Stock represented by Global
               Preferred Stock to be reduced on its books and records and,
               following such reduction, the Company will


                                                                              26

               execute and the Transfer Agent will authenticate and deliver to
               the transferee Certificated Preferred Stock.

                    (2) Certificated Preferred Stock issued in exchange for a
               beneficial interest in a Global Preferred Stock pursuant to this
               paragraph 11(c)(iv) shall be registered in such names and in such
               authorized denominations as DTC, pursuant to instructions from
               its direct or indirect participants or otherwise, shall instruct
               the Transfer Agent. The Transfer Agent shall deliver such
               Certificated Preferred Stock to the Persons in whose names such
               Preferred Stock are so registered in accordance with the
               instructions of DTC.

               (v) Restrictions on Transfer and Exchange of Global Preferred
          Stock.

                    (1) Notwithstanding any other provisions of this Certificate
               of Designation (other than the provisions set forth in paragraph
               11(c)(vi)), Global Preferred Stock may not be transferred as a
               whole except by DTC to a nominee of DTC or by a nominee of DTC to
               DTC or another nominee of DTC or by DTC or any such nominee to a
               successor depository or a nominee of such successor depository.

                    (2) In the event that the Global Preferred Stock is
               exchanged for Preferred Stock in definitive registered form
               pursuant to paragraph 11(c)(vi) prior to the effectiveness of a
               Shelf Registration Statement with respect to such securities,
               such Preferred Stock may be exchanged only in accordance with
               such procedures as are substantially consistent with the
               provisions of this paragraph 11(c) (including the certification
               requirements set forth in the Exhibits to this Certificate of
               Designation intended to ensure that such transfers comply with
               Rule 144A or such other applicable exemption from registration
               under the Securities Act, as the case may be) and such other
               procedures as may from time to time be adopted by the Company.

               (vi) Authentication of Certificated Preferred Stock. If at any
          time:

                    (1) DTC notifies the Company that DTC is unwilling or unable
               to continue as depository for the Global Preferred Stock and a
               successor depository for the Global Preferred Stock is not
               appointed by the Company within 90 days after delivery of such
               notice;

                    (2) DTC ceases to be a clearing agency registered under the
               Exchange Act and a successor depository for the Global Preferred
               Stock is not appointed by the Company within 90 days; or


                                                                              27

                    (3) the Company, in its sole discretion, notifies the
               Transfer Agent in writing that it elects to cause the issuance of
               Certificated Preferred Stock under this Certificate of
               Designation,

          then the Company will execute, and the Transfer Agent, upon receipt of
          a written order of the Company signed by two Officers or by an Officer
          and an Assistant Treasurer of the Company requesting the
          authentication and delivery of Certificated Preferred Stock to the
          Persons designated by the Company, will authenticate and deliver
          Certificated Preferred Stock equal to the number of shares of
          Preferred Stock represented by the Global Preferred Stock, in exchange
          for such Global Preferred Stock.

               (vii) Legend. (1) Except as permitted by the following paragraph
          (2) and in paragraph 11(a)(iii), each certificate evidencing the
          Global Preferred Stock, the Certificated Preferred Stock and
          Certificated Common Stock shall bear a legend in substantially the
          following form:


                                                                              28

          "THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) WAS ORIGINALLY
          ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED
          STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS
          SECURITY (AND THE COMMON STOCK INTO WHICH THIS SECURITY IS
          CONVERTIBLE) MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
          ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
          EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED
          THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
          SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE
          HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
          COMPANY THAT (A) SUCH SECURITY (AND THE COMMON STOCK INTO WHICH THIS
          SECURITY IS CONVERTIBLE) MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
          TRANSFERRED, ONLY (1) IN THE UNITED STATES TO A PERSON WHO THE SELLER
          REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
          RULE 144A UNDER THE SECURITIES ACT) PURCHASING FOR ITS OWN ACCOUNT OR
          FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION
          MEETING THE REQUIREMENTS OF RULE 144A, (2) OUTSIDE OF THE UNITED
          STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER
          THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION
          UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
          AVAILABLE), (4) TO THE COMPANY OR (5) PURSUANT TO AN EFFECTIVE
          REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (1)
          THROUGH (5) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
          STATES OF THE UNITED STATES AND (B) THE HOLDER WILL, AND EACH
          SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS
          SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE.
          IN ANY CASE, THE HOLDER OF THIS SECURITY WILL NOT, DIRECTLY OR
          INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD TO THE
          SECURITY EXCEPT AS PERMITTED UNDER THE SECURITIES ACT."(1)
- --------
1    Subject to removal upon registration under the Securities Act of 1933 or
     otherwise when the security shall no longer be a Transfer Restricted
     Security.


                                                                              29

               (2) Upon any sale or transfer of a Transfer Restricted Security
          (including any Transfer Restricted Security represented by Global
          Preferred Stock) pursuant to Rule 144 under the Securities Act or
          another exemption from registration under the Securities Act or an
          effective registration statement under the Securities Act:

                    (I) in the case of any Transfer Restricted Security that is
               a Certificated Preferred Stock, the Transfer Agent shall permit
               the Holder thereof to exchange such Transfer Restricted Security
               for Certificated Preferred Stock that does not bear the legend
               set forth above and rescind any restriction on the transfer of
               such Transfer Restricted Security; and

                    (II) in the case of any Transfer Restricted Security that is
               represented by a Global Preferred Stock, with the consent of the
               Company, the Transfer Agent shall permit the Holder thereof to
               exchange such Transfer Restricted Security for Certificated
               Preferred Stock that does not bear the legend set forth above and
               rescind any restriction on the transfer of such Transfer
               Restricted Security, if the Holder's request for such exchange
               was made in reliance on Rule 144 or another exemption from
               registration under the Securities Act and the Holder certifies to
               that effect in writing to the Transfer Agent (such certification
               to be in the form set forth in Exhibit C hereto).

          (viii) Cancelation or Adjustment of Global Preferred Stock. At such
     time as all beneficial interests in Global Preferred Stock have either been
     exchanged for Certificated Preferred Stock, converted or canceled, such
     Global Preferred Stock shall be returned to DTC for cancelation or retained
     and canceled by the Transfer Agent. At any time prior to such cancelation,
     if any beneficial interest in Global Preferred Stock is exchanged for
     Certificated Preferred Stock, converted or canceled, the number of shares
     of Preferred Stock represented by such Global Preferred Stock shall be
     reduced and an adjustment shall be made on the books and records of the
     Transfer Agent with respect to such Global Preferred Stock, by the Transfer
     Agent or DTC, to reflect such reduction.

          (ix) Obligations with Respect to Transfers and Exchanges of Preferred
     Stock. (1) To permit registrations of transfers and exchanges, the Company
     shall execute and the Transfer Agent shall authenticate Certificated
     Preferred Stock and Global Preferred Stock as required pursuant to the
     provisions of this paragraph 11(c).

               (2) All Certificated Preferred Stock and Global Preferred Stock
          issued upon any registration of transfer or exchange of Certificated
          Preferred Stock or Global Preferred Stock shall be the valid
          obligations of the Company, entitled to the same benefits under this
          Certificate of Designation as the Certificated


                                                                              30

          Preferred Stock or Global Preferred Stock surrendered upon such
          registration of transfer or exchange.

               (3) Prior to due presentment for registration of transfer of any
          shares of Preferred Stock, the Transfer Agent and the Company may deem
          and treat the Person in whose name such shares of Preferred Stock are
          registered as the absolute owner of such Preferred Stock and neither
          the Transfer Agent nor the Company shall be affected by notice to the
          contrary.

               (4) No service charge shall be made to a Holder for any
          registration of transfer or exchange upon surrender of any Preferred
          Stock certificate or Common Stock certificate at the office of the
          Transfer Agent maintained for that purpose. However, the Company may
          require payment of a sum sufficient to cover any tax or other
          governmental charge that may be imposed in connection with any
          registration of transfer or exchange of Preferred Stock certificates
          or Common Stock certificates.

               (5) Upon any sale or transfer of shares of Preferred Stock
          (including any Preferred Stock represented by a Global Preferred Stock
          Certificate) or of Certificated Common Stock pursuant to an effective
          registration statement under the Securities Act or pursuant to Rule
          144 or another exemption from registration under the Securities Act
          (and based upon an Opinion of Counsel reasonably satisfactory to the
          Company if it so requests):

               (A)  in the case of any Certificated Preferred Stock or
                    Certificated Common Stock, the Company and the Transfer
                    Agent shall permit the holder thereof to exchange such
                    Preferred Stock or Certificated Common Stock for
                    Certificated Preferred Stock or Certificated Common Stock,
                    as the case may be, that does not bear the legend set forth
                    in paragraph (c)(vii) above and rescind any restriction on
                    the transfer of such Preferred Stock or Common Stock
                    issuable in respect of the conversion of the Preferred
                    Stock; and

               (B)  in the case of any Global Preferred Stock, such Preferred
                    Stock shall not be required to bear the legend set forth in
                    paragraph (c)(vii) above but shall continue to be subject to
                    the provisions of paragraph (c)(iv) hereof; provided,
                    however, that with respect to any request for an exchange of
                    Preferred Stock that is represented by Global Preferred
                    Stock for Certificated Preferred Stock that does not bear
                    the legend set forth in paragraph (c)(vii) above in
                    connection with a sale or transfer thereof pursuant to Rule
                    144 or another exemption from registration under the
                    Securities Act (and based upon an Opinion of Counsel if the


                                                                              31

                    Company so requests), the Holder thereof shall certify in
                    writing to the Transfer Agent that such request is being
                    made pursuant to such exemption (such certification to be
                    substantially in the form of Exhibit C hereto).

          (x) No Obligation of the Transfer Agent.

               (1) The Transfer Agent shall have no responsibility or obligation
          to any beneficial owner of Global Preferred Stock, a member of, or a
          participant in DTC or any other Person with respect to the accuracy of
          the records of DTC or its nominee or of any participant or member
          thereof, with respect to any ownership interest in the Preferred Stock
          or with respect to the delivery to any participant, member, beneficial
          owner or other Person (other than DTC) of any notice or the payment of
          any amount, under or with respect to such Global Preferred Stock. All
          notices and communications to be given to the Holders and all payments
          to be made to Holders under the Preferred Stock shall be given or made
          only to the Holders (which shall be DTC or its nominee in the case of
          the Global Preferred Stock). The rights of beneficial owners in any
          Global Preferred Stock shall be exercised only through DTC subject to
          the applicable rules and procedures of DTC. The Transfer Agent may
          rely and shall be fully protected in relying upon information
          furnished by DTC with respect to its members, participants and any
          beneficial owners.

               (2) The Transfer Agent shall have no obligation or duty to
          monitor, determine or inquire as to compliance with any restrictions
          on transfer imposed under this Certificate of Designation or under
          applicable law with respect to any transfer of any interest in any
          Preferred Stock (including any transfers between or among DTC
          participants, members or beneficial owners in any Global Preferred
          Stock) other than to require delivery of such certificates and other
          documentation or evidence as are expressly required by, and to do so
          if and when expressly required by, the terms of this Certificate of
          Designation, and to examine the same to determine substantial
          compliance as to form with the express requirements hereof.

          (d) Replacement Certificates. If a mutilated Preferred Stock
     certificate is surrendered to the Transfer Agent or if the Holder of a
     Preferred Stock certificate claims that the Preferred Stock certificate has
     been lost, destroyed or wrongfully taken, the Company shall issue and the
     Transfer Agent shall countersign a replacement Preferred Stock certificate
     if the reasonable requirements of the Transfer Agent and of Section 8-405
     of the Uniform Commercial Code as in effect in the State of Oklahoma are
     met. If required by the Transfer Agent or the Company, such Holder shall
     furnish an indemnity bond sufficient in the judgment of the Company and the
     Transfer Agent to protect the Company and the Transfer Agent from any loss
     which either of them may suffer if a


                                                                              32

     Preferred Stock certificate is replaced. The Company and the Transfer Agent
     may charge the Holder for their expenses in replacing a Preferred Stock
     certificate.

          (e) Temporary Certificates. Until definitive Preferred Stock
     certificates are ready for delivery, the Company may prepare and the
     Transfer Agent shall countersign temporary Preferred Stock certificates.
     Temporary Preferred Stock certificates shall be substantially in the form
     of definitive Preferred Stock certificates but may have variations that the
     Company considers appropriate for temporary Preferred Stock certificates.
     Without unreasonable delay, the Company shall prepare and the Transfer
     Agent shall countersign definitive Preferred Stock certificates and deliver
     them in exchange for temporary Preferred Stock certificates.

          (f) Cancelation. (i) In the event the Company shall purchase or
     otherwise acquire Certificated Preferred Stock, the same shall thereupon be
     delivered to the Transfer Agent for cancelation.

               (ii) At such time as all beneficial interests in Global Preferred
          Stock have either been exchanged for Certificated Preferred Stock,
          converted, repurchased or canceled, such Global Preferred Stock shall
          thereupon be delivered to the Transfer Agent for cancelation.

               (iii) The Transfer Agent and no one else shall cancel and destroy
          all Preferred Stock certificates surrendered for transfer, exchange,
          replacement or cancelation and deliver a certificate of such
          destruction to the Company unless the Company directs the Transfer
          Agent to deliver canceled Preferred Stock certificates to the Company.
          The Company may not issue new Preferred Stock certificates to replace
          Preferred Stock certificates to the extent they evidence Preferred
          Stock which the Company has purchased or otherwise acquired.

     12. Additional Rights of Holders. In addition to the rights provided to
Holders under this Certificate of Designation, Holders shall have the rights set
forth in the Registration Rights Agreement.


                                                                              33

     13. Other Provisions.

          (1) With respect to any notice to a holder of shares of Preferred
     Stock required to be provided hereunder, neither failure to mail such
     notice, nor any defect therein or in the mailing thereof, to any particular
     holder shall affect the sufficiency of the notice or the validity of the
     proceedings referred to in such notice with respect to the other holders or
     affect the legality or validity of any distribution, rights, warrant,
     reclassification, consolidation, merger, conveyance, transfer, dissolution,
     liquidation or winding-up, or the vote upon any such action. Any notice
     which was mailed in the manner herein provided shall be conclusively
     presumed to have been duly given whether or not the holder receives the
     notice.

          (2) Shares of Preferred Stock issued and reacquired will be retired
     and canceled promptly after reacquisition thereof and, upon compliance with
     the applicable requirements of Oklahoma law, have the status of authorized
     but unissued shares of preferred stock of the Company undesignated as to
     series and may with any and all other authorized but unissued shares of
     preferred stock of the Company be designated or redesignated and issued or
     reissued, as the case may be, as part of any series of preferred stock of
     the Corporation, except that any issuance or reissuance of shares of
     Preferred Stock must be in compliance with this Certificate of Designation.

          (3) The shares of Preferred Stock shall be issuable only in whole
     shares.

          (4) All notice periods referred to herein shall commence on the date
     of the mailing of the applicable notice.


          IN WITNESS WHEREOF, the Company has caused this certificate to be
     signed and attested this 28th day of February, 2003.

                                            CHESAPEAKE ENERGY CORPORATION


                                            By: /s/ TOM L. WARD
                                                --------------------------------
                                                Tom L. Ward



Attest: /s/ JENNIFER M. GRIGSBY
        ---------------------------------
        Jennifer M. Grigsby



                                                                       EXHIBIT A


                             FORM OF PREFERRED STOCK


                                FACE OF SECURITY


     [THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT
OF 1933 (THE "SECURITIES ACT"), AND THIS SECURITY (AND THE COMMON STOCK INTO
WHICH THIS SECURITY IS CONVERTIBLE) MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5
OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH
SECURITY (AND THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) MAY BE
OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) IN THE UNITED STATES
TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (2) OUTSIDE THE UNITED STATES IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (3)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER (IF AVAILABLE), (4) TO THE COMPANY OR (5) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (1)
THROUGH (5) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF
THE UNITED STATES AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO IN (A) ABOVE. IN ANY CASE, THE HOLDER OF THIS SECURITY
WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD
TO THE SECURITY EXCEPT AS PERMITTED UNDER THE SECURITIES ACT."(2)

- ---------
2    Subject to removal upon registration under the Securities Act of 1933 or
     otherwise when the security shall no longer be a Transfer Restricted
     Security.


     [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OF
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.](3)

     [TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
CERTIFICATE OF DESIGNATION REFERRED TO BELOW.](3)

     IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE TRANSFER
AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY
REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
RESTRICTIONS.

Certificate Number                                           Number of Shares of
                                                     Convertible Preferred Stock
[ ]                                                                          [ ]

                                                      CUSIP NO.:  165167 60 2(4)

   6.00% Cumulative Convertible Preferred Stock (par value $0.01) (liquidation
            preference $50 per share of Convertible Preferred Stock)

                                       of

                          Chesapeake Energy Corporation
- ---------
3    Subject to removal if not a global security.
4    CUSIP Number 165167 70 1, if not a Transfer Restricted Security.


                                                                               3

     Chesapeake Energy Corporation, an Oklahoma corporation (the "Company"),
hereby certifies that [ ] (the "Holder") is the registered owner of [ ] fully
paid and non-assessable preferred securities of the Company designated the 6.00%
Cumulative Convertible Preferred Stock (par value $0.01) (liquidation preference
$50 per share of Preferred Stock) (the "Preferred Stock"). The shares of
Preferred Stock are transferable on the books and records of the Transfer Agent,
in person or by a duly authorized attorney, upon surrender of this certificate
duly endorsed and in proper form for transfer. The designations, rights,
privileges, restrictions, preferences and other terms and provisions of the
Preferred Stock represented hereby are issued and shall in all respects be
subject to the provisions of the Certificate of Designation dated February 28,
2003, as the same may be amended from time to time (the "Certificate of
Designation"). Capitalized terms used herein but not defined shall have the
meaning given them in the Certificate of Designation. The Company will provide a
copy of the Certificate of Designation to a Holder without charge upon written
request to the Company at its principal place of business.

     Reference is hereby made to select provisions of the Preferred Stock set
forth on the reverse hereof, and to the Certificate of Designation, which select
provisions and the Certificate of Designation shall for all purposes have the
same effect as if set forth at this place.

     Upon receipt of this certificate, the Holder is bound by the Certificate of
Designation and is entitled to the benefits thereunder.

     Unless the Transfer Agent's Certificate of Authentication hereon has been
properly executed, these shares of Preferred Stock shall not be entitled to any
benefit under the Certificate of Designation or be valid or obligatory for any
purpose.

     IN WITNESS WHEREOF, the Company has executed this certificate this __ day
of __, 2003.

                                            CHESAPEAKE ENERGY CORPORATION


                                            By:
                                                --------------------------------
                                                Name:
                                                Title:


                                            By:
                                                --------------------------------
                                                Name:
                                                Title:


                                                                               4


                 TRANSFER AGENT'S CERTIFICATE OF AUTHENTICATION

     These are shares of the Preferred Stock referred to in the within-mentioned
Certificate of Designation.

Dated:   ________, 2003

                                            UMB BANK, N.A., as Transfer Agent,


                                            By:
                                                --------------------------------
                                                Authorized Signatory


                                                                               5

                               REVERSE OF SECURITY


     Cash dividends on each share of Preferred Stock shall be payable at a rate
per annum set forth in the face hereof or as provided in the Certificate of
Designation.

     The shares of Preferred Stock shall be convertible into the Company's
Common Stock in the manner and according to the terms set forth in the
Certificate of Designation.

     The Company will furnish without charge to each holder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock and the qualifications, limitations or
restrictions of such preferences and/or rights.


                                                                               6

                                   ASSIGNMENT


     FOR VALUE RECEIVED, the undersigned assigns and transfers the shares of
Preferred Stock evidenced hereby to:


(Insert assignee's social security or tax identification number)




(Insert address and zip code of assignee)


and irrevocably appoints:



agent to transfer the shares of Preferred Stock evidenced hereby on the books of
the Transfer Agent. The agent may substitute another to act for him or her.


                                                                               7

Date:
     -------------------------------

Signature:
          -------------------------------------------
(Sign exactly as your name appears on the other side of this Preferred Stock
Certificate)

Signature Guarantee:(5)
                       ---------------------------------------------------------



- --------
5    (Signature must be guaranteed by an "eligible guarantor institution" that
     is a bank, stockbroker, savings and loan association or credit union
     meeting the requirements of the Transfer Agent, which requirements include
     membership or participation in the Securities Transfer Agents Medallion
     Program ("STAMP") or such other "signature guarantee program" as may be
     determined by the Transfer Agent in addition to, or in substitution for,
     STAMP, all in accordance with the Securities Exchange Act of 1934, as
     amended.)


                                                                       EXHIBIT B


                              NOTICE OF CONVERSION


                          (To be Executed by the Holder
                    in order to Convert the Preferred Stock)


The undersigned hereby irrevocably elects to convert (the "Conversion") shares
of 6.00% Cumulative Convertible Preferred Stock (the "Preferred Stock"),
represented by stock certificate No(s). (the "Preferred Stock Certificates")
into shares of common stock ("Common Stock") of Chesapeake Energy Corporation
(the "Company") according to the conditions of the Certificate of Designation of
the Preferred Stock (the "Certificate of Designation"), as of the date written
below. If shares are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith the Preferred Stock Certificates. No fee will
be charged to the holder for any conversion, except for transfer taxes, if any.
A copy of each Preferred Stock Certificate is attached hereto (or evidence of
loss, theft or destruction thereof).

The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Preferred Stock shall be made pursuant to registration of the
Common Stock under the Securities Act of 1933 (the "Act"), or pursuant to any
exemption from registration under the Act.

Any holder, upon the exercise of its conversion rights in accordance with the
terms of the Certificate of Designation and the Preferred Stock, agrees to be
bound by the terms of the Registration Rights Agreement.

Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in or pursuant to the Certificate of Designation.

                           Date of Conversion:
                                               ------------------------

                           Applicable Conversion Price:
                                                        ---------------

                           Number of shares of
                           Preferred Stock to be Converted:
                                                            ------------

                           Number of shares of
                           Common Stock to be Issued:*
                                                       -----------------


                           Signature:
                                      ---------------------------------


                                                                               2

                           Name:
                                 --------------------------------------

                           Address:**
                                      ---------------------------------

                           Fax No.:
                                    -----------------------------------


*    The Company is not required to issue shares of Common Stock until the
     original Preferred Stock Certificate(s) (or evidence of loss, theft or
     destruction thereof) to be converted are received by the Company or its
     Transfer Agent. The Company shall issue and deliver shares of Common Stock
     to an overnight courier not later than three business days following
     receipt of the original Preferred Stock Certificate(s) to be converted.

**   Address where shares of Common Stock and any other payments or certificates
     shall be sent by the Company.


                                                                       EXHIBIT C


                  CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
                   REGISTRATION OF TRANSFER OF PREFERRED STOCK

Re:  6.00% Cumulative Convertible Preferred Stock (the "Preferred Stock") of
     Chesapeake Energy Corporation (the "Company")

     This Certificate relates to ____ shares of Preferred Stock held in |_| */
book-entry or |_| */ definitive form by _______________ (the "Transferor").

The Transferor*:

     |_| has requested the Transfer Agent by written order to deliver in
exchange for its beneficial interest in the Preferred Stock held by the
Depository shares of Preferred Stock in definitive, registered form equal to its
beneficial interest in such Preferred Stock (or the portion thereof indicated
above); or

     |_| has requested the Transfer Agent by written order to exchange or
register the transfer of Preferred Stock.

     In connection with such request and in respect of such Preferred Stock, the
Transferor does hereby certify that the Transferor is familiar with the
Certificate of Designation relating to the above-captioned Preferred Stock and
that the transfer of this Preferred Stock does not require registration under
the Securities Act of 1933 (the "Securities Act") because */:

     |_| Such Preferred Stock is being acquired for the Transferor's own account
without transfer.

     |_| Such Preferred Stock is being transferred to the Company.

     |_| Such Preferred Stock is being transferred to a qualified institutional
buyer (as defined in Rule 144A under the Securities Act), in reliance on Rule
144A.

- -------
* /Please check applicable box.


                                                                               2

     |_| Such Preferred Stock is being transferred in reliance on and in
compliance with another exemption from the registration requirements of the
Securities Act (and based on an Opinion of Counsel if the Company so requests).


                                      [INSERT NAME OF TRANSFEROR]

                                       by

Date:
      ------------

CERTIFICATE OF DESIGNATION

5% CUMULATIVE CONVERTIBLE PREFERRED STOCK

CHESAPEAKE ENERGY CORPORATION

Pursuant to Section 1032(G) of the Oklahoma General Corporation Act

CHESAPEAKE ENERGY CORPORATION, an Oklahoma corporation (the “Company”), does hereby certify that the following resolution was duly adopted by action of the Board of Directors of the Company, with the provisions thereof fixing the number of shares of the series and the dividend rate being set by action of the Board of Directors of the Company:

RESOLVED that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by the provisions of Article IV, Section 1 of the Certificate of Incorporation of the Company, as amended from time to time (the “Certificate of Incorporation”), and pursuant to Section 1032(G) of the Oklahoma General Corporation Act, the Board of Directors hereby creates a series of preferred stock of the Company and hereby states that the voting powers, designations, preferences and relative, participating, optional or other special rights of which, and qualifications, limitations or restrictions thereof (in addition to the provisions set forth in the Certificate of Incorporation which are applicable to the preferred stock of all classes and series), shall be as follows:

1. Designation and Amount; Ranking. (a) There shall be created from the 10,000,000 shares of preferred stock, par value $0.01 per share, of the Company authorized to be issued pursuant to the Certificate of Incorporation, a series of preferred stock, designated as the “5% Cumulative Convertible Preferred Stock,” par value $0.01 per share (the “Preferred Stock”), and the number of shares of such series shall be 1,725,000. Such number of shares may be decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Preferred Stock to a number less than that of the shares of Preferred Stock then outstanding plus the number of shares issuable upon exercise of options or rights then outstanding.

(b) The Preferred Stock will, with respect to both dividend rights and rights upon the liquidation, winding-up or dissolution of the Company, rank on a parity with the 6.75% Preferred Stock and the 6.00% Preferred Stock, and the Preferred Stock will, with respect to dividend rights or rights upon the liquidation, winding-up or dissolution of the Company rank (i) senior to all Junior Stock, (ii) on a parity with all other Parity Stock and (iii) junior to all Senior Stock.

2. Definitions. As used herein, the following terms shall have the following meanings:

(a) “Accrued Dividends” shall mean, with respect to any share of Preferred Stock, as of any date, the accrued and unpaid dividends on such share from and including the most recent Dividend Payment Date (or the Issue Date, if such date is prior to the first Dividend Payment Date) to but not including such date.

(b) “Accumulated Dividends” shall mean, with respect to any share of Preferred Stock, as of any date, the aggregate accumulated and unpaid dividends on such share from the Issue Date until the most recent Dividend Payment Date on or prior to such date. There shall be no Accumulated Dividends with respect to any share of Preferred Stock prior to the first Dividend Payment Date.

(c) “Affiliate” shall have the meaning ascribed to it, on the date hereof, under Rule 405 of the Securities Act of 1933, as amended.

(d) “Board of Directors” shall mean the Board of Directors of the Company or, with respect to any action to be taken by the Board of Directors, any committee of the Board of Directors duly authorized to take such action.

(e) “Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law or executive order to close.

(f) “Change of Control” shall mean any of the following events: (i) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of the Company’s 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; (ii) the adoption of a plan the consummation of which would result in the liquidation or dissolution of the Company; (iii) 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 the aggregate voting power of the Voting Stock of the Company; 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 the Voting Stock of the Company than such other Person or group 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 or group shall be deemed to beneficially own any Voting Stock of a specified corporation held by a parent corporation, if such other Person or group 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 the Board of Directors of such parent corporation); or (iv) during any period of two consecutive years, individuals who at the beginning of such period comprised the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of 66 2/3% of the directors of the Company 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 the Board of Directors of the Company then in office. For purposes of this definition of “Change of Control,” the term “Permitted Holders” means Aubrey K. McClendon and Tom L. Ward and their respective Affiliates.

(g) “Change of Control Date” shall mean the date on which the Change of Control event occurs.

(h) “Conversion Price” shall mean $16.4037, subject to adjustment as set forth in Section 7(c).

(i) “Common Stock” shall mean the common stock, par value $0.01 per share, of the Company, or any other class of stock resulting from successive changes or reclassifications of such common stock consisting solely of changes in par value, or from par value to no par value, or as a result of a subdivision, combination, or merger, consolidation or similar transaction in which the Company is a constituent corporation.

(j) “DTC” or “Depository” shall mean The Depository Trust Company.

(k) “Dividend Payment Date” shall mean February 15, May 15, August 15 and November 15 of each year, commencing February 15, 2004.

(l) “Dividend Record Date” shall mean February 1, May 1, August 1 and November 1 of each year.

(m) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

(n) “Holder” or “holder” shall mean a holder of record of the Preferred Stock.

(o) “Issue Date” shall mean November 18, 2003, the original date of issuance of the Preferred Stock.

(p) “Junior Stock” shall mean all classes of common stock of the Company and the Series A Junior Participating Convertible Preferred Stock and each other class of capital stock or series of preferred stock established after the Issue Date, by the Board of Directors, the terms of which do not expressly provide that such class or series ranks senior to or on parity with the Preferred Stock as to dividend rights or rights upon the liquidation, winding-up or dissolution of the Company.

(q) “Liquidation Preference” shall mean, with respect to each share of Preferred Stock, $100.00.

(r) “Market Value” shall mean the average closing price of the Common Stock for a five consecutive trading day period on the NYSE (or such other national securities exchange or automated quotation system on which the Common Stock is then listed or authorized for quotation or, if the Common Stock is not so listed or authorized for quotation, an amount determined in good faith by the Board of Directors to be the fair value of the Common Stock).

(s) “NYSE” shall mean the New York Stock Exchange, Inc.

(t) “Officer” shall mean the Chairman of the Board of Directors, the President, any Vice President, the Treasurer, the Secretary or any Assistant Secretary of the Company.

(u) “Officers’ Certificate” shall mean a certificate signed by two Officers.

(v) “Opinion of Counsel” shall mean a written opinion from legal counsel who is acceptable to the Transfer Agent. The counsel may be an employee of or counsel to the Company or the Transfer Agent.

(w) “Parity Stock” shall mean the 6.00% Preferred Stock, the 6.75% Preferred Stock and any class of capital stock or series of preferred stock established after the Issue Date by the Board of Directors, the terms of which expressly provide that such class or series will rank on parity with the Preferred Stock as to dividend rights or rights upon the liquidation, winding-up or dissolution of the Company.

(x) “Person” shall mean any individual, corporation, general partnership, limited partnership, limited liability partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof.

(y) “SEC” or “Commission” shall mean the Securities and Exchange Commission.

(z) “Securities Act” shall mean the Securities Act of 1933, as amended.

(aa) “Senior Stock” shall mean each class of capital stock or series of preferred stock established after the Issue Date by the Board of Directors, the terms of which expressly provide that such class or series will rank senior to the Preferred Stock as to dividend rights or rights upon the liquidation, winding-up or dissolution of the Company.

(bb) “Shelf Registration Statement” shall mean a shelf registration statement filed with the SEC to cover resales of any Transfer Restricted Securities by holders thereof.

(cc) “6.00% Preferred Stock” shall mean the series of preferred stock, par value $0.01 per share, of the Company designated as the “6.00% Cumulative Convertible Preferred Stock.”

(dd) “6.75% Preferred Stock” shall mean the series of preferred stock, par value $0.01 per share, of the Company designated as the “6.75% Cumulative Convertible Preferred Stock.”

(ee) “Transfer Agent” shall mean UMB Bank, N.A., the Company’s duly appointed transfer agent, registrar and conversion and dividend disbursing agent for the Preferred Stock. The Company may, in its sole discretion, remove the Transfer Agent with 10 days’ prior notice to the Transfer Agent; provided, that the Company shall appoint a successor Transfer Agent who shall accept such appointment prior to the effectiveness of such removal.

(ff) “Transfer Restricted Securities” shall mean each share of Preferred Stock (or the shares of Common Stock into which such share of Preferred Stock is convertible) until (i) the date on which such security or its predecessor has been effectively registered under the Securities Act and disposed of in accordance therewith or (ii) the date on which such security or predecessor is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act.

(gg) “Underwriting Agreement” shall mean that certain Underwriting Agreement with respect to the Preferred Stock, dated November 12, 2003, among the Company and Lehman Brothers Inc., Banc of America Securities LLC and Morgan Stanley & Co. Incorporated, as representatives of the several underwriters named therein.

(hh) “Voting Rights Triggering Event” shall mean the failure of the Company to pay dividends on the Preferred Stock with respect to six or more quarterly periods (whether or not consecutive).

(ii) “Voting Stock” shall mean, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of contingency) to vote in the election of members of the Board of Directors or other governing body of such Person. For purposes of this definition, “Capital Stock” shall mean, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of corporate stock or partnership interests and any and all warrants, options and rights with respect thereto (whether or not currently exercisable), including each class of common stock and preferred stock of such Person.

3. Dividends.

(a) The holders of shares of the outstanding Preferred Stock shall be entitled, when, as and if declared by the Board of Directors out of funds of the Company legally available therefor, to receive cumulative cash dividends at the rate per annum of 5.00% per share on the Liquidation Preference (equivalent to $5.00 per annum per share), payable quarterly in arrears (the “Dividend Rate”). The Dividend Rate may be increased in the circumstances described in Section 3(b) below. Dividends payable for each full dividend period will be computed by dividing the Dividend Rate by four and shall be payable in arrears on each Dividend Payment Date (commencing May 15, 2004) for the quarterly period ending immediately prior to such Dividend Payment Date, to the holders of record of Preferred Stock at the close of business on the Dividend Record Date applicable to such Dividend Payment Date. Such dividends shall be cumulative from the most recent date as to which dividends shall have been paid or, if no dividends have been paid, from the Issue Date (whether or not in any dividend period or periods there shall be funds of the Company legally available for the payment of such dividends) and shall accrue on a day-to-day basis, whether or not earned or declared, from and after the Issue Date. Dividends payable for any partial dividend period, including the initial partial dividend period ending immediately prior to February 15, 2004, shall be computed on the basis of days elapsed over a 360-day year consisting of twelve 30-day months. Accumulations of dividends on shares of Preferred Stock shall not bear interest.

(b) No dividend will be declared or paid upon, or any sum set apart for the payment of dividends upon, any outstanding share of the 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 Preferred Stock.

(c) 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 other than cash paid 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 or on behalf of the Company (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 full Accumulated Dividends shall 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 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 Preferred Stock and any Parity Stock, dividends may be declared and paid on the 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 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 Preferred Stock and such other Parity Stock bear to each other.

(d) Holders of shares of Preferred Stock shall not be entitled to any dividends on the Preferred Stock, whether payable in cash, property or stock, in excess of full cumulative dividends. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Preferred Stock which may be in arrears.

(e) The holders of shares of Preferred Stock at the close of business on a Dividend Record Date will be entitled to receive the dividend payment on those shares on the next following Dividend Payment Date notwithstanding the subsequent conversion thereof or the Company’s default in payment of the dividend due on that Dividend Payment Date. However, shares of Preferred Stock surrendered for conversion during the period between the close of business on any Dividend Record Date and the close of business on the Business Day immediately preceding the applicable Dividend Payment Date must be accompanied by payment of an amount equal to the dividend payable on the shares on that Dividend Payment Date. A holder of shares of Preferred Stock on a Dividend Record Date who (or whose transferee) tenders any shares for conversion on the corresponding Dividend Payment Date will receive the dividend payable by the Company on the Preferred Stock on that date, and the converting holder need not include payment in the amount of such dividend upon surrender of shares of Preferred Stock for conversion. Except as provided above with respect to a voluntary conversion pursuant to Section 7, the Company shall make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the shares of Common Stock issued upon conversion.

4. Change of Control.

(a) Upon the occurrence of a Change of Control, each holder of Preferred Stock shall, in the event that the Market Value for the period ending on the Change of Control Date is less than the Conversion Price, have a one-time option (the “Change of Control Option”) to convert all of such holder’s outstanding shares of Preferred Stock into fully paid and nonassessable shares of Common Stock at an adjusted Conversion Price equal to the greater of (i) the Market Value for the period ending on the Change of Control Date and (ii) $7.9533. The Change of Control Option must be exercised, if at all, during the period of not less than 30 days nor more than 60 days commencing on the third Business Day after notice of a Change in Control has been given by the Company in accordance with Section 4(b). In lieu of issuing the shares of Common Stock issuable upon conversion in the event of a Change of Control, the Company may, at its 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 the occurrence of a Change of Control in which (i) each holder of 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 (ii) all the 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 factional shares), and the Preferred Stock becomes convertible solely into such common stock, the Conversion Price will not be adjusted as described in this Section 4(a).

(b) In the event of a Change of Control (other than a Change of Control described in the last sentence of Section 4(a)), notice of such Change of Control shall be given, within five Business Days of the Change of Control Date, by the Company by first-class mail to each record holder of shares of Preferred Stock, at such holder’s address as the same appears on the books of the Company. Each such notice shall state (i) that a Change of Control has occurred; (ii) the last day on which the Change of Control Option may be exercised (the “Expiration Date”) pursuant to the terms hereof; (iii) the name and address of the Transfer Agent; and (iv) the procedures that holders must follow to exercise the Change of Control Option.

(c) On or before the Expiration Date, each holder of shares of Preferred Stock wishing to exercise the Change of Control Option shall surrender the certificate or certificates representing the shares of Preferred Stock to be converted, in the manner and at the place designated in the notice described in Section 4(b), and on such date the cash or shares of Common Stock due to such holder shall be delivered to the Person whose name appears on such certificate or certificates as the owner thereof and the shares represented by each surrendered certificate shall be returned to authorized but unissued shares. Upon surrender (in accordance with the notice described in Section 4(b)) of the certificate or certificates representing any shares to be so converted (properly endorsed or assigned for transfer, if the Company shall so require and the notice shall so state), such shares shall be converted by the Company at the adjusted Conversion Price, if applicable, as described in Section 4(a).

(d) The rights of holders of Preferred Stock pursuant to this Section 4 are in addition to, and not in lieu of, the rights of holders of Preferred Stock provided for in Section 7 hereof.

5. Voting.

(a) The shares of Preferred Stock shall have no voting rights except as set forth below or as otherwise required by Oklahoma law from time to time:

(i) If and whenever at any time or times a Voting Rights Triggering Event occurs, then the holders of shares of Preferred Stock, voting as a single class with any other preferred stock or preference securities having similar voting rights that are exercisable, including the 6.00% Preferred Stock and the 6.75% Preferred Stock (the “Voting Rights Class”), will be entitled at the next regular or special meeting of stockholders of the Company to elect two additional directors of the Company. Upon the election of any such additional directors, the number of directors that comprise the Board of Directors shall be increased by such number of additional directors.

(ii) Such voting rights may be exercised at a special meeting of the holders of the shares of the Voting Rights Class, called as hereinafter provided, or at any annual meeting of stockholders held for the purpose of electing directors, and thereafter at each such annual meeting until such time as all dividends in arrears on the shares of Preferred Stock shall have been paid in full, at which time or times such voting rights and the term of the directors elected pursuant to Section 5(a)(i) shall terminate.

(iii) At any time when such voting rights shall have vested in holders of shares of the Voting Rights Class, an Officer of the Company may call, and, upon written request of the record holders of shares representing at least twenty-five percent (25%) of the voting power of the shares then outstanding of the Voting Rights Class, addressed to the Secretary of the Company, shall call a special meeting of the holders of shares of the Voting Rights Class. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Company, or, if none, at a place designated by the Board of Directors. Notwithstanding the provisions of this Section 5(a)(iii), no such special meeting shall be called during a period within the 60 days immediately preceding the date fixed for the next annual meeting of stockholders in which such case, the election of directors pursuant to Section 5(a)(i) shall be held at such annual meeting of stockholders.

(iv) At any meeting held for the purpose of electing directors at which the holders of the Voting Rights Class shall have the right to elect directors as provided herein, the presence in person or by proxy of the holders of shares representing more than fifty percent (50%) in voting power of the then outstanding shares of the Voting Rights Class shall be required and shall be sufficient to constitute a quorum of such class for the election of directors by such class. The affirmative vote of the holders of shares of Preferred Stock constituting a majority of the shares of Preferred Stock present at such meeting, in person or by proxy, shall be sufficient to elect any such director.

(v) Any director elected pursuant to the voting rights created under this Section 5(a) shall hold office until the next annual meeting of stockholders (unless such term has previously terminated pursuant to Section 5(a)(ii) ) and any vacancy in respect of any such director shall be filled only by vote of the remaining director so elected by holders of the Voting Rights Class, or if there be no such remaining director, by the holders of shares of the Voting Rights Class at a special meeting called in accordance with the procedures set forth in this Section 5, or, if no such special meeting is called, at the next annual meeting of stockholders. Upon any termination of such voting rights, the term of office of all directors elected pursuant to this Section 5 shall terminate.

(vi) So long as any shares of Preferred Stock remain outstanding, unless a greater percentage shall then be required by law, the Company shall not, without the affirmative vote or consent of the holders of at least 66 2/3% of the outstanding Preferred Stock voting or consenting, as the case may be, separately as one class, (i) create, authorize or issue any class or series of Senior Stock (or any security convertible into Senior Stock) or (ii) amend the Certificate of Incorporation so as to affect adversely the specified rights, preferences, privileges or voting rights of holders of shares of Preferred Stock.

(vii) In exercising the voting rights set forth in this Section 5(a), each share of Preferred Stock shall be entitled to one vote.

(b) The Company may authorize, increase the authorized amount of, or issue any class or series of Parity Stock or Junior Stock, without the consent of the holders of Preferred Stock, and in taking such actions the Company shall not be deemed to have affected adversely the rights, preferences, privileges or voting rights of holders of shares of Preferred Stock.

6. Liquidation Rights.

(a) In the event of any liquidation, winding-up or dissolution of the Company, whether voluntary of involuntary, each holder of shares of Preferred Stock shall be entitled to receive and to be paid out of the assets of the Company available for distribution to its stockholders the Liquidation Preference plus Accumulated Dividends and Accrued Dividends thereon in preference to the holders of, and before any payment or distribution is made on, any Junior Stock, including, without limitation, on any Common Stock.

(b) Neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the assets or business of the Company (other than in connection with the liquidation, winding-up or dissolution of its business) nor the merger or consolidation of the Company into or with any other Person shall be deemed to be a liquidation, winding-up or dissolution, voluntary or involuntary, for the purposes of this Section 6.

(c) After the payment to the holders of the shares of Preferred Stock of full preferential amounts provided for in this Section 6, the holders of Preferred Stock as such shall have no right or claim to any of the remaining assets of the Company.

(d) In the event the assets of the Company available for distribution to the holders of shares of Preferred Stock upon any liquidation, winding-up or dissolution of the

Company, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to Section 6(a), no such distribution shall be made on account of any shares of Parity Stock upon such liquidation, dissolution or winding-up unless proportionate distributable amounts shall be paid on account of the shares of Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all Preferred Stock and of any Parity Stock are entitled upon such liquidation, winding-up or dissolution.

7. Conversion.

(a) Each holder of Preferred Stock shall have the right, at its option, exercisable at any time and from time to time from the Issue Date to convert, subject to the terms and provisions of this Section 7, any or all of such holder’s shares of Preferred Stock. In such case, the shares of Preferred Stock shall be converted into such whole number of fully paid and nonassessable shares of Common Stock as is equal, subject to Section 7(g), to the product of the number of shares of Preferred Stock being so converted multiplied by the quotient of (i) the Liquidation Preference divided by (ii) the Conversion Price (as defined below) then in effect. The Conversion Price initially shall be $16.4037, subject to adjustment as set forth in Section 7(c).

The conversion right of a holder of Preferred Stock shall be exercised by the holder by the surrender to the Company of the certificates representing shares to be converted at any time during usual business hours at its principal place of business or the offices of its duly appointed Transfer Agent to be maintained by it, accompanied by written notice to the Company in the form of Exhibit B that the holder elects to convert all or a portion of the shares of Preferred Stock represented by such certificate and specifying the name or names (with address) in which a certificate or certificates for shares of Common Stock are to be issued and (if so required by the Company or its duly appointed Transfer Agent) by a written instrument or instruments of transfer in form reasonably satisfactory to the Company or its duly appointed Transfer Agent duly executed by the holder or its duly authorized legal representative and transfer tax stamps or funds therefor, if required pursuant to Section 7(i) . Immediately prior to the close of business on the date of receipt by the Company or its duly appointed Transfer Agent of notice of conversion of shares of Preferred Stock, each converting holder of Preferred Stock shall be deemed to be the holder of record of Common Stock issuable upon conversion of such holder’s Preferred Stock notwithstanding that the share register of the Company shall then be closed or that certificates representing such Common Stock shall not then be actually delivered to such holder. On the date of any conversion, all rights with respect to the shares of Preferred Stock so converted, including the rights, if any, to receive notices, will terminate, except only the rights of holders thereof to (i) receive certificates for the number of whole shares of Common Stock into which such shares of Preferred Stock have been converted and cash, in lieu of any fractional shares as provided in Section 7(f); and (ii) exercise the rights to which they are entitled as holders of Common Stock.

(b) If the last day for the exercise of the conversion right shall not be a Business Day, then such conversion right may be exercised on the next preceding Business Day.

(i) In case the Company shall at any time or from time to time (A) pay a dividend (or other distribution) payable in shares of Common Stock on any class of capital stock (which, for purposes of this Section 7(c) shall include, without limitation, any dividends or distributions in the form of options, warrants or other rights to acquire capital stock) of the Company (other than the issuance of shares of Common Stock in connection with the conversion of preferred stock); (B) subdivide the outstanding shares of Common Stock into a larger number of shares; (C) combine the outstanding shares of Common Stock into a smaller number of shares; (D) issue any shares of its capital stock in a reclassification of the Common Stock; or (E) pay a dividend or make a distribution to all holders of shares of Common Stock (other than a dividend or distribution subject to Section 7(c)(ii)) pursuant to a stockholder rights plan, “poison pill” or similar arrangement and excluding dividends payable on the Preferred Stock then, and in each such case, the Conversion Price in effect immediately prior to such event shall be adjusted (and any other appropriate actions shall be taken by the Company) so that the holder of any share of Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock that such holder would have owned or would have been entitled to receive upon or by reason of any of the events described above, had such share of Preferred Stock been converted into shares of Common Stock immediately prior to the occurrence of such event. An adjustment made pursuant to this Section 7(c)(i) shall become effective retroactively (x) in the case of any such dividend or distribution, to the day immediately following the close of business on the record date for the determination of holders of Common Stock entitled to receive such dividend or distribution or (y) in the case of any such subdivision, combination or reclassification, to the close of business on the day upon which such corporate action becomes effective.

(ii) In case the Company shall at any time or from time to time issue to all holders of its Common Stock rights, options or warrants entitling the holders thereof to subscribe for or purchase shares of Common Stock (or securities convertible into or exchangeable for shares of Common Stock) at a price per share less than the Market Value for the period ending on the date of issuance (treating the price per share of any security convertible or exchangeable or exercisable into Common Stock as equal to (A) the sum of the price paid to acquire such security convertible, exchangeable or exercisable into Common Stock plus any additional consideration payable (without regard to any anti-dilution adjustments) upon the conversion, exchange or exercise of such security into Common Stock divided by (B) the number of shares of Common Stock into which such convertible, exchangeable or exercisable security is initially convertible, exchangeable or exercisable), other than (i) issuances of such rights, options or warrants if the holder of Preferred Stock would be entitled to receive such rights, options or warrants upon conversion at any time of shares of Preferred Stock into Common Stock and (ii) issuances that are subject to certain triggering events (until such time as such triggering events occur), then, and in each such case, the Conversion Price then in effect shall be adjusted by dividing the Conversion Price in effect on the day immediately prior to the record date of such issuance by a fraction (y) the numerator of which shall be the sum of the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock issued or to be issued upon or as a result of the issuance of such rights, options or warrants (or the maximum number into or for which such convertible or exchangeable securities initially may convert or exchange or for which such options, warrants or other rights initially may be exercised) and (z) the denominator of which shall be the sum of the number of shares of Common Stock outstanding on such record date plus the number of shares

of Common Stock which the aggregate consideration for the total number of such additional shares of Common Stock so issued (or into or for which such convertible or exchangeable securities may convert or exchange or for which such options, warrants or other rights may be exercised plus the aggregate amount of any additional consideration initially payable upon the conversion, exchange or exercise of such security) would purchase at the Market Value for the period ending on the date of conversion; provided, that if the Company distributes rights or warrants (other than those referred to above in this subparagraph (c)(ii)) pro rata to the holders of Common Stock, so long as such rights or warrants have not expired or been redeemed by the Company, (y) the holder of any Preferred Stock surrendered for conversion shall be entitled to receive upon such conversion, in addition to the shares of Common Stock then issuable upon such conversion (the “Conversion Shares”), a number of rights or warrants to be determined as follows: (i) if such conversion occurs on or prior to the date for the distribution to the holders of rights or warrants of separate certificates evidencing such rights or warrants (the “Distribution Date”), the same number of rights or warrants to which a holder of a number of shares of Common Stock equal to the number of Conversion Shares is entitled at the time of such conversion in accordance with the terms and provisions applicable to the rights or warrants and (ii) if such conversion occurs after the Distribution Date, the same number of rights or warrants to which a holder of the number of shares of Common Stock into which such Preferred Stock was convertible immediately prior to such Distribution Date would have been entitled on such Distribution Date had such Preferred Stock been converted immediately prior to such Distribution Date in accordance with the terms and provisions applicable to the rights and warrants and (z) the Conversion Price shall not be subject to adjustment on account of any declaration, distribution or exercise of such rights or warrants.

(iii) If the Company shall at any time make a distribution, by dividend or otherwise, to all holders of shares of its Common Stock consisting exclusively of cash (excluding any cash portion of distributions referred to in clause (E) of paragraph (c)(i) above and cash distributed upon a merger or consolidation to which paragraph (g) below applies) in an amount per share of Common Stock that, when combined with the per share amounts of all other all-cash distributions to all holders of shares of its Common Stock made within the 90-day period ending on the record date for the distribution giving rise to an adjustment pursuant to this Section
7(c)(iii), exceeds $0.05 per share of Common Stock (the “Distribution Threshold Amount”), then the Conversion Price will be adjusted by multiplying:

(1) the Conversion Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive such distribution by

(2) a fraction, the numerator of which will be the Market Value on the fourth trading day on the NYSE prior to such record date minus the amount of cash per share of Common Stock so distributed in excess of the Dividend Threshold Amount for which an adjustment has not otherwise been made pursuant to this Section 7(c)(iii) and the denominator of which will be the Market Value on the fourth trading day on the NYSE prior to such record date.

Subject to Section 7(d), such adjustment shall become effective immediately after the record date for the determination of holders of Common Stock entitled to receive the distribution giving rise to an adjustment pursuant to this Section 7(c)(iii). The Dividend

Threshold Amount is subject to adjustment under the same circumstances under which the Conversion Price is subject to adjustment pursuant to Section 7(c)(i) or Section 7(c)(ii).

(iv) In the case the Company at any time or from time to time shall take any action affecting its Common Stock (it being understood that the issuance or sale of shares of Common Stock (or securities convertible into or exchangeable for shares of Common Stock, or any options, warrants or other rights to acquire shares of Common Stock) to any Person at a price per share less than the Conversion Price then in effect shall not be deemed such an action), other than an action described in any of Section 7(c)(i) through Section 7(c)(iii), inclusive, or Section 7(g), then the Conversion Price shall be adjusted in such manner and at such time as the Board of Directors of the Company in good faith determines to be equitable in the circumstances (such determination to be evidenced in a resolution, a certified copy of which shall be mailed to the holders of the Preferred Stock).

(v) Notwithstanding anything herein to the contrary, no adjustment under this Section 7(c) need be made to the Conversion Price unless such adjustment would require an increase or decrease of at least 1% of the Conversion Price then in effect. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment, if any, which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1% of such Conversion Price.

(vi) The Company reserves the right to make such reductions in the Conversion Price in addition to those required in the foregoing provisions as it considers advisable in order that any event treated for Federal income tax purposes as a dividend of stock or stock rights will not be taxable to the recipients. In the event the Company elects to make such a reduction in the Conversion Price, the Company will comply with the requirements of Rule 14e-1 under the Exchange Act, and any other securities laws and regulations thereunder if and to the extent that such laws and regulations are applicable in connection with the reduction of the Conversion Price.

(d) If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, and shall thereafter (and before the dividend or distribution has been paid or delivered to stockholders) legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment in the Conversion Price then in effect shall be required by reason of the taking of such record.

(e) Upon any increase or decrease in the Conversion Price, then, and in each such case, the Company promptly shall deliver to each holder of Preferred Stock a certificate signed by an authorized officer of the Company, setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated and specifying the increased or decreased Conversion Price then in effect following such adjustment.

(f) No fractional shares or securities representing fractional shares of Common Stock shall be issued upon the conversion of any shares of Preferred Stock, whether voluntary or mandatory. If more than one share of Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate Liquidation Preference

of the shares of Preferred Stock so surrendered. If the conversion of any share or shares of Preferred Stock results in a fraction, an amount equal to such fraction multiplied by the last reported sale price of the Common Stock on the NYSE (or on such other national securities exchange or automated quotation system on which the Common Stock is then listed for trading or authorized for quotation or, if the Common Stock is not then so listed or authorized for quotation, an amount determined in good faith by the Board of Directors to be the fair value of the Common Stock) at the close of business on the trading day next preceding the day of conversion shall be paid to such holder in cash by the Company.

(g) In the event of any reclassification of outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value), or in the event of any consolidation or merger of the Company with or into another Person or any merger of another Person with or into the Company (other than a consolidation or merger in which the Company is the resulting or surviving Person and which does not result in any reclassification or change of outstanding Common Stock), or in the event of any sale or other disposition to another Person of all or substantially all of the assets of the Company (computed on a consolidated basis) (any of the foregoing, a “Transaction”), each share of Preferred Stock then outstanding shall, without the consent of any holder of Preferred Stock, become convertible at any time, at the option of the holder thereof, only into the kind and amount of securities (of the Company or another issuer), cash and other property receivable upon such Transaction by a holder of the number of shares of Common Stock into which such share of Preferred Stock could have been converted immediately prior to such Transaction, after giving effect to any adjustment event. The provisions of this Section 7(g) and any equivalent thereof in any such securities similarly shall apply to successive Transactions. The provisions of this Section 7(g) shall be the sole right of holders of Preferred Stock in connection with any Transaction and such holders shall have no separate vote thereon.

(h) The Company shall at all times reserve and keep available for issuance upon the conversion of the Preferred Stock such number of its authorized but unissued shares of Common Stock as will from time to time be sufficient to permit the conversion of all outstanding shares of Preferred Stock, and shall take all action required to increase the authorized number of shares of Common Stock if at any time there shall be insufficient unissued shares of Common Stock to permit such reservation or to permit the conversion of all outstanding shares of Preferred Stock.

(i) The issuance or delivery of certificates for Common Stock upon the conversion of shares of Preferred Stock shall be made without charge to the converting holder of shares of Preferred Stock for such certificates or for any tax in respect of the issuance or delivery of such certificates or the securities represented thereby, and such certificates shall be issued or delivered in the respective names of, or in such names as may be directed by, the holders of the shares of Preferred Stock converted; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificate in a name other than that of the holder of the shares of Preferred Stock converted, and the Company shall not be required to issue or deliver such certificate unless or until the Person or Persons requesting the issuance or delivery thereof shall have paid to the Company the amount of such tax or shall have established to the reasonable satisfaction of the Company that such tax has been paid.

8. Mandatory Conversion.

(a) At any time on or after November 18, 2006, the Company shall have the right, at its option, to cause the Preferred Stock, in whole but not in part, to be automatically converted into that number of whole shares of Common Stock for each share of Preferred Stock equal to the quotient of (i) the Liquidation Preference divided by (ii) the Conversion Price then in effect, with any resulting fractional shares of Common Stock to be settled in accordance with Section 7(f). The Company may exercise its right to cause a mandatory conversion pursuant to this Section 8(a) only if the closing price of the Common Stock equals or exceeds 130% of the Conversion Price then in effect for at least 20 trading days in any consecutive 30-day trading period on the NYSE (or such other national securities exchange or automated quotation system on which the Common Stock is then listed or authorized for quotation), including the last trading day of such 30-day period, ending on the trading day prior to the Company’s issuance of a press release announcing the mandatory conversion as described in Section 8(b).

(b) To exercise the mandatory conversion right described in Section 8(a), the Company must issue a press release for publication on the Dow Jones News Service prior to the opening of business on the first trading day following any date on which the conditions described in Section 8(a) are met, announcing such a mandatory conversion. The Company shall also give notice by mail or by publication (with subsequent prompt notice by mail) to the holders of Preferred Stock (not more than four Business Days after the date of the press release) of the mandatory conversion announcing the Company’s intention to convert the Preferred Stock. The conversion date will be a date selected by the Company (the “Mandatory Conversion Date”) and will be no more than five days after the date on which the Company issues the press release described in this Section 8(b).

(c) In addition to any information required by applicable law or regulation, the press release and notice of a mandatory conversion described in Section 8(b) shall state, as appropriate: (i) the Mandatory Conversion Date; (ii) the number of shares of Common Stock to be issued upon conversion of each share of Preferred Stock; (iii) the number of shares of Preferred Stock to be converted; and (iv) that dividends on the Preferred Stock to be converted will cease to accrue on the Mandatory Conversion Date.

(d) On and after the Mandatory Conversion Date, dividends will cease to accrue on the Preferred Stock called for a mandatory conversion pursuant to Section 8(a) and all rights of holders of such Preferred Stock will terminate except for the right to receive the whole shares of Common Stock issuable upon conversion thereof and cash, in lieu of any fractional shares of Common Stock in accordance with Section 7(f). The dividend payment with respect to the Preferred Stock called for a mandatory conversion pursuant to Section 8(a) on a date during the period between the close of business on any Dividend Record Date to the close of business on the corresponding Dividend Payment Date will be payable on such Dividend Payment Date to the record holder of such share on such Dividend Record Date if such share has been converted after such Dividend Record Date and prior to such Dividend Payment Date. Except as provided in the immediately preceding sentence with respect to a mandatory conversion pursuant to Section 8(a), no payment or adjustment will be made upon conversion of Preferred Stock for Accrued Dividends or for dividends with respect to the Common Stock issued upon such conversion.

(e) The Company may not authorize, issue a press release or give notice of any mandatory conversion pursuant to Section 8(a) unless, prior to giving the conversion notice, all Accumulated Dividends on the Preferred Stock for periods ended prior to the date of such conversion notice shall have been paid in cash.

(f) In addition to the mandatory conversion right described in Section 8(a), if there are less than 250,000 shares of Preferred Stock outstanding, the Company shall have the right, at any time on or after November 18, 2008, at its option, to cause the Preferred Stock to be automatically converted into that number of whole shares of Common Stock equal to the quotient of (i) the Liquidation Preference divided by (ii) the lesser of (A) the Conversion Price then in effect and (B) the Market Value for the period ending on the second trading day immediately prior to the Mandatory Conversion Date, with any resulting fractional shares of Common Stock to be settled in cash in accordance with Section 7(f). The provisions of clauses (b), (c), (d) and (e) of this Section 8 shall apply to any mandatory conversion pursuant to this clause (f); provided that (i) the Mandatory Conversion Date described in Section 8(b) shall not be less than 15 days nor more than 30 days after the date on which the Company issues a press release pursuant to Section 8(b) announcing such mandatory conversion and (ii) the press release and notice of mandatory conversion described in Section 8(c) will not state the number of shares of Common Stock to be issued upon conversion of each share of Preferred Stock.

9. Consolidation, Merger and Sale of Assets.

(a) The Company, without the consent of the holders of any of the outstanding Preferred Stock, may consolidate with or merge into any other Person or convey, transfer or lease all or substantially all its assets to any Person or may permit any Person to consolidate with or merge into, or transfer or lease all or substantially all its properties to, the Company; provided, however, that (a) the successor, transferee or lessee is organized under the laws of the United States or any political subdivision thereof; (b) the shares of Preferred Stock will become shares of such successor, transferee or lessee, having in respect of such successor, transferee or lessee the same powers, preferences and relative participating, optional or other special rights and the qualification, limitations or restrictions thereon, the Preferred Stock had immediately prior to such transaction; and (c) the Company delivers to the Transfer Agent an Officers’ Certificate and an Opinion of Counsel stating that such transaction complies with this Certificate of Designation.

(b) Upon any consolidation by the Company with, or merger by the Company into, any other person or any conveyance, transfer or lease of all or substantially all the assets of the Company as described in Section 9(a), the successor resulting from such consolidation or into which the Company is merged or the transferee or lessee to which such conveyance, transfer or lease is made, will succeed to, and be substituted for, and may exercise every right and power of, the Company under the shares of Preferred Stock, and thereafter, except in the case of a lease, the predecessor (if still in existence) will be released from its obligations and covenants with respect to the Preferred Stock.

10. SEC Reports.

Whether or not the Company is required to file reports with the Commission, if any shares of Preferred Stock are outstanding, the Company shall file with the Commission all such reports and other information as it would be required to file with the Commission by Section 13(a)or 15(d) under the Exchange Act. The Company shall supply each holder of Preferred Stock, upon request, without cost to such holder, copies of such reports or other information.

11. Certificates.

(a) Form and Dating. The Preferred Stock and the Transfer Agent’s certificate of authentication shall be substantially in the form set forth in Exhibit A, which is hereby incorporated in and expressly made a part of this Certificate of Designation. The Preferred Stock certificate may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). Each Preferred Stock certificate shall be dated the date of its authentication. The terms of the Preferred Stock certificate set forth in Exhibit A are part of the terms of this Certificate of Designation.

(i) Global Preferred Stock. The Preferred Stock shall be issued initially in the form of one or more fully registered global certificates with the global securities legend set forth in Exhibit A hereto (the “Global Preferred Stock”), which shall be deposited on behalf of the purchasers represented thereby with the Transfer Agent, as custodian for DTC (or with such other custodian as DTC may direct), and registered in the name of DTC or a nominee of DTC, duly executed by the Company and authenticated by the Transfer Agent as hereinafter provided. The number of shares of Preferred Stock represented by Global Preferred Stock may from time to time be increased or decreased by adjustments made on the records of the Transfer Agent and DTC or its nominee as hereinafter provided. With respect to shares of Preferred Stock that are not “restricted securities” as defined in Rule 144 on a conversion date, all shares of Common Stock distributed on such conversion date will be freely transferable without restriction under the Securities Act (other than by affiliates), and such shares will be eligible for receipt in global form through the facilities of DTC.

(ii) Book-Entry Provisions. In the event Global Preferred Stock is deposited with or on behalf of DTC, the Company shall execute and the Transfer Agent shall authenticate and deliver initially one or more Global Preferred Stock certificates that (a) shall be registered in the name of DTC as depository for such Global Preferred Stock or the nominee of DTC and (b) shall be delivered by the Transfer Agent to DTC or pursuant to DTC’s instructions or held by the Transfer Agent as custodian for DTC.

the Transfer Agent or any agent of the Company or the Transfer Agent from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Agent Members, the operation of customary practices of DTC governing the exercise of the rights of a holder of a beneficial interest in any Global Preferred Stock.

(iii) Certificated Preferred Stock; Certificated Common Stock. Except as provided in this paragraph 11(a) or in paragraph 11(c), owners of beneficial interests in Global Preferred Stock will not be entitled to receive physical delivery of Preferred Stock in fully registered certificated form (“Certificated Preferred Stock”). With respect to shares of Preferred Stock that are “restricted securities” as defined in Rule 144 on a conversion date, all shares of Common Stock issuable on conversion of such shares on such conversion date will be issued in fully registered certificated form (“Certificated Common Stock”). Certificates of Certificated Common Stock will be mailed or made available at the office of the Transfer Agent for the Preferred Stock on or as soon as reasonably practicable after the relevant conversion date to the converting holder.

After a transfer of any Preferred Stock or Certificated Common Stock during the period of the effectiveness of a Shelf Registration Statement with respect to such Preferred Stock or such Certificated Common Stock, all requirements pertaining to legends on such Preferred Stock (including Global Preferred Stock) or Certificated Common Stock will cease to apply, the requirements requiring that any such Certificated Common Stock issued to Holders be issued in certificated form, as the case may, will cease to apply, and Preferred Stock or Common Stock, as the case may be, in global or fully registered certificated form, in either case without legends, will be available to the transferee of the Holder of such Preferred Stock or Certificated Common Stock upon exchange of such transferring Holder’s Preferred Stock or Common Stock or directions to transfer such Holder’s interest in the Global Preferred Stock, as applicable.

(b) Execution and Authentication. Two Officers shall sign the Preferred Stock certificate for the Company by manual or facsimile signature.

If an Officer whose signature is on a Preferred Stock certificate no longer holds that office at the time the Transfer Agent authenticates the Preferred Stock certificate, the Preferred Stock certificate shall be valid nevertheless.

A Preferred Stock certificate shall not be valid until an authorized signatory of the Transfer Agent manually signs the certificate of authentication on the Preferred Stock certificate. The signature shall be conclusive evidence that the Preferred Stock certificate has been authenticated under this Certificate of Designation.

The Transfer Agent shall authenticate and deliver certificates for up to 1,725,000 shares of Preferred Stock for original issue upon a written order of the Company signed by two Officers or by an Officer and an Assistant Treasurer of the Company. Such order shall specify the number of shares of Preferred Stock to be authenticated and the date on which the original issue of Preferred Stock is to be authenticated.

The Transfer Agent may appoint an authenticating agent reasonably acceptable to the Company to authenticate the certificates for Preferred Stock. Unless limited by the terms of

such appointment, an authenticating agent may authenticate certificates for Preferred Stock whenever the Transfer Agent may do so. Each reference in this Certificate of Designation to authentication by the Transfer Agent includes authentication by such agent. An authenticating agent has the same rights as the Transfer Agent or agent for service of notices and demands.

(c) Transfer and Exchange. (i) Transfer and Exchange of Certificated Preferred Stock. When Certificated Preferred Stock is presented to the Transfer Agent with a request to register the transfer of such Certificated Preferred Stock or to exchange such Certificated Preferred Stock for an equal number of shares of Certificated Preferred Stock, the Transfer Agent shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, however, that the Certificated Preferred Stock surrendered for transfer or exchange:

(1) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Transfer Agent, duly executed by the Holder thereof or its attorney duly authorized in writing; and

(2) is being transferred or exchanged pursuant to an effective registration statement under the Securities Act or pursuant to clause (i) or (ii) below, and is accompanied by the following additional information and documents, as applicable:

(I) if such Certificated Preferred Stock is being delivered to the Transfer Agent by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect in substantially the form of Exhibit C hereto; or

(II) if such Certificated Preferred Stock is being transferred to the Company or pursuant to an exemption from registration under the Securities Act, (i) a certification to that effect (in substantially the form of Exhibit C hereto) and (ii) if the Company so requests, an Opinion of Counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the legend set forth in paragraph 11(c) (vii).

(ii) Restrictions on Transfer of Certificated Preferred Stock for a Beneficial Interest in Global Preferred Stock. Certificated Preferred Stock may not be exchanged for a beneficial interest in Global Preferred Stock except upon satisfaction of the requirements set forth below. Upon receipt by the Transfer Agent of Certificated Preferred Stock, duly endorsed or accompanied by appropriate instruments of transfer, in form reasonably satisfactory to the Company and the Transfer Agent, together with written instructions directing the Transfer Agent to make, or to direct DTC to make, an adjustment on its books and records with respect to such Global Preferred Stock to reflect an increase in the number of shares of Preferred Stock represented by the Global Preferred Stock, then the Transfer Agent shall cancel such Certificated Preferred Stock and cause, or direct DTC to cause, in accordance with the standing instructions and procedures existing between DTC and the Transfer Agent, the number

of shares of Preferred Stock represented by the Global Preferred Stock to be increased accordingly. If no Global Preferred Stock is then outstanding, the Company shall issue and the Transfer Agent shall authenticate, upon written order of the Company in the form of an Officers’ Certificate, a new Global Preferred Stock representing the appropriate number of shares.

(iii) Transfer and Exchange of Global Preferred Stock. The transfer and exchange of Global Preferred Stock or beneficial interests therein shall be effected through DTC, in accordance with this Certificate of Designation (including applicable restrictions on transfer set forth herein, if any) and the procedures of DTC therefor.

(iv) Transfer of a Beneficial Interest in Global Preferred Stock for a Certificated Preferred Stock.

(1) Any Person having a beneficial interest in Preferred Stock that is being transferred or exchanged pursuant to an effective registration statement under the Securities Act or pursuant to another exemption from registration thereunder may upon request, but only with the consent of the Company, and if accompanied by a certification from such Person to that effect (in substantially the form of Exhibit C hereto), exchange such beneficial interest for Certificated Preferred Stock representing the same number of shares of Preferred Stock. Upon receipt by the Transfer Agent of written instructions or such other form of instructions as is customary for DTC from DTC or its nominee on behalf of any Person having a beneficial interest in Global Preferred Stock and upon receipt by the Transfer Agent of a written order or such other form of instructions as is customary for DTC or the Person designated by DTC as having such a beneficial interest in a Transfer Restricted Security only, then, the Transfer Agent or DTC, at the direction of the Transfer Agent, will cause, in accordance with the standing instructions and procedures existing between DTC and the Transfer Agent, the number of shares of Preferred Stock represented by Global Preferred Stock to be reduced on its books and records and, following such reduction, the Company will execute and the Transfer Agent will authenticate and deliver to the transferee Certificated Preferred Stock.

(2) Certificated Preferred Stock issued in exchange for a beneficial interest in a Global Preferred Stock pursuant to this paragraph 11(c)(iv) shall be registered in such names and in such authorized denominations as DTC, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Transfer Agent. The Transfer Agent shall deliver such Certificated Preferred Stock to the Persons in whose names such Preferred Stock are so registered in accordance with the instructions of DTC.

(v) Restrictions on Transfer and Exchange of Global Preferred Stock.

(1) Notwithstanding any other provisions of this Certificate of Designation (other than the provisions set forth in paragraph 11(c)(vi)), Global Preferred Stock may not be transferred as a whole except by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any such nominee to a successor depository or a nominee of such successor depository.

(2) In the event that the Global Preferred Stock is exchanged for Preferred Stock in definitive registered form pursuant to paragraph 11(c)(vi) prior to the effectiveness of a Shelf Registration Statement with respect to such securities, such Preferred Stock may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this paragraph 11(c) (including the certification requirements set forth in the Exhibits to this Certificate of Designation intended to ensure that such transfers comply with applicable exemptions from registration under the Securities Act, as the case may be) and such other procedures as may from time to time be adopted by the Company.

(vi) Authentication of Certificated Preferred Stock. If at any time:

(1) DTC notifies the Company that DTC is unwilling or unable to continue as depository for the Global Preferred Stock and a successor depository for the Global Preferred Stock is not appointed by the Company within 90 days after delivery of such notice;

(2) DTC ceases to be a clearing agency registered under the Exchange Act and a successor depository for the Global Preferred Stock is not appointed by the Company within 90 days; or

(3) the Company, in its sole discretion, notifies the Transfer Agent in writing that it elects to cause the issuance of Certificated Preferred Stock under this Certificate of Designation,

then the Company will execute, and the Transfer Agent, upon receipt of a written order of the Company signed by two Officers or by an Officer and an Assistant Treasurer of the Company requesting the authentication and delivery of Certificated Preferred Stock to the Persons designated by the Company, will authenticate and deliver Certificated Preferred Stock equal to the number of shares of Preferred Stock represented by the Global Preferred Stock, in exchange for such Global Preferred Stock.

(vii) Legend.

(1) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by Global Preferred Stock) pursuant to Rule 144 under the Securities Act or another exemption from registration under the Securities Act or an effective registration statement under the Securities Act:

(I) in the case of any Transfer Restricted Security that is a Certificated Preferred Stock, the Transfer Agent shall permit the Holder thereof to exchange such Transfer Restricted Security for Certificated Preferred Stock that does not bear a restrictive legend and rescind any restriction on the transfer of such Transfer Restricted Security; and

(II) in the case of any Transfer Restricted Security that is represented by a Global Preferred Stock, with the consent of the Company, the Transfer Agent shall permit the Holder thereof to exchange such Transfer Restricted Security for Certificated Preferred Stock that does not bear a restrictive legend and rescind any restriction on the transfer of such Transfer Restricted Security, if the Holder’s request for such exchange was made in reliance on Rule 144 or another exemption from registration under the Securities Act and the Holder certifies to that effect in writing to the Transfer Agent (such certification to be in the form set forth in Exhibit C hereto).

(viii) Cancelation or Adjustment of Global Preferred Stock. At such time as all beneficial interests in Global Preferred Stock have either been exchanged for Certificated Preferred Stock, converted or canceled, such Global Preferred Stock shall be returned to DTC for cancelation or retained and canceled by the Transfer Agent. At any time prior to such cancelation, if any beneficial interest in Global Preferred Stock is exchanged for Certificated Preferred Stock, converted or canceled, the number of shares of Preferred Stock represented by such Global Preferred Stock shall be reduced and an adjustment shall be made on the books and records of the Transfer Agent with respect to such Global Preferred Stock, by the Transfer Agent or DTC, to reflect such reduction.

(ix) Obligations with Respect to Transfers and Exchanges of Preferred Stock.

(1) To permit registrations of transfers and exchanges, the Company shall execute and the Transfer Agent shall authenticate Certificated Preferred Stock and Global Preferred Stock as required pursuant to the provisions of this paragraph 11(c).

(2) All Certificated Preferred Stock and Global Preferred Stock issued upon any registration of transfer or exchange of Certificated Preferred Stock or Global Preferred Stock shall be the valid obligations of the Company, entitled to the same benefits under this Certificate of Designation as the Certificated Preferred Stock or Global Preferred Stock surrendered upon such registration of transfer or exchange.

(3) Prior to due presentment for registration of transfer of any shares of Preferred Stock, the Transfer Agent and the Company may deem and treat the Person in whose name such shares of Preferred Stock are registered as the absolute owner of such Preferred Stock and neither the Transfer Agent nor the Company shall be affected by notice to the contrary.

(4) No service charge shall be made to a Holder for any registration of transfer or exchange upon surrender of any Preferred Stock

certificate or Common Stock certificate at the office of the Transfer Agent maintained for that purpose. However, the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Preferred Stock certificates or Common Stock certificates.

(5) Upon any sale or transfer of shares of Preferred Stock (including any Preferred Stock represented by a Global Preferred Stock Certificate) or of Certificated Common Stock pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 or another exemption from registration under the Securities Act (and based upon an Opinion of Counsel reasonably satisfactory to the Company if it so requests):

(A) in the case of any Certificated Preferred Stock or Certificated Common Stock, the Company and the Transfer Agent shall permit the holder thereof to exchange such Preferred Stock or Certificated Common Stock for Certificated Preferred Stock or Certificated Common Stock, as the case may be, that does not bear a restrictive legend and rescind any restriction on the transfer of such Preferred Stock or Common Stock issuable in respect of the conversion of the Preferred Stock; and

(B) in the case of any Global Preferred Stock, such Preferred Stock shall not be required to bear the legend set forth in paragraph (c)(vii) above but shall continue to be subject to the provisions of paragraph (c)(iv) hereof; provided, however, that with respect to any request for an exchange of Preferred Stock that is represented by Global Preferred Stock for Certificated Preferred Stock that does not bear a restrictive legend in connection with a sale or transfer thereof pursuant to Rule 144 or another exemption from registration under the Securities Act (and based upon an Opinion of Counsel if the Company so requests), the Holder thereof shall certify in writing to the Transfer Agent that such request is being made pursuant to such exemption (such certification to be substantially in the form of Exhibit C hereto).

(x) No Obligation of the Transfer Agent.

(1) The Transfer Agent shall have no responsibility or obligation to any beneficial owner of Global Preferred Stock, a member of, or a participant in DTC or any other Person with respect to the accuracy of the records of DTC or its nominee or of any participant or member thereof, with respect to any ownership interest in the Preferred Stock or with respect to the delivery to any participant, member, beneficial owner or other Person (other than DTC) of any notice or the payment of any amount, under or with respect to such Global Preferred Stock. All notices and communications to be given to the Holders and all payments to be made to Holders under the Preferred Stock shall be given or made only to the Holders (which shall be DTC or its nominee in the case of the Global Preferred Stock). The rights of beneficial owners in any Global Preferred Stock shall be exercised only through DTC subject to the applicable rules and

procedures of DTC. The Transfer Agent may rely and shall be fully protected in relying upon information furnished by DTC with respect to its members, participants and any beneficial owners.

(2) The Transfer Agent shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Certificate of Designation or under applicable law with respect to any transfer of any interest in any Preferred Stock (including any transfers between or among DTC participants, members or beneficial owners in any Global Preferred Stock) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Certificate of Designation, and to examine the same to determine substantial compliance as to form with the express requirements hereof.

(d) Replacement Certificates. If a mutilated Preferred Stock certificate is surrendered to the Transfer Agent or if the Holder of a Preferred Stock certificate claims that the Preferred Stock certificate has been lost, destroyed or wrongfully taken, the Company shall issue and the Transfer Agent shall countersign a replacement Preferred Stock certificate if the reasonable requirements of the Transfer Agent and of Section 8-405 of the Uniform Commercial Code as in effect in the State of Oklahoma are met. If required by the Transfer Agent or the Company, such Holder shall furnish an indemnity bond sufficient in the judgment of the Company and the Transfer Agent to protect the Company and the Transfer Agent from any loss which either of them may suffer if a Preferred Stock certificate is replaced. The Company and the Transfer Agent may charge the Holder for their expenses in replacing a Preferred Stock certificate.

(e) Temporary Certificates. Until definitive Preferred Stock certificates are ready for delivery, the Company may prepare and the Transfer Agent shall countersign temporary Preferred Stock certificates. Temporary Preferred Stock certificates shall be substantially in the form of definitive Preferred Stock certificates but may have variations that the Company considers appropriate for temporary Preferred Stock certificates. Without unreasonable delay, the Company shall prepare and the Transfer Agent shall countersign definitive Preferred Stock certificates and deliver them in exchange for temporary Preferred Stock certificates.

(f) Cancelation. (i) In the event the Company shall purchase or otherwise acquire Certificated Preferred Stock, the same shall thereupon be delivered to the Transfer Agent for cancelation.

(ii) At such time as all beneficial interests in Global Preferred Stock have either been exchanged for Certificated Preferred Stock, converted, repurchased or canceled, such Global Preferred Stock shall thereupon be delivered to the Transfer Agent for cancelation.

Agent to deliver canceled Preferred Stock certificates to the Company. The Company may not issue new Preferred Stock certificates to replace Preferred Stock certificates to the extent they evidence Preferred Stock which the Company has purchased or otherwise acquired.

12. Additional Rights of Holders. [Reserved.]

13. Other Provisions.

(a) With respect to any notice to a holder of shares of Preferred Stock required to be provided hereunder, neither failure to mail such notice, nor any defect therein or in the mailing thereof, to any particular holder shall affect the sufficiency of the notice or the validity of the proceedings referred to in such notice with respect to the other holders or affect the legality or validity of any distribution, rights, warrant, reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding-up, or the vote upon any such action. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the holder receives the notice.

(b) Shares of Preferred Stock issued and reacquired will be retired and canceled promptly after reacquisition thereof and, upon compliance with the applicable requirements of Oklahoma law, have the status of authorized but unissued shares of preferred stock of the Company undesignated as to series and may with any and all other authorized but unissued shares of preferred stock of the Company be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Corporation, except that any issuance or reissuance of shares of Preferred Stock must be in compliance with this Certificate of Designation.

(d) All notice periods referred to herein shall commence on the date of the mailing of the applicable notice.

IN WITNESS WHEREOF, the Company has caused this certificate to be signed and attested this 18th day of November, 2003.


CHESAPEAKE ENERGY CORPORATION

By:

Attest:

EXHIBIT A

FORM OF PREFERRED STOCK

FACE OF SECURITY

[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OF PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.]¹

[TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE CERTIFICATE OF DESIGNATION REFERRED TO BELOW.]²

IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.

¹	Subject to removal if not a global security.

²	CUSIP Number 165167 80 0, if not a Transfer Restricted Security.

A-1


Certificate Number		Number of Shares of
		Convertible Preferred Stock
[ ]		[ ]

CUSIP NO.: 165167

5% Cumulative Convertible Preferred Stock (par value $0.01)

(liquidation preference $100 per share of Convertible Preferred Stock)

Chesapeake Energy Corporation

Chesapeake Energy Corporation, an Oklahoma corporation (the “Company”), hereby certifies that [ ] (the “Holder”) is the registered owner of [ ] fully paid and non-assessable preferred securities of the Company designated the 5% Cumulative Convertible Preferred Stock (par value $0.01) (liquidation preference $100 per share of Preferred Stock) (the “Preferred Stock”). The shares of Preferred Stock are transferable on the books and records of the Transfer Agent, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Stock represented hereby are issued and shall in all respects be subject to the provisions of the Certificate of Designation dated November 18, 2003, as the same may be amended from time to time (the “Certificate of Designation”). Capitalized terms used herein but not defined shall have the meaning given them in the Certificate of Designation. The Company will provide a copy of the Certificate of Designation to a Holder without charge upon written request to the Company at its principal place of business.

Reference is hereby made to select provisions of the Preferred Stock set forth on the reverse hereof, and to the Certificate of Designation, which select provisions and the Certificate of Designation shall for all purposes have the same effect as if set forth at this place.

Upon receipt of this certificate, the Holder is bound by the Certificate of Designation and is entitled to the benefits thereunder.

Unless the Transfer Agent’s Certificate of Authentication hereon has been properly executed, these shares of Preferred Stock shall not be entitled to any benefit under the Certificate of Designation or be valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Company has executed this certificate this [ ] day of [ ], 2003.

A-2

CHESAPEAKE ENERGY CORPORATION

By:

Name:

Title:

By:

Name:

Title:

A-3

TRANSFER AGENT’S CERTIFICATE OF AUTHENTICATION

These are shares of the Preferred Stock referred to in the within-mentioned Certificate of Designation.

Dated: , 2003

UMB BANK, N.A., as Transfer Agent,

By:

Authorized Signatory

A-4

REVERSE OF SECURITY

Cash dividends on each share of Preferred Stock shall be payable at a rate per annum set forth in the face hereof or as provided in the Certificate of Designation.

The shares of Preferred Stock shall be convertible into the Company’s Common Stock in the manner and according to the terms set forth in the Certificate of Designation.

The Company will furnish without charge to each holder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock and the qualifications, limitations or restrictions of such preferences and/or rights.

A-5

ASSIGNMENT

FOR VALUE RECEIVED, the undersigned assigns and transfers the shares of Preferred Stock evidenced hereby to:

(Insert assignee’s social security or tax identification number)

(Insert address and zip code of assignee)

and irrevocably appoints:

agent to transfer the shares of Preferred Stock evidenced hereby on the books of the Transfer Agent. The agent may substitute another to act for him or her.

Date:

Signature:

(Sign exactly as your name appears on the other side of this Preferred Stock Certificate)

Signature Guarantee:³

(Signature must be guaranteed by an “eligible guarantor institution” that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Transfer Agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Transfer Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.)

A-6

EXHIBIT B

NOTICE OF CONVERSION

(To be Executed by the Holder

in order to Convert the Preferred Stock)

The undersigned hereby irrevocably elects to convert (the “Conversion”) shares of 5% Cumulative Convertible Preferred Stock (the “Preferred Stock”), represented by stock certificate No(s). (the “Preferred Stock Certificates”) into shares of common stock (“Common Stock”) of Chesapeake Energy Corporation (the “Company”) according to the conditions of the Certificate of Designation of the Preferred Stock (the “Certificate of Designation”), as of the date written below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith the Preferred Stock Certificates. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. A copy of each Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof).

The undersigned represents and warrants that all offers and sales by the undersigned of the shares of Common Stock issuable to the undersigned upon conversion of the Preferred Stock shall be made pursuant to registration of the Common Stock under the Securities Act of 1933 (the “Act”), or pursuant to any exemption from registration under the Act.

Capitalized terms used but not defined herein shall have the meanings ascribed thereto in or pursuant to the Certificate of Designation.

Date of Conversion:

Applicable Conversion Price:

Number of shares of Preferred Stock to be Converted:

Number of shares of Common Stock to be Issued: *

Signature:

Name:

Address:**

Fax No.:

The Company is not required to issue shares of Common Stock until the original Preferred Stock Certificate(s) (or evidence of loss, theft or destruction thereof) to be converted are received by the Company or its Transfer Agent. The Company shall issue and deliver shares of Common Stock to an overnight courier not later than three business days following receipt of the original Preferred Stock Certificate(s) to be converted.

**	Address where shares of Common Stock and any other payments or certificates shall be sent by the Company.

B-1

EXHIBIT C

CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR

REGISTRATION OF TRANSFER OF PREFERRED STOCK

Re:	5% Cumulative Convertible Preferred Stock (the “Preferred Stock”) of Chesapeake Energy Corporation (the “Company”)

This Certificate relates to shares of Preferred Stock held in */ book-entry or */ definitive form by (the “Transferor”).

The Transferor*:

•

has requested the Transfer Agent by written order to deliver in exchange for its beneficial interest in the Preferred Stock held by the Depository shares of Preferred Stock in definitive, registered form equal to its beneficial interest in such Preferred Stock (or the portion thereof indicated above); or

•

has requested the Transfer Agent by written order to exchange or register the transfer of Preferred Stock.

In connection with such request and in respect of such Preferred Stock, the Transferor does hereby certify that the Transferor is familiar with the Certificate of Designation relating to the above-captioned Preferred Stock and that the transfer of this Preferred Stock does not require registration under the Securities Act of 1933 (the “Securities Act”) because */:

•

Such Preferred Stock is being acquired for the Transferor’s own account without transfer.

•

Such Preferred Stock is being transferred to the Company.

•

Such Preferred Stock is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Securities Act (and based on an Opinion of Counsel if the Company so requests).

[INSERT NAME OF TRANSFEROR]

by:

Date:

*/ Please check applicable box.

C-1

CERTIFICATE OF DESIGNATION

4.125% CUMULATIVE CONVERTIBLE PREFERRED STOCK

CHESAPEAKE ENERGY CORPORATION

Pursuant to Section 1032(G) of the Oklahoma General Corporation Act

1. Designation and Amount; Ranking

(a) There shall be created from the 10,000,000 shares of preferred stock, par value $0.01 per share, of the Company authorized to be issued pursuant to the Certificate of Incorporation, a series of preferred stock, designated as the “4.125% Cumulative Convertible Preferred Stock,” par value $0.01 per share (the “Preferred Stock”), and the number of shares of such series shall be 313,250. Such number of shares may be decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Preferred Stock to a number less than that of the shares of Preferred Stock then outstanding plus the number of shares issuable upon exercise of options or rights then outstanding.

(b) The Preferred Stock will, with respect to both dividend rights and rights upon the liquidation, winding-up or dissolution of the Company, rank on a parity with the 6.75% Preferred Stock, the 6.00% Preferred Stock and the 5.00% Preferred Stock, and the Preferred Stock will, with respect to dividend rights or rights upon the liquidation, winding-up or dissolution of the Company rank (i) senior to all Junior Stock, (ii) on a parity with all other Parity Stock and (iii) junior to all Senior Stock.

2. Definitions. As used herein, the following terms shall have the following meanings:

(c) “Affiliate” shall have the meaning ascribed to it, on the date hereof, under Rule 405 of the Securities Act of 1933, as amended.

(e) “Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law or executive order to close.

(g) “Change of Control Date” shall mean the date on which the Change of Control event occurs.

(h) “Closing Sale Price” of the Common Stock on any date means the closing sale price per share (or if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) on such date as reported on the principal United States securities exchange on which the Common Stock is traded or, if the Common Stock is not listed on a United States national or regional securities exchange, as reported by Nasdaq or by the National Quotation Bureau Incorporated. In the absence of such a quotation, the Company will determine the Closing Sale Price on the basis it considers appropriate.

(i) “Conversion Price” shall mean $16.6513, subject to adjustment as set forth in Section 7(d).

(j) “Common Stock” shall mean the common stock, par value $0.01 per share, of the Company, or any other class of stock resulting from successive changes or reclassifications of such common stock consisting solely of changes in par value, or from par value to no par value, or as a result of a subdivision, combination, or merger, consolidation or similar transaction in which the Company is a constituent corporation.

(k) “DTC” or “Depository” shall mean The Depository Trust Company.

(l) “Dividend Payment Date” shall mean March 15, June 15, September 15 and December 15 of each year, commencing June 15, 2004.

(m) “Dividend Record Date” shall mean March 1, June 1, September 1 and December 1 of each year.

(n) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

(o) “Holder” or “holder” shall mean a holder of record of the Preferred Stock.

(p) “Issue Date” shall mean March 30, 2004, the original date of issuance of the Preferred Stock.

(q) “Junior Stock” shall mean all classes of common stock of the Company and the Series A Junior Participating Convertible Preferred Stock and each other class of capital stock or series of preferred stock established after the Issue Date, by the Board of Directors, the terms of which do not expressly provide that such class or series ranks senior to or on parity with the Preferred Stock as to dividend rights or rights upon the liquidation, winding-up or dissolution of the Company.

(r) “Liquidation Preference” shall mean, with respect to each share of Preferred Stock, $1,000.00.

(s) “Market Value” shall mean the average closing price of the Common Stock for a five consecutive trading day period on the NYSE (or such other national securities exchange or automated quotation system on which the Common Stock is then listed or authorized for quotation or, if the Common Stock is not so listed or authorized for quotation, an amount determined in good faith by the Board of Directors to be the fair value of the Common Stock).

(t) “NYSE” shall mean the New York Stock Exchange, Inc.

(u) “Officer” shall mean the Chairman of the Board of Directors, the President, any Vice President, the Treasurer, the Secretary or any Assistant Secretary of the Company.

(v) “Officers’ Certificate” shall mean a certificate signed by two Officers.

(w) “Opinion of Counsel” shall mean a written opinion from legal counsel who is acceptable to the Transfer Agent. The counsel may be an employee of or counsel to the Company or the Transfer Agent.

(x) “Parity Stock” shall mean the 6.00% Preferred Stock, the 6.75% Preferred Stock, the 5.00% Preferred Stock and any class of capital stock or series of preferred stock established after the Issue Date by the Board of Directors, the terms of which expressly provide that such class or series will rank on parity with the Preferred Stock as to dividend rights or rights upon the liquidation, winding-up or dissolution of the Company.

(y) “Person” shall mean any individual, corporation, general partnership, limited partnership, limited liability partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof.

(z) “Purchase Agreement” shall mean that certain Purchase Agreement with respect to the Preferred Stock, dated March 24, 2004, among the Company, Lehman Brothers Inc., Banc of America Securities LLC, Bear, Stearns & Co. Inc. and Credit Suisse First Boston LLC and the other initial purchasers named therein.

(aa) “Registration Rights Agreement” means the Registration Rights Agreement dated March 30, 2004, among the Company, Lehman Brothers Inc., Banc of America Securities LLC, Bear, Stearns & Co. Inc. and Credit Suisse First Boston LLC and the other initial purchasers named in the Purchase Agreement, with respect to the Preferred Stock.

(bb) “SEC” or “Commission” shall mean the Securities and Exchange Commission.

(cc) “Securities Act” shall mean the Securities Act of 1933, as amended.

(dd) “Senior Stock” shall mean each class of capital stock or series of preferred stock established after the Issue Date by the Board of Directors, the terms of which expressly

provide that such class or series will rank senior to the Preferred Stock as to dividend rights or rights upon the liquidation, winding-up or dissolution of the Company.

(ee) “Shelf Registration Statement” shall mean a shelf registration statement filed with the SEC to cover resales of Transfer Restricted Securities by holders thereof, as required by the Registration Rights Agreement.

(ff) “5.00% Preferred Stock” shall mean the series of preferred stock, par value $0.01 per share, of the Company designated as the “5.00% Cumulative Convertible Preferred Stock.”

(gg) “6.00% Preferred Stock” shall mean the series of preferred stock, par value $0.01 per share, of the Company designated as the “6.00% Cumulative Convertible Preferred Stock.”

(hh) “6.75% Preferred Stock” shall mean the series of preferred stock, par value $0.01 per share, of the Company designated as the “6.75% Cumulative Convertible Preferred Stock.”

(ii) “Trading Day” shall mean a day during which trading in securities generally occurs on the New York Stock Exchange or, if Common Stock is not listed on the New York Stock Exchange, on the principal other national or regional securities exchange on which Common Stock is then listed or, if Common Stock is not listed on a national or regional securities exchange, on Nasdaq or, if Common Stock is not quoted on Nasdaq, on the principal other market on which Common Stock is then traded.

(jj) “Trading Price” of the Preferred Stock on any date of determination means the average of the secondary market bid quotations obtained by the Company or the calculation agent for 5,000 shares of Preferred Stock at approximately 3:30 p.m., New York City time, on such determination date from three independent nationally recognized securities dealers that the Company or the calculation agent selects; provided that if three such bids cannot reasonably be obtained by the Company or the calculation agent, but two such bids are obtained, the average of the two bids shall be used, and if only one such bid can reasonably be obtained by the Company or the calculation agent, that one bid shall be used. If the Company or the calculation agent cannot reasonably obtain at least one bid for 5,000 shares of Preferred Stock from a nationally recognized securities dealer, then the Trading Price per share of Preferred Stock will be deemed to be less than 98% of the product of (A) the Closing Sale Price of the Common Stock on such date (B) and the Conversion Price on such date.

(kk) “Transfer Agent” shall mean UMB Bank, N.A., the Company’s duly appointed transfer agent, registrar and conversion and dividend disbursing agent for the Preferred Stock. The Company may, in its sole discretion, remove the Transfer Agent with 10 days’ prior notice to the Transfer Agent; provided, that the Company shall appoint a successor Transfer Agent who shall accept such appointment prior to the effectiveness of such removal.

(ll) “Transfer Restricted Securities” shall mean each share of Preferred Stock (or the shares of Common Stock into which such share of Preferred Stock is convertible) until (i) the date on which such security or its predecessor has been effectively registered under the

Securities Act and disposed of in accordance with the Shelf Registration Statement or (ii) the date on which such security or predecessor is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act.

(mm) “Voting Rights Triggering Event” shall mean the failure of the Company to pay dividends on the Preferred Stock with respect to six or more quarterly periods (whether or not consecutive).

(nn) “Voting Stock” shall mean, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of contingency) to vote in the election of members of the Board of Directors or other governing body of such Person. For purposes of this definition, “Capital Stock” shall mean, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of corporate stock or partnership interests and any and all warrants, options and rights with respect thereto (whether or not currently exercisable), including each class of common stock and preferred stock of such Person.

3. Dividends.

(a) The holders of shares of the outstanding Preferred Stock shall be entitled, when, as and if declared by the Board of Directors out of funds of the Company legally available therefor, to receive cumulative cash dividends at the rate per annum of 4.125 % per share on the Liquidation Preference (equivalent to $41.25 per annum per share), payable quarterly in arrears (the “Dividend Rate”). The Dividend Rate may be increased in the circumstances described in Section 3(b) below. Dividends payable for each full dividend period will be computed by dividing the Dividend Rate by four and shall be payable in arrears on each Dividend Payment Date (commencing June 15, 2004) for the quarterly period ending immediately prior to such Dividend Payment Date, to the holders of record of Preferred Stock at the close of business on the Dividend Record Date applicable to such Dividend Payment Date. Such dividends shall be cumulative from the most recent date as to which dividends shall have been paid or, if no dividends have been paid, from the Issue Date (whether or not in any dividend period or periods there shall be funds of the Company legally available for the payment of such dividends) and shall accrue on a day-to-day basis, whether or not earned or declared, from and after the Issue Date. Dividends payable for any partial dividend period, including the initial partial dividend period ending immediately prior to June 15, 2004, shall be computed on the basis of days elapsed over a 360-day year consisting of twelve 30-day months. Accumulations of dividends on shares of Preferred Stock shall not bear interest.

(b) If (i) by July 28, 2004, the Shelf Registration Statement has not been filed with the Commission, (ii) by November 25, 2004, the Shelf Registration Statement has not been declared effective by the Commission or (iii) after the Shelf Registration Statement has been declared effective, (A) the Shelf Registration Statement thereafter ceases to be effective or (B) the Shelf Registration Statement or the related prospectus ceases to be usable (in each case, subject to the exceptions described below) in connection with resales of Transfer Restricted Securities during the period that any Transfer Restricted Securities (other than Transfer Restricted Securities held or beneficially owned by affiliates of the Company) remain

outstanding (each such event referred to in clauses (i), (ii) and (iii), a “Registration Default”), additional dividends shall accrue on the Preferred Stock at the rate of .50% per annum (resulting in a Dividend Rate of 4.625% per annum during the continuance of a Registration Default), from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured. At all other times, dividends shall accumulate on the Preferred Stock at the Dividend Rate as described in Section 3(a).

A Registration Default referred to in clause (iii) of Section 3(b) shall be deemed not to have occurred and be continuing in relation to the Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to the Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events, with respect to the Company that would need to be described in the Shelf Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; provided, however, that in any case if such Registration Default referred to in clause (iii) of Section 3(b) occurs for a continuous period in excess of 30 days, additional dividends as described in Section 3(b) shall be payable in accordance therewith from the day such Registration Default occurs until such Registration Default is cured.

(c) No dividend will be declared or paid upon, or any sum set apart for the payment of dividends upon, any outstanding share of the 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 Preferred Stock.

(d) 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 other than cash paid 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 or on behalf of the Company (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 full Accumulated Dividends shall 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 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 Preferred Stock and any Parity Stock, dividends may be declared and paid on the 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 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 Preferred Stock and such other Parity Stock bear to each other.

(e) Holders of shares of Preferred Stock shall not be entitled to any dividends on the Preferred Stock, whether payable in cash, property or stock, in excess of full cumulative dividends. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on the Preferred Stock which may be in arrears.

(f) The holders of shares of Preferred Stock at the close of business on a Dividend Record Date will be entitled to receive the dividend payment on those shares on the next following Dividend Payment Date notwithstanding the subsequent conversion thereof or the Company’s default in payment of the dividend due on that Dividend Payment Date. However, shares of Preferred Stock surrendered for conversion during the period between the close of business on any Dividend Record Date and the close of business on the Business Day immediately preceding the applicable Dividend Payment Date must be accompanied by payment of an amount equal to the dividend payable on the shares on that Dividend Payment Date. A holder of shares of Preferred Stock on a Dividend Record Date who (or whose transferee) tenders any shares for conversion on the corresponding Dividend Payment Date will receive the dividend payable by the Company on the Preferred Stock on that date, and the converting holder need not include payment in the amount of such dividend upon surrender of shares of Preferred Stock for conversion. Except as provided above with respect to a voluntary conversion pursuant to Section 7, the Company shall make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the shares of Common Stock issued upon conversion.

4. Change of Control.

(a) Upon the occurrence of a Change of Control, each holder of Preferred Stock shall, in the event that the Market Value for the period ending on the Change of Control Date is less than the Conversion Price, have a one-time option (the “Change of Control Option”) to convert all of such holder’s outstanding shares of Preferred Stock into fully paid and nonassessable shares of Common Stock at an adjusted Conversion Price equal to the greater of (i) the Market Value for the period ending on the Change of Control Date and (ii) $8.0733. The Change of Control Option must be exercised, if at all, during the period of not less than 30 days nor more than 60 days commencing on the third Business Day after notice of a Change in Control has been given by the Company in accordance with Section 4(b). In lieu of issuing the shares of Common Stock issuable upon conversion in the event of a Change of Control, the Company may, at its 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 the occurrence of a Change of Control in which (i) each holder of 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 (ii) all the 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 factional shares), and the Preferred Stock becomes convertible solely into such common stock, the Conversion Price will not be adjusted as described in this Section 4(a).

(b) In the event of a Change of Control (other than a Change of Control described in the last sentence of Section 4(a)), notice of such Change of Control shall be given,

within five Business Days of the Change of Control Date, by the Company by first-class mail to each record holder of shares of Preferred Stock, at such holder’s address as the same appears on the books of the Company. Each such notice shall state (i) that a Change of Control has occurred; (ii) the last day on which the Change of Control Option may be exercised (the “Expiration Date”) pursuant to the terms hereof; (iii) the name and address of the Transfer Agent; and (iv) the procedures that holders must follow to exercise the Change of Control Option.

(d) The rights of holders of Preferred Stock pursuant to this Section 4 are in addition to, and not in lieu of, the rights of holders of Preferred Stock provided for in Section 7 hereof.

5. Voting.

(a) The shares of Preferred Stock shall have no voting rights except as set forth below or as otherwise required by Oklahoma law from time to time:

(i) If and whenever at any time or times a Voting Rights Triggering Event occurs, then the holders of shares of Preferred Stock, voting as a single class with any other preferred stock or preference securities having similar voting rights that are exercisable, including the 5.00% Preferred Stock, the 6.00% Preferred Stock and the 6.75% Preferred Stock (the “Voting Rights Class”), will be entitled at the next regular or special meeting of stockholders of the Company to elect two additional directors of the Company. Upon the election of any such additional directors, the number of directors that comprise the Board of Directors shall be increased by such number of additional directors.

(iii) At any time when such voting rights shall have vested in holders of shares of the Voting Rights Class, an Officer of the Company may call, and, upon

written request of the record holders of shares representing at least twenty-five percent (25%) of the voting power of the shares then outstanding of the Voting Rights Class, addressed to the Secretary of the Company, shall call a special meeting of the holders of shares of the Voting Rights Class. Such meeting shall be held at the earliest practicable date upon the notice required for annual meetings of stockholders at the place for holding annual meetings of stockholders of the Company, or, if none, at a place designated by the Board of Directors. Notwithstanding the provisions of this Section 5(a)(iii), no such special meeting shall be called during a period within the 60 days immediately preceding the date fixed for the next annual meeting of stockholders in which such case, the election of directors pursuant to Section 5(a)(i) shall be held at such annual meeting of stockholders.

(vii) In exercising the voting rights set forth in this Section 5(a), each share of Preferred Stock shall be entitled to one vote.

6. Liquidation Rights.

(d) In the event the assets of the Company available for distribution to the holders of shares of Preferred Stock upon any liquidation, winding-up or dissolution of the Company, whether voluntary or involuntary, shall be insufficient to pay in full all amounts to which such holders are entitled pursuant to Section 6(a), no such distribution shall be made on account of any shares of Parity Stock upon such liquidation, dissolution or winding-up unless proportionate distributable amounts shall be paid on account of the shares of Preferred Stock, ratably, in proportion to the full distributable amounts for which holders of all Preferred Stock and of any Parity Stock are entitled upon such liquidation, winding-up or dissolution.

7. Conversion.

(a) Each holder of Preferred Stock shall have the right, only on or after the occurrence of the conversion triggering events described in Section 7(b), at its option, from the Issue Date to convert, subject to the terms and provisions of this Section 7, any or all of such holder’s shares of Preferred Stock. In such case, the shares of Preferred Stock shall be converted into such whole number of fully paid and nonassessable shares of Common Stock as is equal, subject to Section 7(h), to the product of the number of shares of Preferred Stock being so converted multiplied by the quotient of (i) the Liquidation Preference divided by (ii) the Conversion Price (as defined below) then in effect. The Conversion Price initially shall be $16.6513, subject to adjustment as set forth in Section 7(d).

certificate or certificates for shares of Common Stock are to be issued and (if so required by the Company or its duly appointed Transfer Agent) by a written instrument or instruments of transfer in form reasonably satisfactory to the Company or its duly appointed Transfer Agent duly executed by the holder or its duly authorized legal representative and transfer tax stamps or funds therefor, if required pursuant to Section 7(j). Immediately prior to the close of business on the date of receipt by the Company or its duly appointed Transfer Agent of notice of conversion of shares of Preferred Stock, each converting holder of Preferred Stock shall be deemed to be the holder of record of Common Stock issuable upon conversion of such holder’s Preferred Stock notwithstanding that the share register of the Company shall then be closed or that certificates representing such Common Stock shall not then be actually delivered to such holder. On the date of any conversion, all rights with respect to the shares of Preferred Stock so converted, including the rights, if any, to receive notices, will terminate, except only the rights of holders thereof to (i) receive certificates for the number of whole shares of Common Stock into which such shares of Preferred Stock have been converted and cash, in lieu of any fractional shares as provided in Section 7(g); and (ii) exercise the rights to which they are entitled as holders of Common Stock.

(b) A holder’s right to convert its shares of Preferred Stock will arise only upon the occurrence of the following events:

(i) Conversion Rights Based on Common Share Price. A holder may surrender shares of Preferred Stock for conversion into shares of Common Stock during any fiscal quarter after the fiscal quarter ending June 30, 2004 (and only during such fiscal quarter) if the Closing Sale Price of Common Stock for at least 20 Trading Days in a period of 30 consecutive Trading Days ending on the last Trading Day of the immediately preceding fiscal quarter is more than 130% of the Conversion Price on such Trading Day. If this Closing Sale Price condition is not satisfied at the end of any fiscal quarter, then conversion pursuant to this Section 7(b)(i) will not be permitted in the following fiscal quarter. The Company shall determine for each Trading Day during the 30 consecutive Trading Day period specified in this Section 7(b)(i) whether the Closing Sale Price exceeds 130% of the Conversion Price and whether the Preferred Stock shall be convertible as a result of the occurrence of the event set forth in this Section 7(b)(i).

(ii) Conversion Upon Satisfaction of Trading Price Condition. A holder may surrender its shares of Preferred Stock for conversion into Common Stock during the five business day period after any five consecutive Trading Day period in which the Trading Price of the Preferred Stock for each day of such five Trading Day period was less than 98% of the product of the Closing Sale Price of the Common Stock and the Conversion Price in effect on each such day. The Company shall determine whether the Preferred Stock may be converted pursuant to this Section 7(b)(ii) based on Trading Prices obtained from three independent nationally known securities dealers. The Company shall have no obligation to determine the Trading Price unless a holder of Preferred Stock provides it with reasonable evidence that the Trading Price was less than 98% of the product of the Closing Sale Price and the then-current Conversion Price. If such evidence is provided, the Company shall determine the Trading Price of the Preferred Stock beginning on the next Trading Day and on each successive Trading Day until the Trading Price is greater than or equal to 98% of the product of the Closing Sale Price and the then current Conversion Price.

(iii) Conversion Rights Upon Occurrence of Certain Corporate Transactions.

(1) If the Company is party to a consolidation, merger, binding share exchange or sale of all or substantially all of the Company’s assets, in each case pursuant to which the Common Stock would be converted into cash, securities or other property, a holder may surrender its shares of Preferred Stock for conversion into Common Stock at any time from and after the date that is 15 days prior to the anticipated effective date of the transaction until 15 days after the actual date of such transaction and, at the effective time, the right to convert shares of Preferred Stock into Common Stock will be changed into a right to convert such Preferred Stock into the kind and amount of cash, securities or other property of the Company or another person that the holder would have received if the holder had converted the holder’s Preferred Stock immediately prior to the transaction.

(2) If the Company elects to (A) distribute to all holders of Common Stock rights or warrants entitling them to purchase, for a period expiring within 45 days of the record date for such distribution, Common Stock at less than the average Closing Sale Price for the ten consecutive Trading Days immediately preceding the declaration date for such distribution or (B) distribute to all holders of Common Stock, cash, assets, debt securities or rights to purchase the Company’s securities, which distribution has a per share value exceeding 5% of the Closing Sale Price of Common Stock on the Trading Day immediately preceding the declaration date for such distribution; then, in either case, the Company must notify holders of Preferred Stock at least 20 days prior to the ex-dividend date for such distribution. Once the Company has given such notice, a holder may surrender its shares of Preferred Stock for conversion at any time until the earlier of the close of business on the business day immediately preceding the ex-dividend date or any announcement by the Company that such distribution will not take place. Notwithstanding the foregoing, holders shall not have the right to surrender shares of Preferred Stock for conversion pursuant to this Section 7(b)(iii)(2), and no adjustment to the Conversion Price will be made, if all holders of the Preferred Stock will otherwise participate, on the same basis as a holder of Common Shares, in the distribution described above without first converting Preferred Stock into Common Shares.

(iv) Upon a Change of Control, holders of Preferred Stock shall, if 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 Preferred Stock into Common Stock pursuant to Section 4.

(v) Upon determination that holders of Preferred Stock are or will be entitled to convert their Preferred Stock into Common Stock in accordance with any of the provisions of this Section 7(b), the Company will issue a press release and publish such information on its website on the World Wide Web.

(c) If the last day for the exercise of the conversion right shall not be a Business Day, then such conversion right may be exercised on the next preceding Business Day.

(d) The Conversion Price shall be subject to adjustment as follows:

(i) In case the Company shall at any time or from time to time (A) pay a dividend (or other distribution) payable in shares of Common Stock on any class of capital stock (which, for purposes of this Section 7(d) shall include, without limitation, any dividends or distributions in the form of options, warrants or other rights to acquire capital stock) of the Company (other than the issuance of shares of Common Stock in connection with the conversion of preferred stock); (B) subdivide the outstanding shares of Common Stock into a larger number of shares; (C) combine the outstanding shares of Common Stock into a smaller number of shares; (D) issue any shares of its capital stock in a reclassification of the Common Stock; or (E) pay a dividend or make a distribution to all holders of shares of Common Stock (other than a dividend or distribution subject to Section 7(d)(ii)) pursuant to a stockholder rights plan, “poison pill” or similar arrangement and excluding dividends payable on the Preferred Stock then, and in each such case, the Conversion Price in effect immediately prior to such event shall be adjusted (and any other appropriate actions shall be taken by the Company) so that the holder of any share of Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock that such holder would have owned or would have been entitled to receive upon or by reason of any of the events described above, had such share of Preferred Stock been converted into shares of Common Stock immediately prior to the occurrence of such event. An adjustment made pursuant to this Section 7(d)(i) shall become effective retroactively (x) in the case of any such dividend or distribution, to the day immediately following the close of business on the record date for the determination of holders of Common Stock entitled to receive such dividend or distribution or (y) in the case of any such subdivision, combination or reclassification, to the close of business on the day upon which such corporate action becomes effective.

of Common Stock which the aggregate consideration for the total number of such additional shares of Common Stock so issued (or into or for which such convertible or exchangeable securities may convert or exchange or for which such options, warrants or other rights may be exercised plus the aggregate amount of any additional consideration initially payable upon the conversion, exchange or exercise of such security) would purchase at the Market Value for the period ending on the date of conversion; provided, that if the Company distributes rights or warrants (other than those referred to above in this subparagraph (d)(ii)) pro rata to the holders of Common Stock, so long as such rights or warrants have not expired or been redeemed by the Company, (y) the holder of any Preferred Stock surrendered for conversion shall be entitled to receive upon such conversion, in addition to the shares of Common Stock then issuable upon such conversion (the “Conversion Shares”), a number of rights or warrants to be determined as follows: (i) if such conversion occurs on or prior to the date for the distribution to the holders of rights or warrants of separate certificates evidencing such rights or warrants (the “Distribution Date”), the same number of rights or warrants to which a holder of a number of shares of Common Stock equal to the number of Conversion Shares is entitled at the time of such conversion in accordance with the terms and provisions applicable to the rights or warrants and (ii) if such conversion occurs after the Distribution Date, the same number of rights or warrants to which a holder of the number of shares of Common Stock into which such Preferred Stock was convertible immediately prior to such Distribution Date would have been entitled on such Distribution Date had such Preferred Stock been converted immediately prior to such Distribution Date in accordance with the terms and provisions applicable to the rights and warrants and (z) the Conversion Price shall not be subject to adjustment on account of any declaration, distribution or exercise of such rights or warrants.

(iii) If the Company shall at any time make a distribution, by dividend or otherwise, to all holders of shares of its Common Stock consisting exclusively of cash (excluding any cash portion of distributions referred to in clause (E) of paragraph (d)(i) above and cash distributed upon a merger or consolidation to which paragraph (h) below applies) in an amount per share of Common Stock that, when combined with the per share amounts of all other all-cash distributions to all holders of shares of its Common Stock made within the 90-day period ending on the record date for the distribution giving rise to an adjustment pursuant to this Section 7(d)(iii), exceeds $0.055 per share of Common Stock (the “Distribution Threshold Amount”), then the Conversion Price will be adjusted by multiplying:

(1) the Conversion Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive such distribution by

(2) a fraction, the numerator of which will be the Market Value on the fourth trading day on the NYSE prior to such record date minus the amount of cash per share of Common Stock so distributed in excess of the Dividend Threshold Amount for which an adjustment has not otherwise been made pursuant to this Section 7(d)(iii) and the denominator of which will be the Market Value on the fourth trading day on the NYSE prior to such record date.

Subject to Section 7(e), such adjustment shall become effective immediately after the record date for the determination of holders of Common Stock entitled to receive the distribution giving rise to an adjustment pursuant to this Section 7(d)(iii). The Dividend

Threshold Amount is subject to adjustment under the same circumstances under which the Conversion Price is subject to adjustment pursuant to Section 7(d)(i) or Section 7(d)(ii).

(iv) In the case the Company at any time or from time to time shall take any action affecting its Common Stock (it being understood that the issuance or sale of shares of Common Stock (or securities convertible into or exchangeable for shares of Common Stock, or any options, warrants or other rights to acquire shares of Common Stock) to any Person at a price per share less than the Conversion Price then in effect shall not be deemed such an action), other than an action described in any of Section 7(d)(i) through Section 7(d)(iii), inclusive, or Section 7(h), then the Conversion Price shall be adjusted in such manner and at such time as the Board of Directors of the Company in good faith determines to be equitable in the circumstances (such determination to be evidenced in a resolution, a certified copy of which shall be mailed to the holders of the Preferred Stock).

(v) Notwithstanding anything herein to the contrary, no adjustment under this Section 7(d) need be made to the Conversion Price unless such adjustment would require an increase or decrease of at least 1% of the Conversion Price then in effect. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment, if any, which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1% of such Conversion; provided, however, that with respect to adjustments to be made to the Conversion Price in connection with cash dividends paid by the Company, the Company shall make such adjustments, regardless of whether such aggregate adjustments amount to 1% or more of the Conversion Price, no later than March 15 of each calendar year.

(e) If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, and shall thereafter (and before the dividend or distribution has been paid or delivered to stockholders) legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment in the Conversion Price then in effect shall be required by reason of the taking of such record.

(f) Upon any increase or decrease in the Conversion Price, then, and in each such case, the Company promptly shall deliver to each holder of Preferred Stock a certificate signed by an authorized officer of the Company, setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated and specifying the increased or decreased Conversion Price then in effect following such adjustment.

(g) No fractional shares or securities representing fractional shares of Common Stock shall be issued upon the conversion of any shares of Preferred Stock, whether voluntary or mandatory. If more than one share of Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate Liquidation Preference of the shares of Preferred Stock so surrendered. If the conversion of any share or shares of Preferred Stock results in a fraction, an amount equal to such fraction multiplied by the last reported sale price of the Common Stock on the NYSE (or on such other national securities exchange or automated quotation system on which the Common Stock is then listed for trading or authorized for quotation or, if the Common Stock is not then so listed or authorized for quotation, an amount determined in good faith by the Board of Directors to be the fair value of the Common Stock) at the close of business on the trading day next preceding the day of conversion shall be paid to such holder in cash by the Company.

(h) In the event of any reclassification of outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value), or in the event of any consolidation or merger of the Company with or into another Person or any merger of another Person with or into the Company (other than a consolidation or merger in which the Company is the resulting or surviving Person and which does not result in any reclassification or change of outstanding Common Stock), or in the event of any sale or other disposition to another Person of all or substantially all of the assets of the Company (computed on a consolidated basis) (any of the foregoing, a “Transaction”), each share of Preferred Stock then outstanding shall, without the consent of any holder of Preferred Stock, become convertible at any time, at the option of the holder thereof, only into the kind and amount of securities (of the Company or another issuer), cash and other property receivable upon such Transaction by a holder of the number of shares of Common Stock into which such share of Preferred Stock could have been converted immediately prior to such Transaction, after giving effect to any adjustment event. The provisions of this Section 7(h) and any equivalent thereof in any such securities similarly shall apply to successive Transactions. The provisions of this Section 7(h) shall be the sole right of holders of Preferred Stock in connection with any Transaction and such holders shall have no separate vote thereon.

(i) The Company shall at all times reserve and keep available for issuance upon the conversion of the Preferred Stock such number of its authorized but unissued shares of Common Stock as will from time to time be sufficient to permit the conversion of all outstanding shares of Preferred Stock, and shall take all action required to increase the authorized number of shares of Common Stock if at any time there shall be insufficient unissued shares of Common Stock to permit such reservation or to permit the conversion of all outstanding shares of Preferred Stock.

(j) The issuance or delivery of certificates for Common Stock upon the conversion of shares of Preferred Stock shall be made without charge to the converting holder of shares of Preferred Stock for such certificates or for any tax in respect of the issuance or delivery of such certificates or the securities represented thereby, and such certificates shall be issued or delivered in the respective names of, or in such names as may be directed by, the holders of the shares of Preferred Stock converted; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and

delivery of any such certificate in a name other than that of the holder of the shares of Preferred Stock converted, and the Company shall not be required to issue or deliver such certificate unless or until the Person or Persons requesting the issuance or delivery thereof shall have paid to the Company the amount of such tax or shall have established to the reasonable satisfaction of the Company that such tax has been paid.

8. Mandatory Conversion.

(a) At any time on or after March 15, 2009, the Company shall have the right, at its option, to cause the Preferred Stock, in whole but not in part, to be automatically converted into that number of whole shares of Common Stock for each share of Preferred Stock equal to the quotient of (i) the Liquidation Preference divided by (ii) the Conversion Price then in effect, with any resulting fractional shares of Common Stock to be settled in accordance with Section 7(g). The Company may exercise its right to cause a mandatory conversion pursuant to this Section 8(a) only if the closing price of the Common Stock equals or exceeds 130% of the Conversion Price then in effect for at least 20 trading days in any consecutive 30-day trading period on the NYSE (or such other national securities exchange or automated quotation system on which the Common Stock is then listed or authorized for quotation), including the last trading day of such 30-day period, ending on the trading day prior to the Company’s issuance of a press release announcing the mandatory conversion as described in Section 8(b).

the record holder of such share on such Dividend Record Date if such share has been converted after such Dividend Record Date and prior to such Dividend Payment Date. Except as provided in the immediately preceding sentence with respect to a mandatory conversion pursuant to Section 8(a), no payment or adjustment will be made upon conversion of Preferred Stock for Accrued Dividends or for dividends with respect to the Common Stock issued upon such conversion.

(f) In addition to the mandatory conversion right described in Section 8(a), if there are less than 25,000 shares of Preferred Stock outstanding, the Company shall have the right, at any time on or after March 15, 2009, at its option, to cause the Preferred Stock to be automatically converted into that number of whole shares of Common Stock equal to the quotient of (i) the Liquidation Preference divided by (ii) the lesser of (A) the Conversion Price then in effect and (B) the Market Value for the period ending on the second trading day immediately prior to the Mandatory Conversion Date, with any resulting fractional shares of Common Stock to be settled in cash in accordance with Section 7(g). The provisions of clauses (b), (c), (d) and (e) of this Section 8 shall apply to any mandatory conversion pursuant to this clause (f); provided that (i) the Mandatory Conversion Date described in Section 8(b) shall not be less than 15 days nor more than 30 days after the date on which the Company issues a press release pursuant to Section 8(b) announcing such mandatory conversion and (ii) the press release and notice of mandatory conversion described in Section 8(c) will not state the number of shares of Common Stock to be issued upon conversion of each share of Preferred Stock.

9. Consolidation, Merger and Sale of Assets.

of, the Company under the shares of Preferred Stock, and thereafter, except in the case of a lease, the predecessor (if still in existence) will be released from its obligations and covenants with respect to the Preferred Stock.

10. SEC Reports.

11. Certificates.

(i) Global Preferred Stock. The Preferred Stock shall be issued initially in the form of one or more fully registered global certificates with the global securities legend and restricted securities legend set forth in Exhibit A hereto (the “Global Preferred Stock”), which shall be deposited on behalf of the purchasers represented thereby with the Transfer Agent, as custodian for DTC (or with such other custodian as DTC may direct), and registered in the name of DTC or a nominee of DTC, duly executed by the Company and authenticated by the Transfer Agent as hereinafter provided. The number of shares of Preferred Stock represented by Global Preferred Stock may from time to time be increased or decreased by adjustments made on the records of the Transfer Agent and DTC or its nominee as hereinafter provided. With respect to shares of Preferred Stock that are not “restricted securities” as defined in Rule 144 on a conversion date, all shares of Common Stock distributed on such conversion date will be freely transferable without restriction under the Securities Act (other than by affiliates), and such shares will be eligible for receipt in global form through the facilities of DTC.

Members of, or participants in, DTC (“Agent Members”) shall have no rights under this Certificate of Designation with respect to any Global Preferred Stock held on their behalf by DTC or by the Transfer Agent as the custodian of DTC or under such Global Preferred Stock, and DTC may be treated by the Company, the Transfer Agent and any agent of the Company or the Transfer Agent as the absolute owner of such Global Preferred Stock for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Transfer Agent or any agent of the Company or the Transfer Agent from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Agent Members, the operation of customary practices of DTC governing the exercise of the rights of a holder of a beneficial interest in any Global Preferred Stock.

(b) Execution and Authentication. Two Officers shall sign the Preferred Stock certificate for the Company by manual or facsimile signature.

The Transfer Agent shall authenticate and deliver certificates for up to 313,250 shares of Preferred Stock for original issue upon a written order of the Company signed by two

Officers or by an Officer and an Assistant Treasurer of the Company. Such order shall specify the number of shares of Preferred Stock to be authenticated and the date on which the original issue of Preferred Stock is to be authenticated.

The Transfer Agent may appoint an authenticating agent reasonably acceptable to the Company to authenticate the certificates for Preferred Stock. Unless limited by the terms of such appointment, an authenticating agent may authenticate certificates for Preferred Stock whenever the Transfer Agent may do so. Each reference in this Certificate of Designation to authentication by the Transfer Agent includes authentication by such agent. An authenticating agent has the same rights as the Transfer Agent or agent for service of notices and demands.

(II) if such Certificated Preferred Stock is being transferred to the Company or to a “qualified institutional buyer (“QIB”) in accordance with Rule 144A under the Securities Act or pursuant to another exemption from registration under the Securities Act, (i) a certification to that effect (in substantially the form of Exhibit C hereto) and (ii) if the Company so requests, an Opinion of Counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the legend set forth in paragraph 11(c) (vii).

the Transfer Agent to make, or to direct DTC to make, an adjustment on its books and records with respect to such Global Preferred Stock to reflect an increase in the number of shares of Preferred Stock represented by the Global Preferred Stock, then the Transfer Agent shall cancel such Certificated Preferred Stock and cause, or direct DTC to cause, in accordance with the standing instructions and procedures existing between DTC and the Transfer Agent, the number of shares of Preferred Stock represented by the Global Preferred Stock to be increased accordingly. If no Global Preferred Stock is then outstanding, the Company shall issue and the Transfer Agent shall authenticate, upon written order of the Company in the form of an Officers’ Certificate, a new Global Preferred Stock representing the appropriate number of shares.

(iv) Transfer of a Beneficial Interest in Global Preferred Stock for a Certificated Preferred Stock.

(v) Restrictions on Transfer and Exchange of Global Preferred Stock.

(2) In the event that the Global Preferred Stock is exchanged for Preferred Stock in definitive registered form pursuant to paragraph 11(c)(vi) prior to the effectiveness of a Shelf Registration Statement with respect to such securities, such Preferred Stock may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this paragraph 11(c) (including the certification requirements set forth in the Exhibits to this Certificate of Designation intended to ensure that such transfers comply with Rule 144A or such other applicable exemption from registration under the Securities Act, as the case may be) and such other procedures as may from time to time be adopted by the Company.

(vi) Authentication of Certificated Preferred Stock. If at any time:

(2) DTC ceases to be a clearing agency registered under the Exchange Act and a successor depository for the Global Preferred Stock is not appointed by the Company within 90 days; or

(3) the Company, in its sole discretion, notifies the Transfer Agent in writing that it elects to cause the issuance of Certificated Preferred Stock under this Certificate of Designation,

(vii) Legend.

(1) Except as permitted by the following paragraph (2) and in paragraph 11(a)(iii), each certificate evidencing the Global Preferred Stock, the Certificated Preferred Stock and Certificated Common Stock shall bear a legend in substantially the following form:

“THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT

OF 1933 (THE “SECURITIES ACT”), AND THIS SECURITY (AND THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY (AND THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) IN THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (3) TO THE COMPANY OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (1) THROUGH (4) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. IN ANY CASE, THE HOLDER OF THIS SECURITY WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD TO THE SECURITY EXCEPT AS PERMITTED UNDER THE SECURITIES ACT.”¹

(2) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by Global Preferred Stock) pursuant to Rule 144 under the Securities Act or another exemption from registration under the Securities Act or an effective registration statement under the Securities Act:

¹	Subject to removal upon registration under the Securities Act of 1933 or otherwise when the security shall no longer be a Transfer Restricted Security.

does not bear a restrictive legend and rescind any restriction on the transfer of such Transfer Restricted Security; and

(II) in the case of any Transfer Restricted Security that is represented by a Global Preferred Stock, with the consent of the Company, the Transfer Agent shall permit the Holder thereof to exchange such Transfer Restricted Security for Certificated Preferred Stock that does not bear the legend set forth above and rescind any restriction on the transfer of such Transfer Restricted Security, if the Holder’s request for such exchange was made in reliance on Rule 144 or another exemption from registration under the Securities Act and the Holder certifies to that effect in writing to the Transfer Agent (such certification to be in the form set forth in Exhibit C hereto).

(ix) Obligations with Respect to Transfers and Exchanges of Preferred Stock.

(4) No service charge shall be made to a Holder for any registration of transfer or exchange upon surrender of any Preferred Stock certificate or Common Stock certificate at the office of the Transfer Agent maintained for that purpose. However, the Company may require payment of a sum sufficient to cover any tax or other

governmental charge that may be imposed in connection with any registration of transfer or exchange of Preferred Stock certificates or Common Stock certificates.

(B) in the case of any Global Preferred Stock, such Preferred Stock shall not be required to bear the legend set forth in paragraph (c)(vii) above but shall continue to be subject to the provisions of paragraph (c)(iv) hereof; provided, however, that with respect to any request for an exchange of Preferred Stock that is represented by Global Preferred Stock for Certificated Preferred Stock that does not bear the legend set forth in paragraph (c)(vii) above in connection with a sale or transfer thereof pursuant to Rule 144 or another exemption from registration under the Securities Act (and based upon an Opinion of Counsel if the Company so requests), the Holder thereof shall certify in writing to the Transfer Agent that such request is being made pursuant to such exemption (such certification to be substantially in the form of Exhibit C hereto).

(x) No Obligation of the Transfer Agent.

(f) Cancelation. (i) In the event the Company shall purchase or otherwise acquire Certificated Preferred Stock, the same shall thereupon be delivered to the Transfer Agent for cancelation.

(iii) The Transfer Agent and no one else shall cancel and destroy all Preferred Stock certificates surrendered for transfer, exchange, replacement or cancelation and deliver a certificate of such destruction to the Company unless the Company directs the Transfer Agent to deliver canceled Preferred Stock certificates to the Company. The Company may not issue new Preferred Stock certificates to replace Preferred Stock certificates to the extent they evidence Preferred Stock which the Company has purchased or otherwise acquired.

12. Additional Rights of Holders. In addition to the rights provided to Holders under this Certificate of Designation, Holders shall have the rights set forth in the Registration Rights Agreement.

13. Other Provisions.

(d) All notice periods referred to herein shall commence on the date of the mailing of the applicable notice.

IN WITNESS WHEREOF, the Company has caused this certificate to be signed and attested this 29th day of March, 2004.


						CHESAPEAKE ENERGY CORPORATION

						By:		/s/ MARTHA A. BURGER
								Martha A. Burger Treasurer & Sr. Vice President




Attest:		/s/ JENNIFER M. GRIGSBY
		Jennifer M. Grigsby Assistant Treasurer & Corporate Secretary

EXHIBIT A

FORM OF PREFERRED STOCK

FACE OF SECURITY

[THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES ACT”), AND THIS SECURITY (AND THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY (AND THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE) MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) IN THE UNITED STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (3) TO THE COMPANY OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (1) THROUGH (4) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE. IN ANY CASE, THE HOLDER OF THIS SECURITY WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD TO THE SECURITY EXCEPT AS PERMITTED UNDER THE SECURITIES ACT.]^[1]

[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY

¹ Subject to removal upon registration under the Securities Act of 1933 or otherwise when the security shall no longer be a Transfer Restricted Security.

A-1

PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.]^[2]

² Subject to removal if not a global security.

A-2


Certificate Number		Number of Shares of Convertible Preferred Stock
[ ]		[ ]

CUSIP NO.: 165167883

4.125% Cumulative Convertible Preferred Stock (par value $0.01)

(liquidation preference $1000 per share of Convertible Preferred Stock)

Chesapeake Energy Corporation

Chesapeake Energy Corporation, an Oklahoma corporation (the “Company”), hereby certifies that [ ] (the “Holder”) is the registered owner of [ ] fully paid and non-assessable preferred securities of the Company designated the 4.125% Cumulative Convertible Preferred Stock (par value $0.01) (liquidation preference $1000 per share of Preferred Stock) (the “Preferred Stock”). The shares of Preferred Stock are transferable on the books and records of the Transfer Agent, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Stock represented hereby are issued and shall in all respects be subject to the provisions of the Certificate of Designation dated March 29, 2004, as the same may be amended from time to time (the “Certificate of Designation”). Capitalized terms used herein but not defined shall have the meaning given them in the Certificate of Designation. The Company will provide a copy of the Certificate of Designation to a Holder without charge upon written request to the Company at its principal place of business.

Upon receipt of this certificate, the Holder is bound by the Certificate of Designation and is entitled to the benefits thereunder.

A-3

IN WITNESS WHEREOF, the Company has executed this certificate this [ ] day of [ ], 2004.


CHESAPEAKE ENERGY CORPORATION

By:
Name:
Title:

By:
Name:
Title:

A-4

TRANSFER AGENT’S CERTIFICATE OF AUTHENTICATION

These are shares of the Preferred Stock referred to in the within-mentioned Certificate of Designation.

Dated: , 2004

UMB BANK, N.A., as Transfer Agent,

By:

Authorized Signatory

A-5

REVERSE OF SECURITY

Cash dividends on each share of Preferred Stock shall be payable at a rate per annum set forth in the face hereof or as provided in the Certificate of Designation.

The shares of Preferred Stock shall be convertible into the Company’s Common Stock in the manner and according to the terms set forth in the Certificate of Designation.

A-6

ASSIGNMENT

FOR VALUE RECEIVED, the undersigned assigns and transfers the shares of Preferred Stock evidenced hereby to:

(Insert assignee’s social security or tax identification number)

(Insert address and zip code of assignee)

and irrevocably appoints:

agent to transfer the shares of Preferred Stock evidenced hereby on the books of the Transfer Agent. The agent may substitute another to act for him or her.

Date:

Signature:

(Sign exactly as your name appears on the other side of this Preferred Stock Certificate)

Signature Guarantee:³

¹ (Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Transfer Agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Transfer Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.)

A-7

EXHIBIT B

NOTICE OF CONVERSION

(To be Executed by the Holder

in order to Convert the Preferred Stock)

The undersigned hereby irrevocably elects to convert (the “Conversion”) shares of 4.125% Cumulative Convertible Preferred Stock (the “Preferred Stock”), represented by stock certificate No(s). (the “Preferred Stock Certificates”) into shares of common stock (“Common Stock”) of Chesapeake Energy Corporation (the “Company”) according to the conditions of the Certificate of Designation of the Preferred Stock (the “Certificate of Designation”), as of the date written below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith the Preferred Stock Certificates. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. A copy of each Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof).

Any holder, upon the exercise of its conversion rights in accordance with the terms of the Certificate of Designation and the Preferred Stock, agrees to be bound by the terms of the Registration Rights Agreement.

Capitalized terms used but not defined herein shall have the meanings ascribed thereto in or pursuant to the Certificate of Designation.

Date of Conversion:

Applicable Conversion Price:

Number of shares of Preferred Stock to be Converted:

Number of shares of Common Stock to be Issued: *

Signature:

Name:

Address:**

Fax No.:

*The Company is not required to issue shares of Common Stock until the original Preferred Stock Certificate(s) (or evidence of loss, theft or destruction thereof) to be converted are received

B-1

by the Company or its Transfer Agent. The Company shall issue and deliver shares of Common Stock to an overnight courier not later than three business days following receipt of the original Preferred Stock Certificate(s) to be converted.

**Address where shares of Common Stock and any other payments or certificates shall be sent by the Company.

B-2

EXHIBIT C

CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR

REGISTRATION OF TRANSFER OF PREFERRED STOCK

Re:	4.125% Cumulative Convertible Preferred Stock (the “Preferred Stock”) of Chesapeake Energy Corporation (the “Company”)

This Certificate relates to shares of Preferred Stock held in ¨*/ book-entry or ¨*/ definitive form by (the “Transferor”).

The Transferor*:

has requested the Transfer Agent by written order to exchange or register the transfer of Preferred Stock.

Such Preferred Stock is being acquired for the Transferor’s own account without transfer.

Such Preferred Stock is being transferred to the Company.

Such Preferred Stock is being transferred to a qualified institutional buyer (as defined in Rule 144A under the Securities Act), in reliance on Rule 144A.

Such Preferred Stock is being transferred in reliance on and in compliance with another exemption from the registration requirements of the Securities Act (and based on an Opinion of Counsel if the Company so requests).


[INSERT NAME OF TRANSFEROR]

by:

Date:

*/	Please check applicable box.

C-1

Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock

Exhibit 12

CHESAPEAKE ENERGY CORPORATION

RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS

(dollars in 000’s)


	Year Ended December 31, 1999		Year Ended December 31, 2000		Year Ended December 31, 2001		Year Ended December 31, 2002		Year Ended December 31, 2003		Six Months Ended June 30, 2004
EARNINGS:
Income before income taxes and cumulative effect of accounting change	$	35,030	$	196,162	$	361,698	$	67,140	$	500,952	$	327,726
Interest expense (a)		81,052		86,256		98,321		111,280		147,817		75,672
(Gain)/loss on investment in equity investees		—		—		—		—		409		(1,017	)
Amortization of capitalized interest		1,047		1,226		1,784		1,804		2,519		1,908
Bond discount amortization (c)		—		—		—		—		—		—
Loan cost amortization		3,338		3,669		4,022		4,962		4,254		2,390

Earnings	$	120,467	$	287,313	$	465,825	$	185,186	$	655,951	$	406,679

FIXED CHARGES:
Interest expense	$	81,052	$	86,256	$	98,321	$	111,280	$	147,817	$	75,672
Capitalized interest		3,356		2,452		4,719		4,976		13,041		12,660
Bond discount amortization (c)		—		—		—		—		—		—
Loan cost amortization		3,338		3,669		4,022		4,962		4,254		2,390

Fixed Charges	$	87,746	$	92,377	$	107,062	$	121,218	$	165,112	$	90,722

Preferred Stock Dividends
Preferred Dividend Requirements	$	16,711	$	8,484	$	2,050	$	10,117	$	22,469	$	19,512
Ratio of income before provision for taxes to net income (b)		1.05		N/A		1.66		1.67		1.61		1.56

Subtotal – Preferred Dividends	$	17,597	$	8,484	$	3,411	$	16,861	$	36,240	$	30,439

Combined Fixed Charges and Preferred Dividends	$	105,343	$	100,861	$	110,473	$	138,079	$	201,352	$	121,161

Ratio of Earnings to Fixed Charges		1.4		3.1		4.4		1.5		4.0		4.5
Insufficient coverage	$	—	$	—	$	—	$	—	$	—	$	—

Ratio of Earnings to Combined Fixed Charges and Preferred Dividends		1.1		2.8		4.2		1.3		3.3		3.4
Insufficient coverage	$	—	$	—	$	—	$	—	$	—	$	—

(a)	Excludes the effect on unrealized gains or losses on interest rate derivatives.

(b)	Amounts of income before provision for taxes and of net income exclude the cumulative effect of accounting change.

(c)	Amortization of bond discount is excluded since it is included in interest expense.

Subsidiaries of Chesapeake

Exhibit 21

SUBSIDIARIES

CHESAPEAKE ENERGY CORPORATION

Oklahoma Corporation


Corporations		State of Organization
Chesapeake Energy Louisiana Corporation		Oklahoma
Chesapeake Energy Marketing, Inc.		Oklahoma
Chesapeake Operating, Inc.		Oklahoma
Chesapeake BNR Corp.		Delaware
Chesapeake PRH Corp.		Oklahoma
Chesapeake South Texas Corp.		Oklahoma
Nomac Drilling Corporation		Oklahoma
Oxley Petroleum Co.		Oklahoma

Limited Liability Companies		State of Formation
Carmen Acquisition, L.L.C.		Oklahoma
Chesapeake Acquisition, L.L.C.		Oklahoma
Chesapeake ENO Acquisition, L.L.C.		Oklahoma
Chesapeake EP, L.L.C.		Oklahoma
Chesapeake Focus, L.L.C.		Oklahoma
Chesapeake KNAN Acquisition, L.L.C.		Oklahoma
Chesapeake Mountain Front, L.L.C.		Oklahoma
Chesapeake ORC, L.L.C.		Oklahoma
Chesapeake Permian Acquisition, L.L.C.		Oklahoma
Chesapeake Royalty, L.L.C.		Oklahoma
Gothic Production, L.L.C.		Oklahoma
John C. Oxley, L.L.C.		Oklahoma
MC Mineral Company, L.L.C.		Oklahoma
Mayfield Processing, LLC		Oklahoma
Sap Acquisition, L.L.C.		Oklahoma

Partnerships
Chesapeake Exploration Limited Partnership		Oklahoma
Chesapeake LNG, L.P.		Oklahoma
Chesapeake Louisiana, L.P.		Oklahoma
Chesapeake Panhandle Limited Partnership		Oklahoma
Chesapeake Permian, L.P.		Oklahoma
Chesapeake Sigma, L.P.		Oklahoma
Chesapeake-Staghorn Acquisition L.P.		Oklahoma
Chesapeake Zapata, L.P.		Oklahoma
MidCon Compression, L.P.		Oklahoma

CEO Certification pursuant to Section 302

Exhibit 31.1

CERTIFICATION

I, Aubrey K. McClendon, certify that:

I have reviewed this quarterly report on Form 10-Q of Chesapeake Energy Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)

disclosed in this report any change is the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: August 9, 2004		/s/ AUBREY K. MCCLENDON
		Aubrey K. McClendon
		Chairman and Chief Executive Officer

CFO Certification pursuant to Section 302

Exhibit 31.2

CERTIFICATION

I, Marcus C. Rowland certify that:

I have reviewed this quarterly report on Form 10-Q of Chesapeake Energy Corporation;

(a)

(b)

(c)

(a)

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: August 9, 2004		/s/ MARCUS C. ROWLAND
		Marcus C. Rowland
		Executive Vice President and Chief Financial Officer

CEO Certification pursuant to Section 906

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Chesapeake Energy Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Aubrey K. McClendon, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ AUBREY K. MCCLENDON

Aubrey K. McClendon

Chairman and Chief Executive Officer

Date: August 9, 2004

CFO Certification pursuant to Section 906

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Chesapeake Energy Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Marcus C. Rowland, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ MARCUS C. ROWLAND

Marcus C. Rowland

Executive Vice President and Chief Financial Officer

Date: August 9, 2004