<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE , 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ENERGY CORPORATION OF AMERICA
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
WEST VIRGINIA 1311 841235822
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
JOSEPH E. CASABONA
EXECUTIVE VICE PRESIDENT
4643 SOUTH ULSTER STREET, SUITE 1100 4643 SOUTH ULSTER STREET, SUITE 1100
DENVER, COLORADO 80237 DENVER, COLORADO 80237
(303) 694-2667 (303) 694-2667
(Address, including zip code and telephone (Address, including zip code and telephone
number, including area code, of registrant's number, including area code, of agent for
principal executive office) service)
</TABLE>
COPY TO:
THOMAS P. MASON
ANDREWS & KURTH L.L.P.
4200 TEXAS COMMERCE TOWER
HOUSTON, TEXAS 77002-3090
(713) 220-4200
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable following the effectiveness of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE(1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 1/2% Senior Subordinated Notes due 2007,
Series A................................ $200,000,000 100% $200,000,000 $60,607
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</TABLE>
(1) Estimated solely for the purpose of determining the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE , 1997
PROSPECTUS [ECA LOGO]
ENERGY CORPORATION OF AMERICA
OFFER TO EXCHANGE
$1,000 PRINCIPAL AMOUNT OF 9 1/2% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
FOR EACH $1,000 PRINCIPAL AMOUNT OF OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
($200,000,000 IN AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED
------------------------
Energy Corporation of America, a West Virginia corporation (the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal, to exchange $1,000
principal amount of its 9 1/2% Senior Subordinated Notes, Due 2007, Series A
(the "Exchange Notes"), in a transaction registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
(as defined herein) of which this Prospectus constitutes a part, for each $1,000
principal amount of the outstanding 9 1/2% Senior Subordinated Notes due 2007
(the "Old Notes"), of which $200,000,000 aggregate principal amount is
outstanding (the "Exchange Offer"). The Exchange Notes and the Old Notes are
sometimes referred to herein collectively as the "Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the date
the Exchange Offer expires, which will be , 1997 unless the Exchange
Offer is extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. However, the Exchange Offer is subject to certain
conditions that may be waived by the Company and to the terms and provisions of
the Registration Rights Agreement (as defined herein). See "The Exchange Offer."
Old Notes may be tendered only in denominations of $1,000 and integral multiples
thereof. The Company has agreed to pay the expenses of the Exchange Offer. There
will be no cash proceeds to the Company from the Exchange Offer. See "Use of
Proceeds."
The Exchange Notes will be obligations of the Company entitled to the
benefits of the indenture relating to the Notes (the "Indenture"). The form and
terms of the Exchange Notes are identical in all material respects to the form
and terms of the Old Notes, except that (i) the offering of the Exchange Notes
has been registered under the Securities Act, (ii) the Exchange Notes will not
be subject to transfer restrictions and (iii) certain provisions relating to an
increase in the stated interest rate on the Old Notes provided for under certain
circumstances will be eliminated. Following the Exchange Offer, any holders of
Old Notes will continue to be subject to the existing restrictions on transfer
thereof and, as a general matter, the Company will not have any further
obligation to such holders to provide for registration under the Securities Act
of transfers of the Old Notes held by them. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered and tendered but unaccepted Old Notes could be adversely affected.
See "The Exchange Offer -- Purpose and Effect of the Exchange Offer."
(continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
The Old Notes were sold by the Company on May 23, 1997, to Chase Securities
Inc. and Prudential Securities Incorporated (the "Initial Purchasers") in
transactions not registered under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act (the "Offering"). The
Initial Purchasers placed the Old Notes with qualified institutional buyers (as
defined in Rule 144A under the Securities Act) ("Qualified Institutional Buyers"
or "QIBs"), each of whom agreed to comply with certain transfer restrictions and
other restrictions. Accordingly, the Old Notes may not be reoffered, resold or
otherwise transferred in the United States unless such transaction is registered
under the Securities Act or an applicable exemption from the registration
requirements of the Securities Act is available. The Exchange Notes are being
offered hereby in order to satisfy the obligations of the Company under the
Registration Rights Agreement.
The Exchange Notes will bear interest at a rate of 9 1/2% per annum,
payable semi-annually on May 15 and November 15 of each year, commencing
November 15, 1997. Holders of Exchange Notes of record on November 1, 1997, will
receive on November 15, 1997, an interest payment in an amount equal to (x) the
accrued interest on such Exchange Notes from the date of issuance thereof to
November 15, 1997, plus (y) the accrued interest on the previously held Old
Notes from the date of issuance of such Old Notes (May 23, 1997) to the date of
exchange thereof. Interest will not be paid on Old Notes that are accepted for
exchange. The Notes mature on May 15, 2007.
Old Notes were initially represented by a single, global Old Note (the "Old
Global Note") in registered form, registered in the name of Cede & Co., as
nominee for The Depository Trust Company ("DTC" or the "Depositary"), as
depositary. The Exchange Notes exchanged for Old Notes represented by the Old
Global Note will be initially represented by a single, global Exchange Note (the
"Exchange Global Note") in registered form, registered in the name of the
Depositary. See "Book-Entry; Delivery and Form." References herein to "Global
Note" shall be references to the Old Global Note and the Exchange Global Note.
Based on an interpretation of the Securities Act by the staff of the
Securities and Exchange Commission (the "SEC"), Exchange Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who purchased such Old Notes directly from the Company for resale
pursuant to Rule 144A or any other available exemption under the Securities Act
or (ii) a person that is an "affiliate" (within the meaning of Rule 405 of the
Securities Act) of the Company), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holder
is acquiring the Exchange Notes in its ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Old Notes
wishing to accept the Exchange Offer must represent to the Company that such
conditions have been met.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must agree that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 180 days after
the Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the Old
Notes or the Exchange Notes. The Company does not intend to apply for listing of
the Exchange Notes on any securities exchange or for quotation through The
Nasdaq Stock Market. There can be no assurance that an active market for the
Exchange Notes will develop. To the extent that a market for the Exchange Notes
does develop, future trading prices of the Exchange Notes will depend on many
factors,
ii
<PAGE> 4
including, among other things, prevailing interest rates, and the market for
similar securities as well as the Company's results of operations and its
financial condition. See "Risk Factors."
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
OTHER INFORMATION
The Company has filed with the SEC a registration statement (the
"Registration Statement") under the Securities Act on Form S-4 (Reg. No.
333- ) with respect to the Exchange Notes offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits thereto, certain parts which are omitted in accordance with the
rules and regulations of the SEC. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved. The
Registration Statement and any amendments thereto, including exhibits filed or
incorporated by reference as a part thereof, are available for inspection and
copying at the Public Reference Section of the SEC, at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates, and at the
SEC's regional offices at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New
York 10048. The SEC maintains a web site (http:www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, such as the Company, that file electronically with the SEC. The
Company intends to furnish its noteholders with annual reports containing
audited financial statements certified by independent public accountants.
iii
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, appearing elsewhere in this
Prospectus. Unless the context otherwise requires, all references herein to
"ECA" or the "Company" include Energy Corporation of America and its
consolidated subsidiaries. Certain industry terms are defined in the Glossary.
THE COMPANY
Energy Corporation of America is a privately held, integrated energy
company primarily engaged in natural gas distribution in West Virginia and in
the development, production, transportation and marketing of natural gas and oil
in the Appalachian Basin. For the fiscal year ended June 30, 1996, the Company
had total revenues of $375.8 million and EBITDA of $56.8 million. During the
first nine months of fiscal 1997, the Company had revenues of $305.2 million and
EBITDA of $44.4 million.
The Company operates the largest natural gas distribution utility in West
Virginia, supplying natural gas sales and transportation service to
approximately 200,000 customers in 45 of the 55 counties in West Virginia. The
Company distributes approximately 57% of the total natural gas volumes
distributed to end users in West Virginia. In fiscal 1996, the Company owned and
operated approximately 3,900 miles of natural gas distribution pipelines and
sold or transported 65.2 Bcf of gas.
The Company is engaged in the development, production, transportation and
marketing of natural gas and oil in the Appalachian Basin. As of March 31, 1997,
the Company had estimated proved reserves of 172.9 Bcfe (95% natural gas and 90%
developed) with a Present Value (as defined) of $125.8 million. For the fiscal
year ended June 30, 1996, the Company's net gas and oil production was
approximately 13.0 Bcfe. The Company is one of the largest operators in the
Appalachian Basin where it holds interests in 4,755 gross (2,503 net) wells,
substantially all of which it operates. In addition, the Company has recently
commenced an exploration and development program in the Rocky Mountains and New
Zealand, having acquired leasehold interests in approximately 431,000 gross
acres (291,000 net acres) in the Rocky Mountain area and approximately 5.2
million gross acres (2.6 million net acres) in New Zealand.
The Company has developed a significant gas marketing and aggregation
business and owns and operates 2,000 miles of gathering and intrastate natural
gas pipelines in West Virginia and Pennsylvania. During fiscal 1996, the Company
aggregated and sold 150.0 Mmcf/day of natural gas, of which 41.1 Mmcf/day
represents gas produced from wells operated by the Company.
The Company has grown significantly since 1988 through acquisitions of oil
and gas companies or properties which have added proved reserves of
approximately 202.0 Bcfe, at an average acquisition cost of approximately $0.70
per Mcfe, and an interest in approximately 4,500 producing wells. In order to
capitalize on opportunities arising from the deregulation of the transportation
and distribution of natural gas, beginning in 1993 the Company broadened its
strategy from its traditional concentration on oil and gas exploration and
production to concentrate on building an integrated energy company focused on
controlling reserves and maximizing upstream and downstream values. As part of
its strategy, the Company acquired its natural gas distribution business in June
1995. During fiscal year 1996, approximately 25% of natural gas sold by the gas
distribution utility operation came from the Company's own production.
1
<PAGE> 6
BUSINESS STRENGTHS
The Company believes it has certain strengths with respect to its business
activities, including the following:
- LOW COST OPERATIONS. Based on recent filings with the West Virginia
Public Service Commission (the "WVPSC"), the Company's natural gas
distribution utility operations and maintenance expense was $0.55 per
throughput Mcf as compared to $1.53 per throughput Mcf for its largest
competitor. The low cost structure of the Company's utility operation has
enabled it to be the lowest price provider of natural gas to residential
and commercial customers in its service area while realizing a reasonable
rate of return. The Company's residential rate for gas service for 1996,
as reported by the WVPSC, was $6.25 per Mcf of gas compared to an average
of $7.01 per Mcf of gas for its major competitors in West Virginia. The
Company is also a low cost producer of oil and natural gas, with lifting
and operating costs of $0.57 per Mcfe in fiscal 1996.
- DIVERSIFIED CASH FLOW STREAMS. The Company generates cash flow from its
utility operation, gas marketing activities and development and
production activities. The cash flows from these activities tend to be
complimentary. The utility operation generally benefits from lower gas
prices while the development and production activities generally benefit
from higher gas and oil prices. The integration of these activities has
resulted in greater stability in the Company's cash flows.
- LEADING WEST VIRGINIA GAS DISTRIBUTION UTILITY. The Company operates the
largest natural gas distribution utility in West Virginia. The Company is
a leader in achieving innovative rate regulation in West Virginia, having
proposed and received in November 1995 a three year moratorium on rates
charged to its utility customers. The moratorium provides incentives to
the Company to increase efficiencies and pursue ancillary opportunities.
The Company believes that the opportunities afforded by the rate
moratorium will more than offset the additional risk resulting from fixed
utility rates.
- HIGHLY DEVELOPED RESERVE BASE WITH LONG RESERVE LIFE. Approximately 90%
of the Company's reserves are classified as proved developed producing
and have an estimated remaining average reserve life index in excess of
13 years. The Company's Appalachian Basin properties are characterized by
predictable and stable production profiles that decline gradually over
their estimated economic life of approximately 25 years. As a result of
the highly developed and long lived nature of its Appalachian Basin
properties and the relatively low cost to drill development wells on
these properties, the Company believes it has a low reinvestment
requirement to maintain reserve quantities and production levels.
- PREMIUM PRICING. The Company generally benefits from premium pricing for
its Appalachian Basin production due to the geographic proximity of its
reserves to the Northeast markets. In addition, the Company benefits from
a balance of long, intermediate and short term fixed price gas contracts.
- HIGH DEGREE OF OPERATIONAL CONTROL. Over 90% of the Company's proved
reserves at March 31, 1997 are attributable to wells operated by the
Company, giving the Company significant control over the amount and
timing of capital and operating expenditures.
- EXPERIENCED MANAGEMENT. The Company's management has substantial
operational expertise and experience in the gas distribution utility
industry and in the oil and gas industry, particularly with respect to
the Appalachian Basin. This experience provides a significant base upon
which to expand the Company's operations as cash flow and additional
capital become available for investment.
2
<PAGE> 7
BUSINESS STRATEGY
The Company seeks to maximize shareholder value and increase cash flow by
(i) balancing a portfolio of higher risk, higher reward opportunities with its
traditional moderate risk, moderate reward natural gas distribution utility and
Appalachian Basin oil and gas development and production activities, (ii)
increasing gas throughput volumes while reducing costs in its gas distribution
utility operation, (iii) increasing oil and gas reserves and production through
a managed risk exploration and development program and (iv) increasing gross
profit margin through vertical integration by implementing the following
operating strategies:
- MAINTAIN LOW COST STRUCTURE. The Company's management team is focused on
maintaining a low cost structure to maximize cash flow and earnings. As
part of this focus, the Company's strategy is to participate only in
businesses in which it believes it can be in the lowest quartile of
operating and administrative costs compared to its peers. The Company
believes that it has achieved operating efficiencies through the
economies of scale resulting from its geographic focus in the Appalachian
Basin and through the application of technology to its operating
activities. The Company believes that maintaining its low cost structure
makes it less sensitive to market fluctuations in the sales price of
natural gas and oil.
- VERTICAL INTEGRATION. The Company believes that the integration of its
utility operation, its extensive transportation and marketing system and
its stable, long-lived Appalachian Basin production allows it to capture
both downstream and upstream margins and to increase operating
flexibility. The Company expects to allocate its capital spending among
its utility, exploration and production and gas marketing businesses in
order to increase the vertical integration of its business.
- BALANCED DEVELOPMENT AND EXPLORATION PROGRAM. In the Appalachian Basin,
the Company has drilled 444 low risk development wells since 1987,
achieving a success rate of 95%. Recently, the Company began drilling in
Ohio's Rose Run Trend where 18 of 20 wells have been completed
successfully. Outside the Appalachian Basin, the Company seeks
exploration opportunities in which it can (i) add value through technical
expertise, (ii) accumulate large leasehold interests in areas which have
high quality reservoirs, and (iii) limit its initial capital requirements
due to low entry costs and relatively low drilling costs in relation to
reserve potential. After completing its technical evaluation of each
project, the Company seeks to enter into joint development arrangements
with industry partners in order to share initial exploration expenditures
and to limit exposure to dry hole costs. To accelerate its entry into the
Rocky Mountain region, the Company has established a joint venture with
Thomasson Partner Associates, Inc., a geological and geophysical firm
that specializes in generating exploration projects in that region
utilizing advanced technologies, including advanced imaging applications
of 3-D seismic data.
- SELECTIVE ACQUISITIONS. The Company seeks to pursue acquisitions that are
complimentary to its existing operations, that are expected to be
immediately additive to cash flow and earnings and that provide long term
growth opportunities. The Company focuses on acquisitions that are
located principally within the Company's operating areas and provide
opportunities to (i) expand its natural gas utility business, (ii) reduce
operating costs, (iii) increase reserves, (iv) enhance margins through
marketing opportunities, and (v) increase operating leverage.
3
<PAGE> 8
SUMMARY OF TERMS OF EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $200,000,000 aggregate
principal amount of Exchange Notes for up to an equal aggregate principal amount
of Old Notes. The Exchange Notes will be obligations of the Company entitled to
the benefits of the Indenture. The form and terms of the Exchange Notes are
identical in all material respects to the form and terms of the Old Notes,
except that (i) the offering of the Exchange Notes has been registered under the
Securities Act, (ii) the Exchange Notes will not be subject to transfer
restrictions and (iii) certain provisions relating to an increase in the stated
interest rate on the Old Notes provided for under certain circumstances will be
eliminated. See "Description of the Notes."
REGISTRATION RIGHTS
AGREEMENT................ The Old Notes were sold by the Company on May 23,
1997 to the Initial Purchasers pursuant to a
Purchase Agreement, dated May 20, 1997 (the
"Purchase Agreement"). Pursuant to the Purchase
Agreement, the Company and the Initial Purchasers
entered into the Registration Rights Agreement
which, among other things, grants the holders of
the Old Notes certain exchange and registration
rights. The Exchange Offer is intended to satisfy
certain obligations of the Company under the
Registration Rights Agreement.
THE EXCHANGE OFFER......... $1,000 principal amount of Exchange Notes will be
issued in exchange for each $1,000 principal amount
of Old Notes validly tendered and accepted pursuant
to the Exchange Offer. As of the date hereof,
$200,000,000 in aggregate principal amount of Old
Notes are outstanding. The Company will issue the
Exchange Notes to tendering holders of Old Notes
promptly following the Expiration Date.
The terms of the Exchange Notes are identical in
all material respects to the Old Notes except for
certain transfer restrictions and registration
rights relating to the Old Notes and except that
the Old Notes provide that if, by November 5, 1997,
(i) the Exchange Offer has not been consummated, or
(ii) a shelf registration statement relating to the
sale of the Old Notes has not been declared
effective, the Company will pay liquidated damages
in an amount equal to $0.192 per week per $1,000
principal amount of the Old Notes outstanding from
and including November 5, 1997 until but excluding
the date of the consummation of the Exchange Offer
or the date such shelf registration statement is
declared effective, as the case may be.
In addition, to comply with the securities laws of
certain states of the United States, it may be
necessary to qualify for sale or register
thereunder the Exchange Notes prior to offering or
selling such Exchange Notes. The Company has
agreed, pursuant to the Registration Rights
Agreement, subject to certain limitations specified
therein, to register or qualify the Exchange Notes
for offer or sale under the securities laws of such
states as any holder reasonably requests in
writing. Unless a holder so requests, the Company
does not intend to register or qualify the offer or
sale of the Exchange Notes in any such
jurisdiction.
RESALE..................... Based on existing interpretations of the Securities
Act by the staff of the SEC set forth in several
no-action letters to third parties,
4
<PAGE> 9
and subject to the immediately following sentence,
the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other
than (i) a broker-dealer who purchased such Old
Notes directly from the Company for resale pursuant
to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an
"affiliate" (within the meaning of Rule 405 of the
Securities Act) of the Company), without compliance
with the registration and prospectus delivery
provisions of the Securities Act, provided that the
holder is acquiring the Exchange Notes in its
ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to participate, in
the distribution of the Exchange Notes. However,
any purchaser of Notes who is an affiliate of the
Company or who intends to participate in the
Exchange Offer for the purpose of distributing the
Exchange Notes, or any broker-dealer who purchased
the Old Notes from the Company to resell pursuant
to Rule 144A or any other available exemption under
the Securities Act, (i) will not be able to rely on
the interpretations by the staff of the SEC set
forth in the above-mentioned no-action letters,
(ii) will not be able to tender its Old Notes in
the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any sale
or transfer of the Notes unless such sale or
transfer is made pursuant to an exemption from such
requirements. The Company does not intend to seek
its own no-action letter and there is no assurance
that the staff of the SEC would make a similar
determination with respect to the Exchange Notes as
it has in such no-action letters to third parties.
See "The Exchange Offer -- Purpose and Effect of
the Exchange Offer" and "Plan of Distribution."
Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales
of Exchange Notes received in connection with
resales of Exchange Notes received in exchange for
Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making
activities or other trading activities. The Company
has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale. See "Plan of
Distribution."
EXPIRATION DATE............ 5:00 p.m., New York City time, on ,
1997, unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments."
5
<PAGE> 10
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
OLD NOTES................ The Exchange Notes will bear interest at a rate of
9 1/2% per annum, payable semi-annually on May 15
and November 15 of each year, commencing November
15, 1997. Holders of Exchange Notes of record on
November 1, 1997, will receive on November 15,
1997, an interest payment in an amount equal to (x)
the accrued interest on such Exchange Notes from
the date of issuance thereof to November 15, 1997,
plus (y) the accrued interest on the previously
held Old Notes from the date of issuance of such
Old Notes (May 23, 1997) to the date of exchange
thereof. Interest will not be paid on Old Notes
that are accepted for exchange. The Notes mature on
May 15, 2007.
CONDITIONS TO THE EXCHANGE
OFFER.................... The Company may terminate the Exchange Offer if it
determines that its ability to proceed with the
Exchange Offer could be materially impaired due to
the occurrence of certain conditions. The Company
does not expect any of such conditions to occur,
although there can be no assurance that such
conditions will not occur. Holders of Old Notes
will have certain rights under the Registration
Rights Agreement should the Company fail to
consummate the Exchange Offer. See "The Exchange
Offer -- Conditions to the Exchange Offer" and
"Description of the Notes -- Registered Exchange
Offer; Registration Rights."
PROCEDURES FOR TENDERING
OLD NOTES................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Old Notes to be exchanged and any other
required documentation, to The Bank of New York, as
Exchange Agent, at the address set forth herein and
therein or effect a tender of Old Notes pursuant to
the procedures for book-entry transfer as provided
for herein and therein. By executing the Letter of
Transmittal, each holder will represent to the
Company that, among other things, the Exchange
Notes acquired pursuant to the Exchange Offer are
being acquired in the ordinary course of business
of the person receiving such Exchange Notes,
whether or not such person is the holder, that
neither the holder nor any such other person has
any arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes and that neither the holder nor any such
other person is an "affiliate," as defined in Rule
405 under the Securities Act, of the Company. See
"The Exchange Offer -- Procedures for Tendering."
Following consummation of the Exchange Offer,
holders of Old Notes not tendered as a general
matter will not have any further registration
rights, and the Old Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the
Old Notes could be adversely affected. see "The
Exchange Offer -- Consequences of Failure to
Exchange."
6
<PAGE> 11
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender in the Exchange Offer should contact such
registered holder promptly and instruct such
registered holder to tender on his behalf. If such
beneficial owner wishes to tender on his own
behalf, such beneficial owner must, prior to
completing and executing the Letter of Transmittal
and delivering his Old Notes, either (a) make
appropriate arrangements to register ownership of
the Old Notes in such holder's name or (b) obtain a
properly completed bond power from the registered
holder or endorsed certificates representing the
Old Notes to be tendered. The transfer of record
ownership may take considerable time, and
completion of such transfer prior to the Expiration
Date may not be possible. See "The Exchange
Offer -- Procedures for Tendering."
GUARANTEED DELIVERY
PROCEDURES............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available, or who cannot deliver their Old Notes
(or complete the procedure for book-entry transfer)
and deliver a properly completed Letter of
Transmittal and any other documents required by the
Letter of Transmittal to the Exchange Agent prior
to the Expiration Date may tender their Old Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS.......... Tenders of Old Notes may be withdrawn at any time
prior to the Expiration Date by furnishing a
written or facsimile transmission notice of
withdrawal to the Exchange Agent containing the
information set forth in "The Exchange
Offer -- Withdrawal of Tenders."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF EXCHANGE
NOTES.................... Subject to certain conditions (as summarized above
in "Termination of the Exchange Offer" and
described more fully in "The Exchange
Offer -- Termination"), the Company will accept for
exchange any and all Old Notes that are properly
tendered in the Exchange Offer prior to the
Expiration Date. See "The Exchange
Offer -- Procedures for Tendering." The Exchange
Notes issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
EXCHANGE AGENT............. The Bank of New York, the Trustee under the
Indenture, is serving as exchange agent (the
"Exchange Agent") in connection with the Exchange
Offer. The mailing and hand delivery address of the
Exchange Agent is The Bank of New York,
Reorganization Section, 101 Barclay Street -- 7E,
New York, New York 10286 Attention: Walter Gitlin.
For assistance and request for additional copies of
this Prospectus, the Letter of Transmittal or the
Notice of Guaranteed Delivery, the telephone number
for the Exchange Agent is (212) 815-3687, and the
facsimile number for the Ex-
7
<PAGE> 12
change Agent is (212) 571-3080. All communications
should be directed to the attention of Walter
Gitlin.
EFFECT ON HOLDERS OF OLD
NOTES.................... Holders of Old Notes who do not tender their Old
Notes in the exchange offer will continue to hold
their Old Notes and will be entitled to all the
rights and limitations applicable thereto under the
Indenture. All untendered, and tendered but
unaccepted, Old Notes will continue to be subject
to the restrictions on transfer provided for in the
Old Notes and the Indenture. To the extent that Old
Notes are tendered and accepted in the Exchange
Offer, the trading market, if any, for the Old
Notes could be adversely affected. See "Risk
Factors -- Consequences of Exchange and Failure to
Exchange."
See "The Exchange Offer" for more detailed information concerning the terms of
the Exchange Offer.
8
<PAGE> 13
SUMMARY OF TERMS OF EXCHANGE NOTES
ISSUER..................... Energy Corporation of America.
THE NOTES.................. $200.0 million aggregate principal amount of 9 1/2%
Senior Subordinated Notes due 2007, Series A.
MATURITY................... May 15, 2007.
INTEREST PAYMENT DATES..... May 15 and of November 15 each year, commencing on
November 15, 1997.
MANDATORY REDEMPTION....... None.
OPTIONAL REDEMPTION........ Except as otherwise described below, the Exchange
Notes will not be redeemable at the Company's
option prior to May 15, 2002. Thereafter, the
Exchange Notes will be subject to redemption at the
option of the Company, in whole or in part, at the
redemption prices set forth herein, plus accrued
and unpaid interest thereon to the applicable
redemption date. In addition, prior to May 15, 2000
the Company may, at its option, on any one or more
occasions, redeem up to 33 1/3% of the original
principal amount of the Notes at a redemption price
equal to 109.50% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the
redemption date with all or a portion of the net
proceeds of public sales of Common Stock of the
Company; provided that at least 66 2/3% of the
original aggregate principal amount of the Notes
remains outstanding immediately after the
occurrence of such redemption. See "Description of
the Notes -- Optional Redemption."
CHANGE OF CONTROL.......... Upon the occurrence of a Change of Control (as
defined), the Company will generally be required to
offer to repurchase all or a portion of each
holder's Exchange Notes, at an offer price in cash
equal to 101% of the aggregate principal amount of
such Exchange Notes, plus accrued and unpaid
interest, if any, to the date of repurchase, and to
repurchase all Exchange Notes tendered pursuant to
such offer. Concurrently with the closing of the
Offering, the Company entered into a Credit
Agreement (the "Credit Agreement") with General
Electric Capital Corporation providing for a
revolving credit facility in the aggregate
principal amount of $50.0 million (the "Revolving
Credit Facility"). The Credit Agreement prohibits
the Company from repurchasing any Exchange Notes
pursuant to a Change of Control offer prior to the
repayment in full of the Senior Debt under the
Credit Agreement. Therefore, if a Change of Control
were to occur, there can be no assurance that the
Company will have the financial resources to
repurchase the Exchange Notes. See "Risk
Factors -- Risks Relating to a Change of Control"
and "Description of the Notes -- Repurchase at the
Option of holders -- Change of Control."
RANKING.................... The Exchange Notes will be unsecured obligations of
the Company and will be (i) subordinated in right
of payment to all existing and future Senior Debt
of the Company, which will include borrowings under
the Credit Agreement, (ii) pari passu in right of
9
<PAGE> 14
payment with all Pari Passu Debt of the Company and
(iii) senior in right of payment to all other
subordinated indebtedness of the Company. The
Exchange Notes will be effectively subordinated in
right of payment to the liabilities of the
subsidiaries of the Company (including trade
obligations). As of March 31, 1997, on a pro forma
basis after giving effect to the Offering and the
application of the proceeds therefrom, (i) the
Company would not have had any Senior Debt
outstanding, (ii) the Company would not have had
any Pari Passu Debt outstanding and (iii) the
aggregate principal amount of indebtedness
outstanding of the subsidiaries of the Company
would have been $86.6 million. The Exchange Notes
will also be effectively subordinated to all
secured indebtedness of the Company and its
subsidiaries. See "Capitalization," "Description of
the Notes -- Subordination" and "Description of
Other Indebtedness."
CERTAIN COVENANTS.......... The Exchange Notes will be issued pursuant to the
Indenture which contains certain covenants that
will, among other things, limit the ability of the
Company and its Restricted Subsidiaries (as
defined) to incur additional indebtedness and issue
Disqualified Stock (as defined), pay dividends,
make distributions, make investments, make certain
other Restricted Payments (as defined), enter into
certain transactions with affiliates, dispose of
certain assets, incur liens securing Indebtedness
(as defined) of any kind other than Permitted Liens
(as defined) and engage in mergers and
consolidations. See "Description of the Notes --
Certain Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in connection with an investment in the Notes offered hereby,
including information regarding the Company's highly leveraged capital
structure, the uncertainty of oil and gas prices and certain other risks
associated with an investment in the Notes offered hereby.
PRINCIPAL EXECUTIVE OFFICES
The Company's principal executive offices are located at 4643 South Ulster
Street, Suite 1100, Denver, Colorado 80237 and its phone number is (303)
694-2667. The Company is a West Virginia corporation originally incorporated in
Colorado in 1992.
10
<PAGE> 15
SUMMARY FINANCIAL INFORMATION
The following tables present summary historical and pro forma financial
data, reserve data and operating data for the Company. The summary historical
financial information for each year in the three year period ended June 30, 1996
and for the nine months ended March 31, 1997 and as of the respective period end
have been derived from the consolidated financial statements of the Company. The
consolidated financial statements as of March 31, 1997 and June 30, 1996 and for
the nine-month period ended March 31, 1997 and the years ended June 30, 1996 and
1995 are included elsewhere herein together with the report of Deloitte & Touche
LLP, independent auditors. The summary historical data for the nine months ended
March 31, 1996 have been derived from the Company's consolidated financial
statements which have not been audited, but reflect, in the opinion of
management, all adjustments which include only normal recurring adjustments
necessary to present fairly the information contained herein. Interim results
are not necessarily indicative of results to be expected for any fiscal year.
This information should be read in conjunction with "Capitalization",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company, including
the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
-------------------------------- -----------------------
1994 1995 1996 1996 1997
-------- -------- -------- ----------- --------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)(2):
Revenues:
Oil and gas sales................................ $ 30,545 $ 29,277 $ 31,940 $ 23,861 $ 27,002
Utility gas sales and transportation............. 182,929 157,320 146,965
Gas marketing and pipeline sales................. 59,563 103,015 146,398 101,961 120,257
Well operations and service...................... 5,134 3,955 14,003 10,562 10,700
Other revenue(3)................................. 547 9,247 524 414 229
-------- -------- -------- -------- --------
Total revenue.............................. 95,789 145,494 375,794 294,118 305,153
-------- -------- -------- -------- --------
Costs and expenses:
Field operating.................................. 11,657 11,510 21,796 16,325 15,162
Utility operations and maintenance............... 23,841 17,849 15,480
Utility gas purchased(4)......................... 95,157 75,927 85,705
Gas marketing and pipeline costs................. 54,978 100,251 138,067 94,320 112,913
Taxes, other than income......................... 1,250 1,560 16,165 13,706 15,039
General and administrative....................... 6,271 6,689 23,967 17,380 16,479
Depreciation, depletion and amortization......... 8,308 12,041 18,817 15,113 14,980
Interest expense................................. 7,501 8,744 23,182 18,164 17,005
Exploration and impairment costs................. 1,681 281 6,756 2,637 3,613
-------- -------- -------- -------- --------
Total costs and expenses......................... 91,646 141,076 367,748 271,421 296,376
-------- -------- -------- -------- --------
Operating income........................... 4,143 4,418 8,046 22,697 8,777
Other (income) and expenses (including taxes)...... 2,299 3,233 226 4,856 (3,458)
-------- -------- -------- -------- --------
Net income................................. $ 1,844 $ 1,185 $ 7,820 $ 17,841 $ 12,235
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(5)........................................ $ 21,633 $ 25,484 $ 56,801 $ 58,611 $ 44,375
Adjusted EBITDA(6)............................... 21,633 25,484 41,432 45,303 32,110
Net cash provided by operating activities........ 7,466 14,020 17,094 8,107 6,699
Net cash used in investing activities............ (40,878) (92,440) (22,823) (12,154) (9,551)
Net cash provided by/(used in) financing
activities..................................... 21,884 90,631 (198) (3,664) 2,986
Pro forma interest expense(7).................... N/A N/A 23,554 N/A 17,666
Pro forma adjusted interest expense(8)........... N/A N/A 19,000 N/A 14,250
Capital expenditures(9).......................... 23,679 93,226 39,445 31,576 21,555
Ratios:
EBITDA to interest expense..................... 2.88x 2.91x 2.45x 3.23x 2.61x
EBITDA to pro forma interest expense........... N/A N/A 2.41x N/A 2.51x
Earnings to fixed charges(10).................. .84x 1.35x 1.44x 2.34x 1.98x
Total long-term debt to EBITDA(11)(12)......... 5.20x 10.50x 4.66x N/A N/A
Adjusted EBITDA to adjusted pro forma interest
expense(6)(8)................................ N/A N/A 2.18 N/A 2.25
BALANCE SHEET DATA (at end of period)(13)(14):
Cash and cash equivalents.......................... $ 7,913 $ 20,124 $ 14,197 $ 12,412 $ 14,331
Total assets....................................... $222,491 $471,497 $461,504 $506,967 $454,446
Long-term debt(11)................................. $112,430 $267,647 $264,698 $259,391 $231,808
Stockholders' equity............................... $ 31,241 $ 31,613 $ 37,550 $ 48,496 $ 47,905
</TABLE>
See Notes to Summary Financial Information
11
<PAGE> 16
NOTES TO SUMMARY FINANCIAL INFORMATION
(1) The fiscal year ended June 30, 1996 includes $8.3 million of revenues, $3.2
million of EBITDA and $0.9 million of net income attributable to the
Company's interest in certain producing properties which were sold in March
1997.
(2) The Company acquired its natural gas distribution operation in June 1995
and, accordingly, the fiscal year ended June 30, 1996 was the first fiscal
year that the operating results of the natural gas distribution operation
were included in the Company's consolidated operations.
(3) For the year ended June 30, 1995, other revenue includes an $8.8 million
contract settlement with Columbia Gas Transmission Corporation and The
Columbia Gas Systems, Inc. (collectively, "Columbia Gas"). The settlement
relates to damages paid by Columbia Gas as a result of its rejection in
bankruptcy of certain gas purchase contracts.
(4) For the nine months ended March 31, 1997, utility gas purchased includes a
$6.0 million adjustment for refunds due a subsidiary of the Company from
Columbia Gas relating to a settlement approved by the Federal Energy
Regulatory Commission on April 17, 1997. In addition, the Company will
benefit in future periods from the lower rates established in such
settlement.
(5) EBITDA represents operating income of the Company and its subsidiaries on a
consolidated basis plus exploration and impairment expense, interest
expense, depletion, depreciation, and amortization expense. Such definition
of EBITDA may not be the same as the definition of EBITDA utilized by
comparable companies. EBITDA is not presented as an indicator of the
Company's operating performance or as a measure of liquidity calculated in
accordance with generally accepted accounting principles.
(6) Adjusted EBITDA represents EBITDA as adjusted to give effect to contractual
restrictions contained in note purchase agreements to which certain
subsidiaries of the Company were parties prior to the Offering that limit
the amount of cash dividends that may be paid by such subsidiaries to the
Company. All such note purchase agreements were terminated after the
Offering except that to which Mountaineer is a party. See "Description of
Other Indebtedness -- Indebtedness of Subsidiaries -- Mountaineer."
(7) Reflects interest expense pro forma for the Offering as if it had occurred
at the beginning of fiscal 1996. It also excludes interest expense
attributable to the interests in certain oil and gas properties sold in
March 1997.
(8) Reflects interest expense pro forma for the Offering less annual interest
expense of $4.6 million associated with debt at certain of the Company's
subsidiaries referred to in footnote (6) above.
(9) Capital expenditures for 1995 includes $73.2 million for the acquisition of
the Company's natural gas distribution utility and related properties.
(10) For the purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before taxes plus fixed charges. Fixed
charges consist of interest expense. Earnings were $1.3 million short of an
earnings to fixed charges ratio of 1.0 to 1.0.
(11) Long-term debt (i) includes current maturities of long-term debt and (ii)
excludes short-term borrowing under lines of credit.
(12) On a pro forma basis after giving effect to the Offering and the
application of the net proceeds therefrom, the ratio of total long-term
debt to EBITDA would have been 4.58x in fiscal 1996.
(13) As of March 31, 1997, after giving pro forma effect to the Offering and the
application of the net proceeds therefrom, the amount of cash and cash
equivalents would have been $28.2 million and the amount of long-term debt
would have been $260.2 million.
(14) The Company acquired its natural gas distribution operation in June 1995
and, accordingly, the balance sheet of the Company at June 30, 1995
includes the assets and liabilities of this operation as of such date.
12
<PAGE> 17
<PAGE> 18
RISK FACTORS
Prior to making an investment decision, prospective investors should
carefully consider, together with the other information contained in this
Prospectus, the following risk factors.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. In addition, upon the
consummation of the Exchange Offer holders of Old Notes which remain outstanding
will not be entitled to any rights to have such Old Notes registered under the
Securities Act or to any similar rights under the Registration Rights Agreement,
subject to certain exceptions. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Notes could be adversely affected. The Old Notes
provide that if, by November 5, 1997, (i) the Exchange Offer has not been
consummated, or (ii) a shelf registration statement relating to the sale of the
Old Notes has not been declared effective, the Company will pay liquidated
damages in an amount equal to $0.192 per week per $1,000 principal amount of the
Old Notes outstanding from and including November 5, 1997 until but excluding
the date on which the Exchange Offer is consummated or such shelf registration
statement is declared effective.
EFFECTS OF LEVERAGE
The Company is highly leveraged. On a pro forma basis giving effect to the
Offering and borrowings incurred under the Credit Agreement concurrently with
the closing of the Offering, at March 31, 1997 the Company's outstanding
long-term indebtedness would have been $260.2 million. The Company's level of
indebtedness will have several important effects on its future operations,
including (i) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of interest on its indebtedness and will not be
available for other purposes, (ii) covenants contained in the Company's debt
obligations will require the Company to meet certain financial tests, and other
restrictions will limit its ability to borrow additional funds or to dispose of
assets and may affect the Company's flexibility in planning for, and reacting
to, changes in its businesses, including possible acquisition activities and
(iii) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, general corporate purposes
or other purposes may be impaired. The Company's ability to meet its debt
service obligations and to reduce its total indebtedness will be dependent upon
the Company's future performance, which will be subject to natural gas prices
and other factors affecting the operations of the Company, many of which are
beyond its control. There can be no assurance that the Company's future
performance will not be adversely affected by some or all of these factors.
HOLDING COMPANY STRUCTURE
The Company conducts all of its operations through subsidiaries.
Accordingly, the Company relies on dividends and cash advances from its
subsidiaries to provide funds necessary to meet its obligations, including the
payment of principal and interest on the Notes. The ability of any such
subsidiary to pay dividends or make cash advances is subject to applicable laws
and contractual restrictions, including restrictions under credit agreements
between such subsidiary and third party lenders, as well as the financial
condition and operating requirements of such subsidiary. One of the Company's
subsidiaries, Mountaineer Gas Company ("Mountaineer"), a direct subsidiary of
14
<PAGE> 19
Eastern Systems Corporation ("ESC"), is a party to a note purchase agreement
relating to its 7.59% Senior Notes due October 1, 2010, which note purchase
agreement prohibits Mountaineer from making any restricted payment unless, after
giving effect to the payment, (i) no default has occurred, (ii) Mountaineer
would be permitted to incur $1.00 of additional funded indebtedness under such
note purchase agreement and (iii) the aggregate amount of all restricted
payments made by Mountaineer and its restricted subsidiaries since the date of
the issuance of such notes on October 12, 1995 does not exceed $8.0 million plus
90% of the cumulative consolidated net income of Mountaineer from the date of
the issuance of such Notes. As of March 31, 1997, the aggregate amount of all
restricted payments made by Mountaineer and its restricted subsidiaries since
the date of the issuance of such Notes was $8.3 million, and such note purchase
agreement would have permitted Mountaineer to make additional restricted
payments of $23.7 million through March 31, 1997. In addition to the 7.59%
Senior Notes, Mountaineer is a party to three credit facilities which contain
restrictive covenants which are substantially similar to those contained in
Mountaineer's 7.59% Senior Notes. See "Description of Other Indebtedness."
SUBORDINATION OF NOTES
The Notes are unsecured obligations of the Company and are subordinated in
right of payment to all existing and future Senior Debt of the Company, which
will include borrowings under the Credit Agreement. The Notes rank pari passu in
right of payment with all other existing and future Pari Passu Debt of the
Company. The Notes rank senior to other indebtedness of the Company that
expressly provides that it is subordinated in right of payment of the Notes. The
Notes are effectively subordinated in right of payment to the liabilities of the
subsidiaries of the Company (including claims of trade creditors and tort
claimants). In the event of bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be available to pay obligations on the
Notes only after all Senior Debt has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Notes
outstanding. As of March 31, 1997, on a pro forma basis giving effect to the
Offering and the application of the net proceeds therefrom, (i) the Company
would not have had any outstanding Senior Debt, (ii) the Company would not have
had any outstanding Pari Passu Debt, (iii) the aggregate principal amount of
indebtedness outstanding of the subsidiaries of the Company would have been
$86.6 million and (iv) such subsidiaries would have had $46.4 million of
additional borrowing availability under existing revolving lines of credit.
Additional Senior Debt may be incurred by the Company and its subsidiaries from
time to time, subject to certain restrictions. In addition to being subordinated
to all existing and future Senior Debt of the Company, the Notes will be
effectively subordinated to all secured debt of the Company and its
subsidiaries. The Company's obligations under the Credit Agreement will be
secured by a mortgage on substantially all of the oil and gas properties of
Eastern American Energy Corporation ("Eastern American"), the subsidiary of the
Company that owns and operates substantially all of the Company's oil and gas
properties in the Appalachian Basin. See "Description of the Notes -- Ranking
and Subordination" and "Description of Other Indebtedness."
CAPITAL AVAILABILITY
The Company's ability to conduct exploration and development activities and
to make acquisitions is dependent in large part upon its ability to obtain
financing for such activities. The Company expects to utilize borrowings under
the Credit Agreement, along with cash from operations, to fund these activities.
If funds under the Credit Agreement are not available to fund these activities,
the Company may seek to obtain financing for these activities from the sale of
equity securities or other debt financing. There can be no assurance that any
such other financing would be available on terms acceptable to the Company.
Should sufficient capital not be available, the Company may not be able to
continue to implement its strategy. See "Description of Other Indebtedness."
If oil or gas prices decline below their current levels, the availability
of funds and the ability to pay outstanding amounts under the Credit Agreement
could be materially adversely affected. The
15
<PAGE> 20
Indenture for the Notes also contains restrictions on the Company's ability to
incur additional indebtedness, and other contractual arrangements to which the
Company may become subject in the future could contain similar restrictions. In
addition, credit agreements relating to certain of the Company's subsidiaries
currently restrict the ability of such subsidiaries to incur indebtedness and to
guarantee the payment of indebtedness of the Company. The Company's subsidiaries
could also become subject in the future to other contractual restrictions that
contain similar restrictions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
VOLATILITY OF OIL AND GAS PRICES
The Company's financial condition, operating results and future growth and
the carrying value of its oil and gas properties are substantially dependent on
prevailing prices of, and demand for, oil and gas. The Company's ability to
maintain or increase its borrowing capacity and to obtain additional capital on
attractive terms is also substantially dependent upon oil and gas prices.
Historically the markets for oil and gas have been volatile and are likely to
continue to be volatile in the future. Prices for oil and gas are subject to
large fluctuations in response to relatively minor changes in the supply of and
demand for oil and gas, market uncertainty and a variety of additional factors
beyond the control of the Company. These factors include weather conditions in
the United States and elsewhere, the economic conditions in the United States
and elsewhere, the actions of the Organization of Petroleum Exporting Countries
("OPEC"), governmental regulation, political stability in the Middle East and
elsewhere, the supply and demand of oil and gas, the price of foreign imports
and the availability and prices of alternate fuel sources. Any substantial and
extended decline in the price of oil or gas would have an adverse effect on the
Company's carrying value of its proved reserves, borrowing capacity, the
Company's ability to obtain additional capital, and its financial condition,
revenues, profitability and cash flows from operations.
Volatile oil and gas prices make it difficult to estimate the value of oil
and gas properties for acquisition and often cause disruption in the market for
oil and gas properties, as buyers and sellers have difficulty agreeing on such
value. Price volatility also makes it difficult to budget for and project the
return on exploration and development projects and potential acquisitions of oil
and gas properties.
SEASONALITY
More than 95% of the natural gas distribution utility's residential and
commercial customers use natural gas for heating purposes. Accordingly, a
significant portion of the Company's utility gas volumes are attributable to
sales during the six month winter heating season, with highest sales volumes
occurring in December, January and February. In fiscal 1996, gas sales from
October through March accounted for approximately 83% of utility gas sales for
that year. In addition, temperatures experienced in the Company's areas of
operations, as well as in other markets in which its production is sold,
significantly impact both the demand for and the prices at which the Company is
able to sell its production. Because a substantial portion of the Company's
revenues are generated by sales of gas used for heating and because weather
conditions also significantly affect prices realized on production sold, the
temperatures experienced in the Company's areas of operations, particularly
during the peak heating season, will have a significant effect on the Company's
financial performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
UTILITY RATE REGULATION
The Company operates a natural gas distribution utility that is regulated
by the West Virginia Public Service Commission (the "WVPSC"). Under traditional
rate making in West Virginia, the Company's natural gas distribution utility is
prohibited from increasing its base rate unless it obtains
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the approval of the WVPSC. In general, the WVPSC reviews any base rate increase
based upon an analysis of the cost of service, as adjusted for known and
measurable changes in expenses and revenues, and a reasonable return on equity.
In determining the overall rate of return on equity allowed in the rate
proceeding, the WVPSC employs a methodology which computes both the natural gas
distribution utility's cost of debt capital as well as cost of equity capital.
The allowable return on equity is designed to compensate the equity owner at
rates commensurate with the rate of return on investments at comparable risks.
In order to determine the allowable return on equity, the WVPSC utilizes two
market oriented methodologies, the discounted cash flow and the capital asset
pricing model. A further review utilized by the WVPSC to check the
reasonableness of the allowable return on equity involves an analysis of the
overall return required to provide reasonable interest coverage, dividend
pay-out ratios and internally generated cash flow. Finally, the WVPSC utilizes a
sample group of approximately ten to twelve gas distribution utilities located
within and outside of West Virginia for comparison purposes with respect to its
discounted cash flow calculation and the capital asset pricing model. The cost
of debt capital allowed is determined by utilizing the utility's actual interest
rates as set forth in its loan documents, provided the rate is determined to be
reasonable. While the cost of debt capital is normally based on long-term debt,
if the utility uses short-term debt on a regular basis, the WVPSC may determine
that such debt should be treated as a component of the utility's debt capital.
Because the rate regulatory process has certain inherent time delays, rate
orders may not reflect the operating costs at the time new rates are put into
effect.
Any change to the rate the Company's natural gas distribution utility
charges its customers for natural gas costs must be approved by the WVPSC. In
order to obtain approval of changes to gas purchase costs, the Company makes
purchase gas adjustment filings with the WVPSC on an annual basis which include
a forecast for the upcoming twelve month period of gas costs and a true-up
mechanism for the previous period for any over or under-recovery balances. The
WVPSC reviews the Company's gas purchasing activities during the previous year
to determine the prudence of gas purchase expenditures and to determine that
dependable lower-priced supplies of natural gas are not readily available from
other sources. The forecast of gas costs submitted by the Company in its annual
filings incorporates known and measurable pipeline fees during the upcoming
period and an estimate of gas costs based on several natural gas futures
indices. The WVPSC also reviews the Company's forecast of gas costs in such
filings for reasonableness.
All of the requests of natural gas distribution utilities in West Virginia
for rate changes are reviewed by the staff of the WVPSC as well as the Consumer
Advocate Division of the WVPSC. The Consumer Advocate Division is charged with
representing and protecting the interests of residential customers in regulating
the utility.
On October 19, 1995, the WVPSC entered an order that established a three
year moratorium on the rates that the Company may charge its natural gas
distribution system customers. As a consequence of the rate moratorium, the
Company is subject to the risks and benefits of changes in costs, including
changes in costs for natural gas purchased by the Company and changes in
interstate pipeline transportation rates, during the three year term of the
moratorium without the ability to increase rates charged to its customers to
absorb any increases in such costs during this period. In the event that such
costs are in excess of amounts being recovered in approved rates, the inability
of the Company to increase the rates it charges its customers could have a
material adverse effect on the Company's financial condition, results of
operations and cash flows. The WVPSC order provides for certain exceptions to
the moratorium if unforeseen extraordinary circumstances significantly impair
the Company's financial integrity or service reliability, although there can be
no assurance that such relief would be granted. The rate moratorium is scheduled
to expire on October 31, 1998. On May 27, 1997, Mountaineer filed a petition
with the WVPSC to request a proceeding with respect to rates to be charged on
and after November 1, 1998. It is currently anticipated that Mountaineer will
request another rate moratorium at a rate and for a period to be determined
through this process. The Company cannot be certain whether the Moratorium will
be continued past October 31, 1998.
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Dispositions or transfers of the stock or assets of the Company's natural
gas distribution utility require approval of the WVPSC.
UNCERTAINTY OF ESTIMATES OF RESERVES AND FUTURE NET REVENUES
This Prospectus contains estimates of the Company's oil and gas reserves
and the future net revenues which have been prepared by the Company and certain
independent petroleum consultants. Reserve engineering is a subjective process
of estimating the recovery from underground accumulations of oil and gas that
cannot be measured in an exact manner, and the accuracy of any reserve estimate
is a function of the quality of available data and of engineering and geological
interpretation and judgment. Estimates of economically recoverable oil and gas
reserves and of future net cash flows necessarily depend upon a number of
variable factors and assumptions, such as historical production from the area
compared with production from other producing areas, the assumed effects of
regulations by governmental agencies and assumptions concerning future oil and
gas prices, future operating costs, severance and excise taxes, development
costs and workover and remedial costs, all of which may in fact vary
considerably from actual results. Because all reserve estimates are to some
degree speculative, the quantities of oil and gas that are ultimately recovered,
production and operation costs, the amount and timing of future development
expenditures and future oil and gas sales prices may all vary from those assumed
in these estimates and such variances may be material. In addition, different
reserve engineers may make different estimates of reserve quantities and cash
flow based upon the same available data.
The present value of estimated future net cash flows referred to in this
Prospectus should not be construed as the current market value of the estimated
proved oil and gas reserves attributable to the Company's properties. In
accordance with applicable requirements of the Commission, the estimated
discounted future net cash flows from proved reserves are generally based on
prices and costs as of the date of the estimate, whereas actual future prices
and costs may be materially higher or lower. The calculation of the estimated
discounted future net cash flows from the Company's oil and gas reserves is
based on prices as of March 31, 1997. Reserve data at March 31, 1997 included in
this Prospectus is based on an average product price of $2.41 per Mcf of gas and
$16.24 per barrel of oil at such date. In addition, the calculation of the
present value of the future net revenues using a 10% discount as required by the
Commission is not necessarily the most appropriate discount factor based on
interest rates in effect from time to time and risks associated with the
Company's reserves or the oil and gas industry in general. Furthermore, the
Company's reserves may be subject to downward or upward revision based upon
actual production, results of future development, supply and demand for oil and
gas, prevailing oil and gas prices and other factors. See "Business and
Properties -- Oil and Gas Reserves."
FINDING AND ACQUIRING ADDITIONAL RESERVES
The Company's future success depends, in part, upon its ability to find or
acquire additional oil and gas reserves that are economically recoverable.
Except to the extent the Company conducts successful exploration or development
activities or acquires properties containing proved reserves, the proved
reserves of the Company will generally decline as they are produced. There can
be no assurance that the Company's anticipated development projects and
acquisition activities will result in significant additional reserves or that
the Company will have success drilling productive wells at economic returns. If
prevailing oil and gas prices were to increase significantly, the Company's
finding costs to add new reserves could increase. The drilling of oil and gas
wells involves a high degree of risk, especially the risk of dry holes or of
wells that are not sufficiently productive to provide an economic return on the
capital expended to drill the wells. The cost of drilling, completing and
operating wells is uncertain, and drilling or production may be curtailed or
delayed as a result of many factors.
The Company's business is capital intensive. To maintain its base of proved
oil and gas reserves, a significant amount of cash flow from operations must be
reinvested in property
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acquisitions, development or exploration activities. To the extent cash flow
from operations is reduced and external sources of capital become limited or
unavailable, the Company's ability to make the necessary capital investments to
maintain or expand its asset base would be impaired. Without such investment,
the Company's oil and gas reserves would decline.
DEVELOPMENT AND EXPLORATION RISKS
The Company intends to increase its exploration and development activities,
primarily in the Rocky Mountains and New Zealand. Exploration drilling, and to a
lesser extent development drilling, involve a high degree of risk that no
commercial production will be obtained or that the production will be
insufficient to recover drilling and completion costs. The cost of drilling,
completing and operating wells is uncertain. The Company's drilling operations
may be curtailed, delayed or canceled as a result of numerous factors, including
title problems, weather conditions, compliance with governmental requirements
and shortages or delays in the delivery of equipment. Furthermore, completion of
a well does not assure a profit on the investment or a recovery of drilling,
completion and operating costs. See "Business and Properties -- Drilling
Activities."
ACQUISITION RISKS
The Company has in the past acquired oil and gas properties and may in the
future acquire additional oil and gas properties. It generally is not feasible
to review in detail every individual property involved in an acquisition.
Ordinarily, review efforts are focused on the higher-valued properties. However,
even a detailed review of all properties and records may not reveal existing or
potential problems nor will it permit the Company to become sufficiently
familiar with the properties to assess fully their deficiencies and
capabilities. Inspections are not always performed on every well, and
environmental problems, such as groundwater contamination, are not necessarily
observable even when an inspection is undertaken. As a result, the Company may
suffer the loss of one or more acquired properties due to title deficiencies or
may be required to make significant expenditures to cure environmental
contamination with respect to acquired properties. See "Business and
Properties -- Significant Acquisitions and Dispositions."
In June 1995, the Company acquired Mountaineer, a natural gas distribution
utility in West Virginia (hereinafter referred to as the "Mountaineer
Acquisition"). The Company may in the future consider the acquisition of other
natural gas distribution utilities, either in West Virginia or in other states.
The acquisition of a natural gas distribution utility in a state other than West
Virginia would subject the gas distribution utility business conducted in such
other state to be subject to the utility regulation of such state as well as the
Public Utility Holding Company Act, which regulation may affect the rates that
such business may charge its customers, its capital structure, administrative
burdens and other aspects of such business.
OPERATING HAZARDS AND UNINSURED RISKS; PRODUCTION CURTAILMENTS
The oil and gas business involves a variety of operating risks, including,
but not limited to, unexpected formations or pressures, uncontrollable flows of
oil, gas, brine or well fluids into the environment (including groundwater
contamination), blowouts, cratering, fires, explosions, pipeline ruptures or
spills, pollution and other risks, any of which could result in personal
injuries, loss of life, damage to properties, environmental pollution,
suspension of operations and substantial losses. Although the Company carries
insurance which it believes is reasonable, it is not fully insured against all
risks. The Company does not carry business interruption insurance. Losses and
liabilities arising from uninsured or under-insured events could have a material
adverse effect on the financial condition and results of operations of the
Company.
From time to time, due primarily to contract terms, pipeline interruptions
or weather conditions, the producing wells in which the Company owns an interest
have been subject to production curtailments. The curtailments vary from a few
days to several months. In most cases the Company
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is provided only limited notice as to when production will be curtailed and the
duration of such curtailments. The Company is currently not curtailed to any
material extent on any of its production.
GAS CONTRACT RISKS
The Company attempts to balance its gas portfolio by entering into long,
intermediate and short term gas sales contracts, some of which provide for fixed
sales prices (including fixed prices that escalate to predetermined higher fixed
prices). The fixed price sale contracts limit the benefits the Company will
realize if market prices rise above the fixed prices specified in such
contracts. See "Business and Properties -- Significant Gas Sales and Purchase
Contracts."
For the 1996 fiscal year, the Company, excluding the natural gas
distribution utility, was obligated to sell approximately 9.0 Bcf of natural gas
to third parties pursuant to fixed price contracts having an initial term of
more than one year. In addition, for the 1996 fiscal year, a subsidiary of the
Company was obligated to sell up to approximately 9.5 Bcf of natural gas to the
Company's subsidiary that operates the natural gas distribution utility pursuant
to a fixed price contract. See "Business and Properties -- Significant Gas Sales
and Purchase Contracts." For the 1996 fiscal year, the aggregate volume of
natural gas production attributable to the Company's interests in gas and oil
properties was approximately 9.8 Bcf, the Company was the operator of properties
to which were attributable to third party interests an additional 12.2 Bcf of
natural gas and the Company aggregated and marketed an additional 38.9 Bcf of
natural gas owned by third parties. To the extent that the Company is unable to
satisfy its natural gas supply obligations under its natural gas sales contracts
from production attributable to its interests in gas and oil properties, the
Company will be dependent upon its ability to deliver natural gas attributable
to the interests of third parties in properties operated by the Company or from
natural gas purchased from third parties. See " -- Gas Aggregation and
Marketing."
The Company believes that its fixed price sales contracts with third
parties are enforceable and it has not received any notice or other indication
from any of the counterparties that they intend to cease performing any of their
obligations under these contracts. However, there can be no assurance that one
or more of these counterparties will not attempt to totally or partially
mitigate their obligations under these contracts. If any of the purchasers under
the contracts should be successful in doing so, then the Company could be
required to market its production on less attractive terms, which could have a
material adverse effect on the Company's financial condition, results of
operations and cash flow.
The Company's natural gas distribution utility is a party to gas purchase
contracts that require it to purchase natural gas at fixed prices. These
contracts contain terms ranging from 1 day to 5 years at prices ranging from
approximately $1.82 per Mcf to $4.58 per Mcf. In addition, the Company's natural
gas distribution utility purchases a significant portion of its gas volumes from
another subsidiary of the Company. See "Business and Properties -- Significant
Gas Sales and Purchase Contracts." A loan agreement to which the utility is a
party requires it to have in place hedging mechanisms for at least 66 2/3% of
its natural gas purchases, which hedging mechanisms may include fixed price gas
contracts. A rate regulation moratorium currently prohibits the Company from
increasing the rates it charges its customers for natural gas due to increased
costs of gas purchases. As a result, in the event that the Company purchases gas
during the moratorium period at prices that are in excess of amounts being
recovered in its approved rates, the inability of the Company to increase the
rates it charges its customers could have a material adverse effect on the
Company's financial condition, results of operation and cash flows. See
"-- Utility Rate Regulation."
HEDGING RISKS
From time to time, the Company enters into hedging arrangements relating to
its natural gas production. These hedges have in the past involved fixed
arrangements and other arrangements at
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a variety of fixed prices and with a variety of other provisions including price
floors and caps. The Company may in the future enter into oil and natural gas
futures contracts, options and swaps. The Company's hedging activities, while
intended to reduce the Company's sensitivity to changes in market prices of oil
and gas, are subject to a number of risks including instances in which (i)
production is less than expected, (ii) there is a widening of price
differentials between delivery points required by fixed price delivery contracts
to the extent they differ from those on the Company's production or (iii) the
Company's customers or the counterparties to its futures contract fail to
purchase or deliver the contracted quantities of oil or natural gas.
Additionally, the fixed price sales and hedging contracts limit the benefits the
Company will realize if actual prices rise above the contract prices.
GAS AGGREGATION AND MARKETING
The Company's gas aggregation and marketing operations depend in large part
on the ability of the Company to contract with third party producers and
suppliers to purchase their gas, to obtain sufficient volumes of committed
natural gas reserves to replace production from declining wells, to assess and
respond to changing market conditions in negotiating gas purchase and sale
agreements, to maintain satisfactory rights to transport gas through interstate
pipelines and to obtain satisfactory margins between the purchase price of its
natural gas supply and the sales price for its natural gas volumes. In addition,
the Company's operations are subject to changes in regulations relating to
gathering and marketing of oil and gas. The inability of the Company to attract
new sources of third party natural gas or to promptly respond to changing market
conditions or regulations in connection with its aggregation and marketing
operations could adversely affect the Company's financial condition and results
of operations.
COMPETITION
The Company's gas distribution utility and its natural gas production
compete with other forms of energy available to customers, primarily on the
basis of price. These alternate forms of energy include electricity, coal and
fuel oils. Changes in the availability or price of natural gas or other forms of
energy, as well as business conditions, conservation, legislation, regulations
and the ability to convert to alternate fuels and other forms of energy may
affect the demand for natural gas in areas served by the Company. Such factors
may also affect the demand for natural gas produced by the Company.
The Company is also subject to competition from interstate and intrastate
pipeline companies, producers and other utilities which may be able to serve
commercial, industrial and residential customers from their transmission,
gathering and/or distribution facilities. In certain markets, gas has a
competitive price advantage over alternate fuels, while in other markets it is
not as price competitive.
The Company encounters substantial competition with respect to its oil and
gas exploration, production and marketing activities in acquiring oil and gas
properties, marketing oil and gas, securing equipment and personnel and
operating its properties. The competitors in acquisitions, development,
exploration and production include major oil companies, numerous independent oil
and gas companies, individual proprietors and others. Many of these competitors
have financial and other resources which substantially exceed those of the
Company and have been engaged in the energy business for a much longer time than
the Company. Therefore, competitors may be able to pay more for desirable leases
and to evaluate, bid for and purchase a greater number of properties or
prospects than the financial or personnel resources of the Company will permit.
REGULATIONS AFFECTING OPERATIONS
The Company's operations are affected by extensive regulation pursuant to
various federal, state and local laws and regulations relating to the
exploration for and development, production,
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gathering, marketing, transportation and storage of oil and gas. These
regulations, among other things, may affect the rate of oil and gas production.
The Company's operations are subject to numerous laws and regulations governing
plugging and abandonment, the discharge of materials into the environment or
otherwise relating to environmental protection. These laws and regulations
require the acquisition of a permit before drilling commences, restrict the
types, quantities and concentration of various substances that can be released
into the environment in connection with drilling and production activities,
limit or prohibit drilling activities on certain lands lying within wilderness,
wetlands and other protected areas, and impose substantial liabilities for
pollution which might result from the Company's operations.
As a marketer of natural gas, the Company depends on the transportation and
storage services offered by various interstate and intrastate pipeline companies
for the delivery and sale of its own gas supplies as well as those it processes
and/or markets for others. Both the performance of transportation and storage
services by interstate pipelines and the rates charged for such services are
subject to the jurisdiction of the Federal Energy Regulatory Commission (the
"FERC"). In addition, the performance of transportation and storage services by
intrastate pipelines and the rates charged for such services are subject to the
jurisdiction of state regulatory agencies. An inability to obtain transportation
and/or storage services at competitive rates may hinder the Company's marketing
operations and/or affect its sales margins.
ENVIRONMENTAL MATTERS
The Company may be subject to substantial clean-up costs for any toxic or
hazardous substance that may exist with respect to any of its properties.
Moreover, the recent trend toward stricter standards in environmental
legislation and regulation is likely to continue. For instance, legislation has
been proposed in Congress from time to time that would reclassify certain crude
oil and natural gas exploration and production wastes as "hazardous wastes"
which would make the reclassified wastes subject to much more stringent
handling, disposal and clean-up requirements. If such legislation were to be
enacted, it could have a significant impact on the operating costs of the
Company, as well as the oil and gas industry in general. Initiatives to further
regulate the disposal of crude oil and natural gas wastes are also pending in
certain states, and these various initiatives could have a similar impact on the
Company. The Company could incur substantial costs to comply with environmental
laws and regulations.
RISKS RELATING TO A CHANGE OF CONTROL
Upon a Change of Control (as defined), holders of the Notes will have the
right to require the Company to repurchase all or any part of such holders'
Notes at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase. The events that constitute a
Change of Control under the Indenture relating to the Notes would constitute a
default under the Credit Agreement, which prohibits the purchase of the Notes by
the Company in the event of certain Change of Control events unless and until
such time as the Company's indebtedness under the Credit Agreement is repaid in
full. There can be no assurance that the Company would have sufficient financial
resources available to satisfy all of its obligations under the Credit Agreement
and the Notes in the event of a Change of Control. The Company's failure to
purchase the Notes would result in a default under the Indenture and under the
Credit Agreement, each of which could have adverse consequences for the Company
and the holders of the Notes. See "Description of the Notes -- Repurchase at the
Option of Holders -- Change of Control." The definition of "Change of Control"
in the Indenture includes a sale, lease, conveyance or other disposition of "all
or substantially all" of the assets of the Company and its subsidiaries taken as
a whole to a person or a group of persons. There is little case law interpreting
the phrase "all or substantially all" in the context of an indenture. Because
there is no precise established definition of this phrase, the ability of a
holder of the Notes to require the Company to repurchase
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such Notes as a result of a sale, lease, conveyance or transfer of all or
substantially all of the Company's assets to a person or group of persons may be
uncertain.
CONTROL BY CERTAIN STOCKHOLDERS, OFFICERS AND DIRECTORS
At January 1, 1997, John Mork, Julie Mork, the Alison Mork Trust and the
Kyle Mork Trust beneficially owned an aggregate of 399,283 shares of Common
Stock of the Company representing approximately 59.5% of the outstanding shares
of Common Stock, and members of the Company's Board of Directors and senior
management, including John and Julie Mork and their children's trusts,
beneficially owned an aggregate of 641,745 shares, which represent approximately
95.6% of the Company's outstanding Common Stock. As a result, John and Julie
Mork, as well as the officers and directors of the Company as a group, are in a
position to elect all of the Company's directors, appoint all management
personnel and control actions that require the consent of a majority of the
Company's outstanding voting stock. See "Principal Stockholders and Share
Ownership of Management."
ABSENCE OF MARKET FOR THE EXCHANGE NOTES
There is no existing trading market for the Exchange Notes and there can be
no assurance regarding the future development of such a market for the Exchange
Notes, the ability of holders of the Exchange Notes to sell their Exchange Notes
or the price at which such holders may be able to sell their Exchange Notes. If
a market for the Exchange Notes does develop, future trading prices will depend
on many factors, including, among other things, prevailing interest rates, the
operating results of the Company, and the market for similar securities. The
Company does not intend to apply for listing of the Exchange Notes on any
securities exchange or for quotation through The Nasdaq Stock Market.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on May 23, 1997, to the Initial
Purchasers pursuant to a Purchase Agreement, dated May 20, 1997, between the
Company and the Initial Purchasers (the "Purchase Agreement"). The Initial
Purchasers subsequently resold all of the Old Notes to Qualified Institutional
Buyers, each of whom agreed to comply with certain transfer restrictions and
other conditions. As a condition to the purchase of the Old Notes by the Initial
Purchasers, the Company entered into a registration rights agreement with the
Initial Purchasers (the "Registration Rights Agreement"), which requires, among
other things, that promptly following the issuance and sale of the Old Notes,
the Company file with the SEC the Registration Statement with respect to the
Exchange Notes, use its best efforts to cause the Registration Statement to
become effective under the Securities Act and, upon the effectiveness of the
Registration Statement, offer to the holders of the Old Notes the opportunity to
exchange their Old Notes for a like principal amount of Exchange Notes, which
will be issued without a restrictive legend and may be reoffered and resold by
the holder without restrictions or limitations under the Securities Act subject
to certain exceptions described below. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The term "holder" with respect to the Exchange Offer
means any person in whose name Old Notes are registered on the Company's books
or any other person who has obtained a properly completed bond power from the
registered holder or any person whose Old Notes are held of record by the
Depositary who desires to deliver such Old Notes by book-entry transfer of the
Depositary. The Old Notes provide that if, by November 5, 1997, (i) the Exchange
Offer has not been consummated, or (ii) a shelf registration statement relating
to the sale of the Old Notes has not been declared effective, the Company will
pay liquidated damages in an amount equal to $0.192 per week per $1,000
principal amount of the Old Notes outstanding from and including November 5,
1997 until but excluding the date the Exchange Offer is consummated or such
shelf registration statement is declared effective.
Based on existing interpretations of the Securities Act by the staff of the
SEC set forth in several no-action letters to third parties, and subject to the
immediately following sentence, the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who purchased such Old Notes directly from the Company for resale
pursuant to Rule 144A or any other available exemption under the Securities Act
or (ii) a person that is an "affiliate" (within the meaning of Rule 405 of the
Securities Act) of the Company), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holder
is acquiring the Exchange Notes in its ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. However, any purchaser
of Old Notes who is an affiliate of the Company or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes, or any
broker-dealer who purchased the Old Notes from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act, (i) will
not be able to rely on the interpretations by the staff of the SEC set forth in
the above-mentioned no-action letters, (ii) will not be able to tender its Old
Notes in the Exchange Offer and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or transfer of the Old Notes unless such sale or transfer is made pursuant
to an exemption from such requirements. Accordingly, any holder who tenders in
the Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. See "Plan of Distribution."
As a result of the filing and effectiveness of the Registration Statement
of which this Prospectus is a part, the Company will not be required to pay an
increased interest rate on the Old Notes. Following the consummation of the
Exchange Offer, holders of Old Notes not tendered will not have
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any further registration rights except in certain limited circumstances
requiring the filing of a Shelf Registration Statement (as defined herein), and
the Old Notes will continue to be subject to certain restrictions on transfer.
See "Description of the Notes -- Registered Exchange Offer; Registration
Rights." Accordingly, the liquidity of the market for the Old Notes could be
adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept all Old Notes properly
tendered and not withdrawn prior to 5:00 p.m. New York City time, on the
Expiration Date. After authentication of the Exchange Notes by the Trustee or an
authenticating agent, the Company will issue and deliver $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer in denominations of $1,000 and
integral multiples thereof.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer will be required to represent that (i) it is not an
affiliate of the Company, (ii) any Exchange Notes to be received by it were
acquired in the ordinary course of its business and (iii) it has no arrangement
or understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Old Notes, except that (i) the offering of
the Exchange Notes has been registered under the Securities Act, (ii) the
Exchange Notes will not be subject to transfer restrictions and (iii) certain
provisions relating to an increase in the stated interest rate on the Old Notes
provided for under certain circumstances will be eliminated. The Exchange Notes
will evidence the same debt as the Old Notes. The Exchange Notes will be issued
under and entitled to the benefits of the Indenture.
As of the date of this Prospectus, $200,000,000 aggregate principal amount
of the Old Notes is outstanding. In connection with the issuance of the Old
Notes, the Company arranged for the Old Notes to be issued and transferable in
book-entry form through the facilities of the Depositary, acting as depositary.
The Exchange Notes will also be issuable and transferable in book-entry form
through the Depositary.
This Prospectus, together with the accompanying Letter of Transmittal, is
initially being sent to all registered holders of the Old Notes as of the close
of business on June , 1997. The Company intends to conduct the Exchange Offer
in accordance with the applicable requirements of the Exchange Act, and the
rules and regulations of the SEC thereunder, including Rule 14e-1, to the extent
applicable. The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered, and holders of the Old Notes do
not have any appraisal or dissenters' rights under the General Corporation Law
of the State of Delaware or under the Indenture in connection with the Exchange
Offer. The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. See "-- Exchange Agent." The Exchange Agent will act as agent
for the tendering holders for the purpose of receiving Exchange Notes from the
Company and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes
25
<PAGE> 30
will be returned, at the Company's cost, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer.
See"-- Solicitation of Tenders, Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
MOREOVER, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF
OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD NOTES TO TENDER AFTER
READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR
ADVISORS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended. The Company may extend the
Exchange Offer at any time and from time to time by giving oral or written
notice to the Exchange Agent and by timely public announcement.
The Company expressly reserves the right, in its sole discretion (i) to
delay acceptance of any Old Notes, to extend the Exchange Offer or to terminate
the Exchange Offer and to refuse to accept Old Notes not previously accepted, if
any of the conditions set forth herein under "-- Conditions of the Exchange
Offer" shall have occurred and shall not have been waived by the Company (if
permitted to be waived by the Company), by giving oral or written notice of such
delay, extension or termination to the Exchange Agent and (ii) to amend the
terms of the Exchange Offer in any manner. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof by the Company to the registered holders of
the Old Notes. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of such
amendment and the Company will extend the Exchange Offer to the extent required
by law.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advise, or
otherwise communicate any such public announcement, other than by making a
timely release thereof to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate of 9 1/2% per annum,
payable semi-annually on May 15 and November 15 of each year, commencing
November 15, 1997. Holders of Exchange Notes of record on November 1, 1997, will
receive on November 15, 1997, an interest payment in an amount equal to (x) the
accrued interest on such Exchange notes from the date of issuance thereof to
November 15, 1997, plus (y) the accrued interest on the previously held Old
Notes from the date of issuance of such Old Notes (May 23, 1997) to the date of
exchange thereof. Interest will not be paid on Old Notes that are accepted for
exchange. The Notes mature on May 15, 2007.
26
<PAGE> 31
PROCEDURES FOR TENDERING
Each holder of Old Notes wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such facsimile, together with
the Old Notes to be exchanged and any other required documentation, to The Bank
of New York, as Exchange Agent, at the address set forth herein and therein or
effect a tender of Old Notes pursuant to the procedures for book-entry transfer
as provided for herein and therein. By executing the Letter of Transmittal, each
holder will represent to the Company, that, among other things, the Exchange
Notes acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the holder, that neither the holder nor any such other person has
any arrangement or understanding with any person to participate in the
distribution of such Exchange Notes and that neither the holder nor any such
other person is an "affiliate," as defined in Rule 405 under the Securities Act,
of the Company.
Any financial institution that is a participant in the Depositary's
Book-entry Transfer Facility system may make book-entry delivery of the Old
Notes by causing the Depositary to transfer such Old Notes into the Exchange
Agent's account in accordance with the Depositary's procedure for such transfer.
Although delivery of Old Notes may be effected through book-entry transfer into
the Exchange Agent's account at the Depositary, the Letter of Transmittal (or
facsimile thereof), with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at its address set forth herein under "-- Exchange Agent" prior
to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS
TO THE DEPOSITARY IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT.
Only a holder may tender its Old Notes in the Exchange Offer. To tender in
the Exchange Offer, a holder must complete, sign and date the Letter of
Transmittal or a facsimile thereof, have the signatures thereof guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver such Letter
of Transmittal or such facsimile, together with the Old Notes (unless such
tender is being effected pursuant to the procedure for book-entry transfer) and
any other required documents, to the Exchange Agent, prior to 5:00 p.m., New
York City time, on the Expiration Date.
The Tender by a holder will constitute an agreement between such holder,
the Company and the Exchange Agent in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal. If less than
all of the Old Notes are tendered, a tendering holder should fill in the amount
of Old Notes being tendered in the appropriate box on the Letter of Transmittal.
The entire amount of Old Notes delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
THE LETTER OF TRANSMITTAL WILL INCLUDE REPRESENTATIONS TO THE COMPANY THAT,
AMONG OTHER THINGS, (1) THE EXCHANGE NOTES ACQUIRED PURSUANT TO THE EXCHANGE
OFFER ARE BEING ACQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PERSON
RECEIVING SUCH EXCHANGE NOTES (WHETHER OR NOT SUCH PERSON IS THE HOLDER), (2)
NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS ENGAGED IN, INTENDS TO ENGAGE IN
OR HAS ANY ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE
DISTRIBUTION OF SUCH EXCHANGE NOTES, (3) NEITHER THE HOLDER NOR ANY SUCH OTHER
PERSON IS AN "AFFILIATE," AS DEFINED IN RULE 405 UNDER THE SECURITIES ACT, OF
THE COMPANY AND (4) IF THE TENDERING HOLDER IS A BROKER OR DEALER (AS DEFINED IN
THE EXCHANGE ACT) (a) IT ACQUIRED THE OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT
OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND (b) IT HAS NOT
ENTERED INTO ANY ARRANGEMENT OR UNDERSTANDING WITH THE COMPANY OR ANY
"AFFILIATE" THEREOF (WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT) TO
DISTRIBUTE THE EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER. IN THE CASE
OF A BROKER-DEALER THAT RECEIVES EXCHANGE NOTES FOR ITS OWN ACCOUNT IN EXCHANGE
FOR OLD NOTES WHICH WERE ACQUIRED BY IT AS A RESULT OF MARKET-MAKING OR OTHER
TRADING ACTIVITIES, THE LETTER OF TRANSMITTAL WILL ALSO INCLUDE AN
ACKNOWLEDGMENT THAT THE BROKER-DEALER WILL DELIVER A COPY OF THIS PROSPECTUS IN
CONNECTION WITH
27
<PAGE> 32
THE RESALE BY IT OF EXCHANGE NOTES RECEIVED PURSUANT TO THE EXCHANGE OFFER;
HOWEVER, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH HOLDER WILL
NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE
SECURITIES ACT. SEE "PLAN OF DISTRIBUTION."
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
ALSO REQUEST THAT THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES EFFECT SUCH TENDER FOR HOLDERS, IN EACH CASE AS SET FORTH
HEREIN AND IN THE LETTER OF TRANSMITTAL.
Any beneficial owner whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such owner's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution"), unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered holder who has
not completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" of the Letter of Transmittal or (ii) for the account of
an Eligible Institution. If the Letter of Transmittal is signed by a person
other than the registered holder listed therein, such Old Notes must be endorsed
or accompanied by appropriate bond powers which authorize such person to tender
the Old Notes on behalf of the registered holder, in either case signed as the
name of the registered holder or holders appears on the Old Notes. If the Letter
of Transmittal or any Old Notes or bond powers are signed or endorsed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
person should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with such Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive an irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent nor any other person shall be
under any duty to give notification of defects or irregularities with respect to
tenders of Old Notes, nor shall any of them incur any liability for failure to
give such notification. Tenders of Old Notes will not be deemed to have been
made until such irregularities have been cured or waived. Any Old Notes received
by the Exchange Agent that the Company determines are not properly tendered or
28
<PAGE> 33
the tender of which is otherwise rejected by the Company and as to which the
defects or irregularities have not been cured or waived by the Company will be
returned by the Exchange Agent to the tendering holder unless otherwise provided
in the Letter of Transmittal, as soon as practicable following the Expiration
Date.
In addition, the Company reserves the right in its sole discretion (a) to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date, or, as set forth under " -- Conditions of the Exchange
Offer," terminate the Exchange Offer and (b) to the extent permitted by
applicable law, to purchase Old Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
may differ from the terms of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the DTC (the "Book-Entry Transfer Facility") for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry deliver of Old Notes by causing such
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account with respect to the Old Notes in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. ALTHOUGH DELIVERY OF OLD NOTES
MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER INTO THE EXCHANGE AGENT'S ACCOUNT AT
THE BOOK-ENTRY TRANSFER FACILITY, AN APPROPRIATE LETTER OF TRANSMITTAL PROPERLY
COMPLETED AND DULY EXECUTED WITH ANY REQUIRED SIGNATURE GUARANTEE AND ALL OTHER
REQUIRED DOCUMENTS MUST IN EACH CASE BE TRANSMITTED TO AND RECEIVED OR CONFIRMED
BY THE EXCHANGE AGENT AT ITS ADDRESS SET FORTH BELOW ON OR PRIOR TO THE
EXPIRATION DATE, OR, IF THE GUARANTEED DELIVERY PROCEDURES DESCRIBED BELOW ARE
COMPLIED WITH, WITH THE TIME PERIOD PROVIDED UNDER SUCH PROCEDURES. DELIVERY OF
DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO
THE EXCHANGE AGENT.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer on
a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmittal, mail or hand delivery)
setting forth the name and address of the holder, the certificate number or
numbers of such holder's Old Notes and the principal amount of such Old
Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within three New York Stock Exchange ("NYSE") trading
days after the Expiration Date, the Letter of Transmittal (or facsimile
thereof), together with the certificate(s) representing the Old Notes to be
tendered in proper form for transfer (or confirmation of a book-entry
transfer into the Exchange Agent's account at the Depositary of Old Notes
delivered electronically) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at the Depositary of
Old Notes delivered electronically) and all other documents required by the
Letter of
29
<PAGE> 34
Transmittal are received by the Exchange Agent within three NYSE trading
days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes or, in the case of Old Notes transferred by book-entry
transfer, the name and number of the account at the Depositary to be credited),
(iii) be signed by the Depositor in the same manner as the original signature on
the Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantee) or be accompanied by documents of transfer
sufficient to permit the Trustee with respect to the Old Notes to register the
transfer of such Old Notes into the name of the Depositor withdrawing the tender
and (iv) specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer, and no Exchange Notes will be
issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Any Old Notes that have been tendered but are not accepted for
exchange will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures described above under "-- Procedures for Tendering" at any
time prior to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or to exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes if, in the Company's judgment, any of the
following conditions has occurred or exists or has not been satisfied: (i) that
the Exchange Offer, or the making of any exchange by a holder, violates
applicable law or any applicable interpretation of the staff of the SEC, (ii)
that any action or proceeding shall have been instituted or threatened in any
court or by or before any governmental agency or body with respect to the
Exchange Offer, (iii) that there has been adopted or enacted any law, statute,
rule or regulation that can reasonably be expected to impair the ability of the
Company to proceed with the Exchange Offer, (iv) that there has been declared by
United States federal or Texas or New York state authorities a banking
moratorium; or (v) that trading on the New York Stock Exchange or generally in
the United States over-the-counter market has been suspended by order of the SEC
or any other governmental agency, in each of clauses (i) through (iv) which, in
the Company's judgment, would reasonably be expected to impair the ability of
the Company to proceed with the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer for any
of the reasons set forth above, the Company may (i) refuse to accept any Old
Notes and return any Old Notes that have been tendered to the holders thereof,
(ii) extend the Exchange Offer and retain all Old Notes tendered prior to the
Expiration Date of the Exchange Offer, subject to the rights of such holders of
30
<PAGE> 35
tendered Old Notes to withdraw their tendered Old Notes or (iii) waive such
termination event with respect to the Exchange Offer and accept all properly
tendered Old Notes that have not been withdrawn. If such waiver constitutes a
material change in the Exchange Offer, the Company will disclose such change by
means of a supplement to this Prospectus that will be distributed to each
registered holder, and the Company will extend the Exchange Offer for a period
of five to ten business days, depending upon the significance of the waiver and
the manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such period.
EXCHANGE AGENT
The Bank of New York, the Trustee under the Indenture, has been appointed
as Exchange Agent for the Exchange Offer. In such capacity, the Exchange Agent
has no fiduciary duties and will be acting solely on the basis of directions of
the Company. Requests for assistance and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<CAPTION>
The Bank of New York, Exchange Agent
<S> <C>
By Mail or Hand Delivery: By Facsimile Transmission:
The Bank of New York (for Eligible Institutions only):
Reorganization Section (212) 571-3080
101 Barclay Street--7E Attention: Walter Gitlin
New York, New York 10286 Confirm by Telephone:
Attention: Walter Gitlin (212) 815-3687
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
Delivery to an address or facsimile number other than those listed above will
not constitute a valid delivery.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation pursuant to the Exchange Offer
is being made by mail. Additional solicitations may be made by officers and
regular employees of the Company and its affiliates in person, by telegraph,
telephone or telecopier.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company will, however,
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket costs and expenses
in connection therewith and will indemnify the Exchange Agent for all losses and
claims incurred by it as a result of the Exchange Offer. The Company may also
pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus, Letters of Transmittal and related documents to the beneficial
owners of the Old Notes and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees and printing costs, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes
31
<PAGE> 36
for principal amounts not tendered or accepted for exchange are to be delivered
to, or are to be registered or issued in the name of, any person other than the
registered holder of the Old Notes tendered, or if tendered Old Notes are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed by the Company
directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company as a result of the consummation of the Exchange Offer.
The expenses of the Exchange Offer will be amortized by the Company over the
term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Old Notes
are urged to consult their financial and tax advisors in making their own
decisions as to what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of the Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights, and subject to the limitations applicable thereto, under the
Indenture and the Registration Rights Agreement, except for any such rights
under the Registration Rights Agreement that by their terms terminate or cease
to have further effect as a result of the making of this Exchange Offer. See
"Description of the Notes." All untendered Old Notes will continue to be subject
to the restrictions on transfer set forth in the Indenture. The Old Notes may
not be offered, resold, pledged or otherwise transferred, prior to the date that
is two years after the later of May 23, 1997 and the last date on which the
Company or any "affiliate" (within the meaning of Rule 144 of the Securities
Act) of the Company was the owner of such Old Note except (i) to the Company,
(ii) pursuant to a registration statement which has been declared effective
under the Securities Act, (iii) to Qualified Institutional Buyers in reliance
upon the exemption from the registration requirements of the Securities Act
provided by Rule 144A, (iv) to institutional "accredited investors" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) in transactions
exempt from the registration requirements of the Securities Act, (v) in
transactions complying with the provisions of Regulation S under the Securities
Act or (vi) pursuant to any other available exemption from the registration
requirements under the Securities Act. To the extent that Old Notes are tendered
and accepted in the Exchange Offer, the liquidity of the trading market for
untendered Old Notes could be adversely affected.
The Company may in the future seek to acquire untendered Old Notes in the
open market or through privately negotiated transactions, through subsequent
exchange offers or otherwise. The Company intends to make any such acquisitions
of Old Notes in accordance with the applicable requirements of the Exchange Act
and the rules and regulations of the SEC thereunder, including Rule 14e-1, to
the extent applicable. The Company has no present plan to acquire any Old Notes
that are not tendered in the Exchange Offer or to file a registration statement
to permit resales of any Old Notes that are not tendered in the Exchange Offer.
32
<PAGE> 37
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange Old
Notes in like principal amount. The form and terms of the Exchange Notes are
identical in all material respects to the form and terms of the Old Notes,
except that (i) the offering of the Exchange Notes has been registered under the
Securities Act, (ii) the Exchange Notes will not be subject to transfer
restrictions and (iii) certain provisions relating to an increase in the stated
interest rate on the Old Notes provided for under certain circumstances will be
eliminated. The Old Notes surrendered in exchange for Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in a change in the indebtedness of the Company.
33
<PAGE> 38
CAPITALIZATION
The following table sets forth as of March 31, 1997, (i) the historical
capitalization of the Company and (ii) the historical capitalization of the
Company as adjusted to give effect to the Offering and the application of the
proceeds therefrom. The information was derived from, and is qualified by
reference to, the consolidated financial statements of the Company, including
the notes thereto, included elsewhere in this Prospectus. This information
should be read in conjunction with such financial statements, including the
notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 14,331 $ 28,231
======== ========
Short-term debt(1).......................................... $ 26,614 $ 26,614
======== ========
Long-term debt:
Revolving credit facilities:
Existing revolving credit facility..................... $136,648 --
Revolving Credit Facility(2)........................... -- --
7.59% Senior Notes due 2010(3)............................ 60,000 $ 60,000
10.75% Senior Secured Notes due 2005(4)................... 35,000 --
9 1/2% Senior Subordinated Notes due 2007................. -- 200,000
Other..................................................... 160 160
-------- --------
Total long-term debt.............................. 231,808 260,160
-------- --------
Total stockholders' equity(5)............................... 47,905 39,505
-------- --------
Total capitalization.............................. $279,713 $299,665
======== ========
</TABLE>
- ---------------
(1) Consists primarily of unsecured bank lines of credit providing for an
aggregate principal amount of $73.0 million in borrowing capacity. During
the nine months ended March 31, 1997, the maximum outstanding daily balance
was approximately $45.0 million. The weighted average interest rate was
5.97% on the balances outstanding for the nine months ended March 31, 1997.
The Company had no outstanding balance under its short-term bank lines of
credit for a period of 30 days in fiscal 1996. See "Description of Other
Indebtedness."
(2) The borrowing base under the Revolving Credit Facility at June 8, 1997 was
approximately $50.0 million. Borrowings under this facility, if any, will be
used for general corporate purposes. Such amounts do not include
approximately $12.0 million in letters of credit. See "Description of Other
Indebtedness -- Indebtedness of the Company -- Credit Agreement."
(3) The 7.59% Senior Notes due 2010 were issued by Mountaineer, a subsidiary of
the Company. See "Description of Other Indebtedness -- Indebtedness of
Subsidiaries -- Mountaineer."
(4) The 10.75% Senior Secured Notes due 2005 were issued by ESC, a subsidiary of
the Company. Such notes were paid in full with the proceeds from the
Offering.
(5) The decrease in stockholders' equity represents the after-tax write-off of
$2.96 million ($4.3 million on a pre-tax basis) of unamortized financing
costs and approximately $5.4 million of make-whole premium ($7.9 million on
a pre-tax basis) related to the debt which was repaid with the net proceeds
of the Offering.
34
<PAGE> 39
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables present summary historical and pro forma financial
data for the Company. The selected historical financial information as of and
for each year in the two year period ended June 30, 1993 have been derived from
the consolidated financial statements of Eastern American. Effective June 30,
1993, the Company, under common control with the shareholders of Eastern
American, entered into an Exchange Agreement with the shareholders of Eastern
American whereby Eastern American became a wholly-owned subsidiary of the
Company. The selected historical financial information for each year in the
three year period ended June 30, 1996 and for the nine months ended March 31,
1997 and as of the respective period end have been derived from the audited
consolidated financial statements of the Company. The consolidated financial
statements as of March 31, 1997 and June 30, 1996 and for the nine month period
ended March 31, 1997 and the years ended June 30, 1996 and 1995 are included
elsewhere herein together with the report of Deloitte & Touche LLP, independent
auditors. The selected historical data for the nine months ended March 31, 1996
have been derived from the Company's consolidated financial statements which
have not been audited, but reflect, in the opinion of management, all
adjustments which include only normal recurring adjustments necessary to present
fairly the information contained herein. Interim results are not necessarily
indicative of results to be expected for any fiscal year. This information
should be read in conjunction with "Capitalization", "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of the Company, including the notes thereto,
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)(2):
Revenues:
Oil and gas sales........................ $ 30,640 $ 28,834 $ 30,545 $ 29,277 $ 31,940 $ 23,861 $ 27,002
Utility gas sales and transportation..... 182,929 157,320 146,965
Gas marketing and pipeline sales......... 37,213 49,222 59,563 103,015 146,398 101,961 120,257
Well operations and service.............. 5,418 4,593 5,134 3,955 14,003 10,562 10,700
Other revenue(3)......................... (716) 623 547 9,247 524 414 229
-------- -------- -------- -------- -------- -------- --------
Total revenues..................... 72,555 83,272 95,789 145,494 375,794 294,118 305,153
-------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Field operating.......................... 6,488 10,213 11,657 11,510 21,796 16,325 15,162
Utility operations and maintenance....... 23,841 17,849 15,480
Utility gas purchased(4)................. 95,157 75,927 85,705
Gas marketing and pipeline costs......... 32,322 42,811 54,978 100,251 138,067 94,320 112,913
Taxes, other than income................. 1,889 1,746 1,250 1,560 16,165 13,706 15,039
General and administrative............... 4,117 4,526 6,271 6,689 23,967 17,380 16,479
Depletion, depreciation, and
amortization........................... 12,597 9,140 8,308 12,041 18,817 15,113 14,980
Interest expense......................... 12,876 9,168 7,501 8,744 23,182 18,164 17,005
Exploration and impairment costs......... 323 2,532 1,681 281 6,756 2,637 3,613
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses........... 70,612 80,136 91,646 141,076 367,748 271,421 296,376
-------- -------- -------- -------- -------- -------- --------
Operating income....................... 1,943 3,136 4,143 4,418 8,046 22,697 8,777
Other (income) and expenses:
Gain on sale of assets(5)................ (270) (9,145) (279) (3,934) (2,499) (8,153)
Other (income) expense(6)................ (1,376) 6,220 3,391 367 693 (421) (604)
Minority interest........................ 107 1,634 435 193 130 339
-------- -------- -------- -------- -------- -------- --------
Income before provision for taxes and
cumulative effect of accounting
change................................. 3,589 5,954 (882) 3,895 11,094 25,487 17,195
Income tax expense....................... 304 381 478 2,710 3,274 7,646 4,960
-------- -------- -------- -------- -------- -------- --------
Income (loss) before cumulative effect of
accounting change...................... 3,285 5,573 (1,360) 1,185 7,820 17,841 12,235
Cumulative effect of change in accounting
for income taxes....................... 3,204
-------- -------- -------- -------- -------- -------- --------
Net income......................... $ 3,285 $ 5,573 $ 1,844 $ 1,185 $ 7,820 $ 17,841 $ 12,235
======== ======== ======== ======== ======== ======== ========
</TABLE>
35
<PAGE> 40
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(7).................................. $ 27,739 $ 23,976 $ 21,633 $ 25,484 $ 56,801 $ 58,611 $ 44,375
Adjusted EBITDA(8)......................... $ 27,739 $ 23,976 $ 21,633 $ 25,484 $ 41,432 $ 45,303 $ 32,110
Net cash provided by operating
activities............................... $ 20,064 $ 48,283 $ 7,466 $ 14,020 $ 17,094 $ 8,107 $ 6,699
Net cash provided by/(used in) investing
activities............................... $ (23,383) $ 17,076 $ (40,878) $ 92,440 $ 22,823 $ 12,154 $ 9,551
Net cash provided by/(used in) financing
activities............................... $ (1,737) $ (49,829) $ 21,884 $ 90,631 $ (198) $ (3,664) $ 2,986
Pro forma interest expense(9).............. N/A N/A N/A N/A $ 23,554 N/A $ 17,666
Pro forma adjusted interest
expense(10).............................. N/A N/A N/A N/A $ 19,000 N/A $ 14,250
Capital expenditures(11)................... $ 13,845 $ 27,837 $ 23,679 $ 93,226 $ 39,445 $ 31,576 $ 21,555
Ratios:
EBITDA to interest expense............... 2.15x 2.62x 2.88x 2.91x 2.45x 3.23x 2.61x
EBITDA to pro forma interest expense..... N/A N/A N/A N/A 2.41x N/A 2.51x
Earnings to fixed charges(12)............ 1.26x 1.61x .84x 1.35x 1.44x 2.34x 1.98x
Total long-term debt to EBITDA(13)(14)... 4.90x 3.70x 5.20x 10.50x 4.66x N/A N/A
Adjusted EBITDA to adjusted pro forma
interest expense(8).................... N/A N/A N/A N/A 2.18x N/A 2.25x
BALANCE SHEET DATA (AT END OF
PERIOD)(15)(16):
Cash and cash equivalents................ $ 3,709 $ 19,441 $ 7,913 $ 20,124 $ 14,197 $ 12,412 $ 14,331
Total assets............................. $ 199,551 $ 190,594 $ 222,491 $ 471,497 $ 461,504 $ 506,967 $ 454,446
Long-term debt(13)....................... $ 135,917 $ 88,687 $ 112,430 $ 267,647 $ 264,698 $ 259,391 $ 231,808
Stockholders' equity..................... $ 32,525 $ 33,068 $ 31,241 $ 31,613 $ 37,550 $ 48,496 $ 47,905
</TABLE>
- ---------------
(1) The fiscal year ended June 30, 1996 includes $8.3 million of revenue, $3.2
million of EBITDA and $0.9 million of net income attributable to the
Company's interest in certain producing properties which were sold in March
1997.
(2) The Company acquired its natural gas distribution operation in June 1995
and, accordingly, the fiscal year ended June 30, 1996 was the first fiscal
year that the operating results of the natural gas distribution operation
were included in the Company's consolidated operations.
(3) For the year ended June 30, 1995, other revenue includes an $8.8 million
contract settlement with Columbia Gas. The settlement relates to damages
paid by Columbia Gas as a result of its rejection in bankruptcy of certain
gas purchase contracts.
(4) For the nine months ended March 31, 1997, utility gas purchased includes a
$6.0 million adjustment for refunds due a subsidiary of the Company from
Columbia Gas related to a settlement approved by the Federal Energy
Regulatory Commission on April 17, 1997. In addition, the Company will
benefit in future periods from the lower rates established in such
settlement.
(5) For the fiscal year ended June 30, 1993, gain on sale of properties
represents the gain realized on the sale of oil and gas properties to the
Royalty Trust.
(6) For the fiscal year ended June 30, 1993, other income and expense includes
a $5 million non-cash expense for the write-off of unamortized deferred
financing costs. The write-off was necessary as new long-term financing was
obtained.
(7) EBITDA represents operating income of the Company and its subsidiaries on a
consolidated basis plus exploration and impairment expense, interest
expense, depletion, depreciation, and amortization expense. Such definition
of EBITDA may not be the same as the definition of EBITDA utilized by
comparable companies. EBITDA is not presented as an indicator of the
Company's operating performance or as a measure of liquidity calculated in
accordance with generally accepted accounting principles.
(8) Adjusted EBITDA represents EBITDA as adjusted to give effect to contractual
restrictions contained in note purchase agreements to which certain
subsidiaries of the Company were parties prior to the Offering that limit
the amount of cash dividends that may be paid by such subsidiaries to the
Company. All such note purchase agreements were terminated after the
Offering except that to which Mountaineer is a party. See "Description of
Other Indebtedness -- Indebtedness of Subsidiaries -- Mountaineer."
(9) Reflects interest expense pro forma for the Offering as if it had occurred
at the beginning of fiscal 1996. It also excludes interest expense
attributable to the interests sold in March 1997.
(10) Reflects interest expense pro forma for the Offering, less annual interest
expense of $4.6 million associated with debt at certain of the Company's
subsidiaries referred to in footnote (8) above.
(11) Capital expenditures for 1995 includes $73.2 million for the acquisition of
the Company's natural gas distribution utility and related properties.
(12) For the purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before taxes plus fixed charges. Fixed
charges consist of interest expense. Earnings were $1.3 million short of an
earnings to fixed charges ratio of 1.0 to 1.0.
(13) Long-term debt (i) includes current maturities of long-term debt and (ii)
excludes short-term borrowing under lines of credit.
(14) On a pro forma basis after giving effect to the Offering and the
application of the net proceeds therefrom, the ratio of total long-term
debt to EBITDA would have been 4.58x in fiscal 1996.
(15) As of March 31, 1997, after giving pro forma effect to the Offering and the
application of the net proceeds therefrom, the amount of cash and cash
equivalents would have been $28.2 million and the amount of long-term debt
would have been $260.2 million.
(16) The Company acquired its natural gas distribution operation in June 1995
and, accordingly, the balance sheet of the Company at June 30, 1995
includes the assets and liabilities of these companies as of such date.
36
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto (including the segment
information contained therein) and the selected consolidated financial data
included elsewhere herein.
GENERAL
The Company has achieved significant growth in revenues, net income, and
cash flows since 1994 through its acquisition of a natural gas local
distribution company, select acquisitions, development of gas and oil properties
and marketing activities. The Company acquired its natural gas distribution
operation in June 1995. Accordingly, fiscal 1996 was the first year that the
operating results of the natural gas distribution operation were included in the
Company's consolidated operations. The Company has sold certain gas and oil
assets from time to time as its strategy has expanded to include control over
and marketing of gas and oil production. Such dispositions have also enabled the
Company to monetize certain tax credits which it might not otherwise have been
able to use. Proceeds from these dispositions were used to repay outstanding
indebtedness. The following table sets forth selected financial and operating
data as well as the percentage change for each of the years and period
presented:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------------------------- ------------------------------
1994 1995 % CHANGE 1996 % CHANGE 1996 1997 % CHANGE
------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS:
Revenues....................... $95,789 $145,494 52% $375,794 158% $294,118 $305,153 4%
Cost and expenses.............. 91,646 141,076 54% 367,748 161% 271,421 296,376 9%
Net income..................... 1,844 1,185 (36%) 7,820 560% 17,841 12,235 (31%)
EBITDA......................... 21,633 25,484 18% 56,801 123% 58,611 44,375 (24%)
OPERATING RESULTS:
Proved reserves (Bcfe)......... 212.3 213.9 1% 199.5 (7%) 205.0 172.9 (16%)
Production volumes
(Mmcfe/day).................. 31.6 33.4 6% 35.5 6% 36.1 35.8 (1%)
Marketed volumes (Mmcfe/day)... 98 142 45% 145 2% 141 153 9%
</TABLE>
The Company's revenues are derived from utility gas sales, sales of gas and
oil and gas marketing operations. Utility gas sales are largely seasonal due to
the use of gas as a heating source in residential and commercial buildings.
Historically, a significant portion of the Company's utility gas volumes are
attributable to sales during the six month winter heating season, with highest
sales volumes occurring in December, January and February. In fiscal 1996, gas
sales from October through March accounted for approximately 83% of utility gas
sales for that year. Because a substantial portion of the Company's revenues are
generated by sales of gas used for heating, the Degree Days experienced in the
Company's areas of operations, particularly during the peak heating season, will
have a significant effect on the Company's financial performance.
The revenues, profitability and future rate of growth of the Company's
exploration and production operations are substantially dependent on prevailing
prices for natural gas, oil and condensate. The energy markets have historically
been very volatile and gas and oil prices have been and may continue to be
subject to wide fluctuations. The Company attempts to mitigate the adverse
effects of price volatility by entering into gas sales contacts which are medium
to long term and which provide for fixed and escalating pricing.
37
<PAGE> 42
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED MARCH 31, 1997 TO NINE MONTHS ENDED MARCH 31,
1996
Net Income. The Company's net income decreased from $17.8 million to $12.2
million for the respective nine month periods. The change is primarily
attributable to a $10.3 million decrease in utility sales and a $9.8 million
increase in utility gas purchase costs offset partially by a $2.3 million
decrease in operations and maintenance expense, the inclusion in the current
period of a gain on sale of assets of $8.2 million, and a net positive change in
income tax provision of $2.7 million.
Revenues. Revenues from operations increased 3.7%, from $294.1 million to
$305.2 million during the most recent nine month period. The increase is due to
a 13% increase in oil and gas sales and an 18% increase in gas marketing sales
offset by a 7% decrease in utility sales and transportation.
Utility sales decreased 7% primarily as a result of a 14% decrease in the
weighted average number of Degree Days during the most recent nine month period.
The table below presents for the periods indicated, revenue, volumes and certain
other data related to utility operations:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
----------------------
1996 1997
-------- --------
<S> <C> <C>
Gas distribution revenue (in thousands)
Residential.............................................. $107,698 $ 95,136
Commercial............................................... 34,809 33,838
Industrial............................................... 2,819 4,394
Other.................................................... 7,490 5,978
Transportation........................................... 4,504 7,619
-------- --------
$157,320 $146,965
======== ========
Weighted average sales rate (per Mcf)...................... $ 6.31 $ 6.33
Average transportation sales rate (per Mcf)................ $ 0.16 $ 0.27
Miles of distribution pipe................................. 3,871 3,912
Weighted average Degree Days............................... 4,985 4,285
Number of customers........................................ 199,201 199,901
Total throughput volumes................................... 53,112 50,367
</TABLE>
Gas marketing and pipeline revenues increased $18.3 million from $102.0
million to $120.3 million for the respective nine month periods. Gas marketing
and pipeline sales volumes (exclusive of gas gathering and gas processing
volumes) increased 9% from 141.0 Mmcf per day to 153.0 Mmcf per day while the
average price increased 9% from $2.67 per Mcf to $2.92 per Mcf. The Company's
margin on gas gathering and gas processing activities increased 20% from
approximately $0.5 million to $0.6 million.
Oil and gas production volumes remained at 9.7 Bcfe, while the Company
realized an $0.18 per Mcf increase in natural gas sales price and a $2.72 per
Bbl increase in oil prices. Operating margins from oil and gas operations
increased $0.36 per Mcfe during the periods.
38
<PAGE> 43
The table below presents for the periods indicated, data related to the gas
and oil producing activities of the Company:
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
-----------------------------
1996 1997 % CHANGE
------ ------- ---------
<S> <C> <C> <C>
Production volumes
Natural gas (Mmcf)................................ 7,414 7,113 (4%)
Oil (Mbbls)....................................... 387 425 10%
Natural gas equivalents (Mmcfe)................... 9,739 9,664 (1%)
Natural gas equivalents (Mmcfe/day)............... 36.1 35.8 (1%)
Sale of reserves in place (Mmcfe)................... -- 34,697 --
</TABLE>
Well operations and other revenues were unchanged.
Costs and Expenses. The Company's costs and expenses increased 9% from
$271.4 million to $296.4 million from period to period, primarily as a result of
utility gas and marketing gas purchase costs which increased 17% during the most
recent nine month period.
Utility gas purchase costs increased $9.8 million or 13% over the prior
period. Approximately $8.0 million of the increase arises from expensing, as
incurred, costs which would have been deferred prior to the rate moratorium. An
additional $1.5 million of the increase is due to higher costs of purchased gas
in the current period, partially offset by a 10% decrease in purchased gas
volumes delivered to residential and commercial customers.
The following table represents for the periods indicated purchased gas
volumes sold to the Company's gas utility customers (in Mmcf):
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
---------------------------
1996 1997 % CHANGE
------ ------ --------
<S> <C> <C> <C>
Residential....................................... 16,600 14,513 (13%)
Commercial........................................ 5,717 5,535 (3%)
Industrial........................................ 609 878 44%
Other............................................. 1,309 1,074 (18%)
------ ------ ----
Total purchased gas volumes.................. 24,235 22,000 (9%)
====== ====== ====
</TABLE>
Field operating costs decreased 7% from $16.3 million to $15.2 million for
the respective nine month periods as a result of lower per unit well costs.
Operations and maintenance costs were 13% lower than the prior period.
Costs were higher in the prior period due to a one time severance charge of $1.3
million resulting from the relocation of a customer service center operation and
a $0.6 million bad debt allowance.
Exploration and impairment costs increased 37% to $3.6 million due to
increased charges related to geological and geophysical costs and activities for
the most recent period.
Production and other taxes were 10% higher than the prior period due to
generally higher revenue levels.
General and administrative costs were generally comparable between the two
periods.
Depreciation, depletion and amortization expense were comparable between
the two periods. Unit of production depletion rates were unchanged at $0.87 per
Mcfe.
Interest Expense. Interest expense decreased 6% from $18.2 million to $17.0
million in the most recent period. The decrease was primarily related to
generally lower outstanding debt levels.
Other Income and Expense. Other income and expense included a $3.2 million
gain on sale of oil and gas properties in the 1996 period and an $8.2 million
gain on sale of certain oil and gas properties in the most recent period.
39
<PAGE> 44
Income Taxes. Income tax expense decreased $2.7 million as a result of
decreased book pre-tax income levels. The amount of such expense at March 31,
1996 is based on an interperiod allocation of the final tax provision for fiscal
1996. The provision at March 31, 1997 is based on the Company's effective tax
rate on the results of operations for the nine month period.
COMPARISON OF FISCAL YEAR ENDED JUNE 30, 1996 TO FISCAL YEAR ENDED JUNE 30, 1995
Net Income. The Company's net income increased, from $1.2 million in fiscal
1995 to $7.8 million in fiscal 1996. The increase from the Company's fiscal 1995
net income resulted primarily from the inclusion of the consolidated operating
income of the Company's natural gas distribution utility, which utility
generated $28.6 million in earnings before interest charges of $10.9 million and
provision for income tax of $6.4 million.
Revenues. Revenues from operations increased 158%, from $145.5 million in
fiscal 1995 to $375.8 million in fiscal 1996. The increase is primarily
attributable to the addition of $182.9 million in utility gas sales to the
Company's revenue base.
Revenues from utility gas sales and transportation revenues increased 17%
from $156.8 million in fiscal 1995 to $182.9 million in fiscal 1996. The
increased revenues were primarily related to increased volumes of gas sold due
to significantly colder weather conditions (4,651 Degree Days in fiscal 1995
versus 5,535 Degree Days in fiscal 1996). This increase was partially offset by
a $.05 per Mcf reduction in rates which went into effect at November 1, 1995.
The table below represents, for the periods indicated, revenue, volumes and
certain other data related to utility operations:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Gas distribution revenue (in thousands)
Residential.......................................... $113,330 $130,202
Commercial........................................... 31,775 43,462
Industrial........................................... 391 1,670
Other................................................ 272 517
Transportation....................................... 10,986 7,078
-------- --------
Total........................................ $156,754 $182,929
======== ========
Weighted average sales rate (per Mcf).................. $ 6.65 $ 6.40
Average transportation sales rate (per Mcf)............ $ 0.29 $ 0.19
Miles of distribution pipe............................. 3,853 3,887
Weighted average Degree Days........................... 4,651 5,535
Number of customers.................................... 198,293 199,287
Total throughput volumes............................... 59,738 65,194
</TABLE>
Revenues from oil and gas sales increased 9% from $29.3 million in fiscal
1995 to $31.9 million in fiscal 1996. The table below presents, for the years
and periods indicated certain information related to the oil and gas producing
activities of the Company:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1995 1996 % CHANGE
------ ------ --------
<S> <C> <C> <C>
Production volumes
Natural gas (Mmcf)............................. 8,982 9,816 9%
Oil (Mbbls).................................... 534.7 522.4 (2%)
Natural gas equivalents (Mmcfe)................ 12,190 12,950 6%
Natural gas equivalents (Mmcfe/day)............ 33.4 35.5 6%
</TABLE>
The 6% increase in production volumes was primarily due to reserves
acquired with the natural gas distribution utility as well as the initiation of
production from wells drilled during the previous
40
<PAGE> 45
period, partially offset by the effects of expected production declines and the
disposition of certain properties in the Appalachian Basin. See "Business and
Properties -- Significant Acquisitions and Dispositions." The production
increase was accompanied by average natural gas and oil price increases of 3%
and 7%, respectively, from fiscal 1995 to fiscal 1996. Operating margins from
oil and gas operations increased $0.11 per Mcfe.
Revenues from well operations increased 254% to $14.0 million in fiscal
1996 from $4.0 million in fiscal 1995, largely as a result of the increased
number of operated properties associated with reserves acquired and well
operations assumed as part of the acquisition of the natural gas distribution
utility as well as from well operations performed by the Company on certain
properties which were sold in fiscal 1996.
Gas marketing and pipeline revenues increased $43.4 million from $103.0
million to $146.4 million from fiscal year 1995 to fiscal year 1996. Gas
marketing and pipeline sales volumes (exclusive of gas gathering and gas
processing volumes) increased 2% from 142.0 Mmcf per day to 145.0 Mmcf per day
while the average price increased 39% from $1.98 per Mcf to $2.76 per Mcf. The
Company's margin on gas gathering and gas processing activities increased 50%
from $0.4 million to $0.6 million, primarily as a result of the gas gathering
systems acquired with the Company's gas distribution utility.
Other net revenue decreased 94.6% from $9.2 million in fiscal 1995 to $0.5
million in fiscal 1996. The difference was attributable to $8.8 million in
damages which were paid by Columbia Gas to the Company in fiscal 1995 as a
result of Columbia Gas' rejection in bankruptcy of certain gas purchase
contracts.
Costs and Expenses. The Company's costs and expenses increased 161% from
$141.1 million in fiscal 1995 to $367.7 million in fiscal 1996, primarily as a
result of the addition of $95.2 million of gas purchase costs, operations and
maintenance expense, and general and administrative expenses associated with the
Company's utility gas sales and operations.
Expenses associated with utility gas purchases decreased 1% from $96.0
million in fiscal 1995 to $95.2 million in fiscal 1996, primarily as a result of
a reduction from $4.38 to $3.46 in the cost of gas sold per Mcf. Decreased
utility gas purchases were partially offset by increased purchased gas volumes
required by residential and commercial customers during a winter season with 19%
more Degree Days than in the prior period. The following table represents for
the year indicated purchased gas volumes sold to the Company's gas utility
customers.
<TABLE>
<CAPTION>
1995 % 1996 %
------ --- ------ ---
<S> <C> <C> <C> <C>
Gas distribution volumes (Mmcf)
Residential................................. 16,854 77% 19,898 72%
Commercial.................................. 4,908 22% 7,107 26%
Industrial.................................. 83 -- 374 1%
Other....................................... 66 -- 89 --
------ --- ------ ---
Total purchased gas volumes......... 21,911 100% 27,468 100%
====== === ====== ===
</TABLE>
Production and other taxes increased from $1.6 million in fiscal 1995 to
$16.2 million in fiscal 1996, primarily as a result of the inclusion of utility
based taxes (other than income) of $15.2 million for fiscal 1996 associated with
the Company's natural gas distribution utility. Production taxes on oil and gas
operations and utility based taxes are at fixed statutory rates based on gross
revenue and sales. Production taxes on oil and gas activities declined $0.1
million based on utilization of tax credits and lower production volumes.
Operations and maintenance expense for utility operations increased the
Company's total costs and expenses by $23.8 million. Operations and maintenance
increased by approximately 12.8% from $21.1 million in fiscal 1995 to $23.8
million in fiscal 1996. This increase is primarily due to an
41
<PAGE> 46
increase in bad debt reserves and to costs incurred in connection with the
opening of a new customer service center in fiscal 1996.
Field operating expenses increased from $11.5 million in fiscal 1995 to
$21.8 million in fiscal 1996. The higher costs were related to the larger base
of operated properties resulting from the reserves acquired and the well
operations assumed as part of the acquisition of the natural gas distribution
utility and other costs.
General and administrative expenses increased from $6.7 million in fiscal
1995 to $24.0 million in fiscal 1996 as a result of the inclusion of utility
based expenses during this period. General and administrative expenses
associated with the Company's continuing operations were unchanged.
Depreciation, depletion and amortization increased from $12.0 million in
fiscal 1995 to $18.8 million in fiscal 1996 as a result of the inclusion of $7.5
million of depreciation, depletion and amortization relating to utility
operations of which approximately $1.0 million related to the amortization of a
portion of the natural gas distribution utility purchase price. Depletion
related to oil and gas activities was relatively unchanged from fiscal 1995 to
fiscal 1996 with the effects of higher equivalent production volumes being
partially offset by lower per unit depletion rates.
Exploration and impairment costs increased from $0.3 million in fiscal 1995
to $6.8 million in fiscal 1996. The majority of such increase related to the
abandonment of certain plays in the Appalachian Basin, with the balance
attributable to an unsuccessful exploratory well drilled in New Zealand and
unsuccessful exploration activities in the Rocky Mountains.
Interest Expense. Interest expense increased 166% from $8.7 million in
fiscal 1995 to $23.2 million in fiscal 1996. The increase is primarily due to
additional borrowings associated with the acquisition of the Company's natural
gas distribution utility (including $58.4 million of debt assumed in the
transaction) as well as higher variable borrowing rates on the Company's
revolving and short-term facilities.
Other Income and Expense. Other income and expenses included a gain on sale
of properties for fiscal 1996. The gain resulted from the sale of interests in
certain oil and gas properties to a limited partnership for approximately $17.3
million. The proceeds from this sale were used primarily to reduce outstanding
indebtedness.
Income Taxes. The Company's effective tax rates in 1996 and 1995 were lower
than statutory federal tax rates primarily due to the recognition of
nonconventional fuel tax credits, state income tax credits and investment tax
credits. Changes in income tax expense for the fiscal years resulted from an
increase in pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
General. The Company's sources of liquidity and capital resources
historically have been net cash provided by operating activities, funds
available under its credit facilities and proceeds from the sales of assets. In
the past, these sources have been sufficient to meet its needs and finance the
growth of the Company's business. The Company believes that the amounts
available to be borrowed under its Revolving Credit Facility described below,
together with the proceeds from the Offering and cash provided by operating
activities will provide it with sufficient funds to explore for and develop new
oil and gas reserves and maintain its gas distribution system for the
foreseeable future. Net cash provided by operating activities is primarily
affected by oil and gas prices, weather, rate regulation, the Company's success
in drilling activities and margins on third-party gas purchased for resale.
Depending on the timing of the Company's future projects, it may be required to
seek additional sources of capital. The Company's ability to secure such capital
is restricted by its credit facilities, although it may request additional
borrowing capacity from the banks, seek waivers from its lenders to permit it to
borrow funds from third-parties, seek replacement credit facilities from other
lenders, sell existing assets or a combination of such alternatives. While the
Company believes that it would be able to secure additional financing, if
required, no assurance can be given
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<PAGE> 47
that it will be able to do so or as to the terms of any such financing. The
Company believes that cash provided by operating activities will be sufficient
to meet its debt service and capital requirements through fiscal 1998.
Cash Flows. The Company's net cash from operating activities totaled $6.7
million, $17.1 million and $14.0 million for the nine months ended March 31,
1997 and the fiscal years 1996 and 1995 respectively.
Net cash provided by operating activities for the nine months ended March
31, 1997 was $1.4 million less than the comparable prior period. Net cash used
in investing activities at March 31, 1996 totaled $12.2 million, including $9.4
million for utility property expenditures, $4.1 million in exploration related
expenditures and $17.8 million for development related activities, partially
offset by the proceeds from the sale of certain oil and gas properties totaling
$18.7 million. Net cash used in investing activities at March 31, 1997 totaled
$9.6 million, including $7.4 million in expenditures relating to utility
activities, $3.7 million relating to exploration activities and $6.9 million
relating to development activities, partially offset by approximately $12.0
million in proceeds related to the sale of certain oil and gas properties. For
the nine months ended March 31, 1996, cash flows expended in financing
activities totaled $3.7 million and included a $27.3 million net increase in
long-term debt, a $25.7 million net decrease in short-term borrowings under the
Company's credit facilities and $4.4 million in financing costs. For the nine
months ended March 31, 1997, cash flows from financing activities totaled $3.0
million and included a net paydown on the Company's long-term credit facilities
of $13.2 million and a net increase of $18.2 million in short-term borrowings.
Net cash provided by operating activities was $3.1 million greater for the
year ended June 30, 1996 than the prior twelve month period. Net income adjusted
to reconcile net income to net cash was $16.6 million higher in the current
period, offset by a $13.5 million difference in changes in working capital.
Expenditures for plant, property and equipment were $39.4 million offset by
$17.3 million in proceeds from the sale of properties as compared to plant,
property and equipment expenditures for the prior period totaling $20.0 million
and $73.2 million expended for the acquisition of the Company's natural gas
distribution utility. The difference between the $39.4 million in property
expenditures for the current period and the $21.6 million for the prior period
is attributable primarily to inclusion for the first time of utility
expenditures of $13.0 million. Cash flows from financing activities were $90.8
million higher in the prior period as a result of the increased borrowings
related to the acquisition of the utility.
Capital Expenditures. The Company requires capital primarily for the
exploration, development and acquisition of oil and gas properties, the
maintenance and extension of its natural gas distribution pipeline system,
natural gas marketing activities, repayment of indebtedness, and general working
capital needs.
Utility capital expenditures are estimated to be approximately $10.8
million in fiscal 1997 and remain at such levels in the near term, of which
approximately $5.5 million represents system integrity and reliability
expenditures. In addition, the utility has an option until December 31, 1997, to
purchase certain gas storage assets representing five storage fields with a
seasonal storage capacity of 2.7 Bcf at a net book cost of approximately $7.1
million from an interstate pipeline as part of a contract settlement
arrangement. Additionally, such investment levels may increase as a result of
the acquisition of other local distribution company assets. The utility
anticipates funding both planned, as well as discretionary capital expenditures
through internally generated capital, utilization of its short-term credit
facilities and other outside capital sources as available.
During 1994 the Company determined that an increased level of investment in
exploration, development and production activities was needed in order for both
to diversify on a geographic and commodity basis and to generate certain levels
of market penetration and earnings growth. Accordingly, the Company has begun to
focus on exploration and development opportunities outside the Appalachian Basin
and is currently pursuing projects in the Rocky Mountains and New Zealand. The
Company expects to expend approximately $6.9 million on exploration projects in
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<PAGE> 48
fiscal 1998. The Company expects to finance drilling and acquisition activities
(domestic and international) through internally generated capital from all
business segments and the Revolving Credit Facility, as well as developing
financial arrangements with industry partners and specialized financial
institutions. See "Business and Properties -- Gas and Oil Exploration and
Production."
While the Company currently intends to continue to make significant
investments in oil and gas exploration, development and production and may also
make significant investments to acquire business or properties and acquisitions,
the Company's plans will depend significantly on future product prices. Oil and
natural gas prices are volatile, and there are several potentially significant
adverse effects to the Company that can result if product prices decline
materially. First, lower product prices may adversely impact the Company's cash
flows and could cause the Company to (i) curtail its capital program, (ii)
borrow additional amounts under its Revolving Credit Facility or (iii) issue
additional debt or equity securities on terms less favorable than might
otherwise have been available. Second, lower product prices could cause the
borrowing base under the Revolving Credit Facility to be reduced and certain
covenant tests to be adversely affected. Third, if product prices remain low,
decline further and cannot be offset by additional reserves, the Company could
be required to write down its oil and gas properties resulting in a charge
against earnings. The likelihood or magnitude of any or all of these potential
impacts are impossible to predict or quantify at this time. See "Risk Factors"
and "Business and Properties -- Gas and Oil Exploration and Production -- Oil
and Gas Reserves."
The effects of a material decline in product prices can have a beneficial
effect on the results of operations for natural gas distribution, and such
effects are typically opposite the effects that declining prices would have on
the Company's oil and gas producing results of operations. During periods of
declining natural gas prices and to the extent that the natural gas distribution
company is able to acquire lower price gas supplies, operating margins and cash
flow from utility operations are generally improved.
Hedging Activities. Periodically the Company enters into futures, option
and swap contracts to reduce the effects of fluctuations in natural gas and
crude oil prices. The Company currently has interest rate hedging arrangements
in effect with respect to Eastern American's existing credit facility, which
interest rate hedging arrangements were terminated in connection with the
repayment of such indebtedness with the proceeds of the Offering. The Company
has no other material hedging arrangements outstanding. The Company may choose
to enter into hedging arrangements in the future should the Company determine
that such arrangements are advisable.
Revolving Credit Facility. The Company received a commitment from a
financial institution to provide the Revolving Credit Facility concurrently with
the consummation of the Offering. The Revolving Credit Facility provides for a
revolving line of credit with the availability of funds being subject to an
annual borrowing base determination. The borrowing base provides for a maximum
availability of $50.0 million (which amount is also expected to be the initial
borrowing base). Borrowings under the Revolving Credit Facility bear interest,
at the Company's option, at a floating rate which is at or above such financial
institution's prime rate or a LIBOR rate, depending on the percentage of
committed funds which have been borrowed. Interest is payable quarterly.
Principal will mature five years following the execution of definitive loan
documents. The Credit Agreement related to the Revolving Credit Facility
requires the Company to pay certain fees to such financial institution,
including a commitment fee based on the unused portion of the commitment. The
Revolving Credit Facility contains customary restrictive covenants (including
restrictions on the payment of dividends and the incurrence of additional
indebtedness) and requires the Company to maintain a current ratio of not less
than 1.0 to 1.0, a ratio of Adjusted EBITDA to Adjusted Interest Expense (in
each case as defined in the Credit Agreement) of not less than 1.5 to 1.0 and a
minimum tangible net worth of $30.0 million. At March 31, 1997, on a pro forma
basis, the Company's current ratio would have been 1.7 to 1.0, the ratio of
Adjusted EBITDA to Adjusted Interest Expense would have been 2.0 to 1.0 and the
Company would have exceeded the tangible net worth test by $9.5 million. The
Company believes it is in compliance with such covenants.
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<PAGE> 49
Short-Term Borrowings and Lines of Credit. Certain of the Company's
subsidiaries had unsecured short-term line of credit arrangements with banks
totaling $73.0 million as of March 31, 1997. Borrowings under these lines of
credit are anticipated to be used primarily to finance gas purchases and provide
working capital during peak sales periods. As of March 31, 1997, $26.6 million
was outstanding under these lines of credit. The lines of credit are typically
in effect for a period of one year and are renewed on a year-to-year basis.
Mountaineer's 7.59% Senior Notes due 2010 require Mountaineer to have (i) no
amounts outstanding under its lines of credit for a period of at least 30
consecutive days during each period of 12 consecutive months or (ii) a period of
30 consecutive days during each 12 month period when Mountaineer would be
entitled to incur at least $1 of additional Funded Indebtedness (as defined)
pursuant to which the notes were issued.
Effects of Inflation. Although certain of the Company's costs and expenses
may be affected by inflation, inflationary costs have not had a significant
impact on the Company's results of operations.
45
<PAGE> 50
BUSINESS AND PROPERTIES
Energy Corporation of America is a privately held, integrated energy
company primarily engaged in natural gas distribution in West Virginia and in
the development, production, transportation and marketing of natural gas and oil
in the Appalachian Basin. For the fiscal year ended June 30, 1996, the Company
had total revenues of $375.8 million and EBITDA of $56.8 million. During the
first nine months of fiscal 1997, the Company had revenues of $305.2 million and
EBITDA of $44.4 million.
The Company operates the largest natural gas distribution utility in West
Virginia, supplying natural gas sales and transportation service to
approximately 200,000 customers in 45 of the 55 counties in West Virginia. The
Company distributes approximately 57% of the total natural gas volumes
distributed to end users in West Virginia. In fiscal 1996, the Company owned and
operated approximately 3,900 miles of natural gas distribution pipelines and
sold or transported 65.2 Bcf of gas.
The Company is engaged in the development, production, transportation and
marketing of natural gas and oil in the Appalachian Basin. As of March 31, 1997,
the Company had estimated proved reserves of 172.9 Bcfe (95% natural gas and 90%
developed) with a Present Value (as defined) of $125.8 million. For the fiscal
year ended June 30, 1996, the Company's net gas and oil production was
approximately 13.0 Bcfe. The Company is one of the largest operators in the
Appalachian Basin where it holds interests in 4,755 gross (2,503 net) wells,
substantially all of which it operates. In addition, the Company has recently
commenced an exploration and development program in the Rocky Mountains and New
Zealand, having acquired leasehold interests in approximately 431,000 gross
acres (291,000 net acres) in the Rocky Mountain area and approximately 5.2
million gross acres (2.6 million net acres) in New Zealand.
The Company has developed a significant gas marketing and aggregation
business and owns and operates 2,000 miles of gathering and intrastate natural
gas pipelines in West Virginia and Pennsylvania. During fiscal 1996, the Company
aggregated and sold 150.0 Mmcf/day of natural gas, of which 41.1 Mmcf/day
represents gas produced from wells operated by the Company.
The Company has grown significantly since 1988 through acquisitions of oil
and gas companies or properties which have added proved reserves of
approximately 202.0 Bcfe, at an average acquisition cost of approximately $0.70
per Mcfe, and an interest in approximately 4,500 producing wells. In order to
capitalize on opportunities arising from the deregulation of the transportation
and distribution of natural gas, beginning in 1993 the Company broadened its
strategy from its traditional concentration on oil and gas exploration and
production to concentrate on building an integrated energy company focused on
controlling reserves and maximizing upstream and downstream values. As part of
its strategy, the Company acquired its natural gas distribution business in June
1995. During fiscal year 1996, approximately 25% of natural gas sold by the gas
distribution utility operation came from the Company's own production.
BUSINESS STRENGTHS
The Company believes it has certain strengths with respect to its business
activities, including the following:
- LOW COST OPERATIONS. Based on recent filings with the West Virginia
Public Service Commission (the "WVPSC"), the Company's natural gas
distribution utility operations and maintenance expense was $0.55 per
throughput Mcf as compared to $1.53 per throughput Mcf for its largest
competitor. The low cost structure of the Company's utility operation has
enabled it to be the lowest price provider of natural gas to residential
and commercial customers in its service area while realizing a reasonable
rate of return. The Company's residential rate for gas service for 1996,
as reported by the WVPSC, was $6.25 per Mcf of gas compared to an average
of $7.01 per Mcf of gas for its major competitors in West Virginia. The
Company is
46
<PAGE> 51
also a low cost producer of oil and natural gas, with lifting and
operating costs of $0.57 per Mcfe in fiscal 1996.
- DIVERSIFIED CASH FLOW STREAMS. The Company generates cash flow from its
utility operation, gas marketing activities and development and
production activities. The cash flows from these activities tend to be
complimentary. The utility operation generally benefits from lower gas
prices while the development and production activities generally benefit
from higher gas and oil prices. The integration of these activities has
resulted in greater stability in the Company's cash flows.
- LEADING WEST VIRGINIA GAS DISTRIBUTION UTILITY. The Company operates the
largest natural gas distribution utility in West Virginia. The Company is
a leader in achieving innovative rate regulation in West Virginia, having
proposed and received in November 1995 a three year moratorium on rates
charged to its utility customers. The moratorium provides incentives to
the Company to increase efficiencies and pursue ancillary opportunities.
The Company believes that the opportunities afforded by the rate
moratorium will more than offset the additional risk resulting from fixed
utility rates.
- HIGHLY DEVELOPED RESERVE BASE WITH LONG RESERVE LIFE. Approximately 90%
of the Company's reserves are classified as proved developed producing
and have an estimated remaining average reserve life index in excess of
13 years. The Company's Appalachian Basin properties are characterized by
predictable and stable production profiles that decline gradually over
their estimated economic life of approximately 25 years. As a result of
the highly developed and long lived nature of its Appalachian Basin
properties and the relatively low cost to drill development wells on
these properties, the Company believes it has a low reinvestment
requirement to maintain reserve quantities and production levels.
- PREMIUM PRICING. The Company generally benefits from premium pricing for
its Appalachian Basin production due to the geographic proximity of its
reserves to the Northeast markets. In addition, the Company benefits from
a balance of long, intermediate and short term fixed price gas contracts.
- HIGH DEGREE OF OPERATIONAL CONTROL. Over 90% of the Company's proved
reserves at March 31, 1997 are attributable to wells operated by the
Company, giving the Company significant control over the amount and
timing of capital and operating expenditures.
- EXPERIENCED MANAGEMENT. The Company's management has substantial
operational expertise and experience in the gas distribution utility
industry and in the oil and gas industry, particularly with respect to
the Appalachian Basin. This experience provides a significant base upon
which to expand the Company's operations as cash flow and additional
capital become available for investment.
BUSINESS STRATEGY
The Company seeks to maximize shareholder value and increase cash flow by
(i) balancing a portfolio of higher risk, higher reward opportunities with its
traditional moderate risk, moderate reward natural gas distribution utility and
Appalachian Basin oil and gas development and production activities, (ii)
increasing gas throughput volumes while reducing costs in its gas distribution
utility operation, (iii) increasing oil and gas reserves and production through
a managed risk exploration and development program and (iv) increasing gross
profit margin through vertical integration by implementing the following
operating strategies:
- MAINTAIN LOW COST STRUCTURE. The Company's management team is focused on
maintaining a low cost structure to maximize cash flow and earnings. As
part of this focus, the Company's strategy is to participate only in
businesses in which it believes it can be in the lowest quartile of
operating and administrative costs compared to its peers. The Company
believes that it has achieved operating efficiencies through the
economies of scale resulting from its
47
<PAGE> 52
geographic focus in the Appalachian Basin and through the application of
technology to its operating activities. The Company believes that
maintaining its low cost structure makes it less sensitive to market
fluctuations in the sales price of natural gas and oil.
- VERTICAL INTEGRATION. The Company believes that the integration of its
utility operation, its extensive transportation and marketing system and
its stable, long-lived Appalachian Basin production allows it to capture
both downstream and upstream margins and to increase operating
flexibility. The Company expects to allocate its capital spending among
its utility, exploration and production and gas marketing businesses in
order to increase the vertical integration of its business.
- BALANCED DEVELOPMENT AND EXPLORATION PROGRAM. In the Appalachian Basin,
the Company has drilled 444 low risk development wells since 1987,
achieving a success rate of 95%. Recently, the Company began drilling in
Ohio's Rose Run Trend where 18 of 20 wells have been completed
successfully. Outside the Appalachian Basin, the Company seeks
exploration opportunities in which it can (i) add value through technical
expertise, (ii) accumulate large leasehold interests in areas which have
high quality reservoirs, and (iii) limit its initial capital requirements
due to low entry costs and relatively low drilling costs in relation to
reserve potential. After completing its technical evaluation of each
project, the Company seeks to enter into joint development arrangements
with industry partners in order to share initial exploration expenditures
and to limit exposure to dry hole costs. To accelerate its entry into the
Rocky Mountain region, the Company has established a joint venture with
Thomasson Partner Associates, Inc., a geological and geophysical firm
that specializes in generating exploration projects in that region
utilizing advanced technologies, including advanced imaging applications
of 3-D seismic data.
- SELECTIVE ACQUISITIONS. The Company seeks to pursue acquisitions that are
complementary to its existing operations, that are expected to be
immediately additive to cash flow and earnings and that provide long term
growth opportunities. The Company focuses on acquisitions that are
located principally within the Company's operating areas and provide
opportunities to (i) expand its natural gas utility business, (ii) reduce
operating costs, (iii) increase reserves, (iv) enhance margins through
marketing opportunities, and (v) increase operating leverage.
NATURAL GAS DISTRIBUTION
The Company operates the largest natural gas distribution system in West
Virginia and owns approximately 3,900 miles of natural gas distribution
pipelines. The utility provides natural gas sales and transportation service to
approximately 200,000 residential, commercial, industrial and wholesale
customers in 45 of the 55 counties in West Virginia, including the cities of
Charleston, Beckley, Huntington and Wheeling. The Company has a lower cost
structure than any of its natural gas distribution competitors in West Virginia,
and its cost structure is one of the lowest in the United States as compared to
other natural gas distribution companies.
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<PAGE> 53
CUSTOMERS. The table below sets forth certain information with respect to
the operating revenue and related gas volumes of the utility for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Gas Distribution Revenue:
Residential........................... 69.7% 72.3% 71.2%
Commercial............................ 22.3 20.3 23.8
Transportation........................ 7.1 7.0 3.8
Industrial and other.................. 0.9 0.4 1.2
-------- -------- --------
Total......................... 100.0% 100.0% 100.0%
======== ======== ========
Gas Volumes:
Residential........................... 31.0% 28.2% 30.5%
Commercial............................ 10.2 8.2 10.9
Transportation........................ 58.3 63.3 57.9
Industrial and other.................. 0.5 0.3 0.7
-------- -------- --------
Total throughput volume....... 100.0% 100.0% 100.0%
======== ======== ========
Weighted average sales rate (per Mcf)... $ 5.99 $ 6.65 $ 6.40
Average use per customer (Mcf):
Residential........................... 106 94 110
Commercial............................ 389 308 452
Industrial............................ 28,800 9,222 34,000
Transportation........................ 18,090 16,584 12,076
Average revenue per customer:
Residential........................... $ 640 $ 629 $ 722
Commercial............................ 2,300 1,994 2,765
Industrial............................ 119,900 43,444 151,818
Transportation........................ 5,941 4,816 2,226
Average revenue per Mcf:
Residential........................... $ 6.04 $ 6.69 $ 6.56
Commercial............................ 5.91 6.47 6.12
Industrial............................ 4.16 4.71 4.47
Transportation........................ 0.33 0.29 0.19
Average gas cost per Mcf sold........... $ 3.89 $ 4.38 $ 3.46
Weighted average Degree Days............ 5,212 4,651 5,535
Miles of distribution pipes............. 3,819 3,853 3,887
Number of customers..................... 198,392 198,293 199,287
</TABLE>
More than 95% of the residential and commercial customers of the utility use
natural gas for heating. Revenues, therefore, vary with the weather and
temperature both seasonally and annually. Industrial demand is dependent on
local business conditions, competition from alternate sources of energy and
weather. Demand for natural gas is also affected by Federal and state energy
laws and regulations.
RATE REGULATION. The Company's natural gas distribution utility is
regulated by the WVPSC. See "-- Regulatory Matters." Prior to October 1995, the
Company was subject to traditional regulatory rate making in West Virginia.
Following a proposal by the Company's natural gas distribution utility, the
WVPSC issued an order implementing a three year rate moratorium effective
November 1995. The moratorium provides rate certainty to the Company's natural
gas distribution utility customers by fixing the price of gas for three years.
By entering into the moratorium, the Company assumes the risks and benefits of
fixed utility rates, its gas purchasing activities, ancillary business
activities and achieving operational efficiencies. The Company has sought to
capitalize on the opportunities
49
<PAGE> 54
provided by the rate moratorium by providing billing services for a fee for a
local water company, consolidating multiple customer service centers into one
location and entering into a multi-year gas purchase contract with the Company's
exploration and production subsidiary. The Company believes that the
opportunities afforded by the rate moratorium more than offset the additional
risk accompanying fixed utility rates.
GAS SUPPLY. The Company currently obtains natural gas from a variety of
sources, including gas purchased in the Gulf Coast and Appalachia regions of the
United States. The gas purchased from producer/suppliers in the Gulf Coast
region is transported through the interstate pipeline systems of Columbia Gulf
Transmission Company ("Columbia Gulf"), Columbia Gas Transmission Corporation
("Columbia Gas"), and Tennessee Gas Pipeline Company ("Tennessee Gas") to the
Company's local distribution facilities in West Virginia. Approximately 67% of
the gas purchased in the Appalachia region is transported by Columbia Gas, with
the balance directly delivered into the Company's gas utility distribution
system.
The Company purchases its gas supply pursuant to a balanced portfolio of
intermediate term (one to five years) and short term (less than one year)
contractual arrangements. The following table sets forth the volume of natural
gas purchased and percentage of total volume of natural gas purchases, with
respect to those suppliers accounting for five percent or more of the Company's
purchases for the fiscal year ended June 30, 1996 and for the nine months ended
March 31, 1997, as well as volumes of natural gas subject to natural gas
purchase contracts with significant suppliers for the fiscal year ended June 30,
1998:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
YEAR ENDED JUNE 30, 1996 MARCH 31, 1997 JUNE 30, 1998(1)
------------------------- ------------------------- ----------------
SUPPLIER VOLUME (MCF) % OF TOTAL VOLUME (MCF) % OF TOTAL VOLUME (MCF)
-------- ------------ ---------- ------------ ---------- ----------------
<S> <C> <C> <C> <C> <C>
Company Production................. 7,751,070 25% 7,514,364 31% 11,521,539
Equitable Resources................ 4,668,201 15% 2,286,591 10% 1,638,571
Texaco Natural Gas................. 3,159,207 10% 1,452,419 6% --
Penn Union......................... 2,701,039 9% -- -- --
Natural Gas Clearinghouse.......... 1,908,762 6% -- -- --
Cabot Oil and Gas.................. 2,391,652 8% -- -- --
Coastal Gas Marketing.............. -- -- 2,389,955 10% 3,539,700
Noble Gas Marketing................ -- -- 2,639,011 11% --
</TABLE>
- ---------------
(1) Volumes subject to gas purchase contracts in effect as of April 18, 1997.
The following table sets forth certain information relating to the
Company's gas supply purchases for the fiscal years 1994 through 1996.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Interstate suppliers............... 78% 78% 62%
Company production................. 7 8 25
Other Appalachian Basin producers.. 15 14 11
Interstate pipelines and other..... 0 0 2
--- --- ---
Total.................... 100% 100% 100%
=== === ===
</TABLE>
TRANSPORTATION AND STORAGE CAPACITY. To ensure continuous, uninterrupted
service to its customers, the Company has in place long-term transportation and
service agreements with Columbia Gas, Columbia Gulf and Tennessee Gas. These
contracts cover a wide range of transportation services and volumes, ranging
from firm transportation service ("FTS") to no-notice service ("NTS") and
storage with such contracts expiring on various dates ranging from Octo-
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<PAGE> 55
ber 31, 2000 through October 31, 2004. The aggregate annual reservation fees
associated with such contracts totaled approximately $41.2 million for the
fiscal year ended June 30, 1996. To the extent that the Company may revise its
gas procurement practices so as to procure a greater percentage of its gas
supply from local sources in West Virginia, such firm transportation agreements
and their associated reservation fees may be phased out as such contracts expire
or may be brokered and released for various periods of time.
Gas sales and/or transportation contracts with interruption provisions,
whereby large volume users purchase gas with the understanding that they may be
forced to shut down or switch to alternate sources of energy at times when the
gas is needed for higher priority customers, have been utilized for load
management by the Company and the gas industry as a whole for many years. In
addition, during times of special supply problems, curtailments of deliveries to
customers with firm contracts may be made in accordance with guidelines
established by appropriate federal and state regulatory agencies. There have
been no supply-related curtailments of deliveries to the Company or its
customers with firm contracts during the last seven years.
COMPETITIVE CONDITIONS. The natural gas business competes with oil for
industrial uses and with electricity for drying, cooking, water heating and
space heating. The Company competes with a number of other gas utilities in West
Virginia and it also competes with gas marketers in the sale, but not the
delivery (transportation), of natural gas. Large industrial and commercial end
users also have the option to bypass the Company's distribution system by
constructing pipelines to interconnect directly with the interstate pipeline
which transports all the natural gas consumed in the region. Although no bypass
by customers has occurred to date, the Company generally realizes lower
transportation revenues from large industrial and commercial end users due to
the possibility of such a bypass.
The Company currently has a significant competitive price advantage over
both electricity and fuel oil in its service territory. In a study of
residential energy costs released by the WVPSC in January 1997, fuel oil for
space heating was approximately 13% more expensive than gas, and electricity for
residential space heating was up to 126% more expensive than gas.
The Company has negotiated reduced rates for certain end users to: (1)
provide economic relief to aid the end user in remaining an ongoing concern; (2)
add an incentive to end users to add incremental load; and (3) dissuade the end
user from bypassing the Company's system. There are approximately 60 end users
that have negotiated a reduced rate for service with annual usage levels ranging
from approximately 200 Mcf to approximately 19.9 Bcf. Historically, the WVPSC
has allowed the Company to recover the difference between the tariff rate and
the reduced rate through the base rate filing proceeding.
The Company's demand from commercial and industrial customers is dependent
on local business conditions and competition from alternate sources of energy,
and demand from residential customers likewise is subject to competition from
alternate energy sources. The Company is also subject to competition from
interstate and intrastate pipeline companies, producers and other utilities
which may be able to serve commercial and industrial customers from their
transmission, gathering and/or distribution facilities. In certain markets, gas
has a competitive advantage over alternate fuels, while in other markets it is
not as price competitive.
The Company's natural gas distribution utility began offering gas
transportation service to its industrial customers in 1983. The availability of
both firm and interruptible transportation service, which enables industrial end
users to purchase lower cost gas supplies directly from producers, is an
important factor in maintaining gas usage by those end users during periods of
low residual oil prices. Continued evolution in the natural gas industry,
resulting primarily from FERC Order Nos. 436, 500 and 636, has served to
increase the ability of large gas end users to bypass the Company in obtaining
gas supply and transportation services. While the Company has not lost any
industrial load as a result of bypass, it generally realizes lower
transportation revenues from large industrial and commercial end users due to
the possibility of such bypass. Further, most industrial
51
<PAGE> 56
users that have a choice of alternate fuels have continued to use gas due to
price and other considerations.
GAS AND OIL EXPLORATION AND PRODUCTION
The Company is engaged in the exploration for and production of natural gas
and oil primarily within the Appalachian Basin in the states of West Virginia
and Pennsylvania. The Company also owns interests in the Rocky Mountains and New
Zealand where it is currently evaluating a number of exploration projects. The
Company's proved gas and oil reserves are estimated as of March 31, 1997 at
164.5 net Bcf and 1,391 (net) Mbbls, respectively. For the fiscal year ended
June 30, 1996, the Company's net gas production was approximately 9.8 Bcf and
net oil production was approximately 522 Mbbls, for a total of 13.0 Bcfe. For
the fiscal year ended June 30, 1996, the Company's operating margin was $1.51
per Mcf.
APPALACHIAN BASIN. The Appalachian Basin is a mature producing region with
well known geologic characteristics. Most of the wells in the Appalachian Basin
are relatively shallow, ranging from 2,500 feet to 5,500 feet, and many are
completed to multiple producing zones. In general, these wells are located on
proved producing properties with stable production profiles and generally long-
lived production, often with total projected economic lives in excess of 25
years. Once drilled and completed, ongoing operating and maintenance
requirements are low, and only minimal, if any, capital expenditures are
typically required. The Company holds interests in 4,755 gross (2,503 net) wells
in the Appalachian Basin and serves as operator of substantially all of such
wells in which it has a working interest. The Company's proved gas and oil
reserves attributable to its Appalachian Basin properties are estimated as of
March 31, 1997 at 172.9 Bcfe, of which approximately 95% was gas reserves and 5%
was oil reserves. For the fiscal year ended June 30, 1996, the Company's gas
production from its Appalachian Basin properties was approximately 9.4 Bcf on a
net basis and 23.2 Bcf on a gross basis. In the Appalachian Basin, the Company
has interests in approximately 322,460 gross acres (189,249 net acres) of
producing properties and in an additional 100,059 gross acres (74,905 net acres)
of undeveloped properties located primarily in West Virginia, Pennsylvania and
Ohio.
The Company is currently conducting its drilling activities in Ohio under
two area of mutual interest arrangements with industry partners with respect to
an aggregate of approximately 34,000 gross acres (the "Knox Play"). The
Company's Ohio operations have resulted in the successful completion of 18 wells
out of 20 wells drilled, with an average initial production rate of
approximately 840 Mcfe/day, a rate substantially in excess of the initial
production rates typically associated with the Company's Appalachian Basin
properties located in West Virginia and Pennsylvania. The Company, through its
rights to propose seismic shoots and drilling, is actively involved in the
process of determining the drilling schedule for both joint ventures. The
Company has the right to participate for a 50% working interest on a well by
well basis in 14,000 gross acres in Fairfield County, Ohio and a 25% working
interest in 20,000 gross acres in Licking County, Ohio. The Company makes
drillsite selections after carefully evaluating the seismic and other geological
data, estimates of completion and production costs and its estimates of
recoverable reserves. The Company believes that these joint ventures have
enabled it to limit its initial capital commitments for seismic and acreage and
to spread the risk of this exploratory play with other experienced operators in
Ohio. Independent of its existing strategic alliances, the Company recently
acquired 3,600 gross undeveloped acres in Licking County, Ohio.
ROCKY MOUNTAINS. The Company has recently acquired developed and
undeveloped leasehold interests in approximately 431,000 gross acres (291,000
net acres) located in the Rocky Mountain area. The Company has acquired its
interests in these properties under joint venture arrangements with industry
partners that enabled the Company to make relatively low initial capital
investments and that permit a managed risk approach to subsequent capital
investments related to specific drilling activities. The Company has a
contractual arrangement with Thomasson Partner Associates, Inc., a firm which
specializes in utilizing advanced technologies to identify attractive drilling
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<PAGE> 57
prospects. The Company, in conjunction with Thomasson and other industry
partners, has identified and is currently focusing on six exploration plays with
respect to these properties which are located in the Blanding Basin, Utah, West
Williston Basin, Montana, East Williston Basin, North Dakota and the Wind River,
West Powder River and East Powder River Basins, Wyoming. The Company plans to
shoot 3-D seismic surveys with respect to 10 of the 20 prospects identified in
these plays. The Company typically operates the projects in which it holds a
majority working interest and determines whether to pursue potential projects
through risk aversion analysis which balances reserve potential, technical risk,
and full-cycle evaluation cost. Where partners are required, the Company targets
companies who can add technical value in addition to financial support. Partners
who take a working interest in the Company's projects reimburse sunk exploration
costs and typically pay an additional premium to cover overhead and management
fees. Subject to further evaluation, the Company expects that it will drill
several exploratory wells in 1997 on prospects that meet its managed risk
criteria of relatively low drilling and completion costs and significant reserve
and production potential.
NEW ZEALAND. The Company's international properties consist of
approximately 5.2 million gross acres (2.6 million net acres) located onshore
and offshore of the North Island of New Zealand. The Company was awarded a
five-year exploration concession with respect to these properties in 1996, and
the Company subsequently entered into a 50-50 joint venture arrangement with
ENERCO New Zealand Limited, a major New Zealand gas utility company, providing
for a sharing of costs and benefits associated with exploration and production
activities on these properties. The Company and its joint venture partners are
currently in the process of reprocessing existing seismic data and shooting 2-D
seismic surveys on a portion of the onshore acreage. The Company also expects
that it will shoot 3-D seismic surveys with respect to portions of the offshore
acreage. Subject to evaluation of the seismic data, the Company expects that it
will commence drilling of one or more exploratory wells in 1998.
OIL AND GAS PROPERTIES. As of March 31, 1997, the Company's properties
included working interests in 4,760 gross (2,505 net) productive oil and gas
wells. The following table sets forth summary information with respect to the
Company's estimated proved oil and gas reserves at March 31, 1997.
<TABLE>
<CAPTION>
PRESENT VALUE NATURAL GAS
---------------- OIL & NGLS NATURAL GAS EQUIVALENT
AMOUNT % (MBBLS) (MMCF) (MMCFE)
-------- ----- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Region:
West Virginia......................... $ 83,989 66.7 192.2 121,296 122,449
Pennsylvania.......................... 27,929 22.2 5.9 39,632 39,667
Other................................. 13,925 11.1 1,192.8 3,651 10,808
-------- ----- ------- ------- -------
Total......................... $125,843 100.0 1,390.9 164,579 172,924
======== ===== ======= ======= =======
</TABLE>
OIL AND GAS RESERVES. The following table sets forth summary information
with respect to the Company's estimated proved oil and gas reserves. All
information in this Prospectus as of June 30, 1996, 1995 and 1994 relating to
estimated oil and gas reserves and the estimated future net cash flows
attributable thereto is based upon the Reserve Reports prepared by Ryder Scott
Company and Joseph Mendoza, Inc., both independent petroleum engineers (the
"Independent Engineers"), except for the reserves attributed to properties owned
by a subsidiary of the Company's natural gas distribution utility, which
reserves were estimated by the Company. These properties comprised approximately
6.7% of the Company's estimated total proved reserves at June 30, 1996. All
information in this Prospectus as of March 31, 1997 relating to estimated oil
and gas reserves and estimated future net cash flows attributable thereto is
based on estimates prepared by Ryder Scott Company, except for the reserves
attributed to properties owned by a subsidiary of the Company's natural gas
distribution utility, which reserves were estimated by the Company. These
properties comprised approximately 7.4% of the Company's estimated total proved
reserves at March 31,
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<PAGE> 58
1997. The estimates of oil and gas reserves and estimated future net cash flows
attributable thereto at March 31, 1997 reflect the sale of the Company's
interest in certain oil and gas properties in California that occurred in March
1997. All calculations of estimated reserves and future net cash flows have been
made in accordance with the rules and regulations of the Commission, and, except
as otherwise indicated, give no effect to federal or state income (including
Section 29 credits) taxes otherwise attributable to estimated future cash flows
from the sale of oil and gas. The Present Value of estimated future net cash
flows has been calculated with constant prices in effect at the time of the
estimates using a discount factor of 10%. For purposes of estimated reserves and
cash flows at March 31, 1997, average product prices of $2.41 per Mcf of gas and
$16.24 per barrel of oil at such date were used.
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30, MARCH 31,
-------------------------------- ---------
1994 1995 1996 1997
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Total net proved(1):
Gas (Mmcf)............................ 170,319 171,826 159,446 164,579
Oil (Mbbls)........................... 7,003 7,020 6,668 1,391
Total (Mmcfe)......................... 212,335 213,946 199,453 172,924
Net proved developed:
Gas (Mmcf)............................ 160,980 167,442 153,230 148,362
Oil (Mbbls)........................... 7,003 6,886 6,668 1,146
Total (Mmcfe)......................... 202,998 208,758 193,238 155,238
Estimated future net cash flows before
income taxes (in thousands)(2)........ $400,073 $274,651 $304,237 $333,273
Present Value of estimated future net
cash flows before income taxes (in
thousands)(2)......................... $162,036 $127,886 $130,778 $125,843
</TABLE>
- ---------------
(1) Net proved reserves reflect the sale of approximately 19.7 Bcf of proved
reserves in 1996 and approximately 34.7 Bcfe of proved reserves in 1997.
(2) Estimated future net revenues and discounted estimated future net revenues
are not intended, and should not be interpreted, as representing the fair
market value for the estimated reserves.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting future rates of production and the timing of
development expenditures, including many factors beyond the control of the
producer. The reserve data set forth herein represent only estimates. Reserve
engineering is a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact way, and the accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment and the existence of
development plans. As a result, estimates of reserves made by different
engineers for the same property will often vary. Results of drilling, testing
and production subsequent to the date of an estimate may justify a revision of
such estimates. Accordingly, reserve estimates are generally different from the
quantities of oil and gas that are ultimately produced. Further, the estimated
future net revenues from proved reserves and the present value thereof are based
upon certain assumptions, including geological success, prices, future
production levels and costs that may not prove to be correct. Predictions about
prices and future production levels are subject to great uncertainty, and the
meaningfulness of such estimates depends on the accuracy of the assumptions upon
which they are based. See "Risk Factors -- Uncertainty of Reserves and Future
Net Revenues."
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<PAGE> 59
PRODUCING WELLS. The following table sets forth certain information
relating to productive wells at March 31, 1997. Wells are classified as oil or
gas according to their predominant production stream.
<TABLE>
<CAPTION>
GROSS WELLS NET WELLS
--------------------- -----------------------
LOCATION OIL GAS TOTAL OIL GAS TOTAL
-------- --- ----- ----- --- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Appalachian Basin.................. 8 4,747 4,755 1.4 2,502 2,503
Other.............................. 5 0 5 2.3 0 2.3
-- ----- ----- --- ----- -------
Total.................... 13 4,747 4,760 3.7 2,502 2,505.3
== ===== ===== === ===== =======
</TABLE>
ACREAGE. The following table sets forth the developed and undeveloped gross
and net acreage held at March 31, 1997.
<TABLE>
<CAPTION>
DEVELOPED ACREAGE UNDEVELOPED ACREAGE
------------------ ----------------------
GROSS NET GROSS NET
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Appalachian Basin.................... 322,460 189,249 100,059 74,905
Rocky Mountains...................... 4,000 3,500 427,000 287,500
New Zealand.......................... 0 0 5,159,152 2,579,576
Other................................ 1,063 836 36,413 35,473
------- ------- --------- ---------
Total...................... 327,523 193,585 5,722,624 2,977,454
======= ======= ========= =========
</TABLE>
PRODUCTION, PRICES AND PRODUCTION COSTS. The following table sets forth
certain production data, the average sales prices and average production
expenses attributable to the Company's properties on an historical basis for
1994, 1995, 1996 and the nine months ending March 31, 1996 and March 31, 1997.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
-------------------------- ----------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Production Data:
Oil (Mbbls)...................... 459 535 522 387 425
Natural gas (Mmcf)............... 8,775 8,982 9,816 7,414 7,113
Natural gas equivalent (Mmcfe)... 11,527 12,190 12,950(1) 9,739 9,664
Average Sales Price:
Oil ($/Bbl)...................... $12.96 $15.01 $16.02 $15.37 $18.09
Natural gas ($/Mcf).............. $ 2.43 $ 1.95 $ 2.01 $ 2.01 $ 2.19
Lifting and Operating Expense
($/Mcfe)......................... $ 0.54 $ 0.58 $ 0.57 $ 0.56 $ 0.44
</TABLE>
- ---------------
(1) The increase from 1995 production was primarily attributable to the
properties included in the Mountaineer Acquisition.
DRILLING ACTIVITIES. The Company has a large inventory of exploration
drilling opportunities that the Company believes consist of moderate
risk/moderate reward, as well as higher risk/higher reward exploration projects.
In addition, for fiscal year 1998, the Company has identified and expects to
drill 15 gross (8 net) exploration projects in the Rocky Mountain region and 3
gross (1.5 net) exploration projects in New Zealand. In addition, the Company
has identified numerous other exploration drilling opportunities within its
existing properties.
The Company plans to spend approximately 10% of its cash flow for the
foreseeable future to fund higher risk exploration activities and to participate
in a variety of projects with differing characteristics. The Company's existing
inventory of exploration projects varies in risk and reward based on their
depth, location and geology. A significant portion of the existing, as well as
future,
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<PAGE> 60
exploration projects will be enhanced by use of advanced technology including
3-D seismic and improved completion techniques.
DRILLING RESULTS. The following table summarizes actual drilling activities
for the three years ended June 30, 1996 and for the nine months ended March 31,
1997.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------ -----------
1994 1995 1996 1997
------------ ------------ ------------ -----------
GROSS NET GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ---- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Development:
Productive
Appalachian............ 46 19.0 23 8.8 36 13.6 7 4.4
Other.................. 2 1.6 2 1.6 2 0.8 0 0
-- ---- -- ---- -- ---- -- ---
Total............. 48 20.6 25 10.4 38 14.4 7 4.4
== ==== == ==== == ==== == ===
Nonproductive
Appalachian............ 2 0.8 1 0.4 0 0 1 0.9
Other.................. 0 0 0 0.0 1 0.4 1 0.9
-- ---- -- ---- -- ---- -- ---
Total............. 2 0.8 1 0.4 1 0.4 2 1.8
== ==== == ==== == ==== == ===
Exploratory:
Productive
Appalachian............ 0 0 4 1.2 1 0.4 14 3.9
Other.................. 1 0.4 1 0.4 2 0.9 0 0
-- ---- -- ---- -- ---- -- ---
Total............. 1 0.4 5 1.6 3 1.3 14 3.9
== ==== == ==== == ==== == ===
Nonproductive
Appalachian............ 4 1.5 5 2.3 5 2.1 0 0
Other.................. 1 0.4 12 4.6 12 3.6 9 7.0
-- ---- -- ---- -- ---- -- ---
Total............. 5 1.9 17 6.9 17 5.7 9 7.0
== ==== == ==== == ==== == ===
</TABLE>
COMPETITION. The Company encounters substantial competition in acquiring
properties, marketing oil and gas, securing equipment and personnel and
operating its properties. The competitors in acquisitions, development,
exploration and production include major oil companies, numerous independent oil
and gas companies, gas marketers, individual proprietors and others. Many of
these competitors have financial and other resources which substantially exceed
those of the Company and have been engaged in the energy business for a much
longer time than the Company. Therefore, competitors may be able to pay more for
desirable leases and to evaluate, bid for and purchase a greater number of
properties or prospects than the financial or personnel resources of the Company
will permit.
Natural gas competes with other forms of energy available to customers,
primarily on the basis of rates. These alternate forms of energy include
electricity, coal and fuel oils. Changes in the availability or price of natural
gas or other forms of energy, as well as business conditions, conservation,
legislation, regulations and the ability to convert to alternate fuels and other
forms of energy may affect the demand for natural gas.
Demand from commercial and industrial customers is dependent on local
business conditions and competition from alternate sources of energy. The
natural gas distribution utility's demand from residential customers likewise is
subject to competition from alternate energy sources. The natural gas
distribution utility is also subject to competition from interstate and
intrastate pipeline companies, producers, gas marketers and other utilities
which may be able to serve commercial and industrial customers from their
transmission, gathering and/or distribution facilities. In certain markets, gas
has a competitive advantage over alternate fuels, while in other markets it is
not as price competitive.
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<PAGE> 61
GAS SALES AND MARKETING
The Company has developed a significant gas aggregation and marketing
operation. The Company aggregates natural gas through production from properties
in the Appalachian Basin in which the Company has an interest, the purchase of
gas delivered through the Company's gathering pipelines located in the
Appalachian Basin, the purchase of gas produced in the Southwestern areas of the
United States pursuant to contractual arrangements and the purchase of gas in
the spot market. The Company sells gas to local gas distribution companies,
industrial end users located on the East Coast, other gas marketing entities and
into the spot market for gas delivered into interstate pipelines. The Company
has historically attempted to balance its gas sales mix with approximately
one-third of its total gas sales being made under premium-priced long term
contracts (contracts with terms of five years or more), one-third being sold
under intermediate term contracts (contracts with terms of one to five years),
and one-third being sold under short term contracts (contracts with terms of
less than one year) or on a spot market basis. See "-- Significant Gas Sales and
Purchase Contracts."
The Company owns and operates approximately 2,000 miles of gathering lines
and intrastate pipelines that are used in connection with its gas aggregation
and marketing activities. In addition, the Company has entered into contracts
with interstate pipeline companies that provide it with rights to transport
specified volumes of natural gas. During the fiscal year ended June 30, 1996,
the Company aggregated and sold an average of 150.0 Mmcf of gas per day, of
which 41.1 Mmcf per day represented sales of gas produced from wells operated by
the Company. The Company believes its ability to satisfy gas supply commitments
from its own reserve base has significantly enhanced its ability to become a
principal marketer of gas produced in the Appalachian Basin.
Approximately 97% of the Company's gas production, on an Mcfe basis, for
fiscal 1996 was attributable to its Appalachian Basin properties. Gas production
from Appalachian Basin properties has historically received a higher price, due
to its proximity to the Northeastern gas markets and the stable deliverability
characteristics of Appalachian Basin production, than gas delivered at Henry
Hub, Louisiana or at delivery points in the Rocky Mountains. In addition, the
Company's ability to aggregate large quantities of natural gas from its own
production and from third parties through the activities of its marketing
operations has contributed to the ability of the Company to receive higher
prices for its gas sales as compared to gas delivered at Henry Hub, Louisiana.
The Company, excluding the natural gas distribution utility, is a party to
fixed price gas sales contracts with third parties having an initial term of
more than one year that obligated the Company to sell approximately 9.0 Bcf of
natural gas in fiscal 1996. In addition, a subsidiary of the Company sold
approximately 9.5 Bcf of natural gas in fiscal 1996 to another subsidiary of the
Company pursuant to a gas sales contract. See "-- Significant Gas Sales and
Purchase Contracts." The Company satisfied its obligations under these contracts
through gas production attributable to its interests in gas and oil properties
(9.8 Bcf in fiscal 1996), through production attributable to the interests of
third parties in gas and oil properties operated by the Company (12.2 Bcf in
fiscal 1996) and from natural gas aggregated by the Company (38.9 Bcf in fiscal
1996) pursuant to its aggregation and marketing activities from third parties.
The Company expects to continue to satisfy its obligations under its existing
gas sales contracts in a similar manner.
SIGNIFICANT GAS SALES AND PURCHASE CONTRACTS
The Company currently has two significant gas sales contracts with third
parties. In addition, Mountaineer has entered into a contract to purchase
natural gas from Eastern American and Eastern Marketing. The following is a
description of these contracts.
Eastern American is a party to a contract with Hope Gas, Inc. ("Hope"), a
subsidiary of Consolidated Natural Gas, that requires Eastern American to sell
up to 5,300 Mmbtu per day through October 31, 1998. The pricing under the
contract is based on a demand and commodity component. The contract requires
Hope to pay Eastern American a demand component of $51,589
57
<PAGE> 62
per month and a commodity component that is $2.20 per Mmbtu through October 31,
1996, $2.10 per Mmbtu through October 31, 1997 and $2.00 per Mmbtu through
October 31, 1998. For fiscal year 1996, the gas sold pursuant to this contract
accounted for 1.2% of the Company's consolidated revenues and 8.0% of the total
gas production volume of the Company.
Eastern American is a party to a contract with Seneca Power Partners L.P.,
a limited partnership in which Eastern American and Sithe Energy USA, Inc. are
limited partners, with Seneca Power Corporation as the general partner. This
contract has a 15-year term that commenced on September 1, 1992 and provides for
a fixed price that increases 5% per year until 1999, at which time Eastern
American has the option to renegotiate the price. Such renegotiated price cannot
exceed certain financial ratios set forth in the contract. If, after
negotiation, the parties cannot reach an agreement, the contract provides for
dispute resolution through binding arbitration. Contract volumes are a minimum
of 10,300 Mmbtu per day and a maximum of 12,900 Mmbtu per day. For fiscal year
1996, the gas sold pursuant to this contract accounted for 16.8% of the
Company's total gas production volume and the average sales price was $2.893 per
Mmbtu.
In connection with the sale of a net profits interests in certain oil and
gas properties to the Royalty Trust in March 1993, Eastern Marketing entered
into a gas purchase contract to purchase all gas production attributable to the
Eastern American Natural Gas Trust (the "Royalty Trust") until the termination
of the Royalty Trust in May 2013. See "-- Significant Acquisitions and
Dispositions." The purchase price under the gas purchase contract through
December 1999 will be based in part on a fixed price component, which escalates
each year, and in part on a variable price component, which fluctuates with
certain spot market prices, provided that the purchase price during such period
will not be less than a specified minimum purchase price. The minimum purchase
price was $2.36 per Mcf in 1996 and such minimum purchase price escalates at
approximately 9% per year. The fixed price component was $3.08 in calendar 1996
and escalates five percent each year through December 1999. The variable price
is equal to the future contract prices per Mmbtu for natural gas delivered to
Henry Hub, Louisiana plus $0.30 per Mmbtu, multiplied by 110% to reflect a fixed
adjustment for Btu content. The fixed price component is given a weighting of
66 2/3% and the variable price component is given a weighting of 33 1/3% through
December 1999. Beginning in January 2000, the purchase price under the gas
purchase contract will be determined solely by reference to the variable price
component without regard for any minimum purchase price. Eastern American has
entered into a standby performance agreement with the Royalty Trust to support
the obligations of Eastern Marketing under the gas purchase contract. See "--
Significant Acquisitions and Dispositions."
Eastern American and Eastern Marketing entered into a Gas Purchase Contract
with Mountaineer on September 13, 1995. This contract has a three year term
commencing November 1, 1995 and provides for a gas demand charge of $0.08 per
Mmbtu up to the daily contract demand volume of 28,000 Mmbtu per day. For each
Mmbtu of gas delivered Mountaineer will pay Eastern American a price of $2.20
per Mmbtu for the first contract year, $2.10 per Mmbtu in the second contract
year and $2.00 per Mmbtu in the third contract year. In addition, the parties
have agreed to a sharing arrangement on any revenue generated from Mountaineer
being able to release firm capacity on interstate transportation systems. Since
Mountaineer is a public utility and an affiliate of Eastern American and Eastern
Marketing, this contract required the approval of the WVPSC, which approval has
been obtained.
SIGNIFICANT ACQUISITIONS AND DISPOSITIONS
The Company has grown significantly since 1988 through acquisitions. Set
forth below is a summary of the most significant acquisitions and dispositions
over the past eight years.
BREITBURN DISPOSITION. In March 1997, the Company sold approximately 34.7
Bcfe of proved reserves in California for total consideration of approximately
$23.8 million. The total consideration included $11.3 million of cash and a
promissory note in the principal amount of $1.5 million. In
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<PAGE> 63
addition to the cash and promissory note, the Company received an assignment of
a 20% working interest in certain undeveloped properties located in California,
a 50% interest in certain surface real estate located in California and retained
a 30% ownership interest in the successor entity.
SECTION 29 MONETIZATION. In November 1995, the Company transferred
approximately 19.7 Bcf of proved reserves located in the Appalachian Basin to a
limited partnership as to which a subsidiary of the Company acts as general
partner. The limited partner contributed approximately $17.3 million to the
partnership, which amount was subsequently distributed to the Company. In
connection with such transaction, the Company agreed to purchase all of the gas
produced from certain wells transferred to the partnership until September 2015
unless earlier terminated by either party upon 30 days written notice. This
transaction enabled the Company to transfer properties which were eligible for
Section 29 tax credits.
ALLEGHENY & WESTERN ACQUISITION. In June 1995, the Company acquired all of
the outstanding stock of Allegheny & Western Energy Corporation, a company whose
stock had traded on the New York Stock Exchange prior to the acquisition, for
approximately $95.3 million. As a result of this transaction, the Company
acquired all of the stock of Mountaineer and interests in 886 producing gas and
oil wells with approximately 28.5 Bcf of proved producing reserves located
primarily in West Virginia.
BREITBURN ACQUISITION. The Company acquired a limited partnership interest
in certain oil and gas properties located in Los Angeles County, California from
Occidental Petroleum Corporation and Oxy USA, Inc. which added approximately 31
Bcfe to the Company's proved producing reserves for a purchase price of
approximately $12 million.
ROYALTY TRUST. In March 1993, the Company conveyed to the Eastern American
Natural Gas Trust (the "Royalty Trust"), a trust whose units are traded on the
New York Stock Exchange, certain net profits interests derived from the
Company's working interest in certain natural gas properties located in the
Appalachian Basin whose production is eligible for tax credits under Section 29
of the Internal Revenue Code. Proved net developed and undeveloped reserves
attributable to these interests were approximately 66.5 Bcfe. The Company
received approximately $93 million from the proceeds of the initial public
offering of the Royalty Trust.
EDISTO RESOURCES ACQUISITION. In January 1991, the Company acquired from
Edisto Resources Corporation and NRM Operating Company, L.P. interests in 807
producing natural gas wells located principally in West Virginia and
Pennsylvania. These wells produced 16,250 Mmcf per day gross and 11,000 Mmcf per
day net in 1991, with natural gas reserves estimated to total approximately 45.0
Bcf. These wells are located on 127,855 gross (110,714 net) developed acres and
8,300 gross (7,850 net) undeveloped acres. The purchase price of these assets
totaled approximately $31.0 million.
J&J ACQUISITION. In November 1988, Eastern American acquired 100% of the
outstanding common stock of J&J Enterprises, Inc., a closely held Pennsylvania
based corporation, for total consideration consisting of shares of the common
stock of Eastern American (which were subsequently repurchased by Eastern
American), the assumption of $59.1 million of bank debt and certain other
obligations. The properties acquired in this transaction included 1,370 gross
(797 net) producing gas wells in Pennsylvania and 920 gross (540 net) producing
gas wells in West Virginia and approximately 81,347 gross developed acres and
24,000 gross undeveloped acres. The acquisition added approximately 99.0 Bcfe to
the Company's Appalachian Basin proved producing gas reserves.
The Company believes that each of these acquisitions and dispositions is
consistent with its focus on pursuing vertical integration to capture downstream
margins, maintaining low cost operations, establishing a balanced development
and exploration program and achieving diversified cash flows which are less
sensitive to commodity pricing risks.
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REGULATORY MATTERS
GENERAL. The Company's operations are affected by extensive regulation
pursuant to various federal, state and local laws and regulations relating to
the prices the Company may charge for distribution and transportation of natural
gas, exploration for and development, production, gathering, marketing,
transportation and storage of oil and gas. These regulations, among other
things, may affect the rate of oil and gas production. The Company's operations
are subject to numerous laws and regulations governing plugging and abandonment,
the discharge of materials into the environment or otherwise relating to
environmental protection. These laws and regulations require the acquisition of
a permit before drilling commences, restrict the types, quantities and
concentration of various substances that can be released into the environment in
connection with drilling and production activities, limit or prohibit drilling
activities on certain lands lying within wilderness, wetlands and other
protected areas, and impose substantial liabilities for pollution which might
result from the Company's operations. See "Risk Factors -- Regulations Affecting
Operations."
WEST VIRGINIA PUBLIC SERVICE REGULATION. The Company operates a natural gas
distribution utility that is regulated by the WVPSC. Under traditional rate
making in West Virginia, the natural gas distribution utility is prohibited from
increasing its base rate unless it obtains the approval of the WVPSC. In
general, the WVPSC would review any base rate increase based upon an analysis of
the cost of service, as adjusted for known and measurable changes in expenses
and revenues, and would also include a reasonable return on equity. In
determining the overall rate of return on equity allowed in the rate proceeding,
the WVPSC employs a methodology which computes both the natural gas distribution
utility's cost of debt capital as well as a cost of equity capital. The
allowable return on equity is designed to compensate the equity owner at rates
commensurate with the rate of return on investments at comparable risks. In
order to determine the allowable return on equity, the WVPSC utilizes two market
oriented methodologies, the discounted cash flow and the capital asset pricing
model. A further review utilized by the WVPSC to check the reasonableness of the
allowable return on equity involves an analysis of the overall return required
to provide reasonable interest coverage, dividend pay-out ratios and internally
generated cash flow. The cost of debt capital is determined by utilizing the
utility's actual interest rates as set forth in its loan documents, provided the
rate is determined to be reasonable. While the cost of debt capital is normally
based upon long-term debt, if the utility uses short-term debt on a regular
basis the WVPSC may determine that such debt should be treated as a component of
the utility's debt capital. Finally, the WVPSC utilizes a sample group of
approximately ten to twelve gas distribution utilities located within and
outside of West Virginia for comparison purposes with respect to its discounted
cash flow calculation and the capital asset pricing model. Because the rate
regulatory process has certain inherent time delays, rate orders may not reflect
the operating costs at the time new rates are put into effect.
Any change to the rate the natural gas distribution utility charges its
customers for natural gas costs must be approved by the WVPSC. In order to
obtain approval of changes to gas purchase costs, the Company makes purchase gas
adjustment filings with the WVPSC on an annual basis which include a forecast
for the upcoming twelve month period of gas costs and a true-up mechanism for
the previous period for any over or under-recovery balances. The WVPSC reviews
the Company's gas purchasing activities during the previous year to determine
the prudence of gas purchase expenditures and to determine that dependable
lower-priced supplies of natural gas are not readily available from other
sources. The forecast of gas costs submitted by the natural gas distribution
utility in its annual filings incorporates known and measurable pipeline fees
during the upcoming period and an estimate of gas cost based on several natural
gas futures indices. The WVPSC also reviews the Company's forecast of gas costs
in such filings for reasonableness.
All of the requests of natural gas distribution utilities in West Virginia
for rate changes are reviewed by the staff of the WVPSC as well as the Consumer
Advocate Division of the WVPSC. The Consumer Advocate Division is charged with
representing and protecting the interests of residential customers in regulating
the utility.
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On October 19, 1995, the WVPSC entered an order that established a three
year moratorium on the rates that the Company may charge its natural gas
distribution system customers. As a consequence of the rate moratorium, the
Company is subject to the risk and benefits of changes in costs, including
changes in costs for natural gas purchased by the Company and changes in
interstate pipeline transportation rates, during the three year term of the
moratorium without the ability to increase rates charged to its customers to
absorb any increases in such costs during this period. In the event that the
Company purchases gas during the moratorium period at prices per Mcf that are in
excess of amounts being recovered in approved rates, the inability of the
Company to increase the rates it charges its customers could have a material
averse effect on the Company's financial condition, results of operations and
cash flows. The Company has taken certain steps to mitigate its exposure to
price increases per Mcf that exceed the level being recovered in rates during
the rate moratorium. These steps include entering into fixed price contracts and
contracts to purchase volumes in future months based on current prices and
purchasing options to purchase gas in the future at prices below current market
levels. The WVPSC order provides for certain exceptions if unforeseen
extraordinary circumstances, including natural disaster, sabotage or force
majeure, significantly impair the Company's financial integrity or service
reliability. Also, new or increased taxes imposed by legislation or regulation
may be recovered through a rate surcharge if such increase exceeds $250,000
annually. In its order, the WVPSC indicated that the moratorium was an
experiment in incentive regulation for the Company and its belief that the
moratorium created appropriate incentives for the Company to operate prudently
and efficiently. The Company expects that its natural gas distribution utility
operations will continue to be regulated following the moratorium period in a
manner which will allow the Company to recover its costs of operations and earn
a reasonable return on its equity.
The monthly customer bill contains a fixed service charge and a charge for
the amount of natural gas used. While the monthly fixed charge provides an even
revenue stream, the usage charge increases the Company's annual revenue and
earnings in the traditional higher load winter months when usage of natural gas
increases. The monthly service charge is determined in the Company's base rate
filing while the usage charge is determined in both the Company's base rate
filing and purchased gas costs filing.
Transactions between a public utility regulated by the WVPSC and the
affiliates of such utility are required to be approved by the WVPSC. Mountaineer
and Eastern American are parties to an agreement providing for the sale of
natural gas from Eastern American to Mountaineer. See "--Significant Gas Sales
and Purchase Agreements." This agreement has been approved by the WVPSC. Under
West Virginia law, if a West Virginia gas distribution company purchases more
than 50% of its natural gas requirements from its affiliates, then the purchase
gas adjustment which such gas distribution company is permitted to charge by the
WVPSC is based upon the affiliates' actual costs rather than the prices charged
by the affiliates. In addition, the WVPSC may restrict Mountaineer from
guaranteeing indebtedness of the Company or any other subsidiary of the Company
pursuant to its authority to regulate rates that Mountaineer may charge its
customers for natural gas.
NATURAL GAS AND OIL MARKETING AND TRANSPORTATION. Historically, the
transportation and sale for resale of natural gas in interstate commerce have
been regulated pursuant to the Natural Gas Act of 1938, the Natural Gas Policy
Act of 1978 (the "NGPA"), and the regulations promulgated thereunder by the
FERC. In the past, the federal government has regulated the wellhead price of
natural gas. While sales by producers of natural gas, and all sales of crude
oil, condensate and natural gas liquids, can currently be made at uncontrolled
market prices, Congress could reenact price controls in the future. Deregulation
of wellhead sales in the natural gas industry began with the enactment of the
NGPA. In 1989, the Natural Gas Wellhead Decontrol Act was enacted.
Several major regulatory changes have been implemented by the FERC from
1985 to the present that affect the economics of natural gas production,
transportation and sales. In addition, the FERC continues to promulgate
revisions to various aspects of the rules and regulations affecting
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those segments of the natural gas industry, most notably interstate natural gas
transmission companies, which remain subject to the FERC's jurisdiction. These
initiatives may also affect the intrastate transportation of gas under certain
circumstances. The stated purposes of many of these regulatory changes is to
promote competition among the various sectors of the gas industry. The ultimate
impact of these complex and overlapping rules and regulations, many of which are
repeatedly subjected to judicial challenge and interpretation, cannot be
predicted.
Commencing in April 1992, the FERC issued Order Nos. 636, 636-A and 636-B
(collectively, "Order No. 636"), which, among other things, require interstate
pipelines to "restructure" to provide transportation separate or "unbundled"
from the pipelines' sales of gas. Also, Order No. 636 requires pipelines to
provide open-access transportation on a basis that is equal for all gas
supplies. Order No. 636 has been implemented through negotiated settlements in
individual pipeline service restructuring proceedings. In many instances, the
result of the Order No. 636 and related initiatives have been to substantially
reduce or bring to an end the interstate pipelines' traditional roles as
wholesalers of natural gas in favor of providing only storage and transportation
services.
Although Order No. 636 does not directly regulate natural gas producers
such as the Company, Order No. 636 has fostered increased competition within all
phases of the natural gas industry. Although Order No. 636 provides the Company
with additional market access and more fairly applied transportation service
rates, terms and conditions, it also subjects the Company to more restrictive
pipeline imbalance tolerances and greater penalties for violations of these
tolerances. The Company does not believe, however, that it will be affected by
any action taken under or with respect to Order No. 636 materially differently
from other natural gas producers and marketers with which it competes.
The FERC has announced its intention to reexamine certain of its
transportation-related policies, including the use of market-based rates for
interstate gas transmission. While any resulting FERC action would affect the
Company only indirectly, the FERC's current rules and policies may have the
effect of enhancing competition in natural gas markets by, among other things,
encouraging non-producer natural gas marketers to engage in certain purchase and
sale transactions. The Company cannot predict what action the FERC will take on
these matters, nor can it accurately predict whether the FERC's actions will
achieve the goal of increasing competition in markets in which the Company's
natural gas is sold. However, the Company does not believe that it will be
affected by any action taken materially differently than other natural gas
producers and marketers with which it competes.
Additional proposals and proceedings that might affect the oil and gas
industry are pending before the FERC and the courts. The Company cannot predict
when or whether any such proposals may become effective. In the past, the
natural gas industry has been heavily regulated. There is no assurance that the
regulatory approach currently pursued by the FERC will continue indefinitely.
Notwithstanding the foregoing, the Company does not anticipate that compliance
with existing federal, state, and local laws, rules, and regulations will have a
material or significantly adverse effect upon the capital expenditures,
earnings, or competitive position of the Company.
On November 22, 1996, the Company entered into a settlement agreement with
Columbia Gas and other Columbia Gas customers in a rate proceeding initiated by
Columbia Gas in 1995. Among the material provisions of the settlement affecting
the Company include (i) the receipt by the Company of approximately $7.1 million
annually, through 2004, in demand charge credits, and (ii) a rate moratorium on
Columbia Gas until the year 2000. On April 17, 1997, the FERC approved the
settlement agreement. As of March 31, 1997, the Company is due refunds under the
settlement agreement of approximately $6 million including zone credits earned
and transportation charges paid in excess of settled rates. As a result of the
FERC order, the Company recorded a receivable and associated reduction in gas
costs of $6 million for the nine months ended March 31, 1997.
OIL AND GAS EXPLORATION AND PRODUCTION. Certain operations the Company
conducts are on Federal oil and gas leases, which the Minerals Management
Services ("MMS") administers. The MMS issues such leases through competitive
bidding. These leases contain relatively standardized
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terms and require compliance with detailed MMS regulations and orders. In
addition to permits required from other agencies (such as the Environmental
Protection Agency), lessees must obtain a permit from the MMS prior to the
commencement of drilling. The MMS has promulgated regulations implementing
restrictions on various production-related activities, including restricting the
flaring or venting of natural gas. In addition, the MMS has proposed to amend
its regulations to prohibit the flaring of liquid hydrocarbons and oil without
prior authorization. Finally, the MMS is conducting an inquiry into certain
contract agreements from which producers on MMS leases have received settlement
proceeds that are royalty bearing and the extent to which producers have paid
the appropriate royalties on those proceeds. The Company believes that this
inquiry will not have a material impact on its financial condition, liquidity or
results of operations.
Drilling and production of natural gas are heavily regulated in
Pennsylvania and West Virginia, as in most states. A well cannot be drilled
without a permit, and operations must be conducted in compliance with
environmental, safety and conservation laws and regulations. In contrast to many
other states which have substantial oil and gas production activity, the spacing
of shallow wells (which constitute a significant portion of the Company's
Appalachian wells) is not regulated by any state statute or regulatory agency in
either West Virginia or Pennsylvania. Without spacing requirements specified by
state statute or regulation, drainage of reserves from a property may occur from
wells located in close proximity to such property. Due to the cost of drilling
and completing wells and the typical production characteristics of natural gas
wells in these states, however, the Company believes that it is not generally
economic to drill gas wells in close proximity with an existing well since the
new well would not generally produce sufficient volumes of gas to provide a
sufficient rate of return after taking into account drilling costs, completion
costs and ongoing operating and marketing costs of such new well. As a result,
the Company historically has not drilled development wells closer than 1,000
feet from an existing well, although in some cases parties that have interests
in adjacent properties may drill wells closer than 1,000 feet from an existing
well which may otherwise be produced by the Company. In addition, these states
do not regulate wellhead prices or engage in other similar direct economic
regulation, but there can be no assurance that they will not do so in the
future. At the time a well reaches the end of its economic life, the Company is
required to plug and abandon the well in compliance with various state laws and
regulations.
ENVIRONMENTAL REGULATION. Activities on the Company's oil and gas producing
properties are subject to existing Federal, state and locals laws and
regulations governing health, safety, environmental quality and pollution
control. Failure to comply with environmental laws can result in substantial
civil or criminal penalties, as well as the revocation of necessary
environmental permits. Pursuant to these laws and regulations, the Company may
be subject to substantial clean-up costs for any toxic or hazardous substance
that may exist on or under any of its properties. The Company cannot predict
what effect additional regulation or legislation, enforcement policies
thereunder, and claims for damages to property, employees, other persons and the
environment resulting from operations on its properties could have on its
financial condition or results of operations. The Company could incur
substantial costs to comply with environmental laws and regulations.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "superfund" law, imposes liability, regardless of
fault or the legality of the original conduct, on certain classes of persons
that contributed to the release of a "hazardous substance" into the environment.
These persons include the current or previous owner and operator of a site and
companies that disposed or arranged for the disposal of, the hazardous substance
found at a site. CERCLA also authorizes the EPA and, in some cases, private
parties to take actions in response to threats to the public health or the
environment and to seek recovery from such responsible classes of persons of the
costs of such action. In the course of their operations, the operators of the
Company's properties have generated and will generate wastes that may fall
within CERCLA's definition of "hazardous substances." The Company or the
operator of the properties
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may be responsible under CERCLA for all or part of the costs to clean up sites
at which such substances have been disposed.
The operations of the Company's properties are subject to Federal, state
and local regulations concerning the control of emissions from sources of air
contaminants. The Company's cost of air quality compliance is consistent with
industry experience.
The operations of the Underlying Properties are subject to the requirements
of the Federal Occupational Safety and Health Act ("OSHA") and comparable state
statutes. The OSHA hazard communication standard, the EPA community
right-to-know regulations under Title III of the Federal Superfund Amendment and
Reauthorization Act and similar state statutes require that information be
organized and maintained about hazardous materials used or produced in the
operations. Certain of this information must be provided to employees, state and
local government authorities and citizens.
TITLE TO PROPERTIES
The Company believes that its working interests with respect to its oil and
gas properties are good and defensible in accordance with standards generally
accepted in the oil and gas industry, subject to such exceptions which, in the
opinion of the Company are not so material as to detract substantially from the
use or value of its interests with respect to such properties. As is customary
in the oil and gas industry, only a perfunctory title examination is performed
when a lease is acquired, except leases covering proved reserves. Generally,
prior to drilling a well, a more thorough title examination of the drill site
tract is conducted and curative work is performed with respect to significant
title defects, if any, before proceeding with operations. The Company's oil and
gas properties are typically subject, in one degree or another, to one or more
of the following: (i) royalty interests and other burdens and obligations,
expressed and implied, under gas leases; (ii) overriding royalty interests,
production payments and similar interests and other burdens created by the
Company or its predecessors in title; (iii) a variety of contractual obligations
arising under operating agreements, farmout agreements, production sales
contracts and other agreements that may affect the properties or their titles;
(iv) liens that arise in the normal course of operations, such as those for
unpaid taxes, statutory liens securing unpaid suppliers and contractors and
contractual liens under operating agreements that are not yet delinquent or, if
delinquent, are being contested in good faith by appropriate proceedings; (v)
pooling, unitization and communitization agreements, declarations and orders;
(vi) easements, restrictions, rights-of-way and other matters that commonly
affect property; (vii) conventional rights of reassignment that obligate the
Company to reassign all or part of a property to a third party if the Company
intends to release or abandon such property; and (viii) rights reserved to or
vested in the appropriate governmental agency or authority to control or
regulate the properties. The Company believes that the burdens and obligations
affecting its oil and gas properties are conventional in the industry for
similar properties and do not, in the aggregate, materially interfere with the
use of such properties.
EMPLOYEES
As of March 31, 1997, the Company had approximately 700 full-time
employees, including four geologists, one geophysicist, seven petroleum
engineers, six landmen and 14 members of the marketing department. Approximately
278 employees are covered by six separate collective bargaining agreements.
These agreements expire on various dates in 1997 and early 1998 and the Company
anticipates renewing each of them. Management believes that its relationship
with its employees is good.
LEGAL PROCEEDINGS
The Company is involved in various legal actions and claims arising in the
ordinary course of business. In addition, Columbia Gas filed a suit in March
1997 against Eastern American alleging that Eastern American's wells are
producing storage gas from a Columbia Gas storage field in West
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Virginia. Columbia Gas estimates its alleged damages to be in excess of $5
million. Eastern American purchased the wells in question from Great Western
Onshore Inc. and Great Western Drilling Inc. (collectively "Great Western")
pursuant to an Asset Purchase and Sale Agreement dated January 28, 1992.
Pursuant to the terms of the Asset Purchase and Sale Agreement, Eastern American
believes that it is entitled to indemnification from Forcenergy, Inc., successor
in interest to Great Western, as a result of Forcenergy's breach of certain
representations and warranties contained therein. While the outcome of this
lawsuit and other proceedings against the Company cannot be predicted with
certainty, management does not expect these matters to have a material adverse
effect on the Company's financial position.
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MANAGEMENT
The current executive officers and Directors of the Company and the current
executive officers of its subsidiaries are listed below, together with a
description of their experience and certain other information. Each of the
Directors was re-elected for a one year term at the Company's December annual
meeting of stockholders. Executive officers are appointed by the Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
Kenneth W. Brill........................ 89 Chairman of the Board of the Company; Director
John Mork............................... 49 President and Chief Executive Officer of the Company;
Director
Joseph E. Casabona...................... 53 Executive Vice President of the Company; Director
J. Michael Forbes....................... 36 Vice President and Treasurer of the Company
Richard E. Heffelfinger................. 38 President of Eastern American; Director
Donald C. Supcoe........................ 40 Vice President, General Counsel and Secretary of Eastern
American
F. H. McCullough, III................... 49 President of Eastern Marketing Corporation; Director
Richard L. Grant........................ 42 President of Mountaineer
Michael S. Fletcher..................... 48 Senior Vice President and Chief Financial Officer of
Mountaineer
Peter H. Coors.......................... 50 Director
L. B. Curtis............................ 72 Director
John J. Dorgan.......................... 73 Director
Arthur C. Nielsen, Jr................... 78 Director
Julie Mork.............................. 46 Director
</TABLE>
Kenneth W. Brill has been the Chairman of the Board of the Company since
its formation. He served as Chairman of Eastern American from 1974 until it
became a wholly owned subsidiary of the Company in 1993. He was employed by
Conoco, Inc. from 1930 to 1973, and served as Vice President and Regional
General Manager of the Rocky Mountain Division for thirteen years.
John Mork has been President and Chief Executive Officer of the Company and
a Director of the Company since its formation. Mr. Mork served in various
capacities at Santa Fe International and Union Oil Company until 1972 when he
joined Pacific States Gas and Oil, Inc. and subsequently founded Eastern
American. Mr. Mork was President and a Director of Eastern American Energy
Corporation from 1973 until 1993. Mr. Mork is a past Director of the Independent
Petroleum Association of America, and the Independent Oil and Gas Association of
West Virginia. He was chapter chairman of the Young Presidents' Organization,
Inc., Rocky Mountain Chapter in 1994-1995. Mr. Mork also founded the Mountain
States Chapter of the Young Presidents' Organization located in Charleston, West
Virginia. He is the husband of Julie Mork. Mr. Mork holds a Bachelor of Science
Degree in Petroleum Engineering from the University of Southern California and
he is a graduate of the Stanford Business School Program for Chief Executive
Officers.
Joseph E. Casabona is Executive Vice President of the Company and has been
a Director since its formation. Mr. Casabona joined Eastern American in 1985 and
was Executive Vice President of Eastern American and a Director from 1987 until
1993. Mr. Casabona was employed in various audit staff capacities from 1967 to
1984 with K. M. G. Main Hurdman ("KPMG, Peat Marwick") and from 1979 to 1984,
Mr. Casabona was an Audit Partner and a Director for Accounting and Auditing at
Main Hurdman's Pittsburgh, Pennsylvania office. Mr. Casabona graduated from the
University of Pittsburgh with a B.S. in Accounting and from the Colorado School
of Mines with an M.S. in mineral economics. Mr. Casabona has been a Certified
Public Accountant since 1967.
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J. Michael Forbes has been Vice President and Treasurer of the Company
since 1995. Mr. Forbes joined Eastern American in 1982 and was the Vice
President of Accounting, Treasurer and Chief Financial Officer of Eastern
American. Mr. Forbes graduated with a B. A. in accounting and finance from
Glenville State College and is a Certified Public Accountant. He also holds a
M.B.A. from Marshall University and is a graduate of Stanford University's
Program for Chief Financial Officers.
Richard E. Heffelfinger is President of Eastern American and has been a
Director of the Company since 1993. Mr. Heffelfinger joined Eastern American in
1980. Mr. Heffelfinger currently serves on the Board of Directors of Capital
State Bank of West Virginia as well as the West Virginia Oil and Natural Gas
Association. He is a member of the Young Presidents' Organization, Mountain
States Chapter, and a past Board Member and President of the Independent Oil and
Gas Association of West Virginia. Mr. Heffelfinger is a graduate of Glenville
State College.
Donald C. Supcoe is Vice President, General Counsel and Secretary of
Eastern American. He has been employed by Eastern American since 1981. Mr.
Supcoe is currently the President of the Independent Oil and Gas Association of
West Virginia and a past Vice President of the Independent Petroleum Association
of America. Mr. Supcoe graduated from West Virginia University with a B.S. in
Business Administration. Mr. Supcoe received a Doctor of Jurisprudence Degree
from West Virginia University College of Law.
F. H. McCullough, III has been a Director of the Company since 1993. Mr.
McCullough joined Eastern American in 1977. Mr. McCullough currently serves as
President of Eastern Marketing Corporation, a wholly-owned subsidiary of Eastern
American. Mr. McCullough was a Director of Eastern American from 1978 until
1993. Mr. McCullough is a graduate of the University of Southern California with
a Bachelor of Arts Degree in International Economics and two Masters Degrees in
Business Administration and Financial Systems Management. He is a graduate of
the Stanford University Graduate Business School Executive Program and a
graduate of the Northwestern University Kellogg Graduate School of Management
Executive Marketing Program.
Richard L. Grant has been President of Mountaineer Gas Company since 1988.
Prior to his service with Mountaineer Gas Company, Mr. Grant served as legal
counsel with the Cincinnati Gas and Electric Company. Mr. Grant is both a
licensed professional engineer and attorney having graduated from Rose Hulman
Institute of Technology and Northern Kentucky University.
Michael S. Fletcher has been Senior Vice President and Chief Financial
Officer of Mountaineer Gas Company since 1987. Prior to that time, Mr. Fletcher
was a partner of Arthur Andersen and Company and was employed by that firm for
15 years. Mr. Fletcher is also a Certified Public Accountant. Mr. Fletcher
graduated from Utah State University with a Bachelors Degree in Accounting.
Peter H. Coors has been a director of the Company since 1996. Mr. Coors is
Vice Chairman of the Board and Chief Executive Officer of Coors Brewing Company
and Vice President of Adolph Coors Company. He received his Bachelors Degree in
Industrial Engineering from Cornell University in 1969, and he earned his
Masters Degree in Business Administration from the University of Denver in 1970.
Mr. Coors also serves on the Board of Directors of First Bank Systems.
L. B. Curtis has been a director of the Company since 1993. Mr. Curtis was
a Director of Eastern American Energy Corporation from 1988 until 1993. Mr.
Curtis is retired from a career at Conoco, Inc. where he held the position of
Vice President of Production Engineering with Conoco Worldwide. Mr. Curtis
graduated from The Colorado School of Mines with an Engineer of Petroleum
Professional degree.
John J. Dorgan has been a Director of the Company since 1993. He served as
a Director for Eastern American Energy Corporation in 1992. He is a former
Executive Vice President and now a consultant to Occidental Petroleum
Corporation where he has worked in various capacities since 1972.
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Arthur C. Nielsen, Jr. has been a Director of the Company since 1993. He
was a Director of Eastern American Energy Corporation from 1985 until 1993. He
is Chairman, Emeritus of A. C. Nielsen Company and serves on the Boards of
Directors of Cafim, Italia', Dataquest, Inc. and General Binding Corporation. He
also serves as senior advisor to the Toshiba Corporation.
Julie M. Mork has been a Director of the Company since 1993. She was a
Director of Eastern American from 1974 until 1993. Mrs. Mork served as a founder
and Secretary/Treasurer of Pacific States Gas and Oil, Inc. and Eastern
American. Mrs. Mork received a B.A. in history from the University of California
in Los Angeles. She is the wife of John Mork.
The Company's Articles of Incorporation provide indemnification for each of
the Company's officers and directors for actions taken in such capacities.
DIRECTORS COMPENSATION
Each director of the Company receives a fee of $2,000 for attendance at
each Board of Directors meeting. Directors of the Company are reimbursed for
out-of-pocket expenses incurred in attending meetings of the Board of Directors
or committees thereof, and for other expenses incurred in their capacity as
directors of the Company.
EXECUTIVE COMPENSATION
The following table sets forth for fiscal year 1996 the total value of
compensation of (i) the Company's Chief Executive Officer and (ii) each other
executive officer of the Company.
<TABLE>
<CAPTION>
ALL OTHER
YEAR SALARY BONUS COMPENSATION(1)
---- -------- -------- ---------------
<S> <C> <C> <C> <C>
John Mork.................................. 1996 $224,000 $197,872 $5,122(5)
President and Chief Executive Officer
Joseph E. Casabona......................... 1996 177,904 213,124(2) 4,624(6)
Executive Vice President
J. Michael Forbes.......................... 1996 115,562 89,986(3) 2,591
Vice President and Treasurer
Richard L. Grant........................... 1996 250,785 25,000 -0-
President of Mountaineer Gas Company
Richard E. Heffelfinger.................... 1996 161,019 123,410(4) 3,714
President of Eastern American Energy
Corporation
</TABLE>
- ---------------
(1) Each of the amounts in this column reflects contributions by the Company to
its 401(k) Plan for the executive officer.
(2) Includes loan forgiveness of $75,000.
(3) Includes loan forgiveness of $32,000.
(4) Includes loan forgiveness of $64,000.
(5) Includes $1,740 in insurance premiums paid on a term life insurance policy
for the benefit of John Mork.
(6) Includes $1,440 in insurance premiums paid on a term life insurance policy
for the benefit of Joseph Casabona.
401(K) PLAN
For certain subsidiaries, the Company sponsors a qualified profit-sharing
plan and salary deferral program (the "401(k) Plan"). Full-time employees of
these subsidiaries are eligible to participate in the 401(k) Plan following
commencement of employment. Participants may defer up to 15% of their total
salary (including bonuses and commissions) each pay period. The Company
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<PAGE> 73
may make profit-sharing contributions to the 401(k) Plan to eligible
participants on a pro rata basis (or equally among all eligible participants)
which vest ratably over a four-year period. For calendar year 1996, the Company
undertook to match 33 1/3% of an employee's contribution and such policy may or
may not be extended by the Board of Directors in subsequent years. All
contributions are credited to separate accounts maintained in trust for each
participant and are invested, at the participant's direction, in one or more of
the investment funds available under the 401(k) Plan. All account balances are
adjusted at least annually to reflect the investment earnings and losses of the
funds. Each participant is fully vested in his or her deferred salary
contributions. Distributions may be made from a participant's account upon
termination of employment, retirement, disability or death. Participants may
also obtain loans from the 401(k) Plan secured by their account balances and may
request withdrawals in the event of certain financial hardship.
The federal tax laws limit the amount which may be added to a participant's
accounts for any one year under a qualified plan, such as the 401(k) Plan, to
the lesser of (i) $30,000 or (ii) 25% of the participant's compensation (net of
deferred salary contributions) for the year. In addition, not more than $9,500
of compensation (subject to periodic cost-of-living adjustments) may be deferred
by a participant through deferred salary contributions in any one calendar year.
MOUNTAINEER RETIREMENT INCOME PLAN
Mountaineer sponsors a non-contributory retirement Income Plan (the
"Pension Plan") which covers substantially all qualified Mountaineer employees
21 years of age and over. Employees became fully vested upon completion of five
years of credited service, as defined. Retirement income is based on credited
years of service and the employees' level of compensation, as defined. The
Pension Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA"). The determination of contributions is made in
consultation with the Pension Plans' actuary and is based upon anticipated
earnings of the Pension Plan, mortality and turnover experience, the funded
status of the Pension Plan and anticipated future compensation levels.
Mountaineer's funding policy is to be in compliance with ERISA guidelines and to
make annual contributions to the Pension Plan to assure that all employees'
benefits will be fully provided for by the time they retire.
The following table reflects the estimated annual pension benefits payable
(assuming the Retirement Income Plan will continue in its present form) upon
retirement at age 65 to covered employees under the Retirement Income Plan based
upon various levels of compensation and years of service.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
FINAL AVERAGE ---------------------------------------------------
COMPENSATION 15 20 25 30 35
------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$300,000....................... $32,900 $42,600 $52,500 $62,300 $65,500
250,000....................... 32,900 42,600 52,500 62,300 65,500
200,000....................... 32,900 42,600 52,500 62,300 65,500
175,000....................... 32,900 42,600 52,500 62,300 65,500
150,000....................... 32,900 42,600 52,500 62,300 65,500
125,000....................... 27,100 34,800 42,800 50,700 53,200
100,000....................... 21,300 27,100 33,100 39,100 41,000
</TABLE>
The remuneration amounts listed above are within 10% of the covered
compensation of the executive officer of Mountaineer named in the Summary
Compensation Table. Benefits reflected above are computed based upon a
straight-life annuity and are subject to Social Security deductions.
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<PAGE> 74
PROFIT SHARING AND INCENTIVE STOCK PLANS
EASTERN AMERICAN PROFIT SHARING PLAN. Eastern American implemented its
Profit Sharing Plan (the "EAEC Plan") in 1987 to assist Eastern American in
attracting and retaining key personnel and executive employees. The EAEC Plan is
administered by a Profit Sharing Committee whose members are selected and
appointed by the Board of Directors. The EAEC Plan requires that a three-member
Committee be in place at all times to oversee the operations of the plan and to
make recommendations to the Board of Directors as to which employees should be
entitled to participate in the plan.
Eligible employees under the EAEC Plan include the following: (i) all
current employees with two or more years of service; (ii) new employees with
more than one year's service in jobs which affect Eastern American's
profitability; and (iii) any employee which the Committee deems as eligible due
to that employee's extraordinary service or contribution.
Profit sharing distributions under the EAEC Plan are calculated as a
portion of Eastern American's base pool, defined as that percentage of cash
operating profit which the Board determines on an annual basis. Cash operating
profit is defined under the EAEC Plan as operating profit or loss plus
depreciation, depletion and impairment allowances less federal income tax
expense and principal reductions on long-term debt. The EAEC Plan calls for the
monies in the base pool to be allocated, one-third of which is placed into an
award pool. The award pool under the EAEC Plan is then divided among six
employee groups with each group receiving a fixed percentage of the award pool
so designated by the Board.
The EAEC Plan requires that the monies in the award pool be distributed
over a two-year period. During the first year, one-half of the award pool must
be distributed to plan participants within 120 days of Eastern American's fiscal
year end. Those eligible employees within each of the six employee groups who
are not executive officers are entitled to mandatory awards equal to an amount
calculated as one-half of the employee's annual base salary divided by the
aggregate base salaries of all eligible employees within the same employee
group. After mandatory awards are disbursed, the remaining funds are to be
distributed among those employees within the six employee groups that have been
chosen by their supervisors as outstanding employees. Payment of one-half of the
monies from the award pool is deferred and added to the award pool for
distribution in the following fiscal year so as to avoid large variances in the
annual distributions. The EAEC Plan allows an employee to earn one-twelfth of
the deferred portion of his or her profit sharing per month for each month of
employment during the second year.
The EAEC Plan may be amended or terminated within the sole discretion of
Eastern American's Board of Directors.
EASTERN AMERICAN INCENTIVE STOCK PLAN. Eastern American currently has an
Incentive Stock Plan (the "Stock Plan") in place which provides certain
employees with the opportunity to use their profit sharing distributions under
the EAEC Plan to purchase incentive stock.
The Stock Plan is administered by the same three-member Committee appointed
by Eastern American's Board to oversee the EAEC Plan. The Stock Plan authorizes
either the Committee or the Board to determine the eligibility of employees
under the Stock Plan. Eligible employees are defined under the Stock Plan as
either (i) members of the upper three employee groups under the EAEC Plan or
(ii) employees who have received discretionary profit sharing awards under the
EAEC Plan based upon their extraordinary service or contribution. No other
employees are eligible to convert their profit sharing distributions under the
EAEC Plan into incentive stock.
Under the Stock Plan, Eastern American is authorized to issue incentive
stock equal to the lesser of 100,000 shares or 5% of Eastern American's total
outstanding stock. Participants in the Stock Plan are entitled to share in the
dividends of Eastern American by an amount equal to the percent by which
incentive stock comprises Eastern American's total shares outstanding, limited,
however, to no more than 10% of the total dividends declared in any one year.
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<PAGE> 75
Participants under the Stock Plan may purchase their incentive shares at a
price equal to six times Eastern American's three-year average net earnings per
share.
MOUNTAINEER PROFIT SHARING PLAN. Mountaineer established its Annual Cash
Profit Sharing Plan (the "Mountaineer Plan") in 1996 to encourage employees and
management to expand and improve the profits and prosperity of Mountaineer while
assisting Mountaineer in attracting and retaining key executive employees and
other personnel. The Mountaineer Plan is administered by a Profit Sharing
Committee whose members are selected and appointed by the Board of Directors.
The Mountaineer Plan entitles the Board to select the number of Committee
members on an annual basis. The Committee is charged with determining which
employees meet the minimum eligibility requirements under the Mountaineer Plan.
Eligible employees under the Mountaineer Plan include the following: (i)
all current full-time employees with two or more years of service; (ii) new
full-time permanent employees with more than one year's service in jobs which
affect Mountaineer's profitability; (iii) any part-time permanent employee in a
job which affects Mountaineer's profitability; and (iv) any employee which the
Committee deems as eligible due to that employee's extraordinary service or
contribution. An employee must be employed by Mountaineer as of the last day of
the fiscal year in order to participate.
Profit sharing distributions under the Mountaineer Plan are calculated as a
portion of Mountaineer's base pool, defined as the amount remaining after the
Board deducts certain expenses from Mountaineer's cash operating profit. Cash
operating profit under the Mountaineer Plan is defined as net income less
principal reductions on long-term debt plus or minus other noncash items which
the Board determines to have impacted net income. One-third of the monies
included in the base pool under the Mountaineer Plan is allocated to an award
pool, a portion of which will ultimately be paid to plan participants in the
form of distributions.
The award pool under the Mountaineer Plan is allocated in the following
manner: First, the Board establishes a fixed percentage of base salaries for the
applicable fiscal year. Amounts in the award pool not exceeding the fixed
percentage, together with 25% of the amount exceeding the fixed percentage,
remain in the award pool. 75% of the amount exceeding the fixed percentage is
allocated to ESC to be used for any purpose determined by ESC's Board of
Directors.
The monies allocated to the award pool are distributed under the
Mountaineer Plan over a two-year period. During the first year, one-half of the
monies from the tiers are distributed to plan participants within 180 days of
Mountaineer's fiscal year end. Eligible employees are divided among seven
different award groups, with each employee being entitled to a mandatory award
equal to an amount calculated as one-half of the employee's annual base salary
divided by the aggregate base salaries of all eligible employees within the same
award group. After each employee receives his or her mandatory award, the
remaining funds are distributed among those employees within the seven award
groups that have been chosen by their supervisors as outstanding employees.
Payment of one-half of the remaining monies in the award pool is deferred and
added to the award pool for the following fiscal year so as to avoid large
variances in distributions from year to year.
The Mountaineer Plan allows for proportionate distributions to be made to
employees in the event of death, retirement, long-term disability or authorized
leave of absence. Under the Mountaineer Plan, the employee or his beneficiary is
entitled to receive a proportionate distribution based upon the actual number of
days worked during the fiscal year, with the remainder reverting to
Mountaineer's award pool for distribution in the following year.
The Mountaineer Plan may be amended or terminated within the sole
discretion of Mountaineer's Board of Directors.
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<PAGE> 76
INCENTIVE STOCK OPTION AGREEMENTS
The Company has granted incentive stock options to Richard E. Heffelfinger,
Donald C. Supcoe and J. Michael Forbes. The incentive stock options were granted
in December 1994 and give each of the employees the option to purchase specified
numbers of shares of the Company's Common Stock at a price of $40.00 per share
over a four year period commencing January 1, 1994 and extending through
December 31, 1997. Messrs. Heffelfinger, Forbes and Supcoe have the option to
purchase 6,400, 3,200 and 3,200 shares of the Company's Common Stock,
respectively. Any Common Stock purchased with respect to these options will be
subject to certain restrictions and limitations upon transfer.
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<PAGE> 77
PRINCIPAL STOCKHOLDERS AND SHARE OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding (i) the share
ownership of the Company by each person known to the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii)
the share ownership of the Company by each Director, (iii) the share ownership
of the Company by certain executive officers and (iv) the share ownership of the
Company by all Directors and executive officers as a group, in each case as of
April 25, 1997. The business address of each officer and Director listed below
is: c/o Energy Corporation of America, 4643 S. Ulster, Suite 1100, Denver,
Colorado 80237.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------
NUMBER OF
SHARES PERCENT
--------- -------
<S> <C> <C>
Kenneth W. Brill(1)......................................... 62,600 9.3%
John Mork(2)................................................ 399,283 59.5
Joseph E. Casabona.......................................... 18,337 2.7
Richard E. Heffelfinger(3).................................. 6,400 *
J. Michael Forbes(4)........................................ 3,200 *
Donald C. Supcoe(4)......................................... 3,200 *
Peter H. Coors.............................................. 150 *
L. B. Curtis................................................ 10,000 1.5
John J. Dorgan.............................................. 650 *
Arthur C. Nielsen, Jr....................................... 36,000 5.4
F. H. McCullough, III(5).................................... 101,925 15.2
Julie Mork(2)............................................... 399,283 59.5
All officers and directors as a group (12 persons).......... 641,745 95.6
</TABLE>
- ---------------
* Less than one percent
(1) Pursuant to agreements dated June 30, 1993 and July 8, 1996, Kenneth W.
Brill granted the Company options to purchase 15,400 and 64,000 shares,
respectively, of the Company's Common Stock owned by him.
(2) Includes 391,200 shares held by John and Julie Mork as joint tenants, 2,183
shares held by Julie Mork individually, and 2,950 shares held by each of the
Alison Mork Trust and the Kyle Mork Trust.
(3) Includes options to purchase 1,600 shares which are exercisable at a price
of $40.00 per share.
(4) Includes options to purchase 800 shares which are exercisable at a price of
$40.00 per share.
(5) Pursuant to an agreement dated May 20, 1997, F. H. McCullough, III and his
wife, Kathy L. McCullough, jointly granted the Company an option to purchase
11,920 shares of the Company's Common Stock owned by them.
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<PAGE> 78
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain officers, directors and key employees of the Company and members of
their families regularly participate in the wells drilled by the Company on an
actual costs basis and share in the costs and revenues on the same basis as the
Company. The Company has the right to select the wells drilled and each officer,
director and key employee participates in all wells included within a Company
drilling program (the "Drilling Program") and cannot selectively choose the
wells in which to participate. The Company typically has a development drilling
component and an exploration drilling component within each years' Drilling
Program. The officers, directors, key employees and their family members may
participate in either or both of the components. The following table identifies
the officers', directors', key employees' and family members' aggregate
investment in the calendar years shown:
<TABLE>
<CAPTION>
1995 1996 1997(1)
---------- -------- --------
<S> <C> <C> <C>
K.W. Brill................................ $ 160,731 $ 32,223 $ 35,000
John Mork(2).............................. 482,510 224,346 175,000
Joseph E. Casabona........................ 31,440 20,858 35,000
J. Michael Forbes......................... 14,252 8,276 15,000
Donald C. Supcoe.......................... 16,480 2,751 0
Richard L. Grant.......................... 0 2,751 25,000
L.B. Curtis............................... 91,665 30,932 35,000
John J. Dorgan............................ 31,351 22,232 35,000
Arthur C. Nielsen, Jr..................... 32,210 24,981 25,000
F. H. McCullough, III..................... 219,663 0 100,000
Lesley McCullough(3)...................... 9,734 3,300 0
Kristen McCullough(3)..................... 9,734 3,300 0
Meredith McCullough(3).................... 9,734 3,300 0
Katherine McCullough(3)................... 9,734 3,300 0
Alison Mork Trust(4)...................... 23,804 11,103 25,000
Kyle Mork Trust(4)........................ 23,804 11,103 25,000
Gary A. Brill(5).......................... 120,076 20,858 0
E.J. Davies............................... 9,086 20,858 35,000
---------- -------- --------
Total:.......................... $1,296,008 $446,472 $565,000
========== ======== ========
</TABLE>
- ---------------
(1) This amount represents only the amount committed to the exploration
component of the 1997 Drilling Program and the actual investment may vary.
(2) Interest of John Mork and Julie Mork held as joint tenants.
(3) Minor children of F. H. McCullough, III and Kathy L. McCullough.
(4) Alison Mork and Kyle Mork are the minor children of John Mork and Julie
Mork.
(5) Gary A. Brill is the son of K.W. Brill.
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<PAGE> 79
Certain officers, directors and key employees of the Company have notes
payable to the Company or its subsidiaries which are secured by such
individual's interests in certain of the Company's drilling programs. The
balance owed by the individuals as of March 31, 1997 was approximately $1
million. The amounts owed by the named officers, directors and key employees, as
of March 31, 1997, are as follows:
<TABLE>
<S> <C>
K.W. Brill.................................................. $303,158
John Mork................................................... 326,224
Joseph E. Casabona.......................................... 44,485
J. Michael Forbes........................................... 7,250
Richard E. Heffelfinger..................................... 4,943
L.B. Curtis................................................. 18,453
Arthur C. Neilsen, Jr....................................... 42,838
F. H. McCullough, III....................................... 168,055
--------
Total............................................. $915,406
========
</TABLE>
In addition to the foregoing notes, various officers and directors of the
Company have borrowed money from the Company and have executed promissory notes
therefor. These promissory notes are generally secured by a pledge of the stock
of the Company or the stock of one of its subsidiaries. As of March 31, 1997,
the following were indebted to the Company in amounts in excess of $60,000:
<TABLE>
<S> <C>
Joseph E. Casabona.......................................... $314,822
F. H. McCullough, III....................................... 190,000
J. Michael Forbes........................................... 64,000
Donald C. Supcoe............................................ 64,000
Richard E. Heffelfinger..................................... 128,000
--------
Total............................................. $760,822
========
</TABLE>
Eastern American entered into an agreement in July 1991 to rent 11,260
square feet of office space in Charleston, West Virginia from a corporation
owned 33.33% by John Mork, 16.667% by each of Kenneth W. Brill, F. H.
McCullough, III and Joseph E. Casabona and 5.57% by each of Donald C. Supcoe,
Richard E. Heffelfinger and J. Michael Forbes. The agreement was amended in
April 1994 to provide for the lease of an aggregate of 19,069 square feet of
office space. The aggregate amount paid by such subsidiary for rent to such
corporation was $337,291 for fiscal year 1996. The Company believes that such
rental terms are no less favorable than could have been obtained from an
unaffiliated party.
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<PAGE> 80
DESCRIPTION OF THE NOTES
The Exchange Notes will be issued, and the Old Notes were issued, pursuant
to the Indenture (the "Indenture") between the Company and The Bank of New York,
as trustee (the "Trustee"). The following is a summary of material provisions of
the Indenture. This summary does not purport to be complete and is subject to
and is qualified in its entirety by reference to all provisions of the Notes and
the Indenture (including provisions made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended), including the definitions therein
of terms not defined herein. Certain terms used herein are defined below under
"-- Certain Definitions." Copies of the proposed form of Indenture and
Registration Rights Agreement are available as set forth under "Available
Information."
GENERAL
The Exchange Notes will be issued solely in exchange for an equal principal
amount of Old Notes pursuant to the Exchange Offer. The form and terms of the
Exchange Notes will be identical in all material respects to the form and terms
of the Old Notes except that the offering of the Exchange Notes has been
registered under the Securities Act, and the Exchange Notes will therefore not
be subject to transfer restrictions, registration rights and certain provisions
relating to an increase in the stated interest rate on the Old Notes under
certain circumstances. See "-- Registered Exchange Offer; Registration Rights."
The Notes are subject to the terms stated in the Indenture, a copy of which has
been filed as an exhibit to the Registration Statement, and holders of the Notes
are referred thereto for a statement of those terms. The statements and
definitions of terms under this caption relating to the Notes and the Indenture
described below are summaries and do not purport to be complete. Such summaries
make use of certain terms defined in the Indenture and are qualified in their
entirety by express reference to the Indenture. Certain terms used herein are
defined below under "-- Certain Definitions."
The Old Notes and the Exchange Notes will constitute a single series of
debt securities under the Indenture. If the Exchange Offer is consummated,
holders of Old Notes who do not exchange their Old Notes for Exchange Notes will
vote together with holders of the Exchange Notes for all relevant purposes under
the Indenture. In that regard, the Indenture requires that certain actions by
the holders thereunder (including acceleration following an Event of Default)
must be taken, and certain rights must be exercised, by specified minimum
percentages of the aggregate principal amount of the outstanding securities
issued under the Indenture. In determining whether holders of the requisite
percentage in principal amount have given any notice, consent or waiver or taken
any other action permitted under the Indenture, any Old Notes that remain
outstanding after the Exchange Offer will be aggregated with the Exchange Notes,
and the holders of such Old Notes and the Exchange Notes will vote together as a
single series for all such purposes. Accordingly, all references herein to
specified percentages in aggregate principal amount of the outstanding Notes
shall be deemed to mean, at any time after the Exchange Offer is consummated,
such percentages in aggregate principal amount of the Old Notes and the Exchange
Notes then outstanding.
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to Senior Debt. See "-- Ranking and
Subordination." For purposes of this section, the term "Company" means Energy
Corporation of America. As of the date of the Indenture, all of the Company's
Subsidiaries were Restricted Subsidiaries. Under certain circumstances, however,
the Company will be able to designate current and future Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to any
of the restrictive covenants set forth in the Indenture. See "-- Certain
Covenants."
TERMS OF THE NOTES
The Notes are limited in aggregate principal amount to $200.0 million and
mature on May 15, 2007. Interest on the Notes accrues at the rate of 9 1/2% per
annum and is payable semi-annually in
76
<PAGE> 81
arrears on May 15 and November 15 of each year, commencing November 15, 1997, to
holders of the Notes of record on the immediately preceding May 1 and November
1. Interest on the Notes accrues from the most recent date on which interest has
been paid or, if no interest has been paid, from the date of original issuance.
Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal, premium, if any, and interest on the Notes is
payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the option of the Company, payment
of interest may be made by check mailed to the holders of the Notes at their
respective addresses set forth in the applicable register of holders of the
Notes. Until otherwise designated by the Company, the Company's office or agency
in New York is the office of the Trustee maintained for such purpose. The Notes
are fully registered as to principal and interest in minimum denominations of
$1,000 and integral multiples of $1,000 in excess thereof.
OPTIONAL REDEMPTION
Except as otherwise described below, the Notes are not be redeemable at the
Company's option prior to May 15, 2002. Thereafter, the Notes are subject to
redemption at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on May 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002................................................... 104.750%
2003................................................... 103.167%
2004................................................... 101.583%
2005 and thereafter.................................... 100.000%
</TABLE>
Prior to May 15, 2000, the Company may, at its option, on any one or more
occasions, redeem up to 33 1/3% of the original aggregate principal amount of
the Notes at a redemption price equal to 109.50% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the redemption
date, with all or a portion of the net proceeds of public sales of Common Stock
of the Company; provided that at least 66 2/3% of the original aggregate
principal amount of the Notes remains outstanding immediately after the
occurrence of such redemption; and provided, further, that such redemption shall
occur within 60 days of the date of the closing of the related sale of Common
Stock of the Company.
SELECTION AND NOTICE
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed, or, if such Notes are not so listed, on a pro rata basis, by lot or by
such method as such Trustee shall deem fair and appropriate; provided that no
Note of $1,000 or less shall be redeemed in part. Notices of redemption shall be
mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each holder of the Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on the Notes or portions of them called for redemption.
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<PAGE> 82
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, the Company has agreed that
it will, at its cost, (i) within 45 days after the date of original issue of the
Old Notes, file the Registration Statement with the SEC with respect to the
Exchange Offer to exchange the Old Notes for Exchange Notes of the Company,
which will have terms substantially identical in all material respects to the
Old Notes (except that the Exchange Notes will not contain terms with respect to
transfer restrictions) and (ii) use its best efforts to cause the Registration
Statement to be declared effective under the Securities Act within 150 days
after the date of original issue of the Old Notes. Upon the effectiveness of the
Registration Statement, the Company will offer the Exchange Notes in exchange
for surrender of the Old Notes. The Company will keep the Exchange Offer open
for not less than 30 days (or longer if required by applicable law) after the
date notice of the Exchange Offer is mailed to the holders of the Old Notes. For
each Old Note surrendered to the Company pursuant to the Exchange Offer, the
holder of such Old Note will receive an Exchange Note having a principal amount
equal to that of the surrendered Old Note. Interest on each Exchange Note will
accrue from the last interest payment date on which interest was paid on the Old
Note surrendered in exchange thereof or, if no interest has been paid on such
Old Note, from the date of its original issue. Under existing SEC
interpretations, the Company believes that the Exchange Notes would be freely
transferable by holders other than affiliates of the Company after the Exchange
Offer without further registration under the Securities Act if the holder of the
Exchange Notes represents that it is acquiring the Exchange Notes in the
ordinary course of its business, that it has no arrangement or understanding
with any person to participate in the distribution of the Exchange Notes and
that it is not an affiliate of the Company, as such terms are interpreted by the
SEC; provided, however, that broker-dealers ("Participating Broker-Dealers")
receiving Exchange Notes in the Exchange Offer will have a prospectus delivery
requirement with respect to resales of such Exchange Notes. The SEC has taken
the position that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to Exchange Notes (other than a resale of an
unsold allotment from the original sale of the Old Notes) with this Prospectus.
Under the Registration Rights Agreement, the Company is required to allow
Participating Broker-Dealers and other persons, if any, with similar prospectus
and delivery requirements to use this Prospectus in connection with the resale
of such Exchange Notes.
A holder of Old Notes (other than certain specified holders) who wishes to
exchange such Old Notes for Exchange Notes in the Exchange Offer will be
required to represent that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business and that at the time of the
commencement of the Exchange Offer it has no arrangement or understanding with
any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes and that it is not an "affiliate" of the
Company, as defined in Rule 405 of the Securities Act, or if it is an affiliate,
it will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
In the event that applicable interpretations of the staff of the SEC do not
permit the Company to effect the Exchange Offer, or if for any other person, the
Exchange Offer is not consummated within 165 days of the date of original issue
of the Old Notes, or if the Initial Purchasers so request with respect to Old
Notes not eligible to be exchanged for Exchange Notes in the Exchange Offer, or
if any holder of Old Notes is not eligible to participate in the Exchange Offer
or does not receive freely tradeable Exchange Notes in the Exchange Offer, the
Company will, at its cost, (a) as promptly as practicable, file a shelf
registration statement (the "Shelf Registration Statement") with the SEC
covering resales of the Old Notes or the Exchange Notes, as the case may be, (b)
use its best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act and (c) keep the Shelf Registration Statement
effective until the earlier of (i) the time when the Notes covered by the Shelf
Registration Statement can be sold pursuant to Rule 144 without any limitations
under clauses (c), (e), (f) and (h) of Rule 144 and (ii) three years from the
Issue Date. The Company will, in the event a Shelf Registration Statement is
filed, among other things, provide
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to each holder for whom such Shelf Registration Statement was filed copies of
the prospectus which is part of the Shelf Registration Statement, notify each
such holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the Old
Notes or the Exchange Notes, as the case may be. A Holder selling such Old Notes
or Exchange Notes pursuant to the Shelf Registration Statement generally would
be required to be named as a selling security holder in the related prospectus
and to delivery a prospectus to purchasers, will be subject to certain of the
civil liability provisions under the Securities Act in connection with such
sales and will be bound by the provisions of the Registration Rights Agreement
which are applicable to such holder (including certain indemnification
obligations).
If (i) the Registration Statement or the Shelf Registration Statement, as
the case may be, is not filed with the Commission on or prior to 45 days after
the Issue Date, (ii) the Registration Statement or the Shelf Registration
Statement, as the case may be, is not declared effective within 150 days after
the Issue Date (or in the case of a Shelf Registration Statement required to be
filed in response to a change in law or the applicable interpretations of
Commissions' staff, if later, within 45 days after publication of the change in
law or interpretation), (iii) the Exchange Offer is not consummated on or prior
to 165 days after the Issue Date, or (iv) the Shelf Registration Statement is
filed and declared effective within 150 days after the Issue Date (or in the
case of a Shelf Registration Statement required to be filed in response to a
change in law or the applicable interpretations of Commission's staff, if later,
within 45 days after publication of the change in law or interpretation) but
shall thereafter cease to be effective (each such event referred to in clauses
(i) through (iv), a "Registration Default"), the Company will pay liquidated
damages to each holder of Transfer Restricted Securities (as defined), during
the period of Registration Default, in an amount equal to $0.192 per week per
$1,000 principal amount of the Notes constituting Transfer Restricted Securities
held by such holder until the applicable Registration Statement is filed or
declared effective, the Exchange Offer is consummated or the Shelf Registration
Statement again becomes effective, as the case may be.
Pursuant to the Registration Rights Agreement, if the Company effects the
Exchange Offer, it will be entitled to close the Exchange Offer 30 days after
the commencement thereof provided that it has accepted all Old Notes theretofore
validly tendered in accordance with the terms of the Exchange Offer.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Right
Agreement, a copy of which is filed as an exhibit to the Registration Statement.
RANKING AND SUBORDINATION
The Notes are unsecured obligations of the Company and the payment of
principal, premium, if any, and interest on the Notes and any other payment
obligations of the Company in respect of the Notes (including any obligation to
repurchase the Notes) are subordinated in certain circumstances in right of
payment, as set forth in the Indenture, to the prior payment in full in cash of
all Senior Debt, whether outstanding on the date of the Indenture or thereafter
incurred, which includes borrowings under the Credit Agreement. The Notes rank
pari passu in right of payment with all other existing and future Pari Passu
Debt (as defined) of the Company, and with any other indebtedness or liability
of the Company which does not expressly provide that it is subordinated in right
of payment to the Notes. The Notes are senior to other indebtedness of the
Company that expressly provides that it is subordinated in right of payment of
the Notes. The Notes are effectively subordinated in right of payment to the
liabilities of the subsidiaries of the Company (including claims of trade
creditors and tort claimants). In the event of bankruptcy, liquidation or
reorganization of the Company, the assets of the Company will be available to
pay obligations on the Notes only after all Senior Debt has been paid in full,
and there may not be sufficient assets remaining to pay amounts due on any or
all of the Notes outstanding. As of March 31, 1997, on a pro forma basis
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giving effect to the Offering and the application of the net proceeds therefrom,
the Company would not have had any Senior Debt outstanding, the Company would
not have had any Pari Passu Debt outstanding, the aggregate principal amount of
indebtedness outstanding of the subsidiaries of the Company would have been
$86.6 million and such subsidiaries would have had $46.4 million of additional
borrowing availability under existing revolving lines of credit. The Indenture
will limit, subject to certain financial tests, the amount of additional
Indebtedness, that the Company and its Restricted Subsidiaries may incur. See
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Disqualified
Stock." In addition to being subordinated to all existing and future Senior
Indebtedness of the Company, the Notes will be effectively subordinated to all
secured debt of the Company and its subsidiaries. The Company's obligations
under the Credit Agreement will be secured by a mortgage on substantially all of
the gas and oil properties of Eastern American, the subsidiary of the Company
that owns and operates substantially all of the Company's gas and oil properties
in the Appalachian Basin. See "Description of Other Indebtedness -- Indebtedness
of the Company -- Credit Agreement."
The Company conducts all of its operations through subsidiaries.
Accordingly, the Company relies on dividends and cash advances from its
subsidiaries to provide funds necessary to meet its obligations, including the
payment of principal and interest on the Notes. The ability of any such
subsidiary to pay dividends or make cash advances is subject to applicable laws
and contractual restrictions, including restrictions under credit agreements
between such subsidiary and third party lenders, as well as the financial
condition and operating requirements of such subsidiary. See "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock,"
"-- Certain Covenants -- Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries" and "Description of Other Indebtedness -- Indebtedness
of Subsidiaries."
Upon any payment or distribution of property or securities to creditors of
the Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, or in an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Senior Debt
will be entitled to receive payment in full of all Obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether or not a
claim for such interest would be allowed in a proceeding) before the holders of
the Notes will be entitled to receive any payment with respect to the Notes, and
until all Obligations with respect to Senior Debt are paid in full, any
distribution to which the holders of the Notes would be entitled shall be made
to the holders of Senior Debt (except that holders of the Notes may receive (i)
Equity Interests and securities that are subordinated at least to the same
extent as the Notes are subordinated to Senior Debt and (ii) payments made from
the trust described under "-- Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment (whether by redemption, purchase,
retirement defeasance or otherwise) upon or in respect of the Notes (except (i)
payment of Equity Interests and securities that are subordinated at least to the
same extent as the Notes are subordinated to Senior Debt and (ii) payments made
from the trust described under "-- Legal Defeasance and Covenant Defeasance") if
(i) a default in the payment of the principal of, premium, if any, or interest
on Designated Senior Debt occurs ("payment default") or (ii) any other default
occurs and is continuing with respect to Designated Senior Debt that permits, or
with the giving of notice or passage of time or both (unless cured or waived)
will permit, holders of the Designated Senior Debt as to which such default
relates to accelerate its maturity ("non-payment default") and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the Company
or the holders of any Designated Senior Debt. Cash payments on the Notes shall
be resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived and (b) in case of a nonpayment default, the earlier
of the date on which such nonpayment default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Debt has been accelerated or a
default of the type described in
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clause (ix) under the caption "Events of Default" has occurred and is
continuing. No new period of payment blockage may be commenced unless and until
360 days have elapsed since the date of commencement of the payment blockage
period resulting from the immediately prior Payment Blockage Notice. No
nonpayment default in respect of Designated Senior Debt that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice unless
such default shall have been cured or waived for a period of no less than 90
days.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency of the Company, holders of the Notes may recover
less ratably than creditors of the Company who are holders of Senior Debt.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each holder of the Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount of the Notes plus accrued and
unpaid interest, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company will (i)
mail a notice to each holder describing the transaction or transactions that
constitute the Change of Control and (ii) offer to repurchase the Notes pursuant
to the procedures required by the Indenture and described in such notice on a
date no earlier than 30 days nor later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"). The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all the Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the relevant Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of such Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each holder of
the Notes so tendered the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each tendering holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Indenture provides that, prior to complying with the provisions of
this covenant, but in any event within 30 days following a Change of Control,
the Company will either repay all outstanding Senior Debt or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Debt to permit the repurchase of the Notes required by
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this covenant. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization, restructuring or similar transaction. Although the
existence of a holder's right to require the Company to repurchase the Notes in
respect of a Change of Control may deter a third party from acquiring the
Company in a transaction that constitutes a Change of Control, the provisions of
the Indenture relating to a Change of Control in and of themselves may not
afford holders of the Notes protection in the event of a highly leveraged
transaction, reorganization, recapitalization, restructuring, merger or similar
transaction involving the Company that may adversely affect holders, if such
transaction is not the type of transaction included within the definition of a
Change of Control.
The Company will not be required to make a Change of Control Offer if a
third party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a holder of the Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
The Credit Agreement provides that certain Change of Control events with
respect to the Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. Moreover, the
exercise by the holders of their rights to require the Company to repurchase the
Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. In the event a Change of Control occurs at a time when the Company is
prohibited from purchasing Notes by the Credit Agreement or other agreements
relating to Senior Debt, the Company could seek the consent of its lenders to
the purchase of Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will be prohibited from purchasing Notes. In such case,
the Company's failure to purchase tendered Notes would constitute an Event of
Default under the Indenture which would, in turn, constitute a default under the
Credit Agreement. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the holders of Notes. Finally, the
Company's ability to pay cash to the holders of Notes following the occurrence
of a Change of Control may be limited by the Company's then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required repurchases. The provisions under the
Indenture relating to the Company's obligation to make an offer to repurchase
the Notes as a result of a Change of Control may be waived or modified with the
prior written consent of the holders of a majority in principal amount of the
Notes.
Restrictions in the Indenture described herein on the ability of the
Company and its Subsidiaries to incur additional Indebtedness, to grant Liens on
its or their property, to make Restricted Payments and to make Asset Sales may
also make difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Notes, and
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there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. In
certain circumstances, such restrictions and the restrictions on transactions
with Affiliates may make more difficult or discourage any leveraged buyout of
the Company or any of its Subsidiaries. While such restrictions cover a variety
of arrangements which have traditionally been used to effect highly leveraged
transactions, the Indenture may not afford the holders of Notes protection in
all circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined in good faith by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee, which determination
shall be conclusive evidence of compliance with this provision) of the assets or
Equity Interests issued or sold or otherwise disposed of and (ii) the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash, Cash Equivalents or assets that are useful in the Energy
Business ("Energy Business Assets"); provided that (A) the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet), of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Restricted Subsidiary from further liability and (y) any non-cash
consideration received by the Company or any such Restricted Subsidiary from
such transferee that are converted by the Company or such Restricted Subsidiary
into cash within 180 days of closing such Asset Sale, shall be deemed to be cash
for purposes of this provision (to the extent of the cash received) and (B) the
Company or such Restricted Subsidiary may accept consideration (including
consideration in the form of assumption of liabilities) from such Asset Sale in
other than cash, Cash Equivalents and Energy Business Assets if the aggregate
fair market value (as determined in good faith by the Company's Board of
Directors and evidenced by a resolution of such Board) of all consideration from
all Asset Sales since the date of the Indenture that is other than cash, Cash
Equivalents and Energy Business Assets ("Other Consideration") at the time of
such Asset Sale, less the sum of the amount of any cash and Cash Equivalents and
the fair market value (as determined in good faith by the Company's Board of
Directors and evidenced by a resolution of such Board) of any Energy Business
Assets realized from, or received in exchange for, any Other Consideration prior
to the time of such Asset Sale, does not exceed 5% of Total Assets at the time
of such Asset Sale.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to reduce Senior
Debt, Guarantor Senior Indebtedness or Pari Passu Debt (provided that, in
connection with a reduction of Pari Passu Debt, the Company or such Restricted
Subsidiary redeems a pro rata portion of the Notes), (b) to acquire a
controlling interest in another Energy Business if, as a result of such
acquisition, such other Energy Business became a Restricted Subsidiary, (c) to
make capital expenditures in respect of the Company's or its Restricted
Subsidiaries' Energy Business, (d) to purchase long-term assets that are used or
useful in the Energy Business or (e) to repurchase any Notes. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce Senior
Debt that is revolving debt or otherwise invest such Net Proceeds in any manner
that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that
are not applied as provided in the first sentence of this paragraph will (after
the expiration of the 360 day period specified in the first sentence of this
paragraph) be deemed to constitute "Excess Proceeds."
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When the aggregate amount of Excess Proceeds from one or more Asset Sales
exceeds $10 million, the Company will be required to make an offer to all
holders of the Notes and, to the extent required by the terms of Pari Passu
Debt, to all holders or lenders thereof (an "Asset Sale Offer") to purchase the
maximum principal amount of the Notes and any such Pari Passu Debt to which the
Asset Sale Offer applies that may be purchased out of the Excess Proceeds, at an
offer price in cash equal to 100% of the principal amount thereof plus accrued
and unpaid interest thereon to the date of purchase and, with respect to Pari
Passu Debt, any applicable premium specified in the agreements relating thereto,
in accordance with the procedures set forth in the Indenture or the agreements
governing the Pari Passu Debt, as applicable. To the extent that the aggregate
principal amount of the Notes and Pari Passu Debt tendered pursuant to an Asset
Sale Offer, plus accrued and unpaid interest thereon to the date of purchase
and, if applicable, premium on Pari Passu Debt, is less than the Excess
Proceeds, the Company or any Restricted Subsidiary may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
the Notes surrendered by holders thereof and other Pari Passu Debt surrendered
by holders or lenders thereof, collectively, plus accrued and unpaid interest
thereon to the date of purchase and, if applicable, premium on Pari Passu Debt,
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and
Pari Passu Debt to be purchased on a pro rata basis, based on the aggregate
principal amount thereof surrendered in such Asset Sale Offer. Upon completion
of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Credit Agreement may prohibit the Company from purchasing any Notes
with Excess Proceeds. Any future credit agreements or other agreements relating
to Senior Debt to which the Company becomes a party may contain similar
prohibitions and restrictions. In the event the Company is required to make an
Asset Sale Offer at a time when the Company is prohibited from purchasing the
Notes by the Credit Agreement or other agreements relating to Senior Debt, the
Company could seek the consent of its lenders to the purchase of Notes pursuant
to an Asset Sale Offer or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company may remain prohibited from purchasing the Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
the Credit Agreement. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the holders of the Notes.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the Equity
Interests of the Company or any Restricted Subsidiary (including, without
limitation, any payment in connection with any merger or consolidation involving
the Company) to the direct or indirect holders of the Company's Equity Interests
in their capacity as such (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or a Restricted
Subsidiary and other than dividends or distributions payable to the Company or a
Restricted Subsidiary so long as, in the case of any dividend or distribution
payable on or in respect of any class or series of securities issued by a
Subsidiary other than a Wholly Owned Restricted Subsidiary, the Company or a
Restricted Subsidiary receives at least its pro rata share of such dividend or
distribution in accordance with its Equity Interests in such class or series of
securities); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent or other
Affiliate of the Company that is not a Restricted Subsidiary of the Company;
(iii) make any principal payment on, or purchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness that is subordinated to the Notes,
except at final maturity; or (iv) make any Restricted Investment (all such
payments and other
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actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (2), (3) and (5) of the next succeeding paragraph), is less than
the sum of (i) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds received
by the Company from the issue or sale since the date of the Indenture of
Equity Interests of the Company or of debt securities of the Company that
have been converted into or exchanged for such Equity Interests (other than
Equity Interests (or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or debt securities that have
been converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the date of the Indenture is sold
for cash or otherwise liquidated or repaid for cash, the lesser of (A) the
net proceeds of such sale, liquidation or repayment and (B) the amount of
such Restricted Investment.
The foregoing provisions will not prohibit (1) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (2) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph; (3) the defeasance, redemption
or repurchase of subordinated Indebtedness with the net cash proceeds from an
incurrence of subordinated Permitted Refinancing Debt or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity Interests
of the Company (other than Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (4) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Subsidiary of
the Company held by any of the Company's (or any of its Subsidiaries') employees
pursuant to any stock repurchase agreement, management equity subscription
agreement or stock option agreement in effect as of the date of the Indenture;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $2 million in any
twelve-month period; and provided further that no Default or Event of Default
shall have occurred and be continuing immediately after such transaction; (5)
repurchases of Equity Interests deemed to occur upon exercise of stock options
if such Equity Interests represent a portion of the exercise price of such
options ; (6) the payment of the redemption price of rights issued pursuant to
any shareholders' rights plan not in excess of $0.05 per right and not in excess
of $1,000,000 in the aggregate; (7) payments made by the Company to
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any Subsidiary or by any Subsidiary to the Company or another Subsidiary
pursuant to any tax sharing agreement; (8) the payment of dividends with respect
to shares of Capital Stock of any Subsidiary of the Company to holders thereof
who are employees or directors of such Subsidiary in an aggregate amount not to
exceed $350,000 in any 12-month period for all such shares of Capital Stock of
Subsidiaries of the Company; and (10) Restricted Payments in an aggregate amount
since the date of the Indenture not to exceed $10,000,000.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (as determined in good faith by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee, which
determination shall be conclusive evidence of compliance with this provision) on
the date of the Restricted Payment of the asset(s) proposed to be transferred by
the Company or the applicable Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment. Not later than five days after the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company and any Subsidiary
Guarantors will not issue any Disqualified Stock and will not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that the Company may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have
been at least 2.5 to 1, determined on a pro forma basis as set forth in the
definition of Fixed Charge Coverage Ratio; and
(ii) no Default or Event of Default shall have occurred and be
continuing at the time such additional Indebtedness is incurred or such
Disqualified Stock is issued or would occur as a consequence of the
incurrence of the additional Indebtedness or the issuance of the
Disqualified Stock.
Notwithstanding the foregoing, the Indenture will not prohibit any of the
following (collectively, "Permitted Indebtedness"): (a) the Indebtedness
evidenced by the Notes; (b) the incurrence by the Company and any Subsidiary
Guarantor, if any, of Indebtedness pursuant to Credit Facilities, so long as the
aggregate principal amount of all Indebtedness outstanding under all Credit
Facilities does not, at any one time, exceed the greater of (i) $50 million or
(ii) 10% of Total Assets determined as of the incurrence of the Indebtedness;
(c) the guarantee by any Restricted Subsidiary of any Indebtedness that is
permitted by the Indenture to be incurred by the Company, provided that the
covenant under the caption entitled "-- Certain Covenants -- Limitation on
Guarantees of Indebtedness by Restricted Subsidiaries" is satisfied in
connection with the issuance of such guarantee; (d) all Indebtedness,
Disqualified Stock and preferred stock of the Company and its Restricted
Subsidiaries in existence as of the date of the Indenture or permitted to be
incurred under any agreement to which any Restricted Subsidiary of the Company
is a party in existence on the date of the Indenture; (e) intercompany
Indebtedness between or among the Company and any of its Wholly Owned Restricted
Subsidiaries, or between or among Wholly Owned Restricted Subsidiaries;
provided, however, that (i) if the Company is the obligor on such Indebtedness,
such Indebtedness is expressly subordinate to the payment in full of all
Obligations with respect to the Notes and (ii)(A) any subsequent issuance or
transfer of Equity Interests that
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results in any such Indebtedness being held by a Person other than the Company
or a Wholly Owned Subsidiary and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Subsidiary shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Subsidiary, as the case may be; (f)
Indebtedness in connection with one or more standby letters of credit,
guarantees, performance bonds or other reimbursement obligations, in each case,
issued in the ordinary course of business and not in connection with the
borrowing of money or the obtaining of advances or credit (other than advances
or credit on open account, includible in current liabilities, for goods and
services in the ordinary course of business and on terms and conditions which
are customary in the Energy Business, and other than the extension of credit
represented by such letter of credit, guarantee or performance bond itself), not
to exceed, in the aggregate at any given time, 5% of Total Assets; (g)
Indebtedness under Interest Rate Hedging Agreements entered into for the purpose
of limiting interest rate risks, provided that the obligations under such
agreements are related to payment obligations on Indebtedness otherwise
permitted by the terms of this covenant and that the aggregate notional
principal amount of such agreements does not exceed the principal amount of the
Indebtedness to which such agreements relate; (h) Indebtedness under Oil and Gas
Hedging Contracts, provided that such contracts were entered into in the
ordinary course of business for the purpose of limiting risks that arise in the
ordinary course of business of the Company and its Restricted Subsidiaries; (i)
the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness not otherwise permitted to be incurred pursuant to this paragraph,
provided that the aggregate principal amount of all Indebtedness incurred
pursuant to this clause (i), together with all Permitted Refinancing Debt
incurred pursuant to clause (j) of this paragraph in respect of Indebtedness
previously incurred pursuant to this clause (i), does not exceed, at any one
time outstanding, 5% of Total Assets; (j) Permitted Refinancing Debt incurred in
exchange for, or the net proceeds of which are used to refinance, extend, renew,
replace, defease or refund, Indebtedness that was permitted by the Indenture to
be incurred (including Indebtedness previously incurred pursuant to this clause
(j), but excluding Indebtedness under clauses (c), (e), (f), (g), (h), (k), (l)
and (m)); (k) accounts payable or other obligations of the Company or any
Restricted Subsidiary to trade creditors created or assumed by the Company or
such Restricted Subsidiary in the ordinary course of business in connection with
the obtaining of goods or services; (l) Indebtedness consisting of obligations
in respect of purchase price adjustments, guarantees or indemnities in
connection with the acquisition or disposition of assets; (m) production
imbalances that do not, at any one time outstanding, exceed 2% of the Total
Assets of the Company; (n) Indebtedness of a Subsidiary Guarantor, if any, in
respect of the Subsidiary Guarantee of such Subsidiary Guarantor; and (o) the
incurrence of Indebtedness or the issuance of Disqualified Stock by Mountaineer
so long as (i) the Debt to Cash Flow Ratio for Mountaineer's most recently ended
four full fiscal quarters immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been no more than 3 to 1, determined on a pro forma basis as set forth in
the definition of Debt to Cash Flow Ratio and (ii) no Default or Event of
Default shall have occurred and be continuing at the time such additional
Indebtedness is incurred or would occur as a consequence of the incurrence of
the additional Indebtedness. ESC may not incur any additional indebtedness.
No Layering
The Indenture provides that the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes, provided, however, that the foregoing
limitations will not apply to distinctions between categories of Indebtedness
that exist by reason of any Liens arising or created in accordance with the
provisions of the Indenture in respect of some but not all such Indebtedness.
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Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien securing Indebtedness of any kind
(other than Permitted Liens) upon any of its property or assets, now owned or
hereafter acquired, unless contemporaneously therewith all payments under the
Notes are secured on an equal and ratable basis with the obligations so secured
until such time as such obligations are no longer secured by a Lien.
The Indenture provides that no Subsidiary Guarantor will directly or
indirectly create, incur, assume or suffer to exist any Lien that secures
obligations under any Pari Passu Debt or under any subordinated Indebtedness of
such Subsidiary Guarantor on any asset or property of such Subsidiary Guarantor
or any income or profits therefrom, or assign or convey any right to receive
income therefrom, unless the Subsidiary Guarantee of such Subsidiary Guarantor
is equally and ratably secured with the obligations so secured or until such
time as such obligations are no longer secured by a Lien.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company or its Restricted Subsidiaries may enter
into a sale and leaseback transaction if (i) the Company could have incurred
Indebtedness in an amount equal to the Attributable Debt relating to such sale
and leaseback transaction pursuant to the test set forth in the first paragraph
of the covenant described above under the caption "Incurrence of Indebtedness
and Issuance of Disqualified Stock" or (ii) the gross cash proceeds of such sale
and leaseback transaction are at least equal to the fair market value (as
determined in good faith by a resolution the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee, which determination shall be
conclusive evidence of compliance with this provision) of the property that is
the subject of such sale and leaseback transaction and the transfer of assets in
such sale and leaseback transaction is permitted by, and the Company applies the
net proceeds of such transaction in compliance with, the covenant described
above under the caption "Repurchase at the Option of Holders -- Asset Sales."
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(x) pay dividends or make any
other distributions to the Company or any of the Restricted Subsidiaries of the
Company on its Capital Stock or (y) pay any indebtedness owed to the Company or
any Restricted Subsidiaries of the Company, (ii) make loans or advances to the
Company or any Restricted Subsidiary of the Company or (iii) transfer any of its
properties or assets to the Company or any Restricted Subsidiary of the Company,
except for such encumbrances or restrictions existing under or by reason of (a)
the Credit Agreement as in effect as of the date of the Indenture, and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof or any other Credit Facility,
provided that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements, refinancings or other Credit Facilities
are no more restrictive with respect to such dividend and other payment
restrictions than those contained in the Credit Facilities as in effect on the
date of the Indenture, (b) the Indenture and the Notes, (c) applicable law or
regulations or any order, ruling or other determination by a governmental
regulatory authority, (d) any instrument governing Indebtedness or Capital Stock
of a Person acquired by the Company or any of its Restricted Subsidiaries
(through the acquisition of Capital Stock or through a merger or consolidation)
as in effect at the time of such acquisition (except, in the case of
Indebtedness, to the extent such Indebtedness was incurred in connection with or
in contemplation of such acquisition), which encumbrance or
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restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person and its Subsidiaries, or the property or assets of
the Person and its Subsidiaries, so acquired, provided that, in the case of
Indebtedness, such Indebtedness or Disqualified Stock was permitted by the terms
of the Indenture to be incurred, (e) by reason of customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (f) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, (g)
Permitted Refinancing Debt, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Debt are no more restrictive
than those contained in the agreements governing the Indebtedness being
refinanced or (h) any instrument governing Indebtedness or preferred stock of a
Restricted Subsidiary in existence on the date of the Indenture.
Limitation on Guarantees of Indebtedness by Restricted Subsidiaries
(a) The Indenture provides that the Company will not permit any Restricted
Subsidiary to guarantee the payment of any Indebtedness of the Company or any
Indebtedness of any other Restricted Subsidiary (in each case, the "Guaranteed
Debt") unless (i) if such Restricted Subsidiary is not a Subsidiary Guarantor,
such Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a Subsidiary Guarantee of payment of
the Notes by such Restricted Subsidiary, (ii) if the Notes or the Subsidiary
Guarantee (if any) of such Restricted Subsidiary are subordinated in right of
payment to the Guaranteed Debt, the Subsidiary Guarantee under the supplemental
indenture shall be subordinated to such Restricted Subsidiary's guarantee with
respect to the Guaranteed Debt substantially to the same extent as the Notes or
the Subsidiary Guarantee are subordinated to the Guaranteed Debt under the
Indenture, (iii) if the Guaranteed Debt is by its express terms subordinated in
right of payment to the Notes or the Subsidiary Guarantee (if any) of such
Restricted Subsidiary, any such guarantee of such Restricted Subsidiary with
respect to the Guaranteed Debt shall be subordinated in right of payment to such
Restricted Subsidiary's Subsidiary Guarantee with respect to the Notes
substantially to the same extent as the Guaranteed Debt is subordinated to the
Notes or the Subsidiary Guarantee (if any) of such Restricted Subsidiary, (iv)
such Restricted Subsidiary waives and will not in any manner whatsoever claim or
take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee; and (v) such Restricted Subsidiary shall deliver to the
Trustee an opinion of counsel to the effect that (A) such Subsidiary Guarantee
of the Notes has been duly executed and authorized and (B) such Subsidiary
Guarantee of the Notes constitutes a valid, binding and enforceable obligation
of such Restricted Subsidiary, except insofar as enforcement thereof may be
limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; provided that
this paragraph (a) shall not be applicable to any guarantee of any Restricted
Subsidiary that (A) existed at the time such Person became a Restricted
Subsidiary of the Company and (B) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of the Company.
(b) Notwithstanding the foregoing and the other provisions of the
Indenture, any Subsidiary Guarantee by a Restricted Subsidiary of the Notes
shall provide by its terms that it shall be automatically and unconditionally
released and discharged upon (i) any sale, exchange or transfer, to any Person
not an Affiliate of the Company, of all of the Company's Capital Stock in, or
all or substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) in the case of
a guarantee incurred pursuant to clause (a) of this covenant, the release or
discharge of the guarantee which resulted in the creation of such Subsidiary
Guarantee, except a discharge or release by or as a result of payment under such
guarantee.
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Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries
The Indenture provides that the Company will not sell or otherwise dispose
of any shares of Capital Stock of a Restricted Subsidiary, and shall not permit
any Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise
dispose of any shares of its Capital Stock except (i) to the Company or a Wholly
Owned Restricted Subsidiary, (ii) if, immediately after giving effect to such
issuance, sale or other disposition, such Restricted Subsidiary remains a
Restricted Subsidiary, (iii) shares of nonvoting Capital Stock of Restricted
Subsidiaries may be issued or sold to employees or directors of the Company or
any Subsidiary or (iv) if all shares of Capital Stock of such Restricted
Subsidiary are sold or otherwise disposed of; provided, however, that in
connection with any sale pursuant to this clause (iv), the Company may retain no
more than 10% of the outstanding Capital Stock of the Restricted Subsidiary
being sold as security for the payment of the purchase price in connection with
such sale or as security for the payment or performance of any other obligation
or liability of the purchaser in connection therewith. In connection with any
such sale or disposition of Capital Stock, the Company will be required to
comply with the covenant described under the caption "-- Asset Sales" above.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets, in one or more related transactions, to another
Person, and the Company may not permit any of its Restricted Subsidiaries to
enter into any such transaction or series of transactions if such transaction or
series of transactions would, in the aggregate, result in a sale, assignment,
transfer, lease, conveyance, or other disposition of all or substantially all of
the properties or assets of the Company to another Person unless (i) the Company
is the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (the "Surviving Entity") is a corporation organized or existing under the
laws of the United States, any state thereof or the District of Columbia; (ii)
the Surviving Entity (if the Company is not the continuing obligor under the
Indenture) assumes all the obligations of the Company under the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately before and after giving effect to such
transaction or series of transactions no Default or Event of Default exists;
(iv) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (and treating any Indebtedness not previously
an obligation of the Company and its Subsidiaries which becomes the obligation
of the Company or any of its Subsidiaries as a result of such transaction as
having been incurred at the time of such transaction or series of transactions),
the Consolidated Net Worth of the Company and its Subsidiaries or the Surviving
Entity (if the Company is not the continuing obligor under the Indenture) is
equal to or greater than the Consolidated Net Worth of the Company and its
Subsidiaries immediately prior to such transaction or series of transactions;
(v) each Subsidiary Guarantor, if any, unless it is the other party to the
transactions described above, shall have by supplemental indenture confirmed
that its Subsidiary Guarantee shall apply to such Person's obligations under the
Indenture and the Notes; and (vi) the Company or the Surviving Entity (if the
Company is not the continuing obligor under the Indenture) will, at the time of
such transaction or series of transactions and after giving pro forma effect
thereto as if such transaction or series of transactions had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the test set forth in the first
paragraph of the covenant described above under the caption "-- Incurrence of
Indebtedness and Issuance of Disqualified Stock"; provided, however, that the
requirements of clause (vi) above shall not apply with respect to a merger of
the Company with and into a Wholly Owned Restricted Subsidiary, a merger of a
Wholly Owned Restricted Subsidiary with and into the Company or a merger of a
Wholly Owned Restricted Subsidiary with and into another Wholly Owned Restricted
Subsidiary.
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Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any of
its Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i)
such Affiliate Transaction is on terms that are no less favorable to the Company
or the relevant Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $2.0 million but less than or equal to $5
million, an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above, (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $5 million but less than or equal to $10 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved in good faith by a majority of the members of the
Board of Directors who are disinterested with respect to such Affiliate
Transaction, which resolution shall be conclusive evidence of compliance with
this provision, and (c) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$10 million, an opinion as to the fairness to the holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal,
engineering or investment banking firm of national standing; provided that the
following shall not be deemed Affiliate Transactions: (1) transactions
contemplated by any employment agreement or other compensation plan or
arrangement entered into by the Company or any of its Subsidiaries in the
ordinary course of business and consistent with the past practice of the Company
or such Subsidiary, (2) transactions between or among the Company and/or its
Subsidiaries, (3) Restricted Payments and Permitted Investments that are
permitted by the provisions of the Indenture described above under the caption
"-- Restricted Payments" and (4) the following agreements in effect on the date
of the Indenture: (i) that certain Lease Agreement dated May 11, 1987 between
Texas International Petroleum Corporation, predecessor to Energy Centre, Inc.,
and Eastern American, including all amendments thereto; (ii) that certain
Agreement dated June 30, 1993 between Kenneth W. Brill and the Company granting
the Company an option to purchase 15,400 shares of the Company's Common Stock
owned by Mr. Brill; (iii) that certain Buy-Sell Stock Option Agreement dated
July 8, 1996 between Kenneth W. Brill and the Company granting the Company an
option to purchase 64,000 shares of the Company's Common Stock owned by Mr.
Brill; (iv) that certain Buy-Sell Stock Option Agreement dated May 20, 1997
between F. H. McCullough, III, Kathy L. McCullough and the Company granting the
Company an option to purchase 11,920 shares of the Company's Common Stock owned
jointly by F. H. McCullough, III and Kathy L. McCullough; (v) the Eastern
American Incentive Stock Plan implemented by the Company in 1987; (vi) those
certain Incentive Stock Option Agreements dated December 1994 between the
Company and J. Michael Forbes, Donald C. Supcoe and Richard E. Heffelfinger,
granting the individuals the option to purchase 3,200, 3,200 and 6,400 shares of
the Company's Common Stock, respectively; and (vii) Drilling Programs between
the Company and its officers and directors.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any material respect in any business other than the Energy Business.
Commission Reports
Notwithstanding that the Company may not be required to remain subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the
extent permitted by the Exchange
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Act the Company will file with the Commission and provide, within 15 days after
such filing, the Trustee and holders and prospective holders (upon request) with
the annual reports and the information, documents and other reports which are
specified in Sections 13 and 15(d) of the Exchange Act. In the event that the
Company is not permitted to file such reports, documents and information with
the Commission, the Company will provide substantially similar information to
the Trustee, the holders, and prospective holders (upon request) as if the
Company were subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act. The Company also will comply with the other provisions of Section
314(a) of the Trust Indenture Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) a default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) a default in payment when due of the principal of or premium,
if any, on the Notes (whether or not prohibited by the subordination provisions
of the Indenture); (iii) the failure by the Company to comply with its
obligations under "-- Certain Covenants -- Merger, Consolidation or Sale of
Assets" above; (iv) the failure by the Company for 30 days after notice from the
Trustee or the holders of at least 25% in aggregate principal amount of the
Notes then outstanding to comply with the provisions described under the
captions "-- Repurchase at the Option of Holders" and "-- Certain Covenants"
other than the provisions described under "-- Merger, Consolidation or Sale of
Assets"; (v) failure by the Company for 60 days after notice from the Trustee or
the holders of at least 25% in aggregate principal amount of the Notes then
outstanding to comply with any of its other agreements in the Indenture or the
Notes; (vi) except as permitted by the Indenture, any Subsidiary Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or a Subsidiary Guarantor, or any
Person acting on behalf of such Subsidiary Guarantor, shall deny or disaffirm
its obligations under its Subsidiary Guarantee; (vii) a default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there is then existing a Payment Default or, the maturity of which
has been so accelerated, aggregates $10.0 million (or its equivalent in any
other currency) or more; (viii) the failure by the Company or any of its
Restricted Subsidiaries to pay final, non-appealable judgments by courts of
competent jurisdiction aggregating in excess of $10.0 million, which judgments
remain unpaid or discharged for a period of 90 days (net of applicable insurance
coverage which is acknowledged in writing by the insurer or which has been
determined to be applicable by a final, nonappealable determination by a court
of competent jurisdiction); and (ix) certain events of bankruptcy or insolvency
with respect to the Company or any of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the Notes then outstanding may
declare the principal of and accrued but unpaid interest on such Notes to be due
and payable immediately. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency, with respect
to the Company or any Subsidiary, all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
the Indenture or the Notes except as provided in the Indenture. Subject to
certain limitations, holders of a majority in principal amount of the Notes then
outstanding may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from holders of the Notes notice of any continuing Default
or Event of Default (except
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a Default or Event of Default relating to the payment of principal or interest)
if it determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest or premium on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company or any Subsidiary
Guarantor is required, within five business days of becoming aware of any
Default or Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes and have each
Subsidiary Guarantor's, if any, obligation discharged with respect to its
Subsidiary Guarantee ("Legal Defeasance") except for (i) the rights of holders
of such outstanding Notes to receive payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due from the
trust referred to below, (ii) the Company's obligations with respect to such
Notes concerning issuing temporary Notes, registration of such Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and have each Subsidiary Guarantor's, if any,
obligation discharged with respect to its Subsidiary Guarantee released with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default and
Remedies" will no longer constitute an Event of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to such Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to such Trustee
confirming that the holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of
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Default resulting from the borrowing of funds to be applied to such deposit) or
insofar as Events of Default from bankruptcy or insolvency events are concerned,
at any time in the period ending on the 91st day after the date of deposit: (v)
such Legal Defeasance or Covenant Defeasance will not result in a breach or
violation of, or constitute a default under any material agreement or instrument
(other than the Indenture) to which the Company or any of its Restricted
Subsidiaries is a party or by which the Company or any of its Restricted
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of the Notes over the other creditors of the Company,
or with the intent of defeating, hindering, delaying or defrauding creditors of
the Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of the Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes and the Subsidiary Guarantees, if any, may be amended or supplemented
with the consent of the holders of at least a majority in principal amount of
the Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, the
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder): (i) reduce the
principal amount of the Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note, (iii) reduce the rate of or change the time for payment of interest
on any Note, (iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a rescission
of acceleration of the Notes by the holders of at least a majority in principal
amount of such Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Note payable in money other than that stated in the
Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of the Notes to receive
payments of principal of or premium, if any, or interest on the Notes, (vii)
make any change in the foregoing amendment and waiver provisions or (viii)
except as provided under "Legal Defeasance and Covenant Defeasance", release a
Subsidiary Guarantor, if any, from its obligations under its Subsidiary
Guarantee, if any, or make any change in a Subsidiary Guarantee, if any, that
would adversely affect the holders. In addition, any amendment to the provisions
of the Indenture which relate to subordination will require the consent of the
holders of at least 66 2/3% in principal amount of the Notes then outstanding if
such amendment would adversely affect the rights of holders of such Notes.
However, no amendment may be made
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to the subordination provisions of the Indenture that adversely affects the
rights of any holder of Senior Debt then outstanding unless the holders of such
Senior Debt (or any group or representative thereof authorized to give a
consent) consents to such change.
Notwithstanding the foregoing, without the consent of any holder of the
Notes the Company, a Subsidiary Guarantor, if any (with respect to a Subsidiary
Guarantee, if any, or the Indenture to which it is a party) and the Trustee may
amend or supplement the Indenture, any Subsidiary Guarantee or the Notes to cure
any ambiguity, defect or inconsistency, to provide for uncertificated Notes in
addition to or in place of certificated Notes, to provide for the assumption of
the Company's obligations or any Subsidiary Guarantor's obligations in the case
of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such holder, or to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of the Notes, unless such holder shall have offered
to such Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees, if any, will
provide that they will be governed by the laws of the State of New York.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or
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otherwise; provided that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
"Asset Sale" by a Person means (i) the sale, lease, conveyance or other
disposition (but excluding the creation of a Lien) of any assets including,
without limitation, by way of a sale and leaseback (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company and its Restricted Subsidiaries taken as a whole will be governed
by the provisions of the Indenture described above under the caption
"-- Repurchase at the Option of Holders -- Change of Control" and/or the
provisions described above under the caption "-- Certain Covenants -- Merger,
Consolidation, or Sale of Assets" and not by the provisions described above
under "-- Repurchase at the Option of Holders -- Asset Sales"), and (ii) the
issue or sale by such Person or any of its Restricted Subsidiaries of Equity
Interests of any of such Person's Subsidiaries (including the sale by the
Company or a Restricted Subsidiary of Equity Interests in an Unrestricted
Subsidiary), in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of the greater of $5 million or 1% of Total Assets at the time
of such transaction or (b) for net proceeds in excess of the greater of $5
million or 1% of Total Assets at the time of such transaction. Notwithstanding
the foregoing, the following shall not be deemed to be Asset Sales: (i) a
transfer of assets by such Person to a Wholly Owned Restricted Subsidiary of
such Person or by a Wholly Owned Restricted Subsidiary of such Person to such
Person or to another Wholly Owned Restricted Subsidiary of such Person, (ii) an
issuance of Equity Interests by a Restricted Subsidiary of such Person to such
Person or to another Wholly Owned Restricted Subsidiary of such Person, (iii)
the making of a Restricted Payment or Permitted Investment that is permitted by
the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments," (iv) the abandonment, farm-out, lease or
sublease of undeveloped oil and gas properties in the ordinary course of
business, (v) the trade or exchange by such Person or any Restricted Subsidiary
of such Person of any oil and gas property or properties owned or held by such
Person or such Restricted Subsidiary for any oil and gas property or properties
owned or held by another Person, which the Board of Directors of the Company
determines in good faith to be of approximately equivalent value, (vi) the sale
or transfer of oil, natural gas, natural gas liquids or hydrocarbons or mineral
products or surplus or obsolete equipment in the ordinary course of business,
(vii) the sale or lease of equipment, inventory, accounts receivable or obsolete
or surplus equipment or assets in the ordinary course of business consistent
with past practice and (viii) the trade or exchange by the Company or any
Restricted Subsidiary of the Company of any oil and gas property or properties
owned or held by the Company or such Restricted Subsidiary for any oil and gas
property or properties owned or held by another Person provided that the fair
market value of the properties traded or exchanged by the Company or such
Restricted Subsidiary (including any cash or Cash Equivalents to be delivered by
the Company or such Restricted Subsidiary) is reasonably equivalent to the fair
market value of the properties (together with any cash or Cash Equivalents) to
be received by the Company or such Restricted Subsidiary as determined in good
faith by (i) any officer of the Company if such fair market value is less than
$5 million and (ii) the Board of Directors of the Company as certified by a
resolution delivered to the Trustee if such fair market value is equal to or in
excess of $5 million.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended). As used in the preceding sentence, the "net rental
payment" under any lease for any such period shall mean the sum of rental and
other payments required to be paid with respect to such period by the lessee
thereunder, excluding any amounts required to be paid by such lessee on account
of maintenance and repairs, insurance, taxes, assessments, water rates or
similar charges.
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"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) demand or time deposits, certificates
of deposit and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding one
year and overnight bank deposits, in each case with any lender party to the
Credit Agreement or with any domestic commercial bank having capital and surplus
in excess of $500 million and a Thompson Bank Watch Rating of "B" or better,
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, (v) commercial paper having a rating of at least P1 from
Moody's Investors Service, Inc. (or its successor) and a rating of at least A1
from Standard & Poor's Ratings Services (or its successor) and (vi) investments
in money market or other mutual funds substantially all of whose assets comprise
securities described in clause (ii) through (v) above.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" or group of related "persons" (a "Group") (as such terms
are used in Section 13(d)(3) of the Exchange Act), (ii) the adoption of a plan
relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any purchase,
sale, acquisition, disposition, merger or consolidation) the result of which is
that any "person" (as defined above) or Group becomes the "beneficial owner" (as
such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act) of
more than 35% of the outstanding Voting Stock of the Company having the right to
elect directors under ordinary circumstances other than any such transaction
where (A) the outstanding Voting Stock of the Company is changed into or
exchanged for Voting Stock of the surviving corporation which is not
Disqualified Stock or (B) John Mork and Julie Mork continue to own, directly or
indirectly, not less than a majority of the Voting Stock of the surviving
corporation immediately after such transaction or (iv) the first day on which a
majority of the members of the Board of Directors of the Company are not
Continuing Directors.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss, plus any net loss realized in connection with
an Asset Sale (together with any related provision for taxes), to the extent
such losses were included in computing such Consolidated Net Income, plus (ii)
an amount equal to the provision for taxes based on income or profits of such
Person and its Restricted Subsidiaries for such period (including state
franchise taxes), to the extent that such provision for taxes was deducted in
computing such Consolidated Net Income, plus (iii) consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued (including, without limitation, amortization of original issue discount
and capitalized debt issuance costs, non-cash interest payments, the interest
component of any
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deferred payment obligations, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect of
letters of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Interest Rate Hedging Agreements), to the extent that any such
expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, depletion and amortization expenses (including amortization of
goodwill and other intangibles) for such Person and its Restricted Subsidiaries
for such period to the extent that such depreciation, depletion and amortization
expenses were deducted in computing such Consolidated Net Income, plus (v)
exploration and impairment expenses for such Person and its Restricted
Subsidiaries for such period to the extent such expenses were deducted in
computing such Consolidated Net Income, plus (vi) other non-cash charges
(excluding any such non-cash charge to the extent that it represents an accrual
of or reserve for cash charges in any future period or amortization of a prepaid
cash expense that was paid in a prior period) of such Person and its Restricted
Subsidiaries for such period to the extent that such other non-cash charges were
deducted in computing such Consolidated Net Income, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation, depletion and amortization and other non-cash charges and expenses
of, a Restricted Subsidiary of the relevant Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in the same proportion) that the Net Income of such Restricted Subsidiary
was included in calculating the Consolidated Net Income of such Person and only
if a corresponding amount would be permitted at the date of determination to be
dividended to such Person by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof
during such period, (ii) the Net Income of any Restricted Subsidiary shall be
included (x) to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income is at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders and (y), with respect to a Restricted Subsidiary that is not a
Wholly Owned Restricted Subsidiary, in an amount equal to the pro rata share of
such dividend or distribution (in accordance with the Equity Interests thereof
held by the Company and its Restricted Subsidiaries), (iii) the Net Income of
any Person acquired in a pooling of interests transaction for any period prior
to the date of such acquisition shall be excluded and (iv) the cumulative effect
of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of the Company ending prior to the taking of any
action for the purpose of which the determination is being made and for which
financial statements are available (but in no event ending more than 135 days
prior to the taking of such action), as (i) the par or stated value of all
outstanding Capital Stock of the Company, plus (ii) paid-in capital or capital
surplus relating to such Capital Stock plus (iii) any retained earnings or
earned surplus less (A) any accumulated deficit (in each case excluding any
minority interest) and (B) any amounts attributable to Disqualified Stock.
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"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of original issuance of the Notes or (ii) was nominated
for election or elected to such Board of Directors with the approval of (x)
two-thirds of the Continuing Directors who were members of such Board at the
time of such nomination or election or (y) two-thirds of those Directors who
were previously approved by Continuing Directors.
"Credit Agreement" means that certain Credit Agreement, dated as of May 20,
1997, among the Company and General Electric Capital Corporation and certain
other financial institutions, as lenders, providing for up to $50 million of
Indebtedness, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, restated, modified, renewed, refunded, replaced or refinanced, in whole
or in part, from time to time, whether or not with the same lenders or agents.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Credit Agreement) or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, Production Payments, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time. Indebtedness under
Credit Facilities outstanding on the date on which the Notes are first issued
and authenticated under the Indenture (after giving effect to the use of
proceeds thereof) shall be deemed to have been incurred on such date in reliance
on the exception provided by clause (b) of the definition of Permitted
Indebtedness.
"Debt to Cash Flow Ratio" means with respect to any Person for any period,
the ratio of the Indebtedness of such Person for such period to the Consolidated
Cash Flow of such Person for such period; provided, that, for purposes of the
foregoing, Indebtedness shall not include Indebtedness of such Person that is
required to be repaid within 12 months after the incurrence thereof except to
the extent that the aggregate principal amount of any such Indebtedness
outstanding at any time exceeds the amount permitted to be outstanding by any
credit agreement to which such Person is a party. In the event that such Person
or any of its Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings) subsequent to the
commencement of the period for which the Debt Coverage Ratio is being calculated
but prior to the date on which the calculation of the Debt Coverage Ratio is
made (the "Debt to Cash Flow Calculation Date"), then the Debt Coverage Ratio
shall be calculated giving pro forma effect to such incurrence, assumption,
guarantee or redemption of Indebtedness, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by such Person or any of its Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Debt to Cash Flow Calculation Date (including, without limitation,
any acquisition to occur on the Debt to Cash Flow Calculation Date) shall be
deemed to have occurred on the first day of the four-quarter reference period
and Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, (ii) the net proceeds of Indebtedness incurred or
Disqualified Stock issued by such Person pursuant to "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock"
during the four-quarter reference period and on or prior to the Debt to Cash
Flow Calculation Date shall be deemed to have been received by such Person or
any of its Subsidiaries on the first day of the four-quarter reference period
and applied to its intended use on such date and (iii) the Consolidated Cash
Flow attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Debt to Cash Flow
Calculation Date, shall be excluded.
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"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) the Credit Agreement and (ii) any other
Senior Debt permitted under the Indenture the principal amount of which is $25
million or more and that has been designated by the Company as "Designated
Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, is convertible
or exchangeable for Indebtedness or Disqualified Stock or redeemable at the
option of the holder thereof, in whole or in part, on or prior to the date that
is 91 days after the date on which the Notes mature.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Energy Business" means (i) the operation of one or more natural gas
distribution businesses, (ii) the acquisition, exploration, development,
operation and disposition of interests in oil, gas and other hydrocarbon
properties, (iii) the gathering, purchasing, marketing, treating, processing,
storage, selling and transporting of any natural oil, gas and other minerals or
hydrocarbon products, (iv) any business related to any business or activity
described in clause (i) or clause (iii) of this definition, including, without
limitation, (a) the production of electricity or other sources of power
utilizing oil, gas or other hydrocarbon products and (b) providing services in
support of or incidental to any business or activity described in clause (i) or
clause (ii) of this definition and (v) any activity that is ancillary to or
necessary or appropriate for the activities described in clauses (i) through
(iv) of this definition.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that such
Person or any of its Restricted Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues or
redeems preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
Consolidated Cash Flow and Fixed Charges shall be calculated on a pro forma
basis, in the manner specified below, with respect to the following events: (i)
acquisitions that have been made by such Person or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
(including, without limitation, any acquisition to occur on the Calculation
Date) shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall be
calculated (a) without giving effect to clause (iii) of the proviso set forth in
the definition of Consolidated Net Income and (b) giving effect to pro forma
adjustments relating to such acquisition that would generally be permitted under
applicable accounting standards with respect to pro forma financial statements,
(ii) the net proceeds of Indebtedness incurred or Disqualified Stock issued by
such Person pursuant to the first paragraph of the covenant described under the
caption "-- Certain Covenants -- Incurrence of Indebt-
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edness and Issuance of Disqualified Stock" during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date shall be deemed to have been received by such Person or any of its
Restricted Subsidiaries on the first day of the four-quarter reference period
and applied to its intended use on such date, (iii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (iv) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Restricted Subsidiaries following the Calculation
Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries (excluding the interest expense at Mountaineer) for
such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Interest Rate Hedging Agreements), (ii) the
consolidated interest expense of such Person and its Restricted Subsidiaries
that was capitalized during such period, (iii) any interest expense on
Indebtedness of another Person that is guaranteed by such Person or any of its
Restricted Subsidiaries or secured by a Lien on assets of such Person or any of
its Restricted Subsidiaries (whether or not such guarantee or Lien is called
upon) and (iv) the product of (a) all cash dividend payments (and non-cash
dividend payments in the case of a Person that is a Restricted Subsidiary) on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor Senior Indebtedness" means any Indebtedness of a Subsidiary
Guarantor permitted to be incurred under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is on a parity with or subordinated in right of payment to the Subsidiary
Guarantee of such Subsidiary Guarantor, including interest accruing subsequent
to the filing of, or which would have accrued but for the filing of, a petition
for bankruptcy, whether or not such interest is an allowable claim in such
bankruptcy proceeding. Notwithstanding anything to the contrary in the
foregoing, Guarantor Senior Indebtedness will not include (1) any liability for
federal, state, local or other taxes owed or owing by any Subsidiary Guarantor,
(2) any obligation of a Subsidiary Guarantor to the Company, (3) any accounts
payable or trade liabilities of a Subsidiary Guarantor arising in the ordinary
course of business (including instruments evidencing such liabilities), (4) any
Indebtedness of a Subsidiary Guarantor that is incurred in violation of the
Indenture, (5) Indebtedness of a Subsidiary Guarantor which, when incurred and
without respect to any election under Section 1111(b) of Title 11, United States
Code, is without recourse to such Subsidiary Guarantor, (6) any Indebtedness,
guarantee or obligation of a Subsidiary Guarantor
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which is subordinate or junior to any other Indebtedness, guarantee or
obligation of such Subsidiary Guarantor, (7) Indebtedness evidenced by a
Subsidiary Guarantee and (8) Capital Stock of a Subsidiary Guarantor.
"Indebtedness" means, with respect to any Person, without duplication, (a)
any indebtedness of such Person, whether or not contingent, (i) in respect of
borrowed money, (ii) evidenced by bonds, notes, debentures or similar
instruments, (iii) evidenced by letters of credit (or reimbursement agreements
in respect thereof) or banker's acceptances, (iv) representing Capital Lease
Obligations, (v) representing the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable, (vi) representing any obligations in respect of
Interest Rate Hedging Agreements or Oil and Gas Hedging Contracts, and (vii) in
respect of any Production Payment, (b) all indebtedness of others secured by a
Lien on any asset of such Person (whether or not such indebtedness is assumed by
such Person), (c) obligations of such Person in respect of production
imbalances, (d) Attributable Debt of such Person, and (e) to the extent not
otherwise included in the foregoing, the guarantee by such Person of any
indebtedness of any other Person.
"Interest Rate Hedging Agreements" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations, but
excluding trade credit and other ordinary course advances customarily made in
the Energy Business), advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that the following shall not constitute
Investments: (i) an acquisition of assets, Equity Interests or other securities
by the Company for consideration consisting of common equity securities of the
Company, (ii) Interest Rate Hedging Agreements entered into in accordance with
the limitations set forth in clause (g) of the second paragraph of the covenant
described under the caption "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Disqualified Stock" and (iii) Oil and Gas Hedging Contracts
entered into in accordance with the limitations set forth in clause (h) of the
second paragraph of the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Disqualified Stock." If
such Person or any Subsidiary of such Person sells or otherwise disposes of any
Equity Interests of any direct or indirect Subsidiary of such Person such that,
after giving effect to any such sale or disposition, such entity is no longer a
Subsidiary of such Person, such Person shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction, other
than a precautionary financing statement respecting a lease not intended as a
security agreement and other than a financing statement relating to a sale of
accounts receivable).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock
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dividends, excluding, however, (i) any gain (but not loss), together with any
related provision for taxes on such gain (but not loss), realized in connection
with (a) any Asset Sale (including, without limitation, dispositions pursuant to
sale and leaseback transactions) or (b) the disposition of any securities by
such Person or any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any
extraordinary or nonrecurring gain (but not loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale, but excluding cash amounts
placed in escrow, until such amounts are released to the Company), net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Indebtedness under any Credit
Facility) secured by a Lien on the asset or assets that were the subject of such
Asset Sale and any reserve for adjustment in respect of the sale price of such
asset or assets established in accordance with GAAP and any reserve established
for future liabilities.
"Non-Recourse Debt" means Indebtedness as to which as (a) neither the
Company nor any Restricted Subsidiary is directly or indirectly liable pursuant
to the terms of such Indebtedness and (b) no default with respect to such
Indebtedness would permit (upon notice, lapse of time or otherwise) any holder
of any other Indebtedness of the Company or any Restricted Subsidiary to declare
a default on such other indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Oil and Gas Hedging Contracts" means any oil and gas purchase or hedging
agreement, and other agreement or arrangement, in each case, that is designed to
provide protection against oil and gas price fluctuations.
"Pari Passu Debt" means (a) with respect to the Notes, Indebtedness that
ranks pari passu in right of payment to the Notes and (b) with respect to any
Subsidiary Guarantee, Indebtedness which ranks pari passu in right of payment to
such Subsidiary Guarantee.
"Permitted Indebtedness" has the meaning given in the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Disqualified Stock."
"Permitted Investments" of a Person means (a) any Investment in such Person
or in a Restricted Subsidiary of such Person; (b) any Investment in Cash
Equivalents or securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof having
maturities of not more than one year from the date of acquisition; (c) any
Investment by such Person or any Restricted Subsidiary of such Person in a
Person if, as a result of such Investment and any related transactions that at
the time of such Investment are contractually mandated to occur, (i) such Person
becomes a Wholly Owned Restricted Subsidiary of such Person or (ii) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys all
or substantially all of its assets to, or is liquidated into, such Person or a
Wholly Owned Restricted Subsidiary of such Person; (d) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with the covenant described above under the
caption "-- Repurchase at the Option of Holders -- Asset Sales"; (e) Investments
by the Company or any Wholly Owned Restricted Subsidiary in any Person which is
a Wholly Owned Restricted Subsidiary; (f) Investments in the Company by any
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Wholly Owned Restricted Subsidiary; (g) Investments in any Person the
consideration for which consists of Equity Interests in the Company (other than
Disqualified Stock); (h) other Investments in any Person or Persons having an
aggregate fair market value (measured on the date each such Investment was made
and without giving effect to subsequent changes in value (as determined in good
faith by the Board of Directors of the Company, which determination shall be
evidenced by a resolution of such Board)), when taken together with all other
Investments made by the Company and its Restricted Subsidiaries pursuant to this
clause (h) that are at the time outstanding, not to exceed 5% of Total Assets at
the time such Investment is made; (i) any Investment acquired by the Company in
exchange for Equity Interests in the Company (other than Disqualified Stock);
(j) shares of Capital Stock received in connection with any good faith
settlement of a bankruptcy proceeding involving a trade creditor; (k) entry into
operating agreements, joint ventures, partnership agreements, working interests,
royalty interests, mineral leases, processing agreements, farm-in agreements,
farm-out agreements, contracts for the sale, transportation or exchange of oil
and natural gas, unitization agreements, pooling arrangements, area of mutual
interest agreements, joint development agreements, concession, license or permit
agreements relating to exploration and development of oil and gas properties,
production sharing agreements or other similar or customary agreements,
transactions, properties, interests or arrangements, and Investments and
expenditures in connection therewith or pursuant thereto, in each case made or
entered into the ordinary course of the Energy Business, excluding, however,
Investments in corporations other than any Investment otherwise permitted by
this definition; (l) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments; (m) the acceptance of
notes payable from employees of the Company or any of its Subsidiaries as
payment for the purchase of Capital Stock of the Company or any of its
Subsidiaries by such employees provided that any such note payable is secured by
a pledge of the shares of Capital Stock of a Subsidiary purchased therewith; (n)
endorsements of negotiable instruments and documents in the ordinary course of
business; and (o) any Investments outstanding on the date of the Indenture (and
any reinvestment of the proceeds thereof in any similar investment).
"Permitted Liens" means (i) Liens securing Indebtedness of a Restricted
Subsidiary or Senior Debt that is outstanding on the date of issuance of the
Notes (after giving effect to the application of the proceeds therefrom), Liens
securing Senior Debt that is permitted by the terms of the Indenture to be
incurred and Liens securing Permitted Refinancing Debt relating to Indebtedness
or Senior Debt referred to in this clause (i) (provided that, with respect to
Permitted Refinancing Debt, such Liens extend to or cover only the property or
assets securing the Indebtedness or Senior Debt being refinanced); (ii) Liens in
favor of the Company; (iii) Liens on property existing at the time of
acquisition thereof by the Company or any Subsidiary of the Company, Liens upon
any property of any Person existing at the time such Person is merged or
consolidated with the Company or any Subsidiary and Liens on property or assets
of a Subsidiary existing at the time it became a Subsidiary, provided that in
each case such Lien has not been created in contemplation of such acquisition,
merger, consolidation or transfer, and provided further that in each such case
no such Lien shall extend to or cover any property of the Company or any
Subsidiary other than the property being acquired (through purchase, merger,
consolidation or otherwise) and improvements thereon; (iv) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance or other kinds of social security, old age
pension or public liability obligations or to secure the payment or performance
of bids, tenders, statutory or regulatory obligations, surety, stay or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business (including lessee or operator obligations under
statutes, governmental regulations or instruments related to the ownership,
exploration and production of oil, gas and minerals on state or federal lands or
waters); (v) Liens existing on the date of the Indenture (after giving effect to
the application of proceeds therefrom); (vi) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded,
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provided that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (vii) statutory liens of
landlords, mechanics, suppliers, vendors, warehousemen, carriers or other like
Liens arising in the ordinary course of business; (viii) judgment Liens not
giving rise to an Event of Default so long as any appropriate legal proceeding
that may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceeding may be
initiated shall not have expired; (ix) Liens on, or related to, properties or
assets to secure all or part of the costs incurred in the ordinary course of the
Energy Business for the exploration, drilling, development, or operation
thereof; (x) Liens in pipeline or pipeline facilities that arise under operation
of law; (xi) Liens arising under operating agreements, joint venture agreements,
joint development agreements, partnership agreements, oil and gas leases,
farm-out agreements, division orders, contracts for the sale, transportation or
exchange of oil or natural gas, unitization and pooling declarations and
agreements, area of mutual interest agreements and other agreements that are
customary in the Energy Business; (xii) Liens reserved in oil and gas mineral
leases for bonus or rental payments and for compliance with the terms of such
leases; (xiii) Liens securing any Interest Rate Hedging Agreement permitted to
be entered into pursuant to the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Disqualified Stock"; (xiv) Liens
securing any Oil and Gas Hedging Contract permitted to be entered into pursuant
to the covenant described above under the caption "-- Incurrence of Indebtedness
and Issuance of Disqualified Stock"; (xv) survey exceptions, encumbrances,
easements or reservations of, or rights of others for, rights of way, zoning or
other restrictions as to the use of real properties, and minor defects in title
which, in the case of any of the foregoing, were not incurred or created to
secure the payment of borrowed money or the deferred purchase price of property
or services, and in the aggregate do not materially adversely affect the value
of such properties or materially impair use for the purposes of which such
properties are held by the Company or any Subsidiaries; (xvi) judgment and
attachment Liens not giving rise to an Event of Default or Liens created by or
existing from any litigation or legal proceeding that are currently being
contested in good faith by appropriate proceedings and for which adequate
reserves have been made; (xvii) Liens in favor of collecting or payor banks
having a right of setoff, revocation, refund or chargeback with respect to money
or instruments of the Company or any Subsidiary on deposit with or in possession
of such bank; (xviii) purchase money security interests granted in connection
with the acquisition of fixed assets in the ordinary course of business and
consistent with past practices, provided, that (A) such Liens attach only to the
property so acquired with the purchase money indebtedness secured thereby and
(B) such Liens secure only Indebtedness that is not in excess of 100% of the
purchase price of such fixed assets; (xix) Liens to secure Dollar-Denominated
Production Payments and Volumetric Production Payments; (xx) Liens securing the
Notes; and (xxi) Liens not otherwise permitted by clauses (i) through (xx) that
are incurred in the ordinary course of business of the Company or any Subsidiary
of the Company with respect to obligations that do not exceed $5 million at any
one time outstanding.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness (other than Indebtedness incurred under a Credit Facility) of the
Company or any of its Restricted Subsidiaries, provided that: (i) the principal
amount of such Permitted Refinancing Indebtedness (or, if such Indebtedness is
issued at a price less than the principal amount thereof, the aggregate amount
of gross proceeds therefrom) does not exceed the principal amount of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
plus the amount of reasonable expenses incurred in connection therewith (or if
the Indebtedness being renewed, extended, refinanced, refunded or repurchased
was issued at a price less than the principal amount thereof, then not in excess
of the amount of liability in respect thereof determined in accordance with
GAAP); (ii) such Permitted Refinancing Indebtedness has a final maturity date on
or later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being
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extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes or the Subsidiary Guarantees,
as the case may be, such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and is subordinated in right of
payment to, the Notes or the Subsidiary Guarantees, as the case may be, on terms
at least as favorable taken as a whole to the holders of the Notes or the
Subsidiary Guarantees, as the case may be, as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Production Payments" means Dollar-Denominated Production Payments and
Volumetric Production Payments, collectively.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any direct or indirect Subsidiary of the
Company that is not an Unrestricted Subsidiary.
"Senior Debt" means (i) Indebtedness of the Company or any Subsidiary of
the Company under or in respect of any Credit Facility, whether for principal,
interest (including interest accruing after the filing of a petition initiating
any proceeding pursuant to any bankruptcy law, whether or not the claim for such
interest is allowed as a claim in such proceeding), reimbursement obligations,
fees, commissions, expenses, indemnities or other amounts, and (ii) any other
Indebtedness permitted under the terms of the Indenture, unless the instrument
under which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes. Notwithstanding
anything to the contrary in the foregoing sentence, Senior Debt will not include
(w) any liability for federal, state, local or other taxes owed or owing by the
Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in
violation of the Indenture (other than Indebtedness under (i) any Credit
Agreement or (ii) any other Credit Facility that is incurred on the basis of a
representation by the Company to the applicable lenders that it is permitted to
incur such Indebtedness under the Indenture).
"Subordinated Indebtedness" means any Indebtedness of the Company or any
Restricted Subsidiary (whether outstanding on the date of the issuance of the
Securities or thereafter incurred) which is subordinate and junior in right of
payment to the Notes pursuant to a written agreement.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock, entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means any guarantee of the obligations of the
Company under the Indenture and the Notes by any Person in accordance with the
provisions of the Indenture.
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"Subsidiary Guarantor" means any Person that incurs a Subsidiary Guarantee;
provided that upon the release and discharge of such Person from its Subsidiary
Guarantee in accordance with the Indenture, such Person shall cease to be a
Subsidiary Guarantor.
"Total Assets" means, with respect to any Person, the total consolidated
assets of such Person and its Subsidiaries, as shown on the most recent balance
sheet of such Person.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at
the time of determination shall be an Unrestricted Subsidiary (as designated by
the Board of Directors of the Company, as provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary or a Person becoming a Subsidiary through merger or
consolidation or Investment therein) to be an Unrestricted Subsidiary only if
(a) such Subsidiary does not own any Capital Stock of, or own or hold any Lien
on any property of, any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary; (b) all the Indebtedness of such Subsidiary shall, at the date of
designation, and will at all times thereafter, consist of Non-Recourse Debt; (c)
the Company certifies that such designation complies with the "Limitation on
Restricted Payments" covenant; (d) such Subsidiary, either alone or in the
aggregate with all other Unrestricted Subsidiaries, does not operate, directly
or indirectly, all or substantially all of the business of the Company and its
Subsidiaries; (e) such Subsidiary does not, directly or indirectly, own any
Indebtedness of or Equity Interest in, and has no investments in, the Company or
any Restricted Subsidiary; (f) such Subsidiary is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (1) to subscribe for additional Equity Interests or (2) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; and (g) on the date such
Subsidiary is designated an Unrestricted Subsidiary, such Subsidiary is not a
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary with terms substantially less favorable to the
Company than those that might have been obtained from Persons who are not
Affiliates of the Company. Any such designation by the Board of Directors of the
Company shall be evidenced to the Trustee by filing with the Trustee a
resolution of the Board of Directors of the Company giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions. If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred as of such date. The Board of Directors of the Company may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
that (i) immediately after giving effect to such designation, no Default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof and the Company could incur at least $1.00 of additional
Indebtedness (excluding Permitted Indebtedness) pursuant to the first paragraph
of the "Incurrence of Indebtedness and Issuance of Disqualified Stock" covenant
on a pro forma basis taking into account such designation.
"Volumetric Production Payments" means production payment obligations
recorded as deferred revenue in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person normally entitling the holders
thereof to vote in the election of members of the Board of Directors or other
governing body of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years
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(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment, by (ii) the then outstanding principal amount of
such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Voting Stock or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned, directly or indirectly, by such Person or by one or more Wholly Owned
Restricted Subsidiaries of such Person.
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DESCRIPTION OF OTHER INDEBTEDNESS
INDEBTEDNESS OF THE COMPANY
CREDIT AGREEMENT. Concurrently with the closing of the Offering, the
Company entered into the Credit Agreement with a group of lenders for which
General Electric Capital Corporation acts as the administrative agent (the
"Agent").
The Credit Agreement permits the Company to obtain revolving credit loans
from time to time in an aggregate amount not to exceed $50.0 million. The
Borrowing Base, initially set at $50.0 million under the Credit Agreement, is
subject to determination at the sole discretion of the Agent, based on a variety
of factors, including the discounted present value of estimated future net cash
flow from oil and gas production.
At the Company's option, loans may be prepaid, and revolving credit
commitments may be reduced, in whole or in part, at any time without penalty
(except for breakage and related costs associated with payments of Eurodollar
loans). The Credit Agreement matures May 20, 2002.
The Company's obligations under the Credit Agreement are secured by first
priority mortgages and security interests in gas and oil properties in which
Eastern American has an ownership, leasehold or other interest, as well as all
of Eastern American's gas gathering and gas marketing contracts.
At the Company's option, the applicable interest rate per annum is either
the Eurodollar loan rate plus a margin ranging from 1.0% to 1.5% or the ABR (as
defined below) plus a margin ranging from 0% to 0.5%. ABR is the higher of (x)
the rate of interest publicly quoted from time to time by The Wall Street
Journal as the base rate on corporate loans posted by at least 75% of the 30
largest banks in the United States and (y) the Federal Funds rate in effect on
the date of determination plus one-half of one percent ( 1/2 of 1%).
The Credit Agreement contains various covenants that, among other things,
will restrict the ability of the Company to dispose of assets, incur additional
indebtedness, repay other indebtedness, pay dividends, create liens on assets,
make investment or acquisitions, engage in mergers, and engage in certain
transactions with affiliates. In addition, under the Credit Agreement, the
Company is required to comply with specified minimum interest coverage and
maximum leverage ratios.
OTHER INDEBTEDNESS. The Company currently does not have any long or
short-term debt obligations, except for certain guarantees which have been given
in support of Eastern American's credit agreement with The Bank of Nova Scotia
and Eastern American's $12.0 million letter of credit. In addition, the Company
has guaranteed certain obligations of Eastern American, Allegheny & Western
Energy Corporation and Eastern Exploration Corporation, wholly owned
subsidiaries of Eastern American, under an agreement of limited partnership
dated November 15, 1995 providing for the formation of Eastern Producing Limited
Partnership. See "Business and Properties -- Significant Acquisitions and
Dispositions -- Section 2.9 Monetization".
INDEBTEDNESS OF SUBSIDIARIES
MOUNTAINEER AND ESC. In October 1995, ESC, a direct subsidiary of the
Company, entered into a note purchase agreement with The John Hancock Mutual
Life Insurance Company pursuant to which ESC issued $35.0 million in aggregate
principal amount of 10.75% Senior Notes due October 1, 2005 secured by a pledge
of the outstanding stock of its direct subsidiary Mountaineer Gas Company. The
note purchase agreement requires ESC to maintain certain financial conditions,
including a minimum net worth and further contains restrictions on incurring
debt, disposing of assets and other restrictions. The note purchase agreement
was amended in May 1997 to permit the payment of increased amounts of dividends
and other restricted payments and in conjunction therewith the interest rate on
such notes was increased from 10.66% to 10.75% effective as of
109
<PAGE> 114
January 1, 1997. The amount outstanding as of March 31, 1997 was approximately
$35.0 million. The Company will use proceeds from the Offering to repay all of
the outstanding indebtedness under this Note Purchase Agreement. See also "Use
of Proceeds."
In October 1995, Mountaineer, a direct subsidiary of ESC, entered into a
note purchase agreement with The John Hancock Mutual Life Insurance Company
pursuant to which Mountaineer issued $60 million in aggregate principal amount
of 7.59% Senior Notes due October 1, 2010. The note purchase agreement requires
Mountaineer to maintain certain financial conditions, including a minimum net
worth and further contains restrictions on incurring debt, disposing of assets
and other restrictions. The note purchase agreement also prohibits Mountaineer
from making any restricted payment unless, after giving effect to the payment,
(i) no default has occurred, (ii) Mountaineer would be permitted to incur $1.00
of additional funded indebtedness under such note purchase agreement and (iii)
the aggregate amount of all restricted payments made by Mountaineer and its
restricted subsidiaries since the date of the issuance of such notes on October
12, 1995 does not exceed $8 million plus 90% of the cumulative consolidated net
income of Mountaineer from the date of the issuance of such Notes. As of March
31, 1997, the aggregate amount of all restricted payments made by Mountaineer
and its restricted subsidiaries since the date of the issuance of such Notes was
$8.3 million, and such note purchase agreement would have permitted Mountaineer
to make additional restricted payments of $23.7 million through March 31, 1997.
Mountaineer also had unsecured lines of credit totaling $71 million with
PNC Bank, One Valley Bank and Bank One at March 31, 1997. During the nine months
ended March 31, 1997, the maximum outstanding daily balance was $45.1 million
and the average daily balance was $30.3 million. The weighted average interest
rate was 5.97%. The outstanding borrowings on these lines of credit at March 31,
1997 was $26.6 million.
EASTERN AMERICAN. Eastern American entered into a Credit Agreement dated as
of June 19, 1995 with a group of lenders for which The Bank of Nova Scotia acts,
as administrative Agent providing for a loan in the original principal amount of
$175.0 million. The permitted amount outstanding as of March 31, 1997 was
approximately $136.7 million. The obligations of Eastern American under this
credit agreement are secured by deeds of trust and mortgages on certain of
Eastern American's properties and is further secured by a limited guaranty of
the Company. The Company will use proceeds from the Offering to repay all of the
outstanding indebtedness under this Credit Agreement. See "Use of Proceeds."
Eastern American has outstanding a $12.0 million letter of credit issued by
a bank in support of Eastern American's obligations under a gas purchase
contract with the Royalty Trust. See "Business and Properties -- Significant Gas
Sales and Purchase Contracts." The letter of credit reduces by $3 million on
June 30 of each year until its expiration on June 30, 2000. As of March 31,
1997, no drawings have been made under the Letter of Credit. The letter of
credit agreement between Eastern American and the bank requires Eastern American
to maintain certain financial conditions, including a minimum net worth and
interest coverage ratio.
Eastern American also has unsecured revolving lines of credit totaling $2.0
million with One Valley Bank. As of March 31, 1997, no drawings have been made
under these lines of credits. These lines of credit are used primarily to
provide standby letters of credit for gas purchase arrangements made by its
subsidiary Eastern Marketing.
BOOK-ENTRY; DELIVERY AND FORM
The Old Notes were initially represented in the form of one registered Note
in global form without coupons (the "Global Old Note"). The Global Old Note was
deposited on the date of the closing of the sale of the Notes (the "Closing
Date") with, or on behalf of, the Depository Trust Company ("DTC") and
registered in the name of Cede & Co., as nominee of DTC, or will remain in the
custody of the Trustee pursuant to the FAST Balance Certificate Agreement
between DTC and the Trustee. The Exchange Notes also will be issued in the form
of one or more Global Notes (the
110
<PAGE> 115
"Global Exchange Notes" and, together with the Global Old Note, the "Global
Notes"). The Global Exchange Notes will be deposited on the original date of
issuance of the Exchange Notes with, or on behalf of, DTC and registered in the
name of Cede & Co., as nominee of DTC.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a "banking organization"
within the meaning of the New York banking law, (iii) a member of the Federal
Reserve System, (iv) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (v) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. QIBs may elect to hold Notes
through DTC QIBs who are not Participants may beneficially own securities held
by or on behalf of DTC only through Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Notes, DTC will credit the accounts of Participants
designated by the Initial Purchasers with an interest in the Global Note and
(ii) ownership of beneficial interests in the Global Notes will be shown on, and
the transfer of beneficial ownership therein will be effected only through,
records maintained by DTC (with respect to the interest of the Participants),
the Participants and the Indirect Participants. For certain other restrictions
on the transferability of the Notes, see "Transfer Restrictions."
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Notes represented by the Global Note for all purposes under the Indenture
and the Notes. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Securities, and will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
giving of any directions, instruction or approval to the Trustee thereunder. As
a result, the ability of a person having a beneficial interest in Notes
represented by a Global Note to pledge or transfer such interest to persons or
entities that do not participate in DTC's system or to otherwise take action
with respect to such interest, may be affected by the lack of a physical
certificate evidencing such interest.
Accordingly, each QIB owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such QIB is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
QIB owns its interest, to exercise any rights of a holder of Notes under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event the Company requests any action of holders of
Notes or a QIB that is an owner of a beneficial interest in a Global Note
desires to take any action that DTC, as the holder of such Global Note, is
entitled to take, DTC would authorize the Participants to take such action and
the Participant would authorize QIBs owning through such Participants to take
such action or would otherwise act upon the instruction of such QIBs. Neither
the Company nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of Notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to such
Notes or for any other matter relating to the actions or procedures of DTC.
Payments with respect to the principal of, premium, if any, and interest
on, any Notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record
111
<PAGE> 116
date will be payable by the Trustee to or at the direction of DTC or its nominee
in its capacity as the registered holder of the Global Note representing such
Notes under the Indenture. Under the terms of the Indenture, the Company and the
Trustee may treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payment and for any and all other purposes whatsoever. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of interest in the Global Note
(including principal, premium, if any, and interest), or to immediately credit
the accounts of the relevant Participants with such payment, in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in the Global Note as shown on the records of DTC. The Company expects
that payments by the Participants and the Indirect Participants to the
beneficial owners of interests in the Global Note will be governed by standing
instructions and customary practice and will be the responsibility of the
Participants or the Indirect Participants and DTC.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository or DTC ceases to be registered as a
clearing agency under the Exchange Act and the Company is unable to locate a
qualified successor within 90 days, (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of its Global Notes, then Certificated
Securities will be issued to each person that DTC identifies as the beneficial
owner of the Notes represented by the Global Note. Upon any such issuance, the
Trustee is required to register such Certificated Securities in the name of such
person or persons (or the nominee of any thereof), and cause the same to be
delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
112
<PAGE> 117
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 1997, all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by any
such person may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter", within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes), other than commissions or concessions of any
broker-dealers, and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes offered hereby
will be passed upon for the Company by Andrews & Kurth L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements of the Company, as of March 31, 1997
and June 30, 1996 and for the nine month period ended March 31, 1997 and the
years ended June 30, 1996 and 1995 and the consolidated statement of income of
Allegheny & Western Energy Corporation and subsidiaries for the year ended June
30, 1995, included in this Prospectus, and the related financial statement
schedules, included elsewhere in the Registration Statement, have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the Registration Statement, and are included
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
113
<PAGE> 118
Certain information with respect to the gas and oil reserves of the Company
has been derived from the respective reports of Ryder Scott Company and Joseph
Mendoza, Inc., independent petroleum engineers.
CHANGE OF ACCOUNTANTS
Coopers & Lybrand, the accounting firm that had previously been engaged as
the principal accountant to audit the Company's financial statements, resigned
in December 1996. The audit reports previously issued by Coopers & Lybrand with
respect to the Company's financial statements did not contain an adverse opinion
or a disclaimer of opinion, nor were such reports qualified or modified as to
uncertainty, audit scope or accounting principles. The Company's Board of
Directors approved the selection of Deloitte & Touche LLP as auditors for the
Company's financial statements for the fiscal year ending June 30, 1997, and
Deloitte & Touche LLP was engaged for such purpose in January 1997. The
Company's Board of Directors did not make any determination with respect to a
change in accounting firms prior to the resignation of Coopers & Lybrand.
114
<PAGE> 119
GLOSSARY
The definitions set forth below shall apply to the indicated terms as used
in this Prospectus. All volumes of natural gas referred to herein are stated at
the legal pressure base of the state or area where the reserves exist and at 60
degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.
Bcf. Billion cubic feet.
Bcfe. Billion cubic feet equivalent, determined using the ratio of six Mcf
of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
in reference to crude oil or other liquid hydrocarbons.
Btu. British thermal unit, which is the heat required to raise the
temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit.
Completion. The installation of permanent equipment for the production of
oil or gas, or in the case of a dry hole, the reporting of abandonment to the
appropriate agency.
Degree Day. Degree Days measure the amount by which the average of the high
and low temperature on a given day is below 65 degrees Fahrenheit. For example,
if the high temperature is 60 degrees and the low temperature is 40 degrees for
a National Oceanic and Atmospheric Administration measurement location, the
average temperature is 50 degrees and the number of degree days for that day is
15.
Developed acreage. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
Development well. A well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive.
Direct finding costs. The total of all costs incurred with respect to
reserve additions resulting from acquisitions and drilling activities, less
internal capitalized charges, divided by reserve additions.
Dry hole or well. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production exceed
production expenses and taxes.
Dth. One dekatherm (equal to 1,000 Btu).
Exploratory well. A well drilled to find and produce oil or gas reserves
not classified as proved.
Farm-in or farm-out. An agreement whereunder the owner of a working
interest in an oil and gas lease assigns the working interest or a portion
thereof to another party who desires to drill on the leased acreage. Generally,
the assignee is required to drill one or more wells in order to earn its
interest in the acreage. The assignor usually retains a royalty or reversionary
interest in the lease. The interest received by an assignee is a "farm-in" while
the interest transferred by the assignor is a "farm-out."
Field. An area consisting of a single reservoir or multiple reservoirs all
grouped on or related to the same individual geological structural feature
and/or stratigraphic condition.
Field operating expenses. Lifting and operating expense less internal
capitalized costs and well operation and service revenue.
Gross acres or gross wells. The total acres or wells, as the case may be,
in which a working interest is owned.
Lifting and operating expense. The total of all field operating expenses,
net of well operations and service revenues.
115
<PAGE> 120
Liquids. Crude oil, condensate and natural gas liquids.
Mbbls. One thousand barrels of crude oil or other liquid hydrocarbons.
Mbtu. One thousand Btus.
Mcf. One thousand cubic feet.
Mcfe. One thousand cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Mmbbls. One million barrels of crude oil or other liquid hydrocarbons.
Mmbtu. One million Btus.
Mmcf. One million cubic feet.
Mmcfe. One million cubic feet equivalent, determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids.
Net acres or net wells. The sum of the fractional working interests owned
in gross acres or gross wells.
NGLs. Natural gas liquids.
Operating Margin. The dollar amount calculated as oil and gas sales plus
well and service revenues, less lifting and operating expense and general and
administrative expense and production taxes.
Oil. Crude oil and condensate.
Present Value. When used with respect to oil and gas reserves, the
estimated future gross revenue to be generated from the production of proved
reserves, net of estimated production and future development costs, using prices
and costs in effect as of the date indicated, without giving effect to
non-property related expenses such as general and administrative expenses, debt
service and future income tax expenses or to depreciation, depletion and
amortization, discounted using an annual discount rate of 10%.
Producing well. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
Proved developed producing reserves. Proved developed reserves that are
expected to be recovered from completion intervals currently open in existing
well and able to produce to market.
Proved reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering date demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved undeveloped reserves. Proved reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required from recompletion.
Royalty interest. An interest in an oil and gas property entitling the
owner to a share of oil or gas production free of costs or production.
Undeveloped acreage. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and gas regardless of whether such acreage contains proved reserves.
Working interest. The operating interest which gives the owner the right to
drill, produce and conduct operating activities on the property and a share of
production.
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<PAGE> 122
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED
FINANCIAL STATEMENTS FOR THE NINE MONTH PERIOD ENDED MARCH
31, 1997 AND FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Income........................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
ALLEGHENY & WESTERN CORPORATION CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JUNE 30, 1995
Independent Auditors' Report................................ F-30
Consolidated Statement of Income............................ F-31
Notes to Consolidated Statement of Income................... F-32
</TABLE>
F-1
<PAGE> 123
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Energy Corporation of America:
We have audited the accompanying consolidated balance sheets of Energy
Corporation of America and Subsidiaries as of March 31, 1997 and June 30, 1996,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the nine month period ended March 31, 1997 and for the years
ended June 30, 1996 and 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Energy Corporation of America
and Subsidiaries as of March 31, 1997 and June 30, 1996, and the results of
their operations and their cash flows for the nine month period ended March 31,
1997 and for the years ended June 30, 1996 and 1995 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
April 21, 1997
F-2
<PAGE> 124
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND JUNE 30, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, JUNE 30,
1997 1996
--------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 14,331 $ 14,197
Accounts receivable:
Utility gas and transportation.......................... 42,649 23,317
Gas marketing and pipeline.............................. 5,284 8,931
Oil and gas sales....................................... 7,145 6,875
Other................................................... 13,020 6,423
-------- --------
68,098 45,546
Less allowance for doubtful accounts.................... (1,368) (1,744)
-------- --------
66,730 43,802
Gas in storage, at average cost........................... 6,464 12,457
Income taxes receivable................................... 3,242
Deferred income taxes..................................... 5,599 6,337
Prepaid and other current assets.......................... 3,246 3,860
-------- --------
Total current assets................................ 96,370 83,895
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT........................... 318,846 339,793
-------- --------
OTHER ASSETS:
Deferred financing costs, less accumulated amortization of
$1,729 and $1,144, respectively......................... 7,533 8,198
Notes receivable.......................................... 5,802 4,219
Notes receivable -- related party......................... 1,470 1,528
Deferred charges.......................................... 18,181 16,302
Deferred income taxes..................................... 1,118 1,357
Other..................................................... 5,126 6,212
-------- --------
Total other assets.................................. 39,230 37,816
-------- --------
TOTAL....................................................... $454,446 $461,504
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 34,947 $ 39,798
Current portion of long-term debt......................... 12,002 10,051
Short-term debt........................................... 26,614 8,392
Funds held for future distribution........................ 6,736 5,191
Income taxes payable...................................... 1,515 --
Overrecovered gas costs................................... 10,257 11,778
Accrued taxes, other than income.......................... 8,686 3,743
Other current liabilities................................. 11,197 12,948
-------- --------
Total current liabilities........................... 111,954 91,901
LONG-TERM OBLIGATIONS, LESS CURRENT PORTION:
Long-term debt............................................ 219,806 254,647
Gas delivery obligation and deferred trust revenue........ 19,226 21,473
Deferred income taxes..................................... 39,488 38,366
Other long-term obligations............................... 14,118 14,849
-------- --------
Total liabilities................................... 404,592 421,236
-------- --------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST........................................... 1,949 2,718
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, par value $1.00; 2,000 shares authorized;
714 and 711 shares issued in 1997 and 1996,
respectively............................................ 714 711
Additional paid-in capital................................ 4,211 4,086
Retained earnings......................................... 45,828 34,099
Treasury stock and notes receivable arising from issuance
of common stock......................................... (2,870) (1,371)
Cumulative foreign currency translation adjustment........ 22 25
-------- --------
Total stockholders' equity.......................... 47,905 37,550
-------- --------
TOTAL....................................................... $454,446 $461,504
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 125
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1997 AND
THE YEARS ENDED JUNE 30, 1996 AND 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
------------- -------- --------
(NINE MONTHS)
<S> <C> <C> <C>
REVENUES:
Utility gas sales and transportation................ $146,965 $182,929
Gas marketing and pipeline sales.................... 120,257 146,398 $103,015
Oil and gas sales................................... 27,002 31,940 29,277
Well operations and service revenues................ 10,700 14,003 3,955
Contract settlement and other....................... 229 524 9,247
-------- -------- --------
305,153 375,794 145,494
-------- -------- --------
COSTS AND EXPENSES:
Utility gas purchased............................... 85,705 95,157
Gas marketing and pipeline cost of sales............ 112,913 138,067 100,251
Field operating expenses............................ 15,162 21,796 11,510
Utility operations and maintenance.................. 15,480 23,841
General and administrative.......................... 16,479 23,967 6,689
Taxes, other than income............................ 15,039 16,165 1,560
Depletion, depreciation and amortization of oil and
gas properties................................... 6,509 9,204 9,763
Depreciation of pipelines, other property and
equipment........................................ 8,471 9,613 2,278
Exploration and impairment.......................... 3,613 6,756 281
-------- -------- --------
279,371 344,566 132,332
-------- -------- --------
Income from operations...................... 25,782 31,228 13,162
-------- -------- --------
OTHER (INCOME) AND EXPENSE:
Interest............................................ 17,005 23,182 8,744
Gain on sale of assets.............................. (8,153) (3,934) (279)
Other............................................... (604) 693 367
-------- -------- --------
8,248 19,941 8,832
-------- -------- --------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST...... 17,534 11,287 4,330
PROVISION FOR INCOME TAXES............................ 4,960 3,274 2,710
-------- -------- --------
INCOME BEFORE MINORITY INTEREST....................... 12,574 8,013 1,620
MINORITY INTEREST..................................... 339 193 435
-------- -------- --------
NET INCOME............................................ $ 12,235 $ 7,820 $ 1,185
======== ======== ========
NET INCOME PER SHARE.................................. $ 17.67 $ 11.02 $ 1.67
======== ======== ========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING......................................... 692 710 710
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 126
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1997 AND
THE YEARS ENDED JUNE 30, 1996 AND 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NOTES
RECEIVED CUMULATIVE
ADDITIONAL FROM FOREIGN TOTAL
COMMON PAID-IN RETAINED TREASURY ISSUANCE OF CURRENCY STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK COMMON STOCK TRANSLATION EQUITY
------ ---------- -------- -------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1994........... $704 $3,805 $27,008 $ (7) $(269) $31,241
Net income..................... 1,185 1,185
Cash dividends ($0.645 per
share)...................... (457) (457)
Exercise of employee stock
options for notes
receivable.................. 4 156 (160)
Purchase of treasury stock..... (482) 32 (450)
Reduction of notes
receivable.................. 94 94
---- ------ ------- ------- ----- ---- -------
Balance, June 30, 1995........... 708 3,961 27,736 (489) (303) 31,613
---- ------ ------- ------- ----- ---- -------
Net income..................... 7,820 7,820
Cash dividends ($2.10 per
share)...................... (1,457) (1,457)
Exercise of employee stock
options..................... 3 125 128
Purchase of treasury stock..... (632) (632)
Reduction of notes
receivable.................. 53 53
Adjustment for foreign currency
translation................. $ 25 25
---- ------ ------- ------- ----- ---- -------
Balance, June 30, 1996........... 711 4,086 34,099 (1,121) (250) 25 37,550
---- ------ ------- ------- ----- ---- -------
Net income..................... 12,235 12,235
Cash dividends ($0.75 per
share)...................... (506) (506)
Exercise of employee stock
options for notes
receivable.................. 3 125 (128)
Purchase of treasury stock..... (1,493) (1,493)
Reduction of notes
receivable.................. 122 122
Adjustment for foreign currency
translation................. (3) (3)
---- ------ ------- ------- ----- ---- -------
Balance, March 31, 1997.......... $714 $4,211 $45,828 $(2,614) $(256) $ 22 $47,905
==== ====== ======= ======= ===== ==== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 127
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1997 AND
THE YEARS ENDED JUNE 30, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------------- -------- ---------
(NINE MONTHS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 12,235 $ 7,820 $ 1,185
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest.............................. 339 193 435
Depreciation, depletion and amortization....... 15,645 19,471 12,584
Gain on sale of assets......................... (8,153) (3,934) (279)
Deferred income taxes.......................... 2,099 1,518 3,437
Exploration and impairment expense............. 3,613 6,756 281
Provision for losses on accounts receivable.... 1,153 1,800
Other, net..................................... (1,575) (2,447) (3,049)
-------- -------- ---------
25,356 31,177 14,594
Changes in assets and liabilities:
Accounts receivable............................ (26,447) (17,288) (3,118)
Gas in storage................................. 5,993 3,154 654
Income taxes receivable........................ 3,242 1,723 1,920
Prepaid and other assets....................... (2,285) 6,155 (1,021)
Accounts payable and other current
liabilities.................................. 704 4,081 1,061
Funds held for future distribution............. 1,545 (1,946) 1,185
Income tax payable............................. 1,515
Overrecovered gas costs........................ (1,521) (8,741)
Other.......................................... (1,403) (1,221) (1,255)
-------- -------- ---------
Net cash provided by operating
activities.............................. 6,699 17,094 14,020
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment.... (21,555) (39,445) (20,036)
Acquisition of A&W, net of cash acquired.......... (73,190)
Proceeds from sale of oil and gas properties...... 779 17,426 413
Proceeds from sale of limited partnership......... 11,250
Notes receivable.................................. (25) (804) 373
-------- -------- ---------
Net cash used in investing activities..... (9,551) (22,823) (92,440)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.......... 71,000 250,998 254,386
Principal payments on long-term debt.............. (84,223) (218,352) (157,568)
Short-term borrowings, net........................ 18,222 (27,203)
Purchase of treasury stock (common stock)......... (1,493) (632) (450)
Dividends and distributions paid.................. (506) (1,199) (618)
Other equity transactions......................... 9 109 (166)
Deferred financing costs.......................... (23) (3,919) (4,953)
-------- -------- ---------
Net cash used in financing activities..... 2,986 (198) 90,631
-------- -------- ---------
Net increase (decrease) in cash and cash
equivalents............................. 134 (5,927) 12,211
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 14,197 20,124 7,913
-------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD............ $ 14,331 $ 14,197 $ 20,124
======== ======== =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 128
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1997 AND
THE YEARS ENDED JUNE 30, 1996 AND 1995
1. NATURE OF ORGANIZATION
Energy Corporation of America (the "Company") was established in June 1993
through an exchange of shares with the common stockholders of Eastern American
Energy Corporation ("Eastern"). The Company is an independent integrated energy
company that, through its subsidiaries, is primarily engaged in operating a
natural gas distribution system in West Virginia and oil and gas operations in
West Virginia and Pennsylvania. The Company also is engaged in the exploration
and production of oil and natural gas in other parts of the United States,
primarily in the Rocky Mountains and New Zealand. All references to the
"Company" include Energy Corporation of America and its consolidated
subsidiaries.
Natural Gas Distribution System -- The Company operates, through its
wholly-owned subsidiary Mountaineer Gas Company ("Mountaineer"), a natural gas
distribution system in West Virginia. Mountaineer provides natural gas sales,
transportation and distribution service to residential, commercial, industrial
and wholesale customers. As a public utility, Mountaineer is subject to
regulation by the West Virginia Public Service Commission ("WVPSC").
Oil and Gas Exploration, Development, Production and Marketing -- The
Company, primarily through its subsidiary Eastern, is engaged in exploration,
development and production, transportation and marketing of natural gas
primarily within the Appalachian Basin in the states of West Virginia,
Pennsylvania and Ohio. The Company owns all of the voting common shares of
Eastern, while certain officers and stockholders of the Company ("minority
interest") own non-voting common shares representing less than five percent of
all Eastern common shares.
The Company, through its wholly-owned subsidiaries Westech Energy
Corporation ("Westech") and Westside Acquisition Corporation ("Westside"), is
also engaged in the exploration for and production of oil and natural gas
primarily in the Rocky Mountains and New Zealand.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
by the Company and its subsidiaries.
Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company; Eastern and its subsidiaries; Eastern
Systems Corporation ("ESC") and its wholly-owned subsidiary, Mountaineer and
subsidiary; Westech, and Westech Energy New Zealand Ltd. and its investment in
certain New Zealand oil and gas exploration joint ventures. The Company has
investments in oil and gas limited partnerships and joint ventures and has
recognized its proportionate share of these entities' revenues, expenses, assets
and liabilities. All significant intercompany transactions have been eliminated
in consolidation except gas sales between Eastern and Mountaineer, a regulated
utility.
The Company's wholly-owned subsidiary, Westside, owned an 80% interest in a
limited partnership ("Westside Operating Partnership LP") until the end of March
1997 (see Note 3). This investment had been consolidated prior to March 31, 1997
(see Note 11).
Cash and Cash Equivalents -- Cash and cash equivalents include short-term
investments maturing in three months or less from the date acquired.
Property, Plant and Equipment -- Oil and gas properties are accounted for
using the successful efforts method of accounting. Under this method, certain
expenditures such as exploratory geologi-
F-7
<PAGE> 129
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cal and geophysical costs, exploratory dry hole costs, delay rentals and other
costs related to exploration are recognized currently as expenses. All direct
and certain indirect costs relating to property acquisition, successful
exploratory wells, development costs, and support equipment and facilities are
capitalized. The Company computes depletion, depreciation and amortization of
capitalized oil and gas property costs on the units-of-production method using
proved developed reserves. Direct production costs, production overhead and
other costs are charged against income as incurred. Gains and losses on the sale
of oil and gas property interests are generally included in operations.
The provision for depreciation of Mountaineer's utility plant is based on a
composite straight-line method. The average composite depreciation rate was
3.10% and 3.71% for 1997 and 1996, respectively. Mountaineer's property, plant
and equipment includes capitalized overhead for payroll related costs and
administrative and general expenses, as well as an allowance for funds used
during construction ("AFUDC") of approximately $43,200 and $49,600 for the nine
month period ended March 31, 1997 and for the year ended June 30, 1996. AFUDC is
an accounting procedure which capitalizes the cost of funds used to finance
utility construction projects as part of utility plant on the balance sheet and
credits the cost as a non-cash item on the income statement. During the nine
month period ended March 31, 1997 and for the year ended June 30, 1996 this
amount related only to debt financing in accordance with WVPSC policies.
Other property, equipment, pipelines and buildings are stated at cost and
are depreciated using straight-line and accelerated methods over estimated
useful lives ranging from three to 30 years.
Repairs and maintenance costs are charged against income as incurred;
significant renewals and betterments are capitalized. Gains or losses related to
retirement of utility property, net of any salvage and cost of removal, are
credited or charged to accumulated depreciation. Gains and losses on
dispositions of other property, equipment, pipelines and buildings are included
in operations.
Property, plant and equipment includes the following balances (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
--------- --------
<S> <C> <C>
Oil and gas properties...................................... $204,207 $219,683
Utility plant............................................... 158,491 151,699
Other property and equipment................................ 22,874 23,925
Pipelines................................................... 16,920 16,670
Land and buildings.......................................... 2,426 2,426
-------- --------
404,918 414,403
Less accumulated depreciation, depletion and amortization... (86,072) (74,610)
-------- --------
Net property, plant and equipment........................... $318,846 $339,793
======== ========
</TABLE>
Long-Lived Assets -- In March 1995, Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," was issued. The standard requires
all companies to assess long-lived assets and assets to be disposed of for
impairment and requires rate-regulated companies to write-off regulatory assets
to earnings whenever those assets no longer meet the criteria for recognition of
a regulatory asset as defined by SFAS No. 7l, "Accounting for the Effects of
Certain Types of Regulation." During 1997, the Company adopted this statement
and determined that no impairment loss needed to be recognized for applicable
assets of continuing operations.
Gas in Storage -- Gas in storage is stated at the lower of average cost or
market value.
F-8
<PAGE> 130
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred Financing Costs -- Certain legal, underwriting fees and other
direct expenses associated with the issuance of credit agreements, lines of
credit and other financing transactions have been capitalized. These financing
costs are being amortized over the term of the related revolving credit
agreement.
Foreign Currency Translation -- The translation of applicable foreign
currencies into U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using an average exchange rate during the period. The
cumulative translation adjustment is included in stockholder's equity.
Income Taxes -- Deferred income taxes reflect the impact of "temporary
differences" between assets and liabilities recognized for financial reporting
purposes and such amounts as measured by tax laws. These temporary differences
are determined in accordance with SFAS No. 109, "Accounting For Income Taxes."
Gas Delivery Obligation -- Gas delivery obligation represents deferred
revenues on gas sales where the Company has received an advance payment. The
Company recognizes the actual gas sales revenue in the period the gas delivery
takes place.
Revenues and Purchased Gas Costs -- Utility gas sales and transportation
revenues included in income are based on amounts billed to customers on a cycle
basis and estimated amounts for gas delivered but unbilled at the end of each
accounting period.
Prior to November 1, 1995, Mountaineer recognized utility gas purchased
based on the amount billed to customers through a purchased gas adjustment
clause ("PGA"). The difference between amounts billed and actual gas costs
incurred were recognized as over/underrecovered gas costs. Effective November 1,
1995, the PGA was temporarily suspended through October 31, 1998 in accordance
with a Joint Stipulation and Agreement for Settlement (the "Agreement") between
Mountaineer and WVPSC. Accordingly, beginning November 1, 1995, gas costs are
expensed as incurred and the rates charged to customers are not adjusted to
reflect changes in the cost of gas. In accordance with the Agreement, the
estimated overrecovered balance at October 31, 1995 of $12,000,000 is to be
amortized over a three-year period beginning November 1, 1995. For the nine-
month period ended March 31, 1997 and for the year ended June 30, 1996, the
Company amortized to cost of gas $3,000,000 and $2,667,000, respectively. At
October 31, 1995, the actual overrecovered gas cost balance was determined to be
$12,682,000. The amount in excess of $12,000,000 and certain transportation
revenues, storage balancing fees and standby charges are being deferred as
authorized by the WVPSC and will be addressed in Mountaineer's next general rate
case proceeding (see Note 17).
Oil and gas sales are recognized as income when the oil or gas is produced
and sold.
Stock Compensation -- In October 1995 SFAS No. 123, "Accounting for
Stock-Based Compensation," was issued. As permitted under SFAS No. 123, the
Company has elected to continue to measure compensation costs for stock-based
employee compensation plans as prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees."
Hedging Activities -- The Company periodically hedges a portion of its oil
and gas production through swap agreements. The purpose of the hedges is to
provide a measure of stability in the volatile environment of oil and gas
prices. The Company recognizes gains and losses in the swap agreements at the
time the hedged volumes are sold.
The Company enters into interest rate swap agreements to manage exposure to
changes in interest rates. The transactions generally involve the exchange of
fixed and floating interest payment obligations without the exchange of
underlying principal amounts. The net effect of interest
F-9
<PAGE> 131
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rate swap activity is reflected as an increase or decrease in interest expense.
Any gains on termination of interest rate swap agreements that were marked to
market are included in other income. In addition to the financial risk that will
vary during the life of these swap agreements in relation to the maturity of the
underlying debt and market interest rates, the Company is subject to credit risk
exposure from nonperformance of the counterparties to the swap agreements.
Earnings per Share of Common Stock -- Earnings per share of common stock is
computed by dividing net income attributable to the shares of common stock by
the weighted average number of common shares and common share equivalents
outstanding during the reporting period. The number of equivalent shares was
computed using the treasury stock method which assumes that the increase in the
number of shares is reduced by the number of shares which could have been
repurchased by the Company with proceeds from the exercise of options (which
were assumed to have been made at the average market price of the common shares
during the reporting period). Fully diluted earnings per share and provisions of
the newly issued accounting statement (SFAS 128) regarding earnings per share
are no different than primary earnings per share because of minimal stock
equivalents.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The Company's financial statements are based on a number of significant
estimates including oil and gas reserve quantities which are the basis for the
calculation of depreciation, depletion, amortization and impairment of oil and
gas properties. Management emphasizes that reserve estimates are inherently
imprecise.
The Company records certain utility assets and liabilities in accordance
with SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation."
If the Company were required, for any reason, to terminate application of SFAS
No. 71 for its regulated operations, all regulatory assets and liabilities would
be recognized in the income statement at that time. Such amounts are primarily
related to future amounts recoverable for income taxes (see Note 6).
Concentration of Credit Risk -- The Company maintains its cash accounts
primarily with a single bank and invests cash in money market accounts which the
Company believes to have minimal risk. As operator of jointly owned oil and gas
properties, the Company sells oil and gas production to numerous U.S. oil and
gas purchasers, and pays vendors on behalf of joint owners for oil and gas
services. Both purchasers and joint owners are located primarily in the
northeastern United States and California. The risk of nonpayment by the
purchasers or joint owners is considered minimal. The Company, as owner of a
utility, has receivables from both residential and commercial customers who are
located in West Virginia. The risk of significant nonpayment by the utility
customers is considered minimal.
Environmental Concerns -- The Company is continually taking actions it
believes necessary in its operations to ensure conformity with applicable
federal, state and local environmental regulations. As of March 31, 1997, the
Company has not been fined or cited for any environmental violations which would
have a material adverse effect upon capital expenditures, earnings or the
competitive position of the Company.
F-10
<PAGE> 132
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Disclosures of Cash Flow Information -- Supplemental cash flow
information for the nine-month period ended March 31, 1997 and for the years
ended June 30, 1996 and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Cash paid for:
Interest (net of capitalized interest of $270, $630
and $642 in 1997, 1996 and 1995,
respectively)................................... $13,208 $15,207 $7,861
Income taxes, net of amounts refunded.............. (1,600) 2,440 275
</TABLE>
3. ACQUISITIONS AND DISPOSITIONS
Allegheny & Western Energy Corporation -- On June 23, 1995, the Company
acquired 100% of the common stock of Allegheny & Western Energy Corporation
("A&W") and its wholly-owned subsidiary Mountaineer in a business combination
accounted for as a purchase effective June 30, 1995 with all operations
consolidated on a prospective basis. The business of A&W consisted of
Mountaineer, a regulated public gas utility, ownership interests in oil and gas
wells, undeveloped acreage, pipeline and gathering systems, well operating
rights, marketing company assets and certain other assets. The total purchase
price for this acquisition was approximately $95.3 million which was allocated
based on estimates of relative fair value as follows (in thousands):
<TABLE>
<S> <C>
Working capital............................................. $ 13,139
Property, plant, and equipment.............................. 160,921
Other noncurrent assets..................................... 19,147
Noncurrent liabilities assumed.............................. (97,862)
--------
Purchase of A&W............................................. 95,345
Less:
Accrual of acquisition costs.............................. (5,361)
Cash acquired............................................. (16,794)
========
Net cash used to acquire A&W................................ $ 73,190
========
</TABLE>
In connection with the acquisition, the Company recorded liabilities of
approximately $2.1 million primarily related to estimated payments associated
with disposing of certain nonessential net assets held for sale as well as
severance payments. Approximately $164,000 and $1.6 million was charged against
these liabilities in the nine months ended March 31, 1997 and in the year ended
June 30, 1996, respectively.
Eastern Producing Limited Partnership -- In November 1995, the Company sold
interests in certain producing natural gas properties for total cash
consideration of $17,360,000 realizing a gain on sale of $3,269,000. The Company
contributed its remaining interest in these properties in exchange for a general
partner interest in the partnership that acquired the properties, representing a
1% interest until "payout" (as defined), at which time the Company's interest
increases to 49%.
Westside Operating Partnerships L.P. -- In March 1997 the Company exchanged
warrants held representing a 30% ownership interest of a third party for a 30%
interest in a newly formed oil and gas limited liability company ("LLC"), the
successor to Westside Operating Partnership LP ("WOPLP") (owned 80% by the
Company). The LLC redeemed the Company's previous interest and purchased certain
oil and gas properties paying the Company $11,250,000 plus a $1,500,000 variable
rate note with certain conversion options and distributing certain WOPLP oil and
gas properties and real estate to the Company. The Company has recognized a gain
of $7,800,000 and its interest in LLC ($250,000) is included in other assets at
March 31, 1997.
F-11
<PAGE> 133
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. RISK MANAGEMENT
Natural Gas Hedges -- The Company is a party to oil and natural gas swaps
in the normal course of business to reduce its exposure to fluctuations in the
price of oil and natural gas. These instruments involve, to varying degrees,
elements of market and credit risk in excess of the amount recognized in the
consolidated balance sheets.
As of March 31, 1997, the Company had natural gas swap agreements totalling
a notional quantity of approximately 16.7 MMBTU per day through October 31, 1997
and 2.7 MMBTU per day through October 31, 1998. At March 31, 1997, the market
value of these swaps is estimated to be a loss of $82,000, the net amount the
Company would have to pay to terminate the swap agreements.
For the nine months ended March 31, 1997, and the years ended June 30, 1996
and 1995 the Company recognized a net gain (loss) on its oil and natural gas
hedging activities of ($251,000), ($388,000), and $694,000, respectively.
Mountaineer is party to certain fixed price gas purchase options to
mitigate Mountaineer's exposure to fluctuations in gas prices. At March 31,
1997, the face amount of fixed price call options is $4,328,000 and have a fair
value of $4,314,000. Mountaineer accounts for the cost of the call options as
prepaid gas expense ($743,000 at March 31, 1997) that will be charged to cost of
gas when the call option is exercised and the gas is delivered or the option
expires.
Interest Rate Hedges -- Effective September 30, 1996, the Company entered
into an interest rate cap agreement and an interest rate collar agreement, for
purposes other than trading, to reduce the potential impact of changes in
interest rates on its floating rate long-term debt. Realized gains and losses on
the agreements are recognized in interest expense as settlement occurs.
Amortization of the cap premium is recognized in interest expense on a straight
line basis over the life of the cap. The interest rate cap and collar agreements
have a notional combined principal amount of $60 million and an estimated market
value, the payment the Company would receive to terminate these, of
approximately $13,000 as of March 31, 1997. There were no payments made or
received under these agreements for the nine months ended March 31, 1997.
For the years ended June 30, 1996 and 1995, the Company paid $359,875 and
$389,187, respectively on an interest rate swap that was in place during those
periods. The swap agreement expired on June 28, 1996.
F-12
<PAGE> 134
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. DEBT
Long-term debt -- At March 31, 1997 and June 30, 1996 long-term debt
consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
--------- --------
<S> <C> <C>
Credit agreements:
Eastern revolving credit facility......................... $136,648 $150,000
Westside revolving facility............................... 19,500
ESC senior secured note, interest at 10.75% payable
quarterly, due October 1, 2005............................ 35,000 35,000
Mountaineer unsecured senior notes, interest at 7.59%
payable semi-annually, due October 1, 2010................ 60,000 60,000
Installment notes payable, collateralized by deeds of trust,
at interest rates ranging from 7% to 8%, respectively..... 160 198
-------- --------
231,808 264,698
Less current portion........................................ (12,002) (10,051)
-------- --------
$219,806 $254,647
======== ========
</TABLE>
As of March 31, 1997, Eastern was a party to a revolving facility credit
agreement (the "Eastern Credit Agreement"), most recently amended on December 1,
1996, and provides for an aggregate maximum credit amount of $145,000,000 with a
borrowing base of $124,700,000. Beginning on September 30, 1998, the aggregate
maximum available borrowings will be reduced by $7,250,000 quarterly through
June 30, 2003, the expiration date of the Eastern Credit Agreement. The Company
may request up to three one-year extensions of the initial reduction date of
September 30, 1998. These extensions must be approved by the lenders at their
sole discretion. All outstanding borrowings under the Eastern Credit Agreement
are charged interest at the bank's base rate or LIBOR plus an applicable margin
as determined by a Usage Ratio, as defined, and the total of outstanding
borrowings and letters of credit at that time. The applicable margin for base
rate loans ranges from .75% to 1.00% and for LIBOR loans from 1.75% to 2.25%.
The Company is required to pay a commitment fee annually of .5% of unused
available borrowings under the Eastern Credit Agreement. Indebtedness under the
Eastern Credit Agreement is collateralized by substantially all of Eastern's
assets.
At June 30, 1996, Westside, as a result of consolidating its previous 80%
interest in WOPLP, had a revolving credit facility agreement dated April 28,
1995, most recently amended June 11, 1996. Under terms of the agreement, the
partnership could borrow up to $40,000,000 through December 31, 1997, or if
extended, through December 31, 2001. The borrowing rate until maturity was based
on 1.5% to 2% over the LIBOR interest rate of up to .5% over the bank's prime
interest rate, depending on the method of borrowing funds under the agreement.
At June 30, 1995, ESC had a $35 million revolving facility credit
agreement. Borrowings under this agreement were used in the acquisition of A&W
(Note 3) and were due June 30, 1996. In October 1995, ESC paid off the agreement
and replaced it with a $35 million, 10.75% senior secured note payable (as
amended in April 1997) to a financial institution which is due October 1, 2005.
Effective July 1, 1997 interest payments are due quarterly. ESC has pledged the
stock of Mountaineer as collateral under the secured note.
F-13
<PAGE> 135
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's various debt agreements contain certain restrictions and
conditions among which are limitations on indebtedness, funding of certain
subsidiaries, dividends and investments, and certain tangible net worth and debt
and interest coverage ratio requirements.
The scheduled maturities of the Company's long-term debt, at March 31, 1997
for each of the next five years and thereafter are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------
<S> <C>
1998....................................................... $ 12,002
1999....................................................... 21,800
2000....................................................... 29,048
2001....................................................... 29,008
2002....................................................... 29,000
Thereafter................................................. 110,950
--------
$231,808
========
</TABLE>
Short-Term Debt -- Mountaineer had unsecured bank lines of credit totaling
$71 million and $70 million as of March 31, 1997 and June 30, 1996. During the
nine-month period ended March 31, 1997 and the year ended June 30, 1996, the
maximum outstanding balance was $45,064,000 and $58,064,900, respectively, and
the average daily balance was $30,309,063 and $18,176,445, respectively. The
weighted average interest rate was 6.0% and 6.3% on the balance outstanding
during the nine-month period ended March 31, 1997 and the year ended June 30,
1996, respectively. The outstanding borrowings on these lines of credit as of
March 31, 1997 and June 30, 1996 were $26,613,900 and $8,392,000, respectively.
Letter of Credit -- Eastern has outstanding a $12.0 million letter of
credit issued by a bank in support of Eastern's obligations under a gas purchase
contract with the Royalty Trust (see Note 14). The letter of credit reduces by
$3 million on June 30 of each year until its expiration on June 30, 2000. As of
March 31, 1997, no draws have been made under the Letter of Credit. The letter
of credit agreement between Eastern and the bank requires Eastern to maintain
certain financial conditions, including a minimum net worth and interest
coverage ratio.
6. INCOME TAXES
The following table details the components of the Company's provision
(benefit) for income taxes for the nine-month period ended March 31, 1997 and
the years ended June 30, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal.............................................. $2,292 $1,278 $ (727)
State................................................ 569 478
------ ------ ------
Total current................................ 2,861 1,756 (727)
------ ------ ------
Deferred:
Federal.............................................. 1,280 (159) 3,111
State................................................ 819 1,677 326
------ ------ ------
Total deferred............................... 2,099 1,518 3,437
------ ------ ------
Total provision for income taxes............. $4,960 $3,274 $2,710
====== ====== ======
</TABLE>
F-14
<PAGE> 136
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the provision for income taxes computed at the
statutory rate to the provision for income taxes as shown in the consolidated
statements of income for the nine-month period ended March 31, 1997 and for the
years ended June 30, 1996 and 1995 is summarized below (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Tax expense at the federal statutory rate............ $ 5,962 $ 4,448 $2,288
State taxes net of federal benefit................... 1,062 806 421
Percentage depletion................................. (228)
Section 29 tax credits............................... (2,390) (1,129)
Increase (decrease) in valuation allowance on state
deferred tax asset, net of federal benefit......... (369) 1,161
Change in estimate................................... (1,178)
Other, net........................................... 695 (834) 229
------- ------- ------
Provision for income taxes........................... $ 4,960 $ 3,274 $2,710
======= ======= ======
</TABLE>
In 1995, the Company estimated that it would carry back its 1995 tax loss
and realize the tax benefit based on the alternative minimum tax rate. During
fiscal year 1996, management decided to carry forward this loss, at regular tax
rates, which generated a $1.2 million tax benefit in 1996.
Components of the Company's federal and state deferred tax assets and
liabilities, as of March 31, 1997 and June 30, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
FEDERAL STATE TOTAL FEDERAL STATE TOTAL
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Overrecovered gas costs.............. $ 4,005 $ 737 $ 4,005 $ 707
Bad debt allowance................... 499 92 660 118
Deferred compensation and profit
sharing............................ 1,555 286 1,491 267
Other postretirement benefit and
pension obligation................. 2,901 534 2,773 489
Tax credits, federal................. 13,555 12,899
Tax credit and carryforwards,
state.............................. 12,910 15,238
Other long-term obligations.......... 1,177 217 1,272 234
Other................................ 41 8 1,048 416
-------- -------- -------- --------
Total deferred tax assets..... 23,733 14,784 24,148 17,469
-------- -------- -------- --------
Deferred tax liabilities:
Property, plant and equipment........ (53,619) (9,981) (51,905) (9,789)
Federal income tax on state tax
credits............................ (3,184) (5,384)
Other liabilities.................... (1,779) (328) (434) (345)
-------- -------- -------- --------
Total deferred tax
liabilities................. (58,582) (10,309) (57,723) (10,134)
-------- -------- -------- --------
Valuation allowance.................... (2,397) (4,432)
-------- -------- -------- --------
Net deferred income tax asset
(liability).......................... (34,849) 2,078 (33,575) 2,903
-------- -------- -------- --------
Less current deferred tax asset........ 4,639 960 $5,599 4,791 1,546 $6,337
-------- -------- ====== -------- -------- ======
Long-term deferred tax asset
(liability).......................... $(39,488) $ 1,118 $(38,366) $ 1,357
======== ======== ======== ========
</TABLE>
F-15
<PAGE> 137
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At March 31, 1997, the Company has the following federal and state tax
credits and carryforwards (in thousands):
<TABLE>
<CAPTION>
YEAR OF
TAX CREDITS OR CARRYFORWARDS AMOUNT EXPIRATION
---------------------------- ------- ----------
<S> <C> <C>
AMT tax credits............................................ $11,817 None
Investment tax credits..................................... 1,738 1997-2001
-------
Total federal credits...................................... $13,555
=======
West Virginia tax credits, net............................. $11,762 1997-2002
West Virginia net operating loss carryforwards............. 1,058 2010
-------
Total state credits and carryforwards...................... $12,820
=======
</TABLE>
The Company is eligible for relocation incentives taken in the form of tax
credits from West Virginia. The incentive amounts are based upon investments
made and jobs created in that state. Tax credits generated by the Company are
used primarily to offset the payment of severance, property and state income
taxes. In connection with the adoption of SFAS No. 109, the Company recorded the
benefits of existing West Virginia state tax credits as a state deferred tax
asset.
Based on certain tax planning strategies, which include the utilization of
the credit against taxes payable by subsidiaries, and projections of future West
Virginia severance, property and state income taxes, management believes that it
is more likely than not these credits are realizable in the carryforward period.
The amount of deferred tax asset considered realizable, however, could be
reduced in the near term if future taxable income is reduced.
Included in other long-term assets as of March 31, 1997 and June 30, 1996,
is a $11.3 million and $10.6 million, respectively, net regulatory asset
recorded by Mountaineer in accordance with state utility ratemaking practices
related to future amounts recoverable for income taxes.
7. EMPLOYEE BENEFIT PLANS
The Company and certain operating subsidiaries, have a Profit
Sharing/Incentive Stock Plan (the "Plan") for the stated purpose of expanding
and improving profits and prosperity and to assist the Company in attracting and
retaining key personnel. The Plan is noncontributory, and its continuance from
year to year is at the discretion of the Board of Directors. The annual profit
sharing pool is based on calculations set forth in the Plan. One-half of the
pool is generally paid to eligible employees within 120 days of the end of the
fiscal year and one-half is deferred to the following year. Generally, to be
eligible to participate, an employee must have been continuously employed for
two or more years, however employees with less than two years of employment may
participate under certain circumstances. Additionally, Eastern participants may
elect to receive their profit sharing award in the form of nonvoting and
nontransferable common stock of Eastern, subject to the applicable terms and
conditions of the Plan document. The Company recognized $200,000 in the nine
month period ended March 31, 1997 and $3.1 million of expense during the year
ended June 30, 1996. No expense was recognized in the year ended June 30, 1995.
For certain subsidiaries, the Company sponsors a Section 401(k) plan
covering all full-time employees who wish to participate. The Company's
contributions, which are principally based on a percentage of the employee
contributions, are charged against income as incurred, totaled $101,859 for the
nine-month period ended March 31, 1997 and $144,530 and $149,691 for the years
ended June 30, 1996 and 1995, respectively.
F-16
<PAGE> 138
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. PENSION PLAN
Mountaineer sponsors a Retirement Income Plan (the "Pension Plan") which
covers substantially all qualified Mountaineer employees 21 years of age and
over. Employees become fully vested upon completion of five years of credited
service, as defined. Retirement income is based on credited years of service and
the employees' level of compensation, as defined. The Pension Plan is subject to
the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA").
The determination of contributions is made in consultation with the Pension
Plan's actuary and is based upon anticipated earnings of the Pension Plan,
mortality and turnover experience, the funded status of the Pension Plan and
anticipated future compensation levels. Mountaineer's funding policy is to be in
compliance with ERISA guidelines and to make annual contributions to the Pension
Plan to assure that all employees' benefits will be fully provided for by the
time they retire.
The following table sets forth the Pension Plan's funded status and amounts
recognized in the consolidated balance sheets at the dates shown, as determined
by an independent actuary (in thousands):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
--------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $25,348 and $25,198 at March 31, 1997
and June 30, 1996, respectively.................. $(27,120) $(27,120)
======== ========
Projected benefit obligations for service rendered to
date................................................ $(29,489) $(30,507)
Plan assets at fair value............................. 23,389 23,152
-------- --------
Projected benefit obligation in excess of plan assets. (6,100) (7,355)
Unrecognized net loss from past experience............ 1,112 2,444
-------- --------
Accrued pension cost (included in other long-term
obligations)........................................ $ (4,988) $ (4,911)
======== ========
</TABLE>
Net pension cost for the nine month period ended March 31, 1997 and the
year ended June 30, 1996 as determined by an independent actuary, included the
following components (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Service cost........................................... $ 442 $ 638
Interest cost.......................................... 1,654 2,083
Actual return on plan assets........................... (1,602) (2,147)
Net amortization and deferral.......................... 260 366
------- -------
Net periodic pension cost.............................. 754 940
Amount capitalized as construction cost and charged to
others............................................... (125) (173)
------- -------
Amount charged to expense.............................. $ 629 $ 767
======= =======
</TABLE>
The expected long-term rate of return used in the calculation was 8.0% for
the nine month period ended March 31, 1997 and 8.25% for the year ended June 30,
1996. The weighted average discount rate used in the calculations was 7.75% for
the nine month period ended March 31, 1997 and for the year ended June 30, 1996.
The expected average increase in future compensation levels was 4.0% for the
nine month period ended March 31, 1997 and 4.5% for the year ended June 30,
1996.
F-17
<PAGE> 139
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS
Mountaineer provides certain medical and life insurance benefits for
retired employees. Substantially all of Mountaineer's employees may become
eligible for these benefits if they choose to retire after reaching age 55 while
working for Mountaineer and are provided until age 65. Life insurance benefits
of approximately two times annual salary are provided while an employee is
active and working at Mountaineer. On the date of an employee's retirement and
on the date the employee reaches age 70, life insurance benefits decrease to
approximately 80% and 40% of annual salary, respectively. These benefits are
provided to retirees who meet the service requirements of 10 continuous years of
service prior to retirement at age 55 or 5 continuous years of service prior to
retirement at age 65. The plan is unfunded.
The following table sets forth the postretirement medical and life
insurance plans' funded status and amounts recognized in the consolidated
balance sheets, as determined by an independent actuary (in thousands):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
--------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................. $3,747 $3,198
Fully eligible active participants................... 1,526 1,952
Other active employees............................... 1,665 1,640
------ ------
Total accumulated postretirement benefit obligation.... 6,938 6,790
Unrecognized actuarial gain............................ 265 274
------ ------
Accrued postretirement benefit liability (included in
other long-term liabilities)......................... $7,203 $7,064
====== ======
</TABLE>
Net periodic postretirement benefit cost for the nine month period ended
March 31, 1997 and for the year ended June 30, 1996, as determined by an
independent actuary, included the following components (in thousands):
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
--------- --------
<S> <C> <C>
Service cost-benefits attributable to service during
the period........................................... $ 282 $ 362
Interest cost on the accumulated postretirement benefit
obligation........................................... 375 514
----- -----
Net periodic postretirement benefit cost............... 657 876
Amount capitalized as construction cost................ (121) (220)
----- -----
Amount charged to expense.............................. $ 536 $ 656
===== =====
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9.5% in the nine month period ended March
31, 1997 and 10.0% in the year ended June 30, 1996, declining gradually to 5.5%
in 2005 and remaining at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. A one percentage
point increase in the assumed health care cost trend rate would increase the
aggregate service and interest cost by $39,240 for the nine month period ended
March 31, 1997 and accumulated postretirement benefit obligation as of March 31,
1997 by $231,731. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 7.75% in the nine month period
ended March 31, 1997 and for the year ended June 30, 1996. The average assumed
annual rate of salary increase for the life insurance benefit plan was 4.0% in
1997 and 5.0% in 1996.
F-18
<PAGE> 140
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a part of a WVPSC rate order dated October 29, 1993, the WVPSC ruled
that the permitted rate recovery mechanism for other post retirement benefits
would be a modified accrual method. The modified accrual method allows for the
recovery of current services costs on an accrual basis and recovery of the
transition obligation on a cash basis.
10. COMMON STOCK
Voting Common Stock -- In May 1995, the Company was reincorporated in the
State of West Virginia. As part of this reincorporation, each outstanding share
of then existing no-par value common stock was converted automatically to one
share of $1 par value common stock.
The Company has an agreement with a stockholder covering the sale or
disposition of stock that provides the stockholder cannot sell stock without
first offering such shares to the Company. Under certain circumstances, the
Company would be required to purchase the related stock if not previously
tendered to the Company or otherwise sold or disposed of in accordance with the
provisions of the agreement.
Treasury Stock -- The Company has 40,188 and 20,438 shares of treasury
stock, which are carried at cost, at March 31, 1997 and June 30, 1996,
respectively.
Stock Options -- In 1994, the Company created an incentive stock option
plan (the "Stock Option Plan"). Under the Stock Option Plan, options vest
annually in 25% increments from January 1, 1994 to December 31, 1997, and are
exercisable at $40 per share. However, if any of the optionees' employment with
the Company is terminated within four years, the optionee must resell any
exercised options back to the Company at $40 per share.
A summary of the Company's Option Plan as of March 31, 1997, June 30, 1996
and June 30, 1995, and the changes during the periods then ended is presented
below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year........... 6,400 $40.00 9,600 $40.00 12,800 $40.00
Exercised.................................. 3,200 40.00 3,200 40.00 3,200 40.00
----- ------ ----- ------ ------ ------
Outstanding at end of year................. 3,200 $40.00 6,400 $40.00 9,600 $40.00
===== ====== ===== ====== ====== ======
Options exercisable at year end............ 3,200 3,200 3,200
===== ===== ======
</TABLE>
The option exercises above were paid for in the form of notes which have
been charged against equity until collected.
11. UNCONSOLIDATED AFFILIATE
The Company's investment in LLC at March 31, 1997 (previously consolidated)
is accounted for under the equity method (see Note 3). Summarized financial
information for the LLC at March 31, 1997 is as follows (in thousands):
<TABLE>
<S> <C> <C> <C>
Current assets.................... $ 3,024 Long-term debt.................... $19,700
Oil and gas properties............ 20,703 Other liabilities................. 2,363
Other assets...................... 1,462 Equity............................ 3,126
------- -------
Total assets............ $25,189 Total liabilities and equity...... $25,189
======= =======
</TABLE>
F-19
<PAGE> 141
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. OPERATING LEASES
The Company has noncancelable operating lease agreements for the rental of
office space, computer and other equipment. Certain of these leases contain
purchase options or renewal clauses. Rental expense for operating leases was
approximately $931,000, $1.2 million and $1.4 million for the nine-month period
ended March 31, 1997 and for the years ended June 30, 1996 and 1995,
respectively.
At March 31, 1997 future minimum lease payments for each of the next five
years ending March 31 and thereafter are as follows (in thousands):
<TABLE>
<S> <C>
1998.................................................... $1,073
1999.................................................... 888
2000.................................................... 876
2001.................................................... 844
2002.................................................... 713
Thereafter.............................................. 975
------
$5,369
======
</TABLE>
13. RELATED PARTY TRANSACTIONS
Certain officers, directors, employees and affiliates regularly participate
in Company-sponsored drilling programs on a cost basis for which the Company
advances funds on behalf of these participants. Notes receivable at March 31,
1997 and June 30, 1996 in connection with these programs total $944,000 and $1
million, respectively.
Eastern has entered into a rental arrangement for the building used as its
headquarters from a partnership in which certain officers are partners. Rent
payments totaled approximately $250,000 for the nine-month period ended March
31, 1997 and $300,000 and $415,000 for the years ended June 30, 1996 and 1995,
respectively.
Mountaineer purchases a portion of its gas supply requirements from its
subsidiary and Eastern. The price paid for such purchases has been approved by
the WVPSC. During 1997 and 1996, Mountaineer purchased approximately $3,936,000
and $5,342,000, respectively, from its subsidiary and $14,628,000 and
$15,258,000, respectively from Eastern. The related revenues and expenses
between Mountaineer and its subsidiary and Eastern have not been eliminated in
these financial statements due to the regulated nature of Mountaineer. At March
31, 1997, Mountaineer has $22,429,000 of outstanding gas purchase commitments
with Eastern.
The Company advanced funds to certain officers in 1991 and 1994, which bear
interest at 8% and are secured by non-voting common shares of Eastern. Balances
totaled $570,000 at March 31, 1997 and June 30, 1996 and are due in 2001.
The Company also advanced funds in 1988 to certain officers and directors
which bear interest at 8%, are secured by interests in oil and gas properties
and are repayable out of net proceeds from the oil and gas production on these
properties. Balances outstanding at March 31, 1997 and June 30, 1996 totalled
$898,000 and $1,012,000, respectively.
14. COMMITMENTS AND CONTINGENCIES
In 1992, Eastern entered into a 15-year gas sale and purchase agreement
with an independent power project whereby Eastern will deliver approximately
12,000 MCF per day to the project at a fixed price per MCF. The terms of the
agreement provide for annual price escalations.
F-20
<PAGE> 142
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1993, the Company sold working interests in certain Appalachian gas
properties in connection with the formation of a royalty trust (the "Trust"). A
portion of the proceeds from the sale of these interests, representing a term
net profits interest, was accounted for as a production payment. As a result, at
March 31, 1997 and June 30, 1996, such proceeds totaling $15,565,412 and
$17,243,931, respectively, have been classified as deferred trust revenue.
Certain gas production attributable to the Trust is purchased by a
wholly-owned subsidiary of the Company pursuant to a gas purchase contract which
expires in 2013. The purchase price under the contract is based on escalating
fixed price and spot market components. To hedge the Company's position on this
contract, the Company dedicated the fixed price sales contract with the
independent power project discussed above, which has similar prices and volumes
as the fixed price component of the contract, and purchased a floor price
futures contract to cover the variable component. The fixed price component
expires on January 1, 2000. The obligation of the subsidiary to make payments
under the contract is partially supported by a standby letter of credit with a
face amount of $12,000,000. The letter of credit is subject to annual reductions
of $3,000,000 beginning June 30, 1996, and fully expires on June 30, 2000.
The Company has entered into an agreement whereby it will fund a specified
monthly amount, through December 31, 1996, to assist in the development of oil
and gas projects by a third party. No remaining commitment exists as of March
31, 1997 and as of June 30, 1996, the remaining commitment was $450,000. Amounts
funded are accounted for as an advance and all outstanding amounts are due on
January 1, 1999. As of March 31, 1997 and June 30, 1996, the Company has $2.5
million and $2.4 million, respectively, in long-term notes receivable relating
to this agreement. In addition to the commitment, the Company has certain other
rights and options regarding the acquisition, exploration and development of the
oil and gas projects that may be acquired as a result of this agreement.
In connection with an existing gas delivery obligation agreement, whereby
Eastern received an advance payment, its subsidiary entered into a credit line
deed of trust which has an available balance of $11 million as of March 31, 1997
and June 30, 1996 to collateralize the performance under the gas delivery
obligation. This credit line deed of trust declines at a rate of 7.5% per year.
FERC Matters -- On November 22, 1996, Mountaineer entered into a settlement
agreement with Columbia Gas and other Columbia Gas customers in a rate
proceeding initiated by Columbia Gas in 1995. Among the material provisions of
the settlement affecting Mountaineer include (i) the receipt by Mountaineer of
approximately $7.1 million annually, through 2004, in demand charge credits, and
(ii) a rate moratorium on Columbia Gas until the year 2000. On April 17, 1997
the FERC approved the settlement agreement. As of March 31, 1997, Mountaineer is
due refunds under the settlement agreement of $6 million including zone credits
earned and transportation charges paid in excess of settled rates. As a result
of the previous settlement and FERC order, Mountaineer recorded a receivable and
associated reduction in gas costs of $6 million for the nine months ended March
31, 1997.
Legal Matters -- The Company is involved in various legal actions and
claims arising in the ordinary course of business. In addition, Columbia Gas
filed a suit in March 1997 against Eastern alleging that Eastern's wells are
producing storage gas from a Columbia Gas storage field in West Virginia.
Columbia Gas estimates its alleged damages to be in excess of $5 million.
Eastern purchased the wells in question from Great Western Onshore Inc. and
Great Western Drilling Inc. (collectively "Great Western") pursuant to an Asset
Purchase and Sale Agreement dated January 28, 1992. Pursuant to the terms of the
Asset Purchase and Sale Agreement, Eastern believes that it is entitled to
indemnification from Forcenergy, Inc., successor in interest to Great Western as
a result of Forcenergy's breach of certain representations and warranties
contained therein. While
F-21
<PAGE> 143
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the outcome of this lawsuit and other proceedings against the Company cannot be
predicted with certainty, management does not expect these matters to have a
material adverse effect on the Company's financial position.
15. FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments have been
determined using appropriate market information and valuation methodologies.
Considerable judgment is required to develop the estimates of fair value; thus,
the estimates provided below are not necessarily indicative of the amount that
the Company could realize upon the sale or refinancing of such financial
instruments (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1997 JUNE 30, 1996
------------------ ------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents.................. $ 14,331 $14,331 $ 14,197 $14,197
Accounts receivable........................ 66,730 66,730 43,802 43,802
Notes receivable........................... 7,328 5,634 5,803 4,012
Liabilities:
Accounts payable and accrued expenses...... 34,947 34,947 39,798 39,798
Current portion of long-term debt.......... 12,002 12,002 10,051 10,051
Short-term debt............................ 26,614 26,614 8,392 8,392
Long-term debt............................. 219,806 224,718 254,647 261,196
Other long-term obligations................ 14,118 14,118 14,849 14,849
Interest rate hedge contracts.............. 13 13
Oil and gas hedge contracts................ 96 455
</TABLE>
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Cash and Cash Equivalents, Accounts Receivable and Accounts Payable and
Accrued Expenses -- Due to the short-term nature of these instruments, the
carrying value approximates the fair value.
Notes Receivable -- The notes receivable accrue interest at a fixed rate.
Fair value was estimated using discounted cash flows based on current interest
rates for notes with similar maturities.
Short-Term Debt and Line of Credit -- The short-term debt is borrowed on a
revolving basis at a variable interest rate; as a result, the carrying value
approximates the fair value of the outstanding debt. Due to the short-term
nature of the line of credit, the carrying value approximates the fair value of
the outstanding debt.
Long-Term Debt -- A portion of long-term debt was borrowed under a
revolving credit facility which accrues interest at variable rates; as a result,
carrying value approximates fair value. The remaining portion of the Company's
long-term debt is comprised of fixed rate facilities; for this portion, fair
value was estimated using discounted cash flows based upon the Company's current
borrowing rates for debt with similar maturities.
Other Long-Term Obligations -- The other long-term obligations were
borrowed under agreements which accrue interest at variable rates; as a result,
carrying value approximates fair value.
F-22
<PAGE> 144
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONTRACT SETTLEMENT
In 1991, Columbia Transmission and Columbia Gas Systems, Inc. ("Columbia")
filed for protection under Chapter 11 of the Bankruptcy Code. The settlement
relates to damages paid by Columbia Gas as a result of its rejection in
bankruptcy of certain gas purchase contracts. As part of Columbia's amended plan
of reorganization, the Company has recorded revenue of $8.8 million in 1995.
17. RATE MATTERS
In June 1995, Mountaineer agreed to a Joint Stipulation and Agreement for
Settlement (the "Agreement") with various parties, regarding a January 1995 base
rate filing, as well as Mountaineer's upcoming PGA filing and a tariff filing
concerning primarily telemetering requirements for transportation customers. The
Agreement allowed for a $4 million increase in base rates, with the portion of
the increase allocable to sales customers to be offset by the amortization of
the PGA overrecovered balance existing as of October 31, 1995 over a three-year
moratorium period beginning November 1, 1995. A final order was issued on
January 10, 1996.
The Agreement stipulates that during the three-year moratorium,
Mountaineer's annual PGA filing with the WVPSC will be temporarily suspended and
the deferred accounting for purchased gas costs will not be in effect. During
this period Mountaineer can utilize its expertise in entering into gas supply
and service contracts benefiting from its successes while assuming the risks and
costs of its actions. Consequently, Mountaineer has assumed the risk of any
changes in interstate pipeline rates and charges during the moratorium period.
It is the intent of the Agreement that Mountaineer be permitted to keep the
benefit of, and absorb the costs of, its decisions during the moratorium period
without review of its actions. The parties believe the Agreement provides
benefits for both Mountaineer and its customers and is in the public's best
interest. Mountaineer expects that natural gas distribution operations will
continue to be regulated following the moratorium period in a manner which will
allow Mountaineer to recover its costs of operations and earn a reasonable
return on its equity.
F-23
<PAGE> 145
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. INDUSTRY SEGMENTS
The following table sets forth the Company's principal industry segments
and their contributions to its revenues, operating profits, capital expenditures
and depletion, depreciation and amortization for the periods. Also shown are the
identifiable assets associated with each segment as of the end of each period
indicated:
<TABLE>
<CAPTION>
NINE-MONTHS ENDED MARCH 31, 1997
------------------------------------------------------
REGULATED ADJUSTMENTS
OIL AND GAS UTILITY AND
OPERATIONS OPERATIONS ELIMINATIONS CONSOLIDATED
----------- ---------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers. $139,624 $146,965 $286,589
Intersegment.................... 18,564 18,564
-------- -------- ----- --------
Total revenue................... 158,188 146,965 305,153
-------- -------- ----- --------
Operating profit................ 7,786 18,536 $(540) 25,782
Other income (expense).......... (1,101) (7,687) 540 (8,248)
-------- -------- ----- --------
Income before income taxes...... 6,685 10,849 17,534
======== ======== ===== ========
Depletion, depreciation and
amortization (including
reduction in the carrying
amount of oil and gas
properties)................... 8,978 6,002 14,980
Capital expenditures............ 13,862 7,693 21,555
-------- -------- ----- --------
Identifiable assets............. 204,608 216,861 421,469
Corporate assets................ 14,350 18,627 32,977
-------- -------- ----- --------
Total assets.................... $218,958 $235,488 $454,446
======== ======== ===== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
------------------------------------------------------
REGULATED ADJUSTMENTS
OIL AND GAS UTILITY AND
OPERATIONS OPERATIONS ELIMINATIONS CONSOLIDATED
----------- ---------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers. $172,265 $182,929 $355,194
Intersegment.................... 20,600 20,600
-------- -------- -------- --------
Total revenue................... 192,865 182,929 375,794
Operating profit................ 4,805 26,423 31,228
Other income (expense).......... (8,957) (10,984) (19,941)
Income (loss) before income
taxes......................... (4,152) 15,439 11,287
Depletion, depreciation and
amortization including
reduction in the carrying
amount of oil and gas
properties)................... 12,053 6,764 18,817
Capital expenditures............ 25,968 13,477 39,445
Identifiable assets............. 236,367 194,565 430,932
Corporate assets................ 14,219 16,353 30,572
-------- -------- -------- --------
Total assets.................... $250,586 $210,918 $461,504
======== ======== ======== ========
</TABLE>
The Company operates in two industry segments, oil and gas operations
including exploration and development, production, aggregation and marketing of
Company owned as well as third party
F-24
<PAGE> 146
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
oil and gas. In addition, the Company operates a regulated local gas
distribution company. Operating profit represents revenues less costs which are
directly associated with such operations. Revenues are priced and accounted for
consistently for both unaffiliated and intersegment sales. Intersegment sales
have not been eliminated in consolidation because of the regulated nature of the
gas distribution segment.
Identifiable assets by industry segment are those assets that are used in
the Company's operations in each segment. Corporate assets are primarily cash,
cash equivalents and deferred charges.
19. SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)
Costs -- The following tables set forth capitalized costs at March 31, 1997
and June 30, 1996, and costs incurred, including capitalized overhead, for oil
and gas producing activities for the nine-month period ended March 31, 1997 and
for the years ended June 30, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Capitalized costs:
Proved properties............................... $195,732 $211,309
Unproved properties............................. 8,476 8,209
-------- --------
Total........................................... 204,208 219,518
Less accumulated depletion...................... (54,839) (52,186)
-------- --------
Net capitalized costs........................... $149,369 $167,332
======== ========
Costs incurred:
Acquisition of properties:
Proved.......................................... $ 0 $ 4,318 $14,190
Development costs............................... 9,684 13,470 14,345
Exploration costs............................... 3,703 6,141 2,240
-------- -------- -------
Total costs incurred............................ $ 13,387 $ 23,929 $30,775
======== ======== =======
</TABLE>
Results of Operations -- The results of operations for oil and gas
producing activities, excluding corporate overhead and interest costs for the
nine-month period ended March 31, 1997 and for the years ended June 30, 1996 and
1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Revenues from sale of oil and gas:
Sales.......................................... $27,002 $31,940 $29,277
Production costs.................................... 4,462 7,793 7,555
Production taxes.................................... 1,417 1,407 1,560
Exploration and impairment.......................... 3,613 6,756 281
Depreciation, depletion and amortization............ 6,509 9,204 9,763
Other............................................... 339 193 435
Income tax expense.................................. 2,665 1,647 2,421
------- ------- -------
Results of operations............................... $ 7,997 $ 4,940 $ 7,262
======= ======= =======
</TABLE>
Production costs include those costs incurred to operate and maintain
productive wells and related equipment and include costs such as labor, repairs
and maintenance, materials, supplies,
F-25
<PAGE> 147
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fuel consumed, insurance and production taxes. In addition, production costs are
net of well tending fees which are included in well operations revenues in the
accompanying consolidated income statements.
Exploration and impairment expense include the costs of geological and
geophysical activity, unsuccessful exploratory wells and leasehold impairment
allowances.
Depletion, depreciation and amortization include costs associated with
capitalized acquisition, exploration, and development costs, but does not
include depreciation applicable to support equipment.
The provision for income taxes is computed at the statutory federal income
tax rate and is reduced to the extent of permanent differences which have been
recognized in the Company's tax provision, such as investment tax credits,
statutory depletion allowed for income tax purposes and the utilization of
Federal tax credits permitted for fuel produced from a non-conventional source.
Reserve Quantity Information -- Reserve estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved reserves and in
the projection of future rates of production and the timing of development
expenditures. The accuracy of such estimates is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Results of subsequent drilling, testing and production may cause either upward
or downward revisions of previous estimates. Further, the volumes considered to
be commercially recoverable fluctuate with changes in prices and operating
costs. Reserve estimates, by their nature, are generally less precise than other
financial statement disclosures.
F-26
<PAGE> 148
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth information for the nine-month period ended
March 31, 1997 and for the years ended June 30, 1996 and 1995 with respect to
changes in the Company's proved reserves, all of which are in the United States.
The Company has no significant undeveloped reserves.
<TABLE>
<CAPTION>
NATURAL
GAS CRUDE OIL
(MMCF) (MBBLS)
------- ---------
<S> <C> <C>
PROVED RESERVES:
June 30, 1994........................................ 170,311 7,003
Revisions of previous estimates...................... (23,726) (429)
Extensions and discoveries........................... 4,908 974
Purchases of reserves in place....................... 29,309 7
Production........................................... (8,984) (535)
------- ------
June 30, 1995........................................ 171,818 7,020
Revisions of previous estimates...................... 3,693 170
Purchases of reserves in place....................... 7,500
Extensions and discoveries........................... 5,950
Sales of reserves in place........................... (19,700)
Production........................................... (9,812) (522)
------- ------
June 30, 1996........................................ 159,449 6,668
Revision of previous estimates....................... (3,146) (268)
Extensions and discoveries........................... 19,000 598
Sales of reserves in place(1)........................ (3,614) (5,181)
Production........................................... (7,115) (426)
------- ------
March 31, 1997....................................... 164,574 1,391
======= ======
PROVED DEVELOPED:
June 30, 1995........................................ 167,428 6,886
======= ======
June 30, 1996........................................ 153,232 6,668
======= ======
March 31, 1997....................................... 148,358 1,146
======= ======
</TABLE>
- ---------------
(1) Includes 1,084 MMcf of proved gas reserves and 1,554 MBbls of proved crude
oil reserves otherwise retained as a result of the Company's 30% equity
investment in LLC.
Standardized Measure of Discounted Future Net Cash Flows -- Estimated
discounted future net cash flows and changes therein were determined in
accordance with SFAS No. 69, "Disclosures About Oil and Gas Producing
Activities." Certain information concerning the assumptions used in computing
the valuation of proved reserves and their inherent limitations are discussed
below. The Company believes such information is essential for a proper
understanding and assessment of the data presented.
Future cash inflows are computed by applying period-end prices of oil and
gas relating to the Company's proved reserves to the period-end quantities of
those reserves. Future price changes are considered only to the extent provided
by contractual arrangements, including futures contracts, in existence at
period-end.
The assumptions used to compute estimated future net revenues do not
necessarily reflect the Company's expectations of actual revenues or costs, nor
their present worth. In addition, variations from the expected production rates
also could result directly or indirectly from factors outside of the
F-27
<PAGE> 149
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's control, such as unintentional delays in development, changes in
prices or regulatory controls. The reserve valuation further assumes that all
reserves will be disposed of by production. However, if reserves are sold in
place, additional economic considerations could also affect the amount of cash
eventually realized.
Future development and production costs are computed by estimating the
expenditures to be incurred in developing and producing the proved oil and gas
reserves at the end of year, based on period-end costs and assuming continuation
of existing economic conditions.
Future income tax expenses are computed by applying the appropriate
year-end statutory tax rates, with consideration of future tax rates already
legislated, to the future pretax net cash flows relating to the Company's proved
oil and gas reserves.
An annual discount rate of 10% was used to reflect the timing of the future
net cash flows relating to proved oil and gas reserves.
Information with respect to the Company's estimated discounted future cash
flows from its oil and gas properties as of March 31, 1997, June 30, 1996 and
June 30, 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Future cash in flows......................... $ 508,306 $ 500,839 $ 474,249
Future production costs and development
costs...................................... (175,033) (196,602) (199,598)
Future income tax expense.................... (85,345) (48,860) (37,054)
--------- --------- ---------
Future net cash flows before discount........ 247,928 255,377 237,597
10% discount to present value................ (154,734) (145,436) (126,858)
--------- --------- ---------
Standardized measure of discounted future net
cash flows related to proved oil and gas
reserves................................... $ 93,194 $ 109,941 $ 110,739
========= ========= =========
</TABLE>
The following amounts represent the Company's share of the reserve
quantities and values of its equity investee Breitburn LLC at March 31, 1997.
Costs incurred and results of operations are included in the previous tables.
<TABLE>
<CAPTION>
GAS OIL
(MMCF) (MBBL)
------ ------
<S> <C> <C> <C>
Proved oil and gas reserve quantities.................. 1,084 1,554
====== ======
Standardized measure of discounted future net cash
flows................................................ $7,277
======
</TABLE>
F-28
<PAGE> 150
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principal changes in the standardized measure of discounted future net cash
flows for the nine-month period ended March 31, 1997 and for the years ended
June 30, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Standardized measure of discounted future net
cash flows at beginning of period............. $109,941 $110,739 $126,247
Sales of oil and gas produced, net of production
costs......................................... (15,333) (16,528) (16,242)
Net changes in prices and production costs...... 22,099 21,717 (36,142)
Extensions, discoveries and other additions, net
of future production and development costs.... 17,160 3,944 6,466
Changes in estimated future development costs... (14,953) (9,071) (6,007)
Development costs incurred...................... 6,898 8,856 9,899
Revisions of previous quantity estimates........ (3,637) 3,120 (15,689)
Purchases of reserves in place.................. 0 4,918 18,653
Sales of reserves in place...................... (24,256) (12,919) 0
Accretion of discount........................... 10,994 11,074 12,625
Net change in income taxes...................... (13,398) (4,852) 23,444
Changes in production rates and other........... (2,321) (11,057) (12,515)
-------- -------- --------
Standardized measure of discounted future net
cash flows at end of period................... $ 93,194 $109,941 $110,739
======== ======== ========
</TABLE>
F-29
<PAGE> 151
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Allegheny & Western Energy Corporation and Subsidiaries:
We have audited the accompanying consolidated statement of income of
Allegheny & Western Energy Corporation and Subsidiaries for the year ended June
30, 1995. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated statement of income is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated statement of income.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall statement of
income presentation. We believe that our audit of the consolidated statement of
income provides a reasonable basis for our opinion.
In our opinion, such consolidated statement of income presents fairly, in
all material respects, the consolidated results of operations of Allegheny &
Western Energy Corporation and Subsidiaries for the year ended June 30, 1995 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
April 21, 1997
F-30
<PAGE> 152
ALLEGHENY & WESTERN ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
REVENUES:
Utility gas sales and transportation...................... $156,754
Gas marketing and pipeline sales.......................... 17,965
Oil and gas sales......................................... 7,081
Well operation and service revenues....................... 8,784
Investment and other income............................... 623
--------
191,207
COSTS AND EXPENSES:
Utility gas purchased..................................... 95,999
Gas marketing and pipeline................................ 16,845
Utility operations and maintenance........................ 21,086
Field operating expenses.................................. 26,959
General and administrative................................ 15,830
Depletion, depreciation and amortization.................. 8,635
Interest.................................................. 4,453
--------
189,807
--------
INCOME BEFORE INCOME TAXES.................................. 1,400
INCOME TAX BENEFIT.......................................... 900
--------
NET INCOME.................................................. $ 2,300
========
NET INCOME PER SHARE........................................ $ 0.30
========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING............................................... 7,786
========
</TABLE>
See notes to consolidated statement of income
F-31
<PAGE> 153
ALLEGHENY & WESTERN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1995
1. NATURE OF ORGANIZATION
Allegheny & Western Energy Corporation (Allegheny or the Company) and its
wholly-owned subsidiaries (collectively, "Mountaineer") are engaged in the
exploration, production, distribution and marketing of natural gas. The
exploration and production of natural gas is performed in the Appalachian Basin
of West Virginia.
Mountaineer Gas Company ("MGC") is a regulated gas distribution utility
serving approximately 200,000 residential, commercial, industrial and wholesale
customers in the State of West Virginia. During fiscal year 1993, MGC formed a
wholly-owned subsidiary, Mountaineer Gas Services, Inc. ("MGS"), for the purpose
of owning and operating the producing properties and transmission plant assets.
The Company markets natural gas directly to industrial, commercial and
municipal customers through its non-regulated subsidiary, G.A.S.
Effective June 30, 1995, 100% of the common stock of Allegheny was acquired
by Energy Corporation of America ("ECA").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
by the Company and its subsidiaries. The accounting principles are in accordance
with generally accepted accounting principles.
Principles of Consolidation -- The consolidated statement of income
includes the accounts of Allegheny and its subsidiaries. All significant
intercompany items have been eliminated except those relating to sales of
natural gas to MGC by Allegheny and MGS. During 1995, MGC purchased $288,000 and
$4,874,000 from Allegheny and MGS, respectively. Prices at which natural gas is
sold by affiliates to MGC is regulated and approved by the West Virginia Public
Service Commission ("WVPSC").
Basis of Accounts -- MGC and MGS maintain their accounts in conformity with
generally accepted accounting principles for regulated entities which is in
accordance with the accounting requirements and ratemaking practices prescribed
by the WVPSC.
Revenue Recognition -- Oil and gas production, including royalties and
overrides, is recognized as income as it is extracted and sold. Income from
field services is recognized as the related services are performed.
Utility revenues are based on amounts billed to customers on a cycle basis
and estimated amounts for gas delivered but unbilled at the end of each
accounting period. MGC is subject to a purchased gas adjustment clause and
records gas cost as an expense as it is recovered through billings to customers.
The differences between actual gas costs and those recovered are deferred.
WVPSC regulations provide for annual proceedings concerning gas purchases and
cost recovery.
Revenues of G.A.S. are based on volumes delivered at the end of each month.
Gas purchases are accrued at prices negotiated with vendors and matched with the
corresponding gas sales.
Property, Plant and Equipment -- Oil and gas properties are accounted for
using the successful efforts method of accounting. Under this method, certain
expenditures such as exploratory geological and geophysical costs, exploratory
dry hole costs, delay rentals and other costs related to
F-32
<PAGE> 154
ALLEGHENY & WESTERN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT OF INCOME -- (CONTINUED)
exploration are recognized currently as expenses. All direct and certain
indirect costs relating to property acquisition, successful exploratory wells,
development costs, and support equipment and facilities are capitalized. The
Company computes depletion, depreciation and amortization of capitalized oil and
gas property costs on the units-of-production method using proved developed
reserves. Direct production costs, production overhead and other costs are
charged against income as incurred. Gains and losses on the sale of oil and gas
property interests are generally included in operations.
Other property, equipment, pipelines and buildings are stated at cost and
are depreciated using straight-line and accelerated methods over estimated
useful lives ranging from three to 30 years.
The provision for depreciation of Mountaineer utility plant is based on a
composite straight-line method. The average composite depreciation rate was
3.67% for 1995. Depreciation on a majority of transmission plant is computed on
a straight-line basis over periods of five to 30 years. Mountaineer's property,
plant and equipment includes overheads for payroll related costs, administrative
and general expenses, as well as an allowance for funds used during construction
("AFUDC") of approximately $50,600 for the year ended June 30, 1995. AFUDC is an
accounting procedure which capitalizes the cost of funds used to finance utility
construction projects as part of utility plant on the balance sheet and
crediting the cost as a non-cash item on the income statement. During the year
ended June 30, 1995 this amount related to debt financing in accordance with
WVPSC policies.
Oil and gas lease acquisition costs are capitalized when incurred. Unproved
properties are assessed on a property-by-property basis and any impairment in
value is recognized. If the unproved properties are determined to be productive,
the appropriate related costs are transferred to proved oil and gas properties.
Lease rentals are expensed as incurred.
Repairs and maintenance costs are charged against income as incurred;
significant renewals and betterments are capitalized. Gains and losses on
dispositions of other property, equipment, pipelines and buildings are included
in operations. Utility plant retirements are credited to property, plant and
equipment at cost and charged to accumulated depreciation, net of cost of
removal and salvage. No gain or loss is recognized on utility plant retirements.
Income Taxes -- Deferred income taxes reflect the impact of "temporary
differences" between assets and liabilities recognized for financial reporting
purposes and such amounts as measured by tax laws. These temporary differences
are determined in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting For Income Taxes."
Operating Leases -- Mountaineer has noncancelable operating lease
agreements for the rental of office space, computer and other equipment. Rental
expense for operating leases was $638,283 for the year ended June 30, 1995.
Earnings per Share of Common Stock -- Earnings per share of common stock is
computed by dividing net income attributable to the shares of common stock by
the weighted average number of common and common equivalent shares outstanding
during the reporting period. The number of equivalent shares was computed using
the treasury stock method which assumes that the increase in the number of
shares is reduced by the number of shares which could have been repurchased by
the Company with proceeds from the exercise of options (which were assumed to
have been made at the average market price of the common shares during the
reporting period). The computation of fully diluted earnings per share of common
stock for the year ended June 30, 1995 was not dilutive; therefore, only primary
earnings per share of common stock is presented.
Use of Estimates -- The preparation of the consolidated statement of income
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions
F-33
<PAGE> 155
ALLEGHENY & WESTERN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT OF INCOME -- (CONTINUED)
that affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Allegheny's consolidated statement of income is based on a number of
significant estimates including oil and gas reserve quantities which are the
basis for the calculation of depreciation, depletion, amortization and
impairment of oil and gas properties. Allegheny's reserve quantities are
determined by petroleum engineers. Management emphasizes that reserve estimates
are inherently imprecise.
3. INCOME TAXES
A reconciliation of the provision for income taxes computed at the
statutory rate to the benefit for income taxes as shown in the consolidated
statement of income for the year ended June 30, 1995 is summarized below (in
thousands):
<TABLE>
<S> <C>
Tax expense at the federal statutory rate................... $ 476
State taxes, net of federal benefit......................... 46
Tax credits................................................. (980)
Other, net.................................................. (442)
-----
Total benefit for income taxes.............................. $(900)
=====
</TABLE>
4. PENSION PLAN
MGC sponsors a Retirement Plan (the "Pension Plan") which covers
substantially all qualified employees 21 years of age and over. Employees become
fully vested upon completion of five years of credited service, as defined.
Retirement income is based on credited years of service and the employees' level
of compensation, as defined. The Pension Plan is subject to the provisions of
the Employee Retirement Income Security Act of 1974 ("ERISA"). The determination
of contributions is made in consultation with the Pension Plan's actuary and is
based upon anticipated earnings of the Pension Plan, mortality and turnover
experience, the funded status of the Pension Plan and anticipated future
compensation levels. MGC's funding policy is to be in compliance with ERISA
guidelines and to make annual contributions to the Pension Plan to assure that
all employees' benefits will be fully provided for by the time they retire.
Net pension cost for the year ended June 30, 1995, as determined by an
independent actuary, included the following components (in thousands):
<TABLE>
<S> <C>
Service cost................................................ $ 615
Interest cost............................................... 2,124
Actual return on plan assets................................ (2,633)
Net amortization and deferral............................... 1,223
-------
Net periodic pension cost................................... 1,329
Less amount capitalized as construction cost and charged to
others.................................................... (255)
-------
Amount charged to expense................................... $ 1,074
=======
</TABLE>
5. POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS
MGC provides certain medical and life insurance benefits for retired
employees. Substantially all employees may become eligible for these benefits if
they choose to retire after reaching age 55 while working for MGC and are
provided until age 65. Life insurance benefits of approximately two
F-34
<PAGE> 156
ALLEGHENY & WESTERN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT OF INCOME -- (CONTINUED)
times annual salary are provided while an employee is active and working at MGC.
On the date of an employee's retirement and on the date the employee reaches age
70, life insurance benefits decrease to approximately 80% and 40% of annual
salary, respectively. These benefits are provided to retirees who meet the
service requirements of 10 continuous years of service prior to retirement at
age 55 or 5 continuous years of service prior to retirement at age 65. The plan
is unfunded.
Net periodic postretirement benefit cost for the year ended June 30, 1995,
as determined by an independent actuary, included the following components (in
thousands):
<TABLE>
<S> <C>
Service cost-benefits attributable to service during the
period.................................................... $ 333
Amortization of the transition obligation................... 310
Interest cost on the accumulated postretirement benefit
obligation................................................ 501
------
Net periodic postretirement benefit cost.................... 1,144
Less amount capitalized as construction cost................ (184)
------
Amount charged to expense................................... $ 960
======
</TABLE>
As part of a WVPSC rate order dated October 29, 1993, the WVPSC ruled that
the permitted rate recovery mechanism for other post retirement benefits
("OPEB") will be a modified accrual method. The modified accrual method allows
for the recovery of current services costs on an accrual basis and recovery of
the transition obligation on a cash basis.
6. RELATED PARTY TRANSACTIONS
The Company's field services revenue includes revenue from partnerships and
joint ventures in which the Company is the general partner or operator. Certain
officers and directors of the Company and their relatives and other related
parties participate as limited partners in certain partnerships in which the
Company is the general partner.
7. REGULATORY MATTERS
In January 1995, MGC filed for a base rate increase with the WVPSC. In June
1995, the Company agreed to a Joint Stipulation and Agreement for Settlement
(the "Agreement") with various parties, including the staff of WVPSC and the
Consumer Advocate Division, regarding the base rate filing as well as the
Company's upcoming PGA filing and a tariff filing concerning, inter alia,
telemetering requirements for transportation customers. The Agreement allows for
a $4 million increase in base rates, with the portion of the increase allocable
to sales customers to be offset by the amortization of the PGA overrecovered
balance existing as of October 31, 1995 over a three-year moratorium period
beginning November 1, 1995.
F-35
<PAGE> 157
ALLEGHENY & WESTERN ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT OF INCOME -- (CONTINUED)
8. OIL AND GAS PRODUCING ACTIVITIES
The results of oil and gas producing activities for 1995 are as follows:
<TABLE>
<S> <C>
Revenue from sale of oil and gas:
Sales to unaffiliated parties............................. $ --
Sales to affiliates....................................... 6,022
------
Total............................................. 6,022
------
Production costs.......................................... 2,923
Exploration costs......................................... 137
Depletion, depreciation and amortization.................. 1,823
Income tax (benefit)...................................... (729)
------
Results of operations....................................... $1,868
======
</TABLE>
F-36
<PAGE> 158
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
By Mail or Hand Delivery:
The Bank of New York
Reorganization Section
101 Barclay Street -- 7E
New York, New York 10286
Attention: Walter Gitlin
By Facsimile Transmission:
(for Eligible Institutions only)
(212) 571-3080
Attention: Walter Gitlin
Confirm by Telephone
(212) 815-3687
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight delivery, or registered or certified mail.)
------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
$200,000,000
EXCHANGE OFFER
ENERGY CORPORATION OF
AMERICA
9 1/2% SENIOR SUBORDINATED NOTES
DUE 2007, SERIES A
[ECA LOGO]
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information.................. iv
Summary................................ 1
Risk Factors........................... 14
The Exchange Offer..................... 24
Use of Proceeds........................ 33
Capitalization......................... 34
Selected Consolidated Financial Data... 35
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 37
Business and Properties................ 46
Management............................. 66
Principal Stockholders and Share
Ownership of Management.............. 73
Certain Relationships and Related
Transactions......................... 74
Description of the Notes............... 76
Description of Other Indebtedness...... 109
Book Entry; Delivery and Form.......... 110
Plan of Distribution................... 113
Legal Matters.......................... 113
Experts................................ 113
Change of Accountants.................. 114
Glossary............................... 115
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
, 1997
<PAGE> 159
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 9 of the West Virginia Corporation Act empowers a
corporation to 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, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 9 empowers a corporation to indemnify any person
who was 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 such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter, including, but not limited to, taxes or any interest or
penalties thereon, as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty 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 view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
Section 9 further provides that to the extent a director, officer, employee
or agent of a corporation has been successful on the merits or otherwise in the
defense of any action, suit or proceeding inferred to in subsections (a) and (b)
of Section 9 or in the 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; that indemnification
provided for by Section 9 shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled; that indemnification provided by
Section 9 shall, unless otherwise provided when authorized or ratified, continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of such person's heirs, executors and administrators;
and empowers the corporation to purchase and maintain insurance on behalf of a
director or officer of the corporation 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 liabilities under Section 9.
Article XI of the Company's Certificate of Incorporation states that:
"No director (including any advisory director) of the Corporation
shall be liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 9
of the West Virginia Corporation Act or (iv) for any transaction from which
the director derived an improper personal benefit."
Article XI of the Company's Certificate of Incorporation further provides
that the Company shall indemnify its officers, directors, employees or agents to
the fullest extent permitted by the West
II-1
<PAGE> 160
Virginia Corporation Act. Pursuant to such provision, the Company has entered
into agreements with its officers and directors which provide for
indemnification of such persons.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following is a complete list of Exhibits filed as part of, or
incorporated by reference into, this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT
------- -----------
<C> <S>
3.1 -- Articles of Incorporation of Energy Corporation of
America.
3.2 -- Bylaws of Energy Corporation of America.
4.1 -- Credit Agreement among Energy Corporation of America,
General Electric Capital Corporation as Agent, and the
lenders named therein, dated as of May 20, 1997.
4.2 -- Note Purchase Agreement between Mountaineer Gas Company
and The John Hancock Mutual Life Insurance Company dated
as of October 12, 1995.
4.3 -- Indenture, dated as of May 23, 1997, between Energy
Corporation of America and The Bank of New York, as
Trustee, with respect to the 9 1/2% Senior Subordinated
Notes Due 2007 (including form of 9 1/2% Senior
Subordinated Note Due 2007).
4.4 -- Form of 9 1/2% Senior Subordinated Note due 2007, Series
A.
4.5 -- Registration Rights Agreement, dated as of May 20, 1997,
among Energy Corporation of America, as issuer, and Chase
Securities Inc. and Prudential Securities Inc.
5.1 -- Opinion of Andrews & Kurth L.L.P. as to the legality of
the securities being registered.
10.1 -- Eastern American Energy Corporation Profit
Sharing/Incentive Stock Plan dated as of June 4, 1997.
10.2 -- Buy-Sell Stock Option Agreement dated as of May 19, 1997
among Energy Corporation of America, F.H. McCullough, II
and Kathy L. McCullough.
10.3 -- Buy-Sell Stock Option Agreement dated as of July 8, 1996
between Energy Corporation of America and Kenneth W.
Brill.
10.4 -- Incentive Stock Option Agreement dated as of December 21,
1994 between Energy Corporation of America and Donald C.
Supcoe.
10.5 -- First Amendment to Incentive Stock Option Agreement dated
as of August 28, 1995 between Energy Corporation of
America and Donald C. Supcoe.
10.6 -- Incentive Stock Option Agreement dated as of December 19,
1994 between Energy Corporation of America and Richard E.
Heffelfinger.
10.7 -- First Amendment to Incentive Stock Option Agreement dated
as of August 28, 1995 between Energy Corporation of
America and Richard G. Heffelfinger.
10.8 -- Incentive Stock Option Agreement dated as of December 9,
1994 between Energy Corporation of America and J. Michael
Forbes.
10.9 -- First Amendment to Incentive Stock Option Agreement dated
as of August 28, 1995 between Energy Corporation of
America and J. Michael Forbes.
10.10 -- Gas Purchase Agreement dated as of August 29, 1995 among
Eastern American Energy Corporation, Eastern Pipeline
Corporation and Hope Gas, Inc.
</TABLE>
II-2
<PAGE> 161
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT
------- -----------
<C> <S>
10.11 -- Gas Sale and Purchase Agreement dated as of March 27,
1991 between Eastern American Energy Corporation and
Seneca Power Partners, L.P.
10.12 -- Gas Purchase Contract dated as of September 13, 1995
among Eastern American Energy Corporation, Eastern
Marketing Corporation and Mountaineer Gas Company.
10.13 -- Gas Purchase Contract dated as of January 1, 1993 between
Eastern American Energy Corporation and Eastern Marketing
Corporation.
10.14 -- FTSI Service Agreement No. 37994 dated as of November 1,
1993 between Mountaineer Gas Company and Columbia Gulf
Transmission Company.
10.15 -- Service Agreement No. 42794 dated as of November 1, 1994
between Mountaineer Gas Company and Columbia Gulf
Transmission Company.
10.16 -- SST Service Agreement No. 38087 dated as of November 1,
1993 between Mountaineer Gas Company and Columbia Gas
Transmission Corporation.
10.17 -- FTS Service Agreement No. 38037 dated as of November 1,
1993 between Mountaineer Gas Company and Columbia Gas
Transmission Corporation.
10.18 -- Supplement No. 1 to Transportation Service Agreement No.
38137 dated as of May 6, 1994 between Mountaineer Gas
Company and Columbia Gas Transmission Corporation.
10.19 -- FSS Service Agreement No. 38077 dated as of November 1,
1993 between Mountaineer Gas Company and Columbia Gas
Transmission Corporation.
10.20 -- NTS Service Agreement No. 39272 dated as of November 1,
1993 between Mountaineer Gas Company and Columbia Gas
Transmission Corporation.
10.21 -- SIT Service Agreement No. 40251 dated as of December 13,
1993 between Mountaineer Gas Company and Columbia Gas
Transmission Corporation.
10.22 -- FTS Service Agreement No. 38113 dated as of November 1,
1993 between Mountaineer Gas Company and Columbia Gas
Transmission Corporation.
10.23 -- Supplement No. 1 to Transportation Service Agreement No.
38113 dated as of May 6, 1994 between Mountaineer Gas
Company and Columbia Gas Transmission Corporation.
10.24 -- Gas Transportation Agreement dated as of October 1, 1994
between Mountaineer Gas Company and Tennessee Gas
Pipeline Company.
10.25 -- Amendment No. 1 to Gas Transportation Agreement dated as
of May 5, 1995 between Mountaineer Gas Company and
Tennessee Gas Pipeline Company.
12.1 -- Computation of ratio of earnings to fixed charges.
16.1 -- Letter from Coopers & Lybrand regarding change of
accountants. [to come]
21.1 -- Subsidiaries of Energy Corporation of America.
23.1 -- Independent Auditors' Consent and Report on Schedules.
23.2 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit
5.1).
24.1 -- Power of Attorney set forth on the signature page
contained in Part II of this Registration Statement.
25.1 -- Statement of Eligibility and Qualification of Form T-1 of
The Bank of New York.
27.1 -- Financial Data Schedule.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
</TABLE>
II-3
<PAGE> 162
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <S>
Schedule I -- Condensed Financial Information of Registrant.
Schedule II -- Valuation and Qualifying Accounts Schedule.
</TABLE>
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement:
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona bide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 163
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means os a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 164
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on the day of June, 1997.
ENERGY CORPORATION OF AMERICA
By: /s/ JOHN MORK
-------------------------------------
John Mork
President and Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned officers and directors of Energy Corporation of
America (the "Company") hereby constitutes and appoints John Mork, Joseph E.
Casabona and J. Michael Forbes, and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, with full
power of substitution, for him and on his behalf and in his name, place and
stead, in any and all capacities, to sign, execute and file this registration
statement under the Securities Act of 1933, as amended, and any or all
amendments (including, without limitation, post-effective amendments), with all
exhibits and any and all documents required to be filed with respect thereto,
with the Securities and Exchange Commission or any regulatory authority,
granting unto such attorneys-in-fact and agents, and each of them acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as he himself might or
could do if personally present, hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on the day of June, 1997, by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ KENNETH W. BRILL Chairman of the Board of Directors
- -----------------------------------------------------
Kenneth W. Brill
/s/ JOHN MORK President, Chief Executive Officer and
- ----------------------------------------------------- Director (principal executive officer)
John Mork
/s/ JOSEPH E. CASABONA Executive Vice President (principal accounting
- ----------------------------------------------------- officer)
Joseph E. Casabona
/s/ J. MICHAEL FORBES Vice President and Treasurer
- ----------------------------------------------------- (principal financial officer)
J. Michael Forbes
/s/ RICHARD E. HEFFELFINGER Director
- -----------------------------------------------------
Richard E. Heffelfinger
/s/ F. H. MCCULLOUGH, III Director
- -----------------------------------------------------
F. H. McCullough III
</TABLE>
II-6
<PAGE> 165
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ PETER H. COORS Director
- -----------------------------------------------------
Peter H. Coors
/s/ L.B. CURTIS Director
- -----------------------------------------------------
L.B. Curtis
/s/ JOHN J. DORGAN Director
- -----------------------------------------------------
John J. Dorgan
/s/ JULIE MORK Director
- -----------------------------------------------------
Julie Mork
/s/ ARTHUR C. NIELSEN, JR. Director
- -----------------------------------------------------
Arthur C. Nielsen, Jr.
</TABLE>
II-7
<PAGE> 166
SCHEDULE I
ENERGY CORPORATION OF AMERICA
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET INFORMATION
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
--------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 753 $ 3,454
Accounts receivable, other................................ 139 313
Accounts receivable, affiliates........................... 13,219 8,709
Other current assets...................................... 46 207
------- -------
Total current assets.............................. 14,157 12,683
PROPERTY, PLANT AND EQUIPMENT -- Net........................ 210 99
INVESTMENT IN SUBSIDIARIES.................................. 41,819 30,849
OTHER ASSETS................................................ 69
------- -------
TOTAL............................................. $56,255 $43,631
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 1,083 $ 601
Income taxes.............................................. 4,080 2,198
------- -------
Total current liabilities......................... 5,163 2,799
LONG-TERM LIABILITIES....................................... 3,209 3,307
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY........................................ 47,883 37,525
------- -------
TOTAL............................................. $56,255 $43,631
======= =======
</TABLE>
See notes to condensed financial information.
S-1
<PAGE> 167
ENERGY CORPORATION OF AMERICA
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED JUNE 30,
-------------- --------------------
MARCH 31, 1997 1996 1995
-------------- -------- --------
<S> <C> <C> <C>
COSTS AND EXPENSES:
General and administrative........................... $ 2,014 $ 2,352 $ 1,278
Depreciation of property, plant and equipment........ 29 24 107
------- ------- -------
LOSS FROM OPERATIONS................................... (2,043) (2,376) (1,385)
OTHER (INCOME) EXPENSE................................. (914) 1,931 (794)
------- ------- -------
LOSS BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF
SUBSIDIARIES......................................... (1,129) (4,307) (591)
BENEFIT FROM INCOME TAXES.............................. (316) (1,142) (356)
------- ------- -------
LOSS BEFORE EQUITY IN EARNINGS OF SUBSIDIARIES......... (813) (3,165) (235)
EQUITY IN EARNINGS OF SUBSIDIARIES..................... 13,048 10,985 1,420
------- ------- -------
NET INCOME............................................. $12,235 $ 7,820 $ 1,185
======= ======= =======
</TABLE>
See notes to condensed financial information.
S-2
<PAGE> 168
ENERGY CORPORATION OF AMERICA
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED JUNE 30,
-------------- -----------------
MARCH 31, 1997 1996 1995
-------------- ------- ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income............................................. $ 12,235 $ 7,820 $1,185
Adjustments to reconcile net income to cash provided by
(used in) operations:
Equity in undistributed earnings of subsidiaries.... (10,970) (3,429) 1,558
Depreciation........................................ 29 24 107
Changes in operating assets and liabilities......... (1,811) (5,824) 1,539
Other............................................... (45) 801 1,918
-------- ------- ------
Net cash provided by (used in) operating
activities........................................ (562) (608) 6,307
-------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property.............................. (140) (113) (65)
-------- ------- ------
Net cash provided by investing activities........... (140) (113) (65)
-------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid......................................... (506) (1,457) (457)
Proceeds from exercise of stock options................ 128
Repurchase of common stock............................. (1,493) (632) (450)
-------- ------- ------
Net cash used in financing activities............... (1,999) (1,961) (907)
-------- ------- ------
INCREASE (DECREASE) IN CASH.............................. (2,701) (2,682) 5,335
CASH AT BEGINNING OF PERIOD.............................. 3,454 6,136 801
-------- ------- ------
CASH AT END OF PERIOD.................................... $ 753 $ 3,454 $6,136
======== ======= ======
</TABLE>
See notes to condensed financial information.
S-3
<PAGE> 169
ENERGY CORPORATION OF AMERICA
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in Subsidiaries -- The financial statements of Energy
Corporation of America (The "Company") reflect investments in Eastern American
Energy Corporation, Eastern Systems Corporation, Westech Energy Corporation,
Westech Energy New Zealand, and Westside Acquisition Corporation ("the
subsidiaries"), majority or wholly-owned subsidiaries, using the equity method.
Income Taxes -- The benefit for income taxes is based on losses recognized
for financial statement purposes determined on a separate company basis.
Deferred income taxes are recognized for the tax effects of temporary
differences between such losses and those recognized for income tax purposes.
The Company files a consolidated U.S. income tax return with its subsidiaries.
2. CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to the Consolidated Financial Statements and related
Notes of Energy Corporation of America and Subsidiaries enclosed elsewhere
herein for additional information.
3. LONG-TERM DEBT
Information concerning debt of the Company on a consolidated basis is
disclosed in Note 5 of the Notes to the Consolidated Financial Statements of
Energy Corporation of America and Subsidiaries included elsewhere herein. All
maturities of long-term debt during the next five years were prepaid with
proceeds from the Company's issuance of $200,000,000 million in 9 1/2% senior
subordinated notes due 2007.
4. DIVIDENDS RECEIVED
The Company has received cash dividends from its subsidiaries of $2,079,000
for the nine months ended March 31, 1997 and $7,556,000 and $2,978,000 for the
years ended June 30, 1996 and 1995, respectively.
* * * * *
S-4
<PAGE> 170
SCHEDULE II
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND
THE YEARS ENDED JUNE 30, 1996 AND 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTH PERIOD ENDED JUNE 30,
ENDED MARCH 31, -----------------
1997 1996 1995
--------------- ------- ------
<S> <C> <C> <C>
Balance at beginning of period......................... $ 1,744 $ 1,141 $ 297
Charged to costs and expenses.......................... 1,153 1,800
Charged to other accounts(1)........................... 844(2)
Deductions(3).......................................... (1,529) (1,197)
------- ------- ------
Balance at end of period............................... $ 1,368 $ 1,744 $1,141
======= ======= ======
</TABLE>
- ---------------
(1) Recoveries of accounts previously written off.
(2) Includes the beginning balance ($756) of the allowance for doubtful accounts
of Mountaineer Gas Company acquired by ECA at 6/30/95.
(3) Accounts written off.
S-5
<PAGE> 171
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT
------- -----------
<C> <S>
3.1 -- Articles of Incorporation of Energy Corporation of
America.
3.2 -- Bylaws of Energy Corporation of America.
4.1 -- Credit Agreement among Energy Corporation of America,
General Electric Capital Corporation as Agent, and the
lenders named therein, dated as of May 20, 1997.
4.2 -- Note Purchase Agreement between Mountaineer Gas Company
and The John Hancock Mutual Life Insurance Company dated
as of October 12, 1995.
4.3 -- Indenture, dated as of May 23, 1997, between Energy
Corporation of America and The Bank of New York, as
Trustee, with respect to the 9 1/2% Senior Subordinated
Notes Due 2007 (including form of 9 1/2% Senior
Subordinated Note Due 2007).
4.4 -- Form of 9 1/2% Senior Subordinated Note due 2007, Series
A.
4.5 -- Registration Rights Agreement, dated as of May 20, 1997,
among Energy Corporation of America, as issuer, and Chase
Securities Inc. and Prudential Securities Inc.
5.1 -- Opinion of Andrews & Kurth L.L.P. as to the legality of
the securities being registered.
10.1 -- Eastern American Energy Corporation Profit
Sharing/Incentive Stock Plan dated as of June 4, 1997.
10.2 -- Buy-Sell Stock Option Agreement dated as of May 19, 1997
among Energy Corporation of America, F.H. McCullough, II
and Kathy L. McCullough.
10.3 -- Buy-Sell Stock Option Agreement dated as of July 8, 1996
between Energy Corporation of America and Kenneth W.
Brill.
10.4 -- Incentive Stock Option Agreement dated as of December 21,
1994 between Energy Corporation of America and Donald C.
Supcoe.
10.5 -- First Amendment to Incentive Stock Option Agreement dated
as of August 28, 1995 between Energy Corporation of
America and Donald C. Supcoe.
10.6 -- Incentive Stock Option Agreement dated as of December 19,
1994 between Energy Corporation of America and Richard E.
Heffelfinger.
10.7 -- First Amendment to Incentive Stock Option Agreement dated
as of August 28, 1995 between Energy Corporation of
America and Richard G. Heffelfinger.
10.8 -- Incentive Stock Option Agreement dated as of December 9,
1994 between Energy Corporation of America and J. Michael
Forbes.
10.9 -- First Amendment to Incentive Stock Option Agreement dated
as of August 28, 1995 between Energy Corporation of
America and J. Michael Forbes.
10.10 -- Gas Purchase Agreement dated as of August 29, 1995 among
Eastern American Energy Corporation, Eastern Pipeline
Corporation and Hope Gas, Inc.
10.11 -- Gas Sale and Purchase Agreement dated as of March 27,
1991 between Eastern American Energy Corporation and
Seneca Power Partners, L.P.
10.12 -- Gas Purchase Contract dated as of September 13, 1995
among Eastern American Energy Corporation, Eastern
Marketing Corporation and Mountaineer Gas Company.
</TABLE>
<PAGE> 172
<TABLE>
<C> <S>
10.13 -- Gas Purchase Contract dated as of January 1, 1993 between Eastern American Energy
Corporation and Eastern Marketing Corporation.
10.14 -- FTS1 Service Agreement No. 37994 dated as of November 1, 1993 between Mountaineer Gas
Company and Columbia Gulf Transmission Company.
10.15 -- FTS2 Service Agreement No. 42794 dated as of November 1, 1994 between Mountaineer Gas
Company and Columbia Gulf Transmission Company.
10.16 -- SST Service Agreement No. 38087 dated as of November 1, 1993 between Mountaineer Gas
Company and Columbia Gas Transmission Corporation.
10.17 -- FTS Service Agreement No. 38137 dated as of November 1, 1993 between Mountaineer Gas
Company and Columbia Gas Transmission Corporation.
10.18 -- Supplement No. 1 to Transportation Service Agreement No. 38137 dated as of May 6, 1994
between Mountaineer Gas Company and Columbia Gas Transmission Corporation.
10.19 -- FSS Service Agreement No. 38077 dated as of November 1, 1993 between Mountaineer Gas
Company and Columbia Gas Transmission Corporation.
10.20 -- NTS Service Agreement No. 39272 dated as of November 1, 1993 between Mountaineer Gas
Company and Columbia Gas Transmission Corporation.
10.21 -- SIT Service Agreement No. 40251 dated as of December 13, 1993 between Mountaineer Gas
Company and Columbia Gas Transmission Corporation.
10.22 -- FTS Service Agreement No. 38113 dated as of November 1, 1993 between Mountaineer Gas
Company and Columbia Gas Transmission Corporation.
10.23 -- Supplement No. 1 to Transportation Service Agreement No. 38113 dated as of May 6, 1994
between Mountaineer Gas Company and Columbia Gas Transmission Corporation.
10.24 -- Gas Transportation Agreement No. 8396 dated as of October 1, 1994 between Mountaineer
Gas Company and Tennessee Gas Pipeline Company.
10.25 -- Amendment No. 1 to Gas Transportation Agreement dated as of May 5, 1995 between
Mountaineer Gas Company and Tennessee Gas Pipeline Company.
12.1 -- Computation of ratio of earnings to fixed charges.
16.1 -- Letter from Coopers & Lybrand regarding change of accountants. [to come]
21.1 -- Subsidiaries of Energy Corporation of America.
23.1 -- Independent Auditors' Consent and Report on Schedules.
23.2 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1).
24.1 -- Power of Attorney set forth on the signature page contained in Part II of this
Registration Statement.
25.1 -- Statement of Eligibility and Qualification of Form T-1 of The Bank of New York.
27.1 -- Financial Data Schedule.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
</TABLE>
<PAGE> 1
EXHIBIT 3.1
FILED MAY 26 1995
IN THE OFFICE OF
SECRETARY OF STATE
WEST VIRGINIA
ARTICLES OF
INCORPORATION
OF
ENERGY CORPORATION OF
AMERICA
The undersigned, acting as incorporator of a corporation under Section
27, Article I, Chapter 31 of the Code of West Virginia adopts the following
Articles of Incorporation for such corporation, FILED IN DUPLICATE:
I. The undersigned agrees to become a corporation by the name of
Energy Corporation of America (the "Corporation").
II. The address of the principal office of the Corporation will be
501 56th Street, Charleston, West Virginia 25304.
III. The purposes for which the Corporation is formed are as
follows:
All lawful purposes, including:
To purchase, to receive by way of gift, subscribe for, invest
in, and in all other ways acquire, import, lease, possess, maintain, handle on
consignment, own, hold for investment or otherwise use, enjoy, exercise,
operate, manage, conduct, perform, make, borrow, guarantee, contract in respect
of, trade and deal in, sell, exchange, let, lend, export, mortgage, pledge,
deed in-trust, hypothecate, encumber, transfer, assign and in all other ways
dispose of, design, develop, invent, improve, equip, repair, alter, fabricate,
assemble, build, construct, operate, manufacture, plant, cultivate, produce,
market, and in all other ways (whether like or unlike any of the foregoing),
deal in and with property of every kind and character, real, personal or mixed,
tangible or
<PAGE> 2
intangible, wherever situated and however held, including, but not limited to,
money, credits, chases in action, securities, stocks, bonds, warrants, script,
certificates, debenture mortgages, notes, commercial paper and other
obligations and evidences of interest in or indebtedness of any person' firm or
corporation, foreign or domestic, or of any government or subdivision or agency
thereof, documents of title, and accompanying rights, and every other kind and
character of personal property, real property (improved or unimproved), and the
products and avails thereof, and every character of interest therein and
appurtenance thereto, including, but not limited to, mineral, oil, gas, water
and timber rights, all or any part of any going business and its incidents,
franchises, subsidies, charters, concessions, grants, rights, powers or
privileges, granted or conferred by any government or subdivision or agency
thereof, and any interest in or part of any of the foregoing, and to exercise
in respect thereof all of the rights' powers, privileges, and immunities of
individual owners or holders thereof.
To incur debts, and to raise, borrow and secure the payment
of money in any lawful manner, including the issue or sale or other
distribution of bonds, warrants, debentures, obligations, negotiable and
transferable instruments, and evidences of indebtedness of all kinds, whether
secured by mortgage, pledge, deed of trust or otherwise and without limit as to
amount.
To enter into, make, perform and carry out contracts of every
sort and kind with any person, firm, association,
-2-
<PAGE> 3
corporation, public, private or municipal, or body politic.
To hire and employ agents' servants and employees' and to
enter into agreements of employment and collective bargaining agreements, and
to act as agents contractor, trustee, factor or otherwise, either alone or in
company with others.
To promote or aid in any manner, financially or otherwise,
any person, firm, association or corporation, and to guarantee contracts and
other obligations.
To let concessions to others to do any of the things that the
Corporation is empowered to do, and to enter into, make, perform and carry out,
contracts and arrangements of every kind and character with any person, firm,
association or corporation, or any government or authority or subdivision or
agency thereof.
For the purpose of attaining or furthering any of its objects,
to do any and all other acts and things, and to exercise any and all other
powers which a copartnership or a natural person could do and exercise, and
which now or hereafter may be authorized by law.
To carry on any business whatsoever that the Corporation may
deem proper or convenient in connection with any of the foregoing purposes or
otherwise, or that it may deem calculated, directly or indirectly, to improve
the interests of the Corporation, and to do all things specified in Chapter 31
of the West Virginia Code, as amended, and to have and to exercise all powers
conferred by the laws of the State of West Virginia on corporations formed
under the laws pursuant to which and under
-3-
<PAGE> 4
which the Corporation is formed' as such laws are now in effect or may at any
time hereafter be amended, and to do any and all things hereinabove set forth
to the same extent and as fully as natural persons might or could do, either
alone or in connection with other persons, firms, associations or corporations,
and in any part of the world.
The foregoing statement of purposes shall be construed as a
statement of both purposes and powers, shall be liberally construed in aid of
the powers of the Corporation, and the powers and purposes stated in each
clause shall, except where otherwise stated, be in no way limited or restricted
by any term or provision of any other clause, and shall be regarded not only as
independent purposes, but the purposes and powers stated shall be construed
distributively as each object expressed, and the enumeration as to specific
powers shall not be construed as to limit in any manner the aforesaid general
powers, but are in furtherance of, and in addition to, and not in limitation of
said general powers.
IV. Provisions granting preemptive rights are:
Preemptive rights are not granted by these Articles of
Incorporation.
V. Provisions for the regulation of the internal affairs of the
Corporation are:
Regulation of the internal affairs of the Corporation are not
provided for by these Articles of Incorporation, but bylaws may later be
adopted for the Corporation.
-4-
<PAGE> 5
VI. The amount of the total authorized capital stack of the
Corporation shall be Two Million Dollars ($2,000,000.00) which shall be divided
into two million (200,000,000) shares of the par value of One Dollar ($1.00)
each.
VII. The full name and address of the incorporator is:
Tammy J. Owen
Goodwin & Goodwin
P.O. Box 2107
CHARLESTON, WV 25328
VIII. The existence of the Corporation is to be Perpetual.
IX. The name and address of the appointed person to whom notice of
process may be sent:
Donald C. Supcoe
Energy Corporation of America
501 56th Street
Charleston, WV 25304
X. The number of directors constituting the initial board of
directors of the Corporation is three, and the names and addresses of the
persons who are to serve as directors until the first annual meeting of
shareholders or until their successors are elected and shall qualify are.
John Mork
4643 S. Ulster
Suite 1100
Denver, CO 80237
Kenneth Brill
4643 S. Ulster
Suite 1100
Denver, CO 80237
F. H. McCullough, III
510 C Street
South Charleston, WV 25303
-5-
<PAGE> 6
XI. Liability, Indemnification and Insurance.
A. A director of the Corporation shall not be personally
liable to the Corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director, except for liability (it for any breach of the
director's duty of loyalty to the Corporation or its shareholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation, (iii) under SECTION 9 OF THE WEST Virginia Corporation Act
or (iv) for any transaction from which the director derived an improper
personal benefit.
B. Each person who was or is made a party or is threatened to
be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person of whom he or she is the
legal representative, is or was a director or officer of the Corporation or in
or Can nerving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such preceding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
West Virginia Corporation Act, as the same
-6-
<PAGE> 7
exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered
by such person in connection therewith and such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his Or her heirs, executors and administrators;
provided, however, that except as provided in paragraph (B) hereof, the
Corporation shall indemnify any such person seeking indemnification in
Connection with a proceeding (or part thereof) initiated by such person only if
such proceeding for part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Section shall
be a contract right and shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the West Virginia corporation Act
required the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including
-7-
<PAGE> 8
without limitations service to an employee benefit plan) in advance of the
final disposition of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer, to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
C. If a claim under paragraph (1) of this Section is not paid
in full by the Corporation within thirty (30) days after a written claim has
been received by the Corporation, the claimant may at any time thereafter bring
suit against he Corporation to recover the unpaid amount of the claim and, if
successful in whole or in pert r the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred In
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the West Virginia Corporation Act for the Corporation to indemnify the Claimant
for the amount claimed, but
-8-
<PAGE> 9
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the West Virginia Corporation Act, nor an actual determination by
the Corporation {including its Board of Directors, independent legal counsel or
its shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
D. The right to indemnification and the payment of expenses
incurred in defending a proceeding In advance of its final disposition
conferred in this Section shall nor be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of the
Articles of Incorporation, By-Law, agreement, vote of shareholders or
disinterested directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer' employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense' liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability
or
-9-
<PAGE> 10
loss under the West Virginia Corporation Act
I, the undersigned, for the purpose of forming a corporation under the
laws of the State of West Virginia, do make and file these Articles of
Incorporation, and have accordingly hereunto set my hand this 25th day of May,
1995.
/s/ TAMMY J. OWEN
-------------------
TAMMY J. OWEN
STATE OF WEST VIRGINIA,
COUNTY OF KANAWHA, TO-WIT:
I, /s/SUSAN B. ALDER, a Notary Public in and for the State and County
aforesaid, do hereby certify that Tammy J. Owen, whose name is signed to the
writing above, has this day acknowledged the same before me.
Given under my hand this 25th day of May, 1995.
My commission expires MAY 3, 2005.
/s/SUSAN B. ALDER
-----------------
Notary public.
<SEAL> OFFICIAL SEAL
NOTARY PUBLIC
STATE OF WEST VIRGINIA
SUSAN B. ALDER
GOODWIN & GOODWIN
1500 ONE VALLEY SQUARE
CHARLESTON, WV 25301
My Commission Expires May 3, 2005
These Articles of Incorporation Prepared by:
Tammy J. Owen
GOODWIN & GOODWIN
P. O. Box 2107
Charleston, WV 25328
This Instrument was presented to the Clerk of the County Commission of
Kanawha County, West Virginia, on May 26 1995 and the same is admitted to
record.
Teste:/s/ALMA G. KING Clerk
---------------
Kanawha county Commission
-10-
<PAGE> 1
EXHIBIT 3.2
ENERGY CORPORATION OF
AMERICA
------------------
BY-LAWS
------------------
ARTICLE I
Offices
Section 1. The principal office of the corporation shall be located at
4643 South Ulster Street, Suite 1100, Denver, Colorado, provided that the Board
of Directors shall have power to change the location of the principal office at
its discretion.
Section 2. The corporation may also have offices and keep its books at
such other place or places within or outside of the State of West Virginia as
the Board of Directors may, from time to time, determine, or as the business of
the corporation may require.
ARTICLE II
Shareholders and Shares of Stock
Section 1. Annual Meetings. The annual meeting of the shareholders
shall be held on the first Monday in December of each calendar year or on such
other date in the month of December as may be designated in the notice and call
of such meeting, at the principal office of the corporation, or at such other
place either within or outside of the State of Colorado as the Board of
Directors shall, from time to time, determine, and the place and the hour at
which such meeting shall be held shall be stated in the notice and call of such
meeting. At such meeting, the Board of Directors shall be elected and such
other business shall be transacted as is usual at the annual meeting of a
corporation. Such meeting may adjourn to a later date, and no notice of such
adjourned meeting shall be necessary. If such meeting be not held as herein
prescribed, the election of directors to succeed those whose terms expire may
be held at any meeting thereafter called pursuant to these By-Laws.
Section 2. Special Meetings. Special meetings of the shareholders may
be held at such places within or outside of the State of Colorado as may be
designated in the notice and call of such meeting, or if no place be specified,
then at the principal office of the corporation; provided, however, that when
called by the Board of Directors any special meeting of the shareholders may be
held either within or outside of the State of Colorado at such place as may be
designated in the notice and call of such meeting. Special meetings of the
shareholders may be called by the Board of
<PAGE> 2
Directors, the President, the Vice President, the Secretary or the Treasurer,
or any number of shareholders owning in the aggregate of at least one-tenth
(1/10) of the number of shares outstanding. The notice of special meetings
shall state the business to be transacted, and no business other than that
included in the notice or incidental thereto shall be transacted at such
meeting. Special meetings may adjourn to a later date, and no notice of such
adjourned meeting shall be necessary.
Section 3. Notice of Meetings. Notice of annual and special meetings
shall be given by mailing to each shareholder a written notice thereof
specifying the time and place of such meeting, and, in the case of special
meetings, the business to be transacted, as hereinbefore set forth, such notice
to be mailed to the last address of the shareholders as they respectively
appear upon the books of the corporation, and in the case of annual meetings
not less than ten (10) days, and in the case of special meetings not less than
five (5) days, before the date of such meeting and the mailing of such notice
shall be sufficient and no publication or further notice shall be necessary.
Such notice may be signed by the Secretary or an Assistant Secretary.
Section 4. Waiver of Notice. Notice of the time, place or purpose of
any meeting of shareholders, whether required by the provisions of the
corporation laws of the State of West Virginia, or by these By-Laws, shall be
dispensed with if every shareholder shall attend such meeting either in person
or by proxy, or if every absent shareholder shall, in writing filed with the
records of the meeting either before or after the holding thereof, waive such
notice.
Section 5. Action by Unanimous Consent. Whenever the vote of
shareholders at a meeting thereof is required or permitted to be taken in
connection with any corporate action, the meeting and vote of such shareholders
may be dispensed with if all of the shareholders who would have been entitled
to vote upon the action if such meeting were held, shall agree in writing to
such corporate action being taken, and such agreement shall have like effect
and validity as though the action were duly taken by the unanimous action of
all shareholders entitled to vote at a meeting of such shareholders duly called
and legally held.
Section 6. Quorum. A quorum of the shareholders shall consist of at
least a majority of all of the shares of stock entitled to vote. Any number
less than a quorum present may adjourn any shareholders' meeting until a quorum
is present and no notice as to such adjourned meeting shall be necessary.
Section 7. Voting Rights. In all elections of directors of the
corporation, each shareholder shall have the right to cast one vote for each
share of stock owned by him and entitled to a vote, and he may cast the same in
person or by proxy for as many
-2-
<PAGE> 3
persons as there are directors to be elected, or he may cumulate such votes and
give one candidate as many votes as the number of directors to be elected
multiplied by the number of his shares of stock shall equal; or he may
distribute them on the same principle among as many candidates and in such
manner as he shall desire, and the directors shall not be elected in any other
manner; and on any other question to be determined by a vote of shares at any
meeting of shareholders, each shareholder shall be entitled to one vote for
each share of stock owned by him and entitled to a vote, and he may exercise
this right in person or by proxy; provided, however, no voting rights shall
attach to any fractional part of a share of stock, and no person shall vote on
any proxy after three (3) years from the date thereof, unless the proxy
specifically confers the right to vote for a longer period and then only within
the period specified.
Section 8. Organization of Shareholders' Meeting. The President of the
corporation, or, in his absence a Vice President, shall call the meetings of
the shareholders to order and shall act as Chairman of such meetings, and the
Secretary or an Assistant Secretary of the corporation shall act as Secretary
of such meetings. In the absence of such officers, or any one of them, the
meeting shall designate the Chairman and/or Secretary, as the case may be.
Section 9. Order of Business. No formal order of business need be
followed in any meeting, regular or special, of the shareholders.
Section 10. Certificates for Shares of Stock. Every holder of shares
of stock in this corporation, when the same shall be fully paid for, shall be
entitled to have a certificate signed by, or in the name of the corporation,
the President and the Secretary or an Assistant Secretary, of this corporation,
certifying the number of shares owned by him in this corporation.
Section 11. Lost or Destroyed Stock Certificates. A certificate of
stock may be issued in lieu of a certificate lost or destroyed upon compliance
with the following terms and conditions by the person who appears by the books
of the corporation to be the owner of a lost or destroyed certificate; that is
to say: (a) Such apparent owner shall file with the officers of the
corporation' first, an affidavit setting forth the time, place and
circumstances of the loss to the best of his knowledge and belief; second,
proof of his having advertised the loss in a newspaper of general circulation
published near the principal office of the corporation once a week for two
weeks; and (b) he shall execute and deliver to the corporation a bond with good
security, in a penalty of at least the value of the shares of stock represented
by a lost or destroyed certificate, conditioned to indemnify the corporation
and all persons whose rights may be affected by the issuance of a new
-3-
<PAGE> 4
certificate against any loss in consequence of a new certificate being issued;
provided, however, that a new certificate may be issued in lieu of the one lost
in the discretion of the Board of Directors, without requiring the publication
of the above notice or giving of a bond.
Section 12. Ownership of Capital Stock. The person in whose name
shares of stock stand on the books of the corporation shall be deemed the owner
thereof so far as the corporation is concerned. The personal representatives
of a deceased stockholder shall be entitled to vote the shares of stock of his
decedent without having any such shares transferred to him. No voting right
shall be given to any stock while owned by the corporation nor shall any stock
so held be entitled to any dividend.
Section 13. Stock Transfer Books. Stock transfer books shall be kept
by the Secretary or a transfer agent designated by the corporation, in which
the shares shall be transferred under such regulations as may be prescribed by
the Board of Directors.
Section 14. Restrictions on Transfer, Pledge or Sale of Stock. The
rights to subscribe for and to transfer, pledge or sell, shares of stock of
this corporation may be made subject to such conditions and restrictions as are
provided for in any written agreement among and between the stockholders and
this corporation that may be authorized and approved by the Board of Directors.
Section 15. Closing of Stock Books. The Board of Directors is
authorized to fix the time, not exceeding forty (40) days preceding the date of
any meeting of the shareholders or any dividend payment date, or any date for
the allotment of rights, during which the books of the corporation shall be
closed against the transfer of stock, of in lieu of providing for the closing
of the books against transfer of stock, the board of Directors is authorized to
fix a date, not exceeding forty (40) days preceding the date of any meeting of
the shareholders or any dividend payment date, or any date for allotment of
rights, as a record date for the determination of the shareholders entitled to
notice of, or to vote at, such meeting and/or entitled to receive such dividend
payment or rights, as the case may be, and only shareholders of record on such
date shall be entitled to notice of and/or to vote at such meeting or to
receive such dividend payments or rights.
ARTICLE III
Directors
Section 1. Board of Directors. The business and affairs of the
corporation shall be managed by a Board of Directors.
-4-
<PAGE> 5
Directors need not be residents of the State of West Virginia or shareholders
in the corporation.
Section 2. Election of Directors. The initial number of directors
shall be at least three (3) but not more than nine (9), provided that the number
may be increased or decreased from time to time by an amendment to these
By-Laws, but no decrease shall have the effect of shortening the term of any
incumbent director. The directors shall be elected at each annual meeting of
the shareholders, or any adjournment thereof, to serve until the next annual
meeting of the shareholders or until their offices shall be declared vacant, or
until their successors are elected and qualified.
Section 3. Vacancies. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of the remaining directors, though less
than a quorum of the Board. Any directorship to be filled by reason of an
increase in the number of directors shall be filled by election at an annual
meeting or at a special meeting of shareholders called for that purpose. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office.
Section 4. Quorum of Directors. A majority of the Board of Directors
shall constitute a quorum for the transaction of business. The act of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 5. Annual Meeting of Directors. Within thirty (30) days after
each annual meeting of shareholders, the Board of Directors elected at such
meeting shall hold an annual meeting at which they shall elect officers and
transact such other business as may come before the meeting.
Section 6. Regular Meetings of Directors. A regular meeting of the
Board of Directors may be held at such time as shall be determined from time to
time by resolution of the Board of Directors.
Section 7. Special Meetings of Directors. The Secretary shall call a
special meeting of the Board of Directors whenever requested to do so by the
President or by two (2) directors. Such special meeting shall be held at the
time specified in the notice of meeting.
Section 8. Place of Directors' Meeting. All meetings of the Board of
Directors (annual, regular or special) shall be held either at the principal
office of the corporation or at such other place, either within or outside of
the State of Colorado, as shall be specified in the notice of meeting.
-5-
<PAGE> 6
Section 9. Notice of Directors' Meetings. All meetings of the Board of
Directors (annual, regular or special) shall be held upon not less than three
(3) days written notice stating the date, place and hour of meeting delivered
to each director either personally or by mail at the direction of the President
or the Secretary or the officer or person calling the meeting.
Section 10. Waiver of Notice. Notice of the time, place or purpose of
any meeting of directors, whether required by the provisions of the corporation
laws of the State of West Virginia or by these By-Laws, shall be dispensed with
if every director shall attend such meeting in person, or if every absent
director shall, in writing filed with the records of the meeting either before
or after the holding thereof, waive such notice.
Section 11. Action by Unanimous Consent. Whenever the vote of
directors at a meeting thereof is required or permitted to be taken in
connection with any corporate action, the meeting and vote of such directors
may be dispensed with if all the directors shall agree in writing to such
corporate action being taken, and such agreement shall have like effect and
validity as though the action were duly taken by the unanimous action of all
directors at a meeting of such directors duly called and legally held.
Section 12. Specification of Purpose of Meeting Not Required. Neither
the business to be transacted at, nor the purpose of, any annual, regular or
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
Section 13. Order of Business. No formal order of business need be
followed in any meeting of the directors, either regular or special.
Section 14. Committees. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation, which, to the extent provided in such resolution or resolutions,
shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the corporation, and may have power
to authorize the seal of the corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may
be determined from time to time by resolution adopted by the Board of
Directors.
Section 15. Election of Officers. The directors shall elect the
President, Vice President, the Secretary and Treasurer of the corporation, and
may elect all other officers and agents, or, as to the latter, may delegate
their election to an officer and/or officers of the corporation. In addition to
the foregoing officers, the Board of Directors may designate such other
officers
-6-
<PAGE> 7
or officials as from time to time may be deemed advisable, and may prescribe
their duties. The directors shall have the power to fix the salaries of all
officers, agents and employees of the corporation, but in the absence of action
by the directors, such power shall be vested in the President, except as to his
own salary and that of any Vice President.
Section 16. Compensation. Directors, as such, shall not receive any
stated salary for their services, but by resolution of the Board of Directors,
a fixed sum and expenses of attendance, if any, may be allowed for attendance
at each annual, regular or special meeting of the Board, provided that nothing
herein contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
Officers and Agents.
Section 1. Officers. Officers of the corporation shall be a President,
Vice President, Secretary and Treasurer, all of whom shall be chosen by the
Board of Directors. None of the officers of the corporation need to be a
shareholder or director of the corporation. Any two of the above named
officers, except those of the President and Secretary, may be held by the same
person, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law or by these
By-Laws to be executed, acknowledged, verified or countersigned by any two or
more officers. The foregoing officers shall hold office until the next annual
meeting of the Board of Directors, held after the annual meeting of the
shareholders, and until their successors are elected and qualified. Any duty to
be performed by an officer of the corporation may be performed by his duly
authorized assistant officer.
Section 2. Removal of Officers. Any and all officers of the
corporation may be removed at any time and their successors elected by a
majority vote of the Board of Directors at any regular or special meeting of
the directors.
Section 3. Agents and Employees. All agents and employees of the
corporation may be appointed and their salaries fixed by the Board of
Directors, by the President, and except as to any Vice President, the Secretary
and Assistant Secretary, the Treasurer and Assistant Treasurer, they shall hold
office during the will and pleasure of the President, subject to action by the
Board of Directors, and may be removed at any time by the President, subject to
action by the Board of Directors. If such agents and employees are appointed by
the directors, they (except the above specified officers) may nevertheless be
removed by the
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President, unless he be expressly forbidden so to do by the directors.
Section 4. Powers and Duties of the President. The President shall
preside at all meetings of the shareholders and the Board of Directors. Subject
to the control of the Board of Directors, he shall have general charge of the
business of the corporation; he shall keep the Board of Directors fully informed
of the business of the corporation; he may sign and execute all authorized
bonds, contracts or other obligations in the name of, and on behalf of the
corporation; and, with the Secretary or an Assistant Secretary, or the Treasurer
or an Assistant Treasurer, he shall sign all certificates of stock; and, without
further authorization than these presents, he may sign all checks and/or drafts
upon funds of the corporation in its name and on its behalf, and any bank or
depository in which funds of the corporation shall be deposited shall be fully
and conclusively protected in honoring any checks and/or drafts on behalf of the
corporation signed by the President. Subject to the action of the Board of
Directors, he shall have the power to fix the salaries of all officers, agents,
and employees of the corporation, except the President and any Vice President,
and shall have the power to employ and discharge all agents and employees of the
corporation, subject to the control of the Board of Directors, except the Vice
Presidents, the Secretary and Assistant Secretary, the Treasurer and Assistant
Treasurer. He shall generally conduct the affairs of the corporation and shall
do and perform such other duties as from time to time may be assigned to him by
the Board of Directors.
Section 5. Vice President. The Vice President shall perform all of the
duties and be vested with all of the authority of the President in case of a
vacancy in the office of President or in the absence or disqualification of the
President and shall have such other powers and shall perform such other duties
as may be assigned to him by the Board of Directors. If there be more than one
Vice President, the Board of Directors may designate one of them as a Senior
Vice President and he shall perform all the duties and be vested with all the
authority set forth in the preceding sentence; and the other Vice President or
Vice Presidents shall have such other powers and shall perform such other
duties as may be assigned to him or them by the Board of Directors.
Section 6. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors and the shareholders. The Secretary shall
likewise attend to the giving and serving of all notices of meetings, shall
affix the seal of the corporation to all certificates of stock and all
authorized contracts and obligations of the corporation, shall attest to the
same, shall keep the transfer books and ledgers of the corporation which books
shall be at all reasonable times, open for examination to any director, shall
perform in general all of the duties incident to the office of the Secretary,
and shall have such other
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powers and duties as shall be from time to time conferred upon him by the Board
of Directors.
Section 7. Assistant Secretary. The Board of Directors may designate
and choose an Assistant Secretary, who shall have the usual powers and duties
pertaining to his office together with such other powers and duties as may be
assigned to him by the Board of Directors. In case of the absence or disability
of the Secretary, the duties of the Secretary shall be performed by the
Assistant Secretary.
Section 8. Treasurer. The Treasurer shall have the custody of all the
funds and securities of the corporation and shall have the power to sign checks
and drafts of the corporation, and any depository in which the funds of the
corporation are deposited shall be conclusively protected in honoring and
acting upon any check or draft signed by the Treasurer. The Treasurer shall
keep full and accurate account of all moneys received and paid on account of
the corporation which shall truly reflect all the financial transactions and
conditions of the corporation, shall conform to the requirements hereof, and he
shall generally perform all acts incident to the position of Treasurer, and
shall have such further powers and duties as shall be from time to time
conferred upon him by the Board of Directors.
Section 9. Assistant Treasurer. The Board of Directors may designate
and choose an Assistant Treasurer, who shall have the usual powers and duties
pertaining to his office together with such other powers and duties as may be
assigned to him by the Board of Directors. In case of the absence or disability
of the Treasurer, the duties of the Treasurer shall be performed by the
Assistant Treasurer.
ARTICLE V
Indemnification
Section 1. Indemnification. Every person (and the heirs, executors and
administrators of such person) who is or was a director, officer or employee of
the corporation, or of any other company which he served as such at the request
of the corporation and of which the corporation directly or indirectly is a
stockholder or creditor, or in which, or in the stocks, bonds, securities or
other obligations of which it is any way, interested, shall be entitled to
indemnification as a right by the corporation against any and all liability and
reasonable expense that may be incurred by him in connection with or resulting
from any claim, action, suit or proceeding (whether brought by or in the right
of the corporation or such other company or otherwise), civil or criminal, or
in connection with an appeal relating thereto, in which he may become involved,
as a party or otherwise, by reason
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of his being or having been a director, officer or employee of the corporation
or such other company, or by reason of any action taken or not taken in his
capacity as such director, officer or employee, whether or not he continues to
be such at the time such liability or expense shall have been incurred, except
in such cases wherein the director, officer or employee is adjudged liable for
negligence or misconduct in the performance of duty to the corporation or such
other company, and except, in addition, in any criminal action or proceeding,
had reasonable cause to believe that his conduct was unlawful; and in such
excepted cases, criminal actions or proceedings, indemnification may be made at
the discretion of the corporation. As used in this paragraph, the terms
"liability" and "expense" shall include, but shall not be limited to, counsel
fees and disbursements and amounts of judgments, fines or penalties against,
and amounts paid in settlement by, a director, officer or employee. The
termination of any claim, action, suit or proceeding, civil or criminal, by
judgment, settlement (whether with or without court approval) or conviction or
upon a plea of guilty or of nolo contendere, or its equivalent, shall not
create a presumption that a director, officer or employee did not meet the
standards of conduct set forth in this paragraph. Expenses incurred with
respect to any claim, action, suit or proceeding of the character described in
this paragraph may be advanced by the corporation prior to the final
disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount unless it shall ultimately be determined that he
is entitled to indemnification under this paragraph. The rights of
indemnification provided in this paragraph shall be in addition to any rights
to which any such director, officer or employee or other person may otherwise
be entitled under any by-law, agreement, vote of stockholders, or otherwise.
ARTICLE VI
Corporate Records
Section 1. Corporate Records. The directors and officers of the
corporation shall keep accurate account of all corporate transactions. The
books and records of the corporation shall at all times be subject to
examination by any director or by any committee appointed for the purpose at a
meeting of the shareholders, or by the holders of at least five percent (5%) of
the stock outstanding not in a meeting. The minutes and resolutions of the
Board of Directors shall at all times be open to examination by any member of
the Board or by any committee appointed by the shareholders, and such minutes
shall be produced whenever required by the shareholders at any meeting. The
books of the corporation shall be so kept as to show at all times what money or
other consideration was received by the corporation for the stock issued by it
and the number of shares issued.
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ARTICLE VII
Dividends and Finance
Section 1. Dividends. The Board of Directors may from time to time
declare and pay dividends of so much of the net profits of the corporation as
they deem it prudent to divide, payable in cash or other property of the
corporation, against its accumulated earnings or surplus, whenever such
declaration of dividends will not impair the capital of the corporation.
Section 2. Depository of Funds. The moneys of the corporation shall be
deposited in the name of the corporation in such bank, banks, trust company or
trust companies as the Board of Directors shall designate and shall be drawn
out only by check, signed by persons designated by resolution of the Board of
Directors.
Section 3. Fiscal Year. The fiscal year of the corporation shall
begin on the first day of July in each year, unless otherwise provided by the
Board of Directors.
ARTICLE VIII
Corporate Seal
Section 1. Corporate Seal. The corporate seal of this corporation
shall be circular in form and shall have inscribed thereon the name of this
corporation and the words "Corporate Seal" in the center, and the Board of
Directors for this purpose hereby adopts the seal, the impression of which is
made on the margin hereof.
ARTICLE IX
Amendment to By-Laws
Section 1. Amendment to By-Laws. These By-Laws may be altered, amended
or repealed in whole or in part at any meeting of the Board of Directors by the
affirmative vote of a majority of the directors present at the meeting, a
quorum being present, subject to repeal or change by the affirmative vote of
the holders of a majority of the issued and outstanding shares then entitled to
vote, at any meeting of the shareholders.
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<PAGE> 1
EXHIBIT 4.1
================================================================================
CREDIT AGREEMENT
-----------------------------------------------------------------
ENERGY CORPORATION OF AMERICA
as Borrower
GENERAL ELECTRIC CAPITAL CORPORATION
as Agent
GECC CAPITAL MARKETS GROUP, INC.
as Syndication Agent
THE BANK OF NOVA SCOTIA
as Documentation Agent
and
CERTAIN FINANCIAL INSTITUTIONS
as Lenders
-----------------------------------------------------------------
$50,000,000
May 20, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I - Definitions and References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Exhibits and Schedules; Additional Definitions . . . . . . . . . . . . . . . . . . . . 17
Section 1.3. Amendment of Defined Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.4. References and Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 1.5. Calculations and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE II - The Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.1. Commitments to Lend; Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.2. Requests for New Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.3. Continuations and Conversions of Existing Loans . . . . . . . . . . . . . . . . . . . 19
Section 2.4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.5. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.6. Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.7. Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.8. Initial Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.9. Subsequent Determinations of Borrowing Base . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE III - Payments to Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.1. General Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 3.2. Capital Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.3. Increased Cost of Eurodollar Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.4. Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.5. Funding, Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.6. Reimbursable Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.7. Change of Applicable Lending Office . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.8. Replacement of Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.9 Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IV - Conditions Precedent to Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.1. Documents to be Delivered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.2. Additional Conditions Precedent to First Loan . . . . . . . . . . . . . . . . . . . . 29
Section 4.3. Additional Conditions Precedent to All Loans . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE V - Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.1. No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.2. Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.3. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.4. No Conflicts or Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.5. Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.6. Initial Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.7. Other Obligations and Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 5.8. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.9. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
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Section 5.10. Labor Disputes and Acts of God . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.11. ERISA Plans and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.12. Environmental and Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.13. Names and Places of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.14. Borrower's Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.15. Title to Properties; Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.16. Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.17. Insider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VI - Affirmative Covenants of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.1. Payment and Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.2. Books' Financial Statements and Reports . . . . . . . . . . . . . . . . . . . . . . . 35
Section 6.3. Other Information and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.4. Notice of Material Events and Change of Address . . . . . . . . . . . . . . . . . . . 37
Section 6.5. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.6. Maintenance of Existence and Qualifications . . . . . . . . . . . . . . . . . . . . . 38
Section 6.7. Payment of Trade Liabilities, Taxes, etc . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.8. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.9. Performance on Borrower's Behalf . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.10. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.11. Compliance with Agreements and Law . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.12. Environmental Matters; Environmental Reviews . . . . . . . . . . . . . . . . . . . . . 39
Section 6.13. Evidence of Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6.14. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6.15. Maintenance of Liens on Eighty Percent of Properties . . . . . . . . . . . . . . . . . 40
Section 6.16. Perfection and Protection of Security Interests and Liens . . . . . . . . . . . . . . 40
Section 6.17. Bank Accounts; Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.18. Production Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE VII - Negative Covenants of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.1. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.2. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.3. Hedging Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.4. Limitation on Mergers, Issuances of Securities . . . . . . . . . . . . . . . . . . . . 44
Section 7.5. Limitation on Sales of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.6. Limitation on Distributions, Redemptions and Prepayments of Subordinated Notes . . . . 45
Section 7.7. Limitation on Investments and New Businesses . . . . . . . . . . . . . . . . . . . . . 46
Section 7.8. Limitation on Credit Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.9. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.10. Certain Contracts; Amendments; Multiemployer ERISA Plans . . . . . . . . . . . . . . . 46
Section 7.11. Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
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Section 7.12. Tangible New Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.13. Interest Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.14. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VIII - Events of Default and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE IX - Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 9.1. Appointment and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 9.2. Exculpation, Agent's Reliance, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 9.3. Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 9.4. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 9.5. Rights as Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 9.6. Sharing of Set-Offs and Other Payments . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 9.7. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 9.8. Benefit of Article IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 9.9. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE X - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.1. Waivers and Amendments; Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . 54
Section 10.2. Survival of Agreements; Cumulative Nature . . . . . . . . . . . . . . . . . . . . . . 55
Section 10.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.4. Payment of Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.5. Joint and Several Liability; Parties in Interest . . . . . . . . . . . . . . . . . . . 57
Section 10.6. Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.7. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 10.8. Governing Law; Submission to Process . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 10.9. Limitation on Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.10. Termination: Limited Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.11. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 10.12. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 10.13. Waiver of Jury Trial, Punitive Damages, etc . . . . . . . . . . . . . . . . . . . . . 62
SCHEDULES
Schedule 1. Disclosure Schedule
Schedule 2. Security Schedule
Schedule 3. Lenders Schedule
Schedule 4. Insurance Schedule
EXHIBITS
Exhibit A. Note
Exhibit B. Borrowing Notice
Exhibit C. Continuation/Conversion Notice
Exhibit D. Certificate Accompanying Financial Statements
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Exhibit E. Assignment and Acceptance
Exhibit F. Form of Subsidiary Guaranty
Exhibit G. Opinion of Borrower's Counsel
</TABLE>
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of May 20, 1997, by and among Energy
Corporation of America, a West Virginia corporation (herein called "Borrower"),
General Electric Capital Corporation ("GE Capital"), individually and as agent
(herein called "Agent") and the Lenders referred to below. In consideration of
the mutual covenants and agreements contained herein the parties hereto agree
as follows:
ARTICLE I - Definitions and References
Section 1.1. Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it in this Section 1.1 or in the sections
and subsections referred to below:
"Acquisition Indebtedness" means nonrecourse Indebtedness (i) as to
which the terms regarding the lack of recourse to the Restricted Persons and
their properties (other than the assets acquired with the proceeds of such
Indebtedness) and any cross default to other Indebtedness resulting from a
default with respect to such nonrecourse Indebtedness have been approved in
writing by Required Lenders and (ii) which is incurred in connection with an
acquisition of assets permitted under Section 7.7.
"Adjusted EBITDA" means, for any period, (i) EBITDA of Borrower for such
period minus (ii) EBITDA of Eastern Systems for such period plus (iii) all
Distributions made by Eastern Systems to Borrower during such period plus (iv)
fifty percent (50%) of the taxes on income and profits actually paid to
Borrower by Mountaineer for such period.
"Adjusted Interest Expense" means, for any period, (i) the Consolidated
Interest Expense of Borrower for such period minus (ii) the Consolidated
Interest Expense of Eastern Systems for such period.
"Affiliate" means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person. A Person shall be
deemed to be "controlled by" any other Person if such other Person possesses,
directly or indirectly, power
(a) to vote 20% or more of the securities (on a fully diluted
basis) having ordinary voting power for the election of directors or
managing general partners; or
(b) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Agent" means GE Capital, as Agent hereunder, and its successors in such
capacity; provided, however, that until such time as a Lender other than GE
Capital becomes a party hereto, "Agent" shall mean GE Capital, individually.
<PAGE> 7
"Agreement" means this Credit Agreement.
"Alternate Base Rate" means (i) at all times when no Obligation is past
due, the per annum rate equal to the Base Rate Margin plus the higher of (a)
the Prime Rate and (b) the Federal Funds Rate plus one-half percent (0.5%) per
annum, and (ii) at all other times, the per annum rate of interest two percent
(2%) above the interest rate that would otherwise be in effect pursuant to the
immediately preceding clause (i). If the Prime Rate or the Federal Funds Rate
changes after the date hereof the Alternate Base Rate shall be automatically
increased or decreased, as the case may be, without notice to Borrower, from
time to time as of the effective time of each such change. The Alternate Base
Rate shall in no event, however, exceed the Highest Lawful Rate.
"ABR Loan" means a Loan which does not bear interest at the Eurodollar
Rate.
"ABR Payment Date" means (i) the last day of March, June, September and
December of each year, beginning June 30, 1997, and (ii) any day on which past
due interest or principal is owed under the Notes and is unpaid. If the terms
of any Loan Document provide that payments of interest or principal on the
Notes shall be deferred from one ABR Payment Date to another day, such other
day shall also be an ABR Payment Date.
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of ABR Loans and such Lender's
Eurodollar Lending Office in the case of Eurodollar Loans.
"Arm's Length Transaction" means, with respect to any transaction
between a Restricted Person and one of its Affiliates, that the terms thereof
are no less favorable to such Restricted Person than those which could have
been obtained at the time of such transaction in arm's-length dealing with
Persons other than such Affiliate.
"Base Rate Margin" means, on each day:
(a) zero (0) when the Facility Usage on such day is less than
fifty percent (50%) of the Commitment on such day, and
(b) one-fourth of one percent (0.25%) per annum when the
Facility Usage on such day is greater than or equal to fifty percent
(50%) of the Commitment on such day.
"Borrower" means Energy Corporation of America, a West Virginia
corporation.
"Borrowing" means a borrowing of new Loans of a single Type pursuant to
Section 2.2 or a continuation or conversion of existing Loans into a single
Type (and, in the case of Eurodollar Loans, with the same Interest Period)
pursuant to Section 2.3.
"Borrowing Base" means, at the particular time in question, either the
amount provided for in Section 2.8 or the amount determined by Agent in
accordance with the provisions of Section 2.9; provided, however, that in no
event shall the Borrowing Base ever exceed the Commitment.
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<PAGE> 8
"Borrowing Base Deficiency" has the meaning given it in Section 2.7(b).
"Borrowing Notice" means a written or telephonic request, or a written
confirmation, made by Borrower which meets the requirements of Section 2.2.
"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in New York City. Any
Business Day in any way relating to Eurodollar Loans (such as the day on which
an Interest Period begins or ends) must also be a day on which, in the judgment
of Agent, significant transactions in dollars are carried out in the interbank
eurocurrency market.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association, limited liability company or other business
entity, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, (iii) in the case of a
partnership, partnership interests (whether general or limited) and (iv) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.
"Cash Equivalents" means investments in:
(a) marketable obligations, maturing within 12 months after
acquisition thereof, issued or unconditionally guaranteed by the United
States of America or an instrumentality or agency thereof and entitled
to the full faith and credit of the United States of America.
(b) demand deposits, and time deposits (including certificates
of deposit) maturing within 12 months from the date of deposit thereof,
with any office of any Lender or with a domestic office of any national
or state bank or trust company which is organized under the Laws of the
United States of America or any state therein, which has capital,
surplus and undivided profits of at least $500,000,000, and whose
certificates of deposit have at least the third highest credit rating
given by either Rating Agency.
(c) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (a)
above entered into with any commercial bank meeting the specifications
of clause (b) above.
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<PAGE> 9
(d) open market commercial paper, maturing within 270 days
after acquisition thereof, which has the highest or second highest
credit rating given by either Rating Agency.
(e) investments in money market or other mutual funds
substantially all of whose assets comprise securities of the types
described in clauses (a) through (d) above.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way
of merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Borrower and its Subsidiaries taken
as a whole to any "person" or group of related "persons" (a "Group") (as such
terms are used in Section 13(d)(3) of the Exchange Act), (ii) the adoption of a
plan relating to the liquidation or dissolution of the Borrower, (iii) the
consummation of any transaction (including, without limitation, any purchase,
sale, acquisition, disposition, merger or consolidation) the result of which is
that any "Person" (as defined above) or Group becomes the "beneficial owner"
(as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act)
of more than 35% of the outstanding Voting Stock of the Borrower having the
right to elect directors under ordinary circumstances other than any such
transaction where (A) the outstanding Voting Stock of the Borrower is changed
into or exchanged for Voting Stock of the surviving corporation which is not
Disqualified Stock or (B) John Mork and Julie Mork continue to own, directly or
indirectly, not less than a majority of the Voting Stock of the surviving
corporation immediately after such transaction or (iv) the first day on which a
majority of the members of the Board of Directors of the Borrower are not
Continuing Directors.
"Collateral" means all property of any kind which is subject to a Lien
in favor of Lenders (or in favor of Agent for the benefit of Lenders) or which,
under the terms of any Security Document, is purported to be subject to such a
Lien.
"Commitment" means the amount of $50,000,000.
"Commitment Fee Rate" means, on each day:
(a) one-fourth of one percent (0.25%) per annum when the
Facility Usage on such day is less than twenty- five percent of the
Commitment on such day,
(b) three-eighths of one percent (0.375%) per annum when the
Facility Usage on such day is greater than or equal to twenty-five
percent (25%) and less than fifty percent (50%) of the Commitment on
such day, and
(c) one-half of one percent (0.50%) per annum when the Facility
Usage on such day is greater than or equal to fifty percent (50%) of the
Commitment on such day.
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<PAGE> 10
"Commitment Period" means the period from and including the date hereof
until and including the Maturity Date (or, if earlier, the day on which the
Notes first become due and payable in full).
"Consolidated" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated subsidiaries. References herein to a
Person's Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly consolidated subsidiaries.
"Consolidated Net Income" means, as to any Person or Persons for any
period, the gross revenues of such Person or Persons for such period, plus
(without duplication) any cash dividends or distributions actually received by
such Person or Persons from any other business entity, minus all expenses and
other proper charges (including taxes on income, to the extent imposed upon
such Person or Persons), determined on a Consolidated basis after eliminating
earnings or losses attributable to outstanding minority interests, but
excluding the net earnings of any other business entity in which such Person or
Persons has an ownership interest.
"Consolidated Tangible Net Worth" means the remainder of all
Consolidated assets of Borrower, other than intangible assets (including
without limitation as intangible assets such assets as patents, copyrights,
licenses, franchises, goodwill, trade names, trade secrets and leases other
than oil, gas or mineral leases or leases required to be capitalized under
GAAP), minus Borrower's Consolidated Liabilities.
"Continuation/Conversion Notice" means a written or telephonic request,
or a written confirmation, made by Borrower which meets the requirements of
Section 2.3.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of Borrower who (i) was a member of such Board
of Directors on the date hereof or (ii) was nominated for election or elected
to such Board of Directors with the approval of (a) two-thirds of the
Continuing Directors who were members of such Board of Directors at the time of
such nomination or election or (b) two-thirds of those Directors who were
previously approved by Continuing Directors.
"Default" means any Event of Default and any default, event or condition
which would, with the giving of any requisite notices and the passage of any
requisite periods of time, constitute an Event of Default.
"Determination Date" has the meaning given it in Section 2.9.
"Disclosure Report" means either a notice given by Borrower under
Section 6.4 or a certificate given by Borrower's chief financial officer under
Section 6.2(b).
"Disclosure Schedule" means Schedule 1 hereto.
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<PAGE> 11
"Disqualified Stock" means any capital stock of Borrower that, by its
terms (or by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, is
convertible or exchangeable for Indebtedness or other Disqualified Stock or
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the date that is 91 days after the date on which the Subordinated
Notes mature.
"Distribution" means (a) any dividend or other distribution made by a
Restricted Person on or in respect of the Capital Stock of such Restricted
Person (including any option or warrant to buy such an equity interest), or (b)
any payment made by a Restricted Person to purchase, redeem, acquire or retire
any Capital Stock in such Restricted Person (including any such option or
warrant).
"Domestic Lending Office" means, with respect to any Lender, the office
of such Lender specified as its "Domestic Lending Office" below its name on the
Lender Schedule attached hereto, or such other office as such Lender may from
time to time specify to Borrower and Agent.
"Eastern American" means Eastern American Energy Corporation, a West
Virginia corporation and wholly-owned Subsidiary of Borrower.
"Eastern Systems" means Eastern Systems Corporation, a wholly-owned
Subsidiary of Borrower.
"EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus (i) an amount equal
to any extraordinary loss, plus any net loss realized in connection with an
asset sale (together with any related provisions for taxes by a Related
Person), to the extent such losses were included in computing such Consolidated
Net Income, plus (ii) an amount equal to the provision for taxes based on
income or profits of such Person and its Subsidiaries which are Restricted
Persons for such period (including state franchise taxes), to the extent that
such provision for taxes was deducted in computing such Consolidated Net
Income, plus (iii) consolidated interest expense of such Person and its
Subsidiaries which are Restricted Persons for such period, whether paid or
accrued (including, without limitation, amortization of original issue discount
and capitalized debt issuance costs, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to the present value of the net rental payments under sale and
leaseback transactions, commissions, discounts and other fees and charges
incurred in respect of letters of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Contracts described in Section 7.3,
to the extent that any such expense was deducted in computing such Consolidated
Net Income, plus (iv) depreciation, depletion and amortization expenses
(including amortization of goodwill and other intangibles) for such Person and
its Subsidiaries which are Restricted Persons for such period to the extent
that such depreciation, depletion and amortization expenses were deducted in
computing such Consolidated Net Income, plus (v) other non-cash charges
(excluding any such non-cash
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<PAGE> 12
charge to the extent that it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash expense that was
paid in a prior period or to the extent it represents a restructuring change)
of such Person and its Subsidiaries which are Restricted Persons for such
period to the extent that such other non-cash charges were deducted in
computing such Consolidated Net Income, in each case, on a consolidated basis
and determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation,
depletion and amortization and other non-cash charges and expenses of, its
Subsidiaries which are Restricted Persons of the relevant Person shall be added
to Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in the same proportion) that the Net Income of such Subsidiary was
included in calculating the Consolidated Net Income of such Person and only if
a corresponding amount would be permitted at the date of determination to be
dividended to such Person by such Subsidiary without prior governmental
approval (that has not been obtained), and without direct or indirect
restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that such Subsidiary or its stockholders.
"Eligible Transferee" means a Person which either (a) is a Lender or an
Affiliate of Lender or a special purpose entity through which a Lender obtains
funding for its Loans, or (b) is consented to as an Eligible Transferee by
Agent and so long as no Default or Event of Default is continuing by Borrower,
which consents in each case will not be unreasonably withheld (provided that no
Person organized outside the United States may be an Eligible Transferee if
Borrower would be required to pay withholding taxes on interest or principal
owed to such Person).
"Engineering Report" means the Initial Engineering Report and each
engineering report delivered pursuant to Section 6.2(d).
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, actions, suits, obligations, liabilities, losses,
proceedings, decrees, judgments, penalties, fees, fines, demand letters,
orders, directives, claims (including claims for contribution or claims
involving liability in tort, strict, absolute or otherwise), Liens, notices of
noncompliance or violation, or claims for legal fees or costs of investigations
or proceedings, relating to any Environmental Law or arising from the actual or
alleged presence or Release of any Hazardous Material, including without
limitation, enforcement, mitigation, cleanup, removal, response, remedial or
other actions or damages or contribution, indemnification, cost recovery,
compensation or injunctive or declaratory relief pursuant to any Environmental
Law or alleged injury or threat of injury to property, health, safety, natural
resources or the environment.
"Environmental Laws" means all Laws relating to pollution or the
regulation or protection of human health, safety, natural resources or the
environment, including ambient air, surface water, ground water, land, natural
resources or wetlands, including without limitation, those relating to any
release of hazardous materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport,
management, generation, recycling or handling of or exposure to Hazardous
Materials.
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<PAGE> 13
Without limitation, Environmental Laws include, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986; the Resource Conservation and
Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the
Solid Waste Disposal Act Amendments of 1980 and the Hazardous and Solid Waste
Amendments of 1984; the Toxic Substances Control Act, 15 U.S.C.; the Federal
Water Pollution Control Act; the Hazardous Materials Transportation Act; the
Clean Air Act; the Safe Drinking Water Act; The Occupational Safety and Health
Act of 1970; the Federal Insecticide, Fungicide and Rodenticide Act and the
Endangered Species Act, each as amended and their state and local counterparts
or equivalents.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Affiliate" means Borrower and all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated)
under common control that, together with Borrower, are treated as a single
employer under Section 414 of the Internal Revenue Code of 1986, as amended.
"ERISA Plan" means any employee pension benefit plan subject to Title IV
of ERISA maintained by any ERISA Affiliate with respect to which any Restricted
Person has a fixed or contingent liability.
"Eurodollar Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Eurodollar Lending Office" below its
name on the Lender Schedule attached hereto (or, if no such office is
specified, its Domestic Lending Office), or such other office of such Lender as
such Lender may from time to time specify to Borrower and Agent.
"Eurodollar Loan" means a Loan which is properly designated as a
Eurodollar Loan pursuant to Section 2.2 or 2.3.
"Eurodollar Margin" means (i) on each day when no Obligation is past
due:
(a) one percent (1.0%) per annum when the Facility Usage on
such day is less than twenty-five percent of the Commitment on such
day,
(b) one and one-fourth percent (1.25%) per annum when the
Facility Usage on such day is greater than or equal to twenty-five
percent (25%) and less than fifty percent (50%) of the Commitment on
such day, and
(c) one and one-half percent (1.50%) per annum when the
Facility Usage on such day is greater than or equal to fifty percent
(50%) of the Commitment on such day; and
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<PAGE> 14
(ii) on each other day, two percent (2%) above the interest rate that would
otherwise be in effect pursuant to the immediately preceding clause (i).
"Eurodollar Rate" means with respect to each particular Eurodollar Loan
and the associated LIBOR Rate and Reserve Percentage, the rate per annum
calculated by Agent (rounded upwards, if necessary, to the next higher 0.01%)
determined on a daily basis pursuant to the following formula:
Eurodollar Rate =
LIBOR Rate + Eurodollar Margin
---------------------------
100.0% - Reserve Percentage
The Eurodollar Rate for any Eurodollar Loan shall change whenever the
Eurodollar Margin or the Reserve Percentage changes. No Eurodollar Rate shall
ever exceed the Highest Lawful Rate.
"Eurodollar Rate Payment Date" means, with respect to any Eurodollar
Loan: (i) the day on which the related Interest Period ends (and, if such
Interest Period is three months or longer, the three-month anniversary of the
first day of such Interest Period), and (ii) any day on which past due interest
or past due principal is owed under the Notes with respect to such Eurodollar
Loan and is unpaid. If the terms of any Loan Documents provide that payments
of interest or principal with respect to such Eurodollar Loan shall be deferred
from one Eurodollar Rate Payment Date to another day, such other day shall also
be a Eurodollar Rate Payment Date.
"Evaluation Date" means each of the following:
(a) Each date which either Borrower or Lender, at their
respective options, specifies as a date as of which the Borrowing Base
is to be redetermined, provided that each such date must be the first or
last date of a current calendar month and that neither Borrower nor
Lender shall be entitled to request any such redetermination more than
once during any Fiscal Year;
(b) the last day of each Fiscal Year, beginning June 30, 1997.
"Event of Default" has the meaning given it in Section 7.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Credit Documents" means the credit agreement among Eastern
American, The Bank of Nova Scotia, as agent, and certain Lenders and all
promissory notes issued by Eastern American thereunder and all guaranties
thereof.
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<PAGE> 15
"Facility Usage" means, at the time in question, the aggregate principal
amount of outstanding Loans.
"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100th of one percent) equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is
to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day, and (ii) if such rate is not
so published for any day, the Federal Funds Rate for such day shall be the
average rate quoted to Agent on such day on such transactions as determined by
Agent.
"Fiscal Quarter" means a three-month period ending on March 31, June 30,
September 30, or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on June 30 of any year.
"Four Quarter Period" means as of the end of any Fiscal Quarter, the
period of four consecutive Fiscal Quarters then ended.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor) and which, in the case of
Borrower and its Consolidated subsidiaries, are applied for all periods after
the date hereof in a manner consistent with the manner in which such principles
and practices were applied to the audited Initial Financial Statements. If any
change in any accounting principle or practice is required by the Financial
Accounting Standards Board (or any such successor) in order for such principle
or practice to continue as a generally accepted accounting principle or
practice, all reports and financial statements required hereunder with respect
to Borrower or with respect to Borrower and its Consolidated subsidiaries may
be prepared in accordance with such change, but all calculations and
determinations to be made hereunder may be made in accordance with such change
only after notice of such change is given to each Lender and Required Lenders
agree to such change insofar as it affects the accounting of Borrower or of
Borrower and its Consolidated subsidiaries.
"GE Capital" means General Electric Capital Corporation.
"Hazardous Materials" means (a) any petroleum or petroleum product
(including crude oil or fraction thereof), explosive, radioactive material,
asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, lead
and radon gas; (b) any chemical, material, gas substance waste which is defined
as or included in the definition of "hazardous substance", "hazardous waste",
"hazardous material", "extremely hazardous substance", "hazardous chemical",
"toxic substance", "toxic chemical", "contaminant" or "pollutant" or words of
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<PAGE> 16
similar import under any Environmental Law; and (c) any other chemical,
material, gas substance or waste, exposure to which, or the presence, use,
generation, treatment, Release, transport or storage of which is prohibited,
limited or regulated under any Environmental Law.
"Hedging Contract" means (a) any agreement providing for options, swaps,
floors, caps, collars, forward sales or forward purchases involving interest
rates, commodities or commodity prices, equities, currencies, bonds, or indexes
based on any of the foregoing, (b) any option, futures or forward contract
traded on an exchange, and (c) any other derivative agreement or other similar
agreement or arrangement.
"Highest Lawful Rate" means, with respect to each Lender, the maximum
nonusurious rate of interest that such Lender is permitted under applicable Law
to contract for, take, charge, or receive with respect to its Loan. All
determinations herein of the Highest Lawful Rate, or of any interest rate
determined by reference to the Highest Lawful Rate, shall be made separately
for each Lender as appropriate to assure that the Loan Documents are not
construed to obligate any Person to pay interest to any Lender at a rate in
excess of the Highest Lawful Rate applicable to such Lender.
"Indebtedness" of any Person means Liabilities in any of the following
categories:
(a) Liabilities for borrowed money,
(b) Liabilities constituting an obligation to pay the deferred
purchase price of property or services,
(c) Liabilities evidenced by a bond, debenture, note or similar
instrument,
(d) Liabilities which (i) would under GAAP be shown on such
Person's balance sheet as a liability, and (ii) is payable more than one
year from the date of creation thereof (other than reserves for taxes
and reserves for contingent obligations),
(e) Liabilities arising under futures contracts, forward
contracts, swap, cap or collar contracts, option contracts, hedging
contracts, other derivative contracts, or similar agreements,
(f) Capitalized Lease Obligations and Liabilities arising under
operating leases and Liabilities arising with respect to sale and
lease-back transactions,
(g) Liabilities arising under conditional sales or other title
retention agreements,
(h) Liabilities owing under direct or indirect guaranties of
Liabilities of any other Person or constituting obligations to purchase
or acquire or to otherwise protect or insure a creditor against loss in
respect of Liabilities of any other Person (such as obligations under
working capital maintenance agreements, agreements to keep-well, or
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<PAGE> 17
agreements to purchase Liabilities, assets, goods, securities or
services), but excluding endorsements in the ordinary course of business
of negotiable instruments in the course of collection,
(i) Liabilities (for example, repurchase agreements) consisting
of an obligation to purchase securities or other property, if such
Liabilities arises out of or in connection with the sale of the same or
similar securities or property,
(j) Liabilities with respect to letters of credit or
applications or reimbursement agreements therefor,
(k) Liabilities with respect to payments received in
consideration of oil, gas, or other minerals yet to be acquired or
produced at the time of payment (including obligations under
"take-or-pay" contracts to deliver gas in return for payments already
received and the undischarged balance of any production payment created
by such Person or for the creation of which such Person directly or
indirectly received payment), or
(l) Liabilities with respect to other obligations to deliver
goods or services in consideration of advance payments therefor;
provided, however, that the "Indebtedness" of any Person shall not include
Liabilities that were incurred by such Person on ordinary trade terms to
vendors, suppliers, or other Persons providing goods and services for use by
such Person in the ordinary course of its business, unless and until (x) such
Liabilities are outstanding more than 90 days past the original invoice or
billing date therefor or, (y) if such Person is contesting any such Liability
in good faith by appropriate proceedings (promptly initiated and diligently
conducted) and has set aside on its books adequate reserves therefor, such
Liability is outstanding more than 180 days past the original invoice or
billing date therefor.
"Indenture" means that certain Indenture dated May 23, 1997, between
Borrower and Bank of New York, as trustee.
"Initial Engineering Report" means, collectively, (i) the engineering
report concerning oil and gas properties of Eastern American and its
Subsidiaries dated September 5, 1996, prepared by Ryder Scott Company as of
July 1, 1996, and (ii) the engineering report concerning oil and gas properties
of Eastern American and its Subsidiaries dated March 31, 1997, prepared by
Ryder Scott Company as of March 31, 1997.
"Initial Financial Projections" means financial projections for
Borrower through June 2002, including expected revenues from the sale of oil
and gas, expected EBITDA and expected capital expenditures, and projected
calculations reflecting compliance with the financial covenants contained
herein.
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<PAGE> 18
"Initial Financial Statements" means (i) the audited annual combined
financial statements of Borrower dated as of June 30, 1996, and (ii) the
audited quarterly Consolidated financial statements of Borrower dated as of
March 31, 1997.
"Insurance Schedule" means Schedule 4 attached hereto.
"Interest Expense" means, as to any Person for any period, all interest
paid or accrued during such period on Indebtedness of such Person (including
amortization of original issue discount and the interest component of any
deferred payment obligations and Capitalized Lease Obligation).
"Interest Period" means, with respect to each particular Eurodollar Loan
in a Borrowing, a period of 1, 2, 3 or 6 months, as specified in the Borrowing
Notice applicable thereto, beginning on and including the date specified in
such Borrowing Notice (which must be a Business Day), and ending on but not
including the same day of the month as the day on which it began (e.g., a
period beginning on the third day of one month shall end on but not include the
third day of another month), provided that each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (unless such next succeeding Business Day is the first
Business Day of a calendar month, in which case such Interest Period shall end
on the immediately preceding Business Day). No Interest Period may be elected
which would extend past the date on which the associated Note is due and
payable in full.
"Investment" means any investment, in cash or by delivery of property
made, directly or indirectly in any Person, whether by acquisition of shares of
Capital Stock, indebtedness or other obligations or securities or by loan,
advance, capital contribution or otherwise.
"Late Payment Rate" means, at the time in question, two percent (2.0%)
per annum plus the Alternate Base Rate then in effect. The Late Payment Rate
shall never exceed the Highest Lawful Rate.
"Law" means any statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision or regulatory agency thereof of any foreign country or any
department, province or other political subdivision thereof, including without
limitation Environmental Laws.
"Lender Parties" means Agent and all Lenders.
"Lenders" means each signatory hereto (other than Borrower and
Restricted Persons a party hereto), including GE Capital in its capacity as a
lender hereunder rather than as Agent, and the successors of each such party as
holder of a Note.
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"Lending Office" means, with respect to any Lender, the office, branch,
or agency through which it funds its Eurodollar Loans; and, with respect to
Agent or Collateral Agent, the office, branch, or agency through which it
administers this Agreement.
"Liabilities" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.
"LIBOR Rate" means, with respect to each particular Eurodollar Loan and
the related Interest Period, the rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor
page) as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two Business Days prior to the first day
of such Interest Period for a term comparable to such Interest Period. If for
any reason such rate is not available, the term "Eurodollar Rate" shall mean,
for any Eurodollar Loan for any Interest Period therefor, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Reuters Screen LIBO Page as the London interbank offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such Interest
Period; provided, however, if more than one rate is specified on Reuters Screen
LIBO Page, the applicable rate shall be the arithmetic mean of all such rates
(rounded upwards, if necessary, to the nearest 1/100 of 1%). The Eurodollar
Rate determined by Agent with respect to a particular Eurodollar Loan shall be
fixed at such rate for the duration of the associated Interest Period. If
Agent is unable so to determine the Eurodollar Rate for any Eurodollar Loan,
Borrower shall be deemed not to have elected such Eurodollar Loan.
"Lien" means, with respect to any property or assets, any right or
interest therein of a creditor to secure Liabilities owed to him or any other
arrangement with such creditor which provides for the payment of such
Liabilities out of such property or assets or which allows him to have such
Liabilities satisfied out of such property or assets prior to the general
creditors of any owner thereof, including any lien, mortgage, security
interest, pledge, deposit, production payment, rights of a vendor under any
title retention or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other charge or
encumbrance for security purposes, whether arising by Law or agreement or
otherwise, but excluding any right of offset which arises without agreement in
the ordinary course of business. "Lien" also means any filed financing
statement, any registration of a pledge (such as with an issuer of
uncertificated securities), or any other arrangement or action which would
serve to perfect a Lien described in the preceding sentence, regardless of
whether such financing statement is filed, such registration is made, or such
arrangement or action is undertaken before or after such Lien exists.
"Loan" has the meaning given it in Section 2.1.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, and all other agreements, certificates, documents, instruments and
writings at any time delivered in
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connection herewith or therewith (exclusive of term sheets, commitment letters,
correspondence and similar documents used in the negotiation hereof, except to
the extent the same contain information about Borrower or its Affiliates,
properties, business or prospects).
"Material Adverse Change" means a material and adverse change, from the
state of affairs presented in the Initial Financial Statements or the Initial
Engineering Report, or as represented or warranted in any Loan Document, to (a)
Borrower's financial condition or the Consolidated financial condition of
Borrower and all of its Subsidiaries, (b) the business, operations or
properties of Borrower or of Borrower and all of its Subsidiaries, considered
as a whole, (c) Borrower's ability to timely pay the Obligations or to comply
with any other obligations under the Loan Documents, or (d) the enforceability
of the material terms of any Loan Document.
"Maturity Date" means May 20, 2002.
"Mortgaged Properties" means all properties subject to the Security
Documents.
"Natural Gas" means all gaseous hydrocarbons, including, but not limited
to, oil well gas, gas well gas, casinghead gas and all products refined
therefrom or produced in association therewith, including condensate,
distillate and other liquid hydrocarbons produced from gaseous hydrocarbons.
"Nonvoting Common Stock" means, with respect to any Person, Common
Stock in such Person other than Voting Stock.
"Note" has the meaning given it in Section 2.1.
"Mountaineer" means Mountaineer Gas Company, a Wholly-owned indirect Subsidiary
of Borrower.
"Obligations" means all Liabilities from time to time owing by any
Restricted Person to any Lender Party under or pursuant to any of the Loan
Documents.
"Obligation" means any part of the Obligations.
"Percentage Share" means, with respect to any Lender (a) when used in
Sections 2.1 or 2.5, in any Borrowing Notice or when no Loans are outstanding
hereunder, the percentage set forth opposite such Lender's name on Lender
Schedule attached hereto, and (b) when used otherwise, the percentage obtained
by dividing (i) the sum of the unpaid principal balance of such Lender's Loans
at the time in question, by (ii) the sum of the aggregate unpaid principal
balance of all Loans at such time.
"Permitted Lien" has the meaning given to such term in Section 7.2.
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"Person" means an individual, corporation, partnership, limited
liability company, association, joint stock company, trust or trustee thereof,
estate or executor thereof, unincorporated organization or joint venture,
Tribunal, or any other legally recognizable entity.
"Prime Rate" means the rate per annum published from time to time by The
Wall Street Journal as the base rate for corporate loans posted by at least 75%
of the 30 largest banks in the United States. If such rate is no longer
published by The Wall Street Journal, then Agent shall, in its sole discretion
substitute the base or prime rate for corporate loans at a large commercial
bank for the base rate published in The Wall Street Journal. Such rate may not
necessarily be the lowest or best rate actually charged to any customer of such
commercial bank.
"Rating Agency" means either Standard & Poor's Ratings Group (a division
of McGraw Hill, Inc.) or Moody's Investors Service, Inc., or their respective
successors.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect.
"Release" means the threatened or actual release, deposit, disposal or
leakage of any Hazardous Material at, into, upon or under any land, water or
air or otherwise into the environment, including, without limitation, by means
of burial, disposal, discharge, emission, injection, leakage, seepage, dumping,
pumping, pouring, escaping, emptying or placement.
"Required Lenders" means Lenders whose aggregate Percentage Shares equal
or exceed sixty-six and two-thirds percent (66-2/3%).
"Reserve Percentage" means, on any day with respect to each particular
Eurodollar Loan, the maximum reserve requirement, as determined by Agent
(including without limitation any basic, supplemental, marginal, emergency or
similar reserves), expressed as a percentage and rounded to the next higher
0.01%, which would then apply under Regulation D with respect to "Eurocurrency
liabilities", as such term is defined in Regulation D, of $1,000,000 or more.
If such reserve requirement shall change after the date hereof, the Reserve
Percentage shall be automatically increased or decreased, as the case may be,
from time to time as of the effective time of each such change in such reserve
requirement.
"Restricted Person" means any of Borrower, Eastern American, Eastern
Systems and each other direct and indirect Subsidiary of Borrower except
Mountaineer and its Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Security Documents" means the instruments listed in the Security
Schedule and all other security agreements, deeds of trust, mortgages, chattel
mortgages, pledges, guaranties, financing statements, continuation statements,
extension agreements and other agreements or instruments now, heretofore, or
hereafter delivered by any Restricted Person to Agent in
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connection with this Agreement or any transaction contemplated hereby to secure
or guarantee the payment of any part of the Obligations or the performance of
any Restricted Person's other duties and obligations under the Loan Documents.
"Security Schedule" means Schedule 2 hereto.
"Subordinated Notes" means the 9.50% Senior Subordinated Notes due 2007
issued by Borrower in the amount of $200,000,000.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent or more by such Person.
"Termination Event" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA
or (ii) any other reportable event described in Section 4043(b) of ERISA other
than a reportable event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation
under Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate
from an ERISA Plan during a plan year in which it was a "substantial employer"
as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of
intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment
as a termination under Section 4041 of ERISA, or (d) the institution of
proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty
Corporation under Section 4042 of ERISA, or (e) any other event or condition
which might constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any ERISA Plan.
"Tribunal" means any government, any arbitration panel, any court or any
governmental department, commission, board, bureau, agency or instrumentality
of the United States of America or any state, province, commonwealth, nation,
territory, possession, county, parish, town, township, village or municipality,
whether now or hereafter constituted and/or existing.
"Type" means, with respect to any Loans, the characterization of such
Loans as either ABR Loans or Eurodollar Loans.
"Voting Stock" means, with respect to any Person, securities of any
class or classes of Capital Stock in such Person normally entitling the holders
thereof to vote in the election of members of the Board of Directors or other
governing body of such Person.
"Wholly-owned Subsidiary" means any Subsidiary of Borrower, one hundred
percent (100%) of the Voting Stock of which is directly or indirectly (through
one or more intermediaries) owned Borrower.
Section 1.2. Exhibits and Schedules; Additional Definitions. All
Exhibits and Schedules attached to this Agreement are a part hereof for all
purposes. Reference is hereby
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made to the Security Schedule for the meaning of certain terms defined therein
and used but not defined herein, which definitions are incorporated herein by
reference.
Section 1.3. Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein the terms defined in
this Agreement which refer to a particular agreement, instrument or document
also refer to and include all renewals, extensions, modifications, amendments
and restatements of such agreement, instrument or document, provided that
nothing contained in this section shall be construed to authorize any such
renewal, extension, modification, amendment or restatement.
Section 1.4. References and Titles. All references in this Agreement
to Exhibits, Schedules, articles, sections, subsections and other subdivisions
refer to the Exhibits, Schedules, articles, sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any subdivisions are for convenience only and do
not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words "this
Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases "this section"
and "this subsection" and similar phrases refer only to the sections or
subsections hereof in which such phrases occur. The word "or" is not
exclusive, and the word "including" (in its various forms) means "including
without limitation". Pronouns in masculine, feminine and neuter genders shall
be construed to include any other gender, and words in the singular form shall
be construed to include the plural and vice versa, unless the context otherwise
requires.
Section 1.5. Calculations and Determinations. All calculations under
the Loan Documents of interest chargeable with respect to Eurodollar Loans and
of fees shall be made on the basis of actual days elapsed (including the first
day but excluding the last) and a year of 360 days. All other calculations of
interest made under the Loan Documents shall be made on the basis of actual
days elapsed (including the first day but excluding the last) and a year of 365
or 366 days, as appropriate. Each determination by a Lender Party of amounts
to be paid under any of Sections 3.2, 3.3, 3.4, 3.5 or 3.6 or any other matters
which are to be determined hereunder by a Lender Party (such as any Eurodollar
Rate, LIBOR Rate, Business Day, Interest Period, or Reserve Percentage) shall,
in the absence of manifest error, be conclusive and binding. Unless otherwise
expressly provided herein or unless Required Lenders otherwise consent all
financial statements and reports furnished to any Lender Party hereunder shall
be prepared and all financial computations and determinations pursuant hereto
shall be made in accordance with GAAP.
ARTICLE II - The Loans
Section 2.1. Commitments to Lend; Notes. Subject to the terms and
conditions hereof, each Lender agrees to make loans to Borrower (herein called
such Lender's "Loans") upon Borrower's request from time to time during the
Commitment Period, provided that (a) subject
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to Sections 3.3, 3.4 and 3.6, all Lenders are requested to make Loans of the
same Type in accordance with their respective Percentage Shares and as part of
the same Borrowing, and (b) after giving effect to such Loans, the Facility
Usage does not exceed the Borrowing Base determined as of the date on which the
requested Loans are to be made. The aggregate amount of all Loans in any
Borrowing of ABR Loans must be greater than or equal to $300,000 (any higher
multiple of $100,000) or must equal the remaining availability under the
Borrowing Base. The aggregate amount of all Loans in any Borrowing of
Eurodollar Loans must be greater than or equal to $3,000,000 (any higher
multiple of $1,000,000) or must equal the remaining availability under the
Borrowing Base. Borrower may have no more than three Borrowings of Eurodollar
Loans outstanding at any time. The obligation of Borrower to repay to each
Lender the aggregate amount of all Loans made by such Lender, together with
interest accruing in connection therewith, shall be evidenced by a single
promissory note (herein called such Lender's "Note") made by Borrower payable
to the order of such Lender in the form of Exhibit A with appropriate
insertions. The amount of principal owing on any Lender's Note at any given
time shall be the aggregate amount of all Loans theretofore made by such Lender
minus all payments of principal theretofore received by such Lender on such
Note. Interest on each Note shall accrue and be due and payable as provided
herein and therein, with Eurodollar Loans bearing interest at the Eurodollar
Rate and ABR Loans bearing interest at the Alternate Base Rate (subject to the
applicability of the Late Payment Rate and limited by the provisions of Section
10.7). Subject to the terms and conditions hereof, Borrower may borrow, repay,
and reborrow hereunder.
Section 2.2. Requests for New Loans. Borrower must give to Agent
written notice (or telephonic notice promptly confirmed in writing) of any
requested Borrowing of new Loans to be advanced by Lenders. Each such notice
constitutes a "Borrowing Notice" hereunder and must:
(a) specify (i) the aggregate amount of any such Borrowing of
new ABR Loans and the date on which such ABR Loans are to be advanced,
or (ii) the aggregate amount of any such Borrowing of new Eurodollar
Loans, the date on which such Eurodollar Loans are to be advanced (which
shall be the first day of the Interest Period which is to apply
thereto), and the length of the applicable Interest Period; and
(b) be received by Agent not later than 12:00 noon, New York
City time, on (i) the day on which any such ABR Loans are to be made, or
(ii) the third Business Day preceding the day on which any such
Eurodollar Loans are to be made.
Each such written request or confirmation must be made in the form and
substance of the "Borrowing Notice" attached hereto as Exhibit B, duly
completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Upon receipt of any such
Borrowing Notice, Agent shall give each Lender prompt notice of the terms
thereof. If all conditions precedent to such new Loans have been met, each
Lender will on the date requested promptly remit to Agent at Agent's office in
Stamford, Connecticut, the amount of such Lender's new Loan in immediately
available funds, and upon receipt of
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such funds, unless to its actual knowledge any conditions precedent to such
Loans have been neither met nor waived as provided herein, Agent shall promptly
make such Loans available to Borrower. Unless Agent shall have received prompt
notice from a Lender that such Lender will not make available to Agent such
Lender's new Loan, Agent may in its discretion assume that such Lender has made
such Loan available to Agent in accordance with this section and Agent may if
it chooses, in reliance upon such assumption, make such Loan available to
Borrower. If and to the extent such Lender shall not so make its new Loan
available to Agent, such Lender and Borrower severally agree to pay or repay to
Agent within three days after demand the amount of such Loan together with
interest thereon, for each day from the date such amount was made available to
Borrower until the date such amount is paid or repaid to Agent, with interest
at (i) the Federal Funds Rate, if such Lender is making such payment and (ii)
the interest rate applicable at the time to the other new Loans made on such
date, if Borrower is making such repayment. If neither such Lender nor
Borrower pay or repay to Agent such amount within such three-day period, Agent
shall in addition to such amount be entitled to recover from such Lender and
from Borrower, on demand, interest thereon at the Late Payment Rate, calculated
from the date such amount was made available to Borrower. The failure of any
Lender to make any new Loan to be made by it hereunder shall not relieve any
other Lender of its obligation hereunder, if any, to make its new Loan, but no
Lender shall be responsible for the failure of any other Lender to make any new
Loan to be made by such other Lender.
Section 2.3. Continuations and Conversions of Existing Loans. Borrower
may make the following elections with respect to Loans already outstanding: to
convert ABR Loans to Eurodollar Loans, to convert Eurodollar Loans to ABR Loans
on the last day of the Interest Period applicable thereto, or to continue
Eurodollar Loans beyond the expiration of such Interest Period by designating a
new Interest Period to take effect at the time of such expiration. In making
such elections, Borrower may combine existing Loans made pursuant to separate
Borrowings into one new Borrowing or divide existing Loans made pursuant to one
Borrowing into separate new Borrowings. To make any such election, Borrower
must give to Agent written notice (or telephonic notice promptly confirmed in
writing) of any such conversion or continuation of existing Loans, with a
separate notice given for each new Borrowing. Each such notice constitutes a
"Continuation/Conversion Notice" hereunder and must:
(a) specify the existing Loans which are to be continued or
converted;
(b) specify (i) the aggregate amount of any Borrowing of ABR
Loans into which such existing Loans are to be continued or converted
and the date on which such continuation or conversion is to occur, or
(ii) the aggregate amount of any Borrowing of Eurodollar Loans into
which such existing Loans are to be continued or converted, the date on
which such continuation or conversion is to occur (which shall be the
first day of the Interest Period which is to apply to such Eurodollar
Loans), and the length of the applicable Interest Period; and
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(c) be received by Agent not later than 12:00 noon, New York
City time, on (i) the day on which any such continuation or conversion
to ABR Loans is to occur, or (ii) the third Business Day preceding the
day on which any such continuation or conversion to Eurodollar Loans is
to occur.
Each such written request or confirmation must be made in the form and
substance of the "Continuation/Conversion Notice" attached hereto as Exhibit C,
duly completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Upon receipt of any such
Borrowing Notice, Agent shall give each Lender prompt notice of the terms
thereof. Each Borrowing Notice shall be irrevocable and binding on Borrower.
During the continuance of any Default, Borrower may not make any election to
convert existing Loans into Eurodollar Loans or continue existing Loans as
Eurodollar Loans. If (due to the existence of a Default or for any other
reason) Borrower fails to timely and properly give any notice of continuation
or conversion with respect to a Borrowing of existing Eurodollar Loans at least
three days prior to the end of the Interest Period applicable thereto, such
Eurodollar Loans shall automatically be converted into ABR Loans at the end of
such Interest Period. No new funds shall be repaid by Borrower or advanced by
any Lender in connection with any continuation or conversion of existing Loans
pursuant to this section, and no such continuation or conversion shall be
deemed to be a new advance of funds for any purpose; such continuations and
conversions merely constitute a change in the interest rate applicable to
already outstanding Loans.
Section 2.4. Use of Proceeds. Borrower shall use all Loans to
refinance existing indebtedness, to finance capital expenditures, and provide
working capital for its operations and for other general business purposes. In
no event shall the funds from any Loan be used directly or indirectly by any
Person (i) for personal, family, household or agricultural purposes or (ii) for
the purpose, whether immediate, incidental or ultimate, of purchasing,
acquiring or carrying any "margin stock" or any "margin securities" (as such
terms are defined respectively in Regulation U and Regulation G promulgated by
the Board of Governors of the Federal Reserve System) or to extend credit to
others directly or indirectly for the purpose of purchasing or carrying any
such margin stock or margin securities or (iii) for the acquisition of any
Person unless such acquisition has been approved by the board of directors,
management committee or partners, as the case may be of such Person. Borrower
represents and warrants that Borrower is not engaged principally, or as one of
Borrower's important activities, in the business of extending credit to others
for the purpose of purchasing or carrying such margin stock or margin
securities.
Section 2.5. Fees.
(a) Commitment Fees. In consideration of each Lender's
commitment to make Loans, Borrower will pay to Agent for the account of
each Lender a commitment fee determined on a daily basis by applying the
Commitment Fee Rate to such Lender's Percentage Share of the unused
portion of the Commitment on each day during the Commitment Period,
determined for each such day by deducting from the amount of the
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Commitment at the end of such day the Facility Usage. This commitment
fee shall be due and payable in arrears on each ABR Payment Date and at
the end of the Commitment Period.
(b) Other Fees. In addition to all other amounts due to Agent
under the Loan Documents, Borrower will pay fees to Agent as described
in a letter agreement of even date herewith between Agent and Borrower.
Section 2.6. Optional Prepayments. Borrower may, upon one Business
Day's notice in the case of ABR Loans, or three Business Days' notice in the
case of Eurodollar Loans, to each Lender, from time to time and without premium
or penalty prepay the Notes, in whole or in part, so long as the aggregate
amounts of all partial prepayments of principal on the Notes equals $300,000 or
any higher integral multiple of $100,000, so long as Borrower pays all breakage
costs associated with the prepayment of any Eurodollar Loan as provided in
Section 3.5, and so long as Borrower does not make any prepayments which would
reduce the unpaid principal balance of any Loan to less than $100,000 without
first either (a) terminating this Agreement or (b) providing assurance
satisfactory to Agent in its discretion that Lenders' legal rights under the
Loan Documents are in no way affected by such reduction. Each prepayment of
principal under this section shall be accompanied by all interest then accrued
and unpaid on the principal so prepaid. Any principal or interest prepaid
pursuant to this section shall be in addition to, and not in lieu of, all
payments otherwise required to be paid under the Loan Documents at the time of
such prepayment.
Section 2.7. Mandatory Prepayments.
(a) If at any time the Facility Usage exceeds the Commitment
(whether due to a reduction in the Commitment in accordance with this
Agreement, or otherwise), Borrower shall immediately upon demand prepay
the principal of the Loans in an amount at least equal to such excess.
(b) If at any time the Facility Usage is less than the
Commitment but in excess of the Borrowing Base (such excess being herein
called a "Borrowing Base Deficiency"), Borrower shall, within five
Business Days after Agent gives notice of such fact to Borrower, either:
(i) prepay the principal of the Loans in an aggregate
amount at least equal to such Borrowing Base Deficiency, or
(ii) give notice to Agent electing to prepay the
principal of the Loans in up to three monthly installments in an
aggregate amount at least equal to such Borrowing Base
Deficiency, with each such installment equal to or in excess of
one-third of such Borrowing Base Deficiency, and with the first
such installment to be paid one month after the giving of such
notice and the subsequent installments to be due and payable at
one month intervals thereafter until such Borrowing Base
Deficiency has been eliminated, or
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(iii) give notice to Agent that Borrower desires to
provide Agent with deeds of trust, mortgages, chattel mortgages,
security agreements, financing statements and other security
documents in form and substance satisfactory to Agent, granting,
confirming, and perfecting first and prior liens or security
interests in collateral acceptable to Required Lenders, to the
extent needed to allow Required Lenders to increase the Borrowing
Base (as they in their reasonable discretion deem consistent with
prudent oil and gas banking industry lending standards at the
time) to an amount which eliminates such Borrowing Base
Deficiency, and then provide such security documents within
thirty days after Agent specifies such collateral to Borrower.
If, prior to any such specification by Agent, Required Lenders
determine that the giving of such security documents will not
serve to eliminate such Borrowing Base Deficiency, then, within
five Business Days after receiving notice of such determination,
Borrower will elect to make, and thereafter make, the prepayments
specified in either of the preceding subsections (i) or (ii) of
this subsection (b).
(c) Each prepayment of principal under this section shall be
accompanied by all interest then accrued and unpaid on the principal so
prepaid. Any principal or interest prepaid pursuant to this section
shall be in addition to, and not in lieu of, all payments otherwise
required to be paid under the Loan Documents at the time of such
prepayment.
Section 2.8. Initial Borrowing Base. During the period from the date
hereof to the first Determination Date the Borrowing Base shall be $50,000,000.
Section 2.9. Subsequent Determinations of Borrowing Base.
By September 1 of each year (and within 60 days after each Evaluation
Date described in clause (i) of the definition of Evaluation Date), Borrower
shall furnish to each Lender all information, reports and data which Agent has
then requested concerning Restricted Persons' businesses and properties
(including their oil and gas properties and interests and the reserves and
production relating thereto), together with the Engineering Report described in
Section 6.2(d), if such Engineering Report is then due. Within forty-five days
after receiving such information, reports and data, Required Lenders shall agree
upon an amount for the Borrowing Base and Agent shall by notice to Borrower
designate such amount as the new Borrowing Base available to Borrower hereunder,
which designation shall take effect immediately on the date such notice is sent
(herein called a "Determination Date") and shall remain in effect until but not
including the next date as of which the Borrowing Base is redetermined. If
Borrower does not furnish all such information, reports and data by the date
specified in the first sentence of this section, Agent may nonetheless designate
the Borrowing Base at any amount which Required Lenders determine and may
redesignate the Borrowing Base from time to time thereafter until each Lender
receives all such information, reports and data, whereupon Required Lenders
shall designate a new Borrowing Base as described above. Required Lenders shall
determine the amount of the Borrowing Base based upon the loan collateral value
which they in their discretion assign to the various oil and gas properties
included in the Collateral at the time in question and based upon such other
credit factors
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(including without limitation the assets, liabilities, cash flow, hedged and
unhedged exposure to price, foreign exchange rate, and interest rate changes,
business, properties, prospects, management and ownership of Borrower and its
Affiliates) as they in their discretion deem significant. It is expressly
understood that Lenders and Agent have no obligation to agree upon or designate
the Borrowing Base at any particular amount, whether in relation to the
Commitment or otherwise, and that Lenders' commitments to advance funds
hereunder is determined by reference to the Borrowing Base from time to time in
effect, which Borrowing Base shall be used to the extent permitted by Law and
regulatory authorities, for the purposes of capital adequacy determination and
reimbursements under Section 3.2.
ARTICLE III - Payments to Lenders
Section 3.1. General Procedures. Borrower will make each payment which
it owes under the Loan Documents to Agent for the account of the Lender Party
to whom such payment is owed. Each such payment must be received by Agent not
later than 12:00 noon, New York City time, on the date such payment becomes due
and payable, in lawful money of the United States of America, without set-off,
deduction or counterclaim, and in immediately available funds. Any payment
received by Agent after such time will be deemed to have been made on the next
following Business Day. Should any such payment become due and payable on a
day other than a Business Day, the maturity of such payment shall be extended
to the next succeeding Business Day, and, in the case of a payment of principal
or past due interest, interest shall accrue and be payable thereon for the
period of such extension as provided in the Loan Document under which such
payment is due. Each payment under a Loan Document shall be due and payable at
the place provided therein and, if no specific place of payment is provided,
shall be due and payable at the place of payment of Agent's Note. When Agent
collects or receives money on account of the Obligations, Agent shall
distribute all money so collected or received, and each Lender Party shall
apply all such money so distributed, as follows:
(a) first, for the payment of all Obligations which are then
due (and if such money is insufficient to pay all such Obligations,
first to any reimbursements due Agent under Section 6.9 or 10.4 and then
to the partial payment of all other Obligations then due in proportion
to the amounts thereof, or as Lender Parties shall otherwise agree);
(b) then for the prepayment of amounts owing under the Loan
Documents (other than principal on the Notes) if so specified by
Borrower;
(c) then for the prepayment of principal on the Notes, together
with accrued and unpaid interest on the principal so prepaid; and
(d) last, for the payment or prepayment of any other
Obligations.
All payments applied to principal or interest on any Note shall be applied
first to any interest then due and payable, then to principal then due and
payable, and last to any prepayment of
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principal and interest in compliance with Sections 2.6 and 2.7. All
distributions of amounts described in any of subsections (b), (c) or (d) above
shall be made by Agent pro rata to each Lender Party then owed Obligations
described in such subsection in proportion to all amounts owed to all Lender
Parties which are described in such subsection.
Section 3.2. Capital Reimbursement. If either (a) the introduction or
implementation of or the compliance with or any change in or in the
interpretation of any Law, or (b) the introduction or implementation of or the
compliance with any request, directive or guideline from any central bank or
other governmental authority (whether or not having the force of Law) affects
or would affect the amount of capital required or expected to be maintained by
any Lender Party (or any assignee of such Lender Party) or any corporation
controlling any Lender Party (or its assignee), then, upon demand by such
Lender Party, Borrower will pay to Agent for the benefit of such Lender Party,
from time to time as specified by such Lender Party, such additional amount or
amounts which such Lender Party shall determine to be appropriate to compensate
such Lender Party or any corporation controlling such Lender Party in light of
such circumstances, to the extent that such Lender Party reasonably determines
that the amount of any such capital would be increased or the rate of return on
any such capital would be reduced by or in whole or in part based on the
existence of the face amount of such Lender Party's Loans or commitments under
this Agreement.
Section 3.3. Increased Cost of Eurodollar Loans. If any applicable Law
(whether now in effect or hereinafter enacted or promulgated, including
Regulation D) or any interpretation or administration thereof by any
governmental authority charged with the interpretation or administration
thereof (whether or not having the force of Law):
(a) shall change the basis of taxation of payments to any
Lender Party of any principal, interest, or other amounts attributable
to any Eurodollar Loan or otherwise due under this Agreement in respect
of any Eurodollar Loan (other than taxes imposed on the overall net
income of such Lender Party or any lending office of such Lender Party
by any jurisdiction in which such Lender Party or any such lending
office is located); or
(b) shall change, impose, modify, apply or deem applicable any
reserve, special deposit or similar requirements in respect of any
Eurodollar Loan (excluding those for which such Lender Party is fully
compensated pursuant to adjustments made in the definition of Eurodollar
Rate) or against assets of, deposits with or for the account of, or
credit extended by, such Lender Party; or
(c) shall impose on any Lender Party or the interbank
eurocurrency deposit market any other condition affecting any Eurodollar
Loan, the result of which is to increase the cost to any Lender Party of
funding or maintaining any Eurodollar Loan or to reduce the amount of
any sum receivable by any Lender Party in respect of any Eurodollar Loan
by an amount deemed by such Lender Party to be material,
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then such Lender Party shall promptly notify Agent and Borrower in writing of
the happening of such event and of the amount required to compensate such
Lender Party for such event (on an after-tax basis, taking into account any
taxes on such compensation), whereupon (i) Borrower shall pay such amount to
Agent for the account of such Lender Party and (ii) Borrower may elect, by
giving to Agent and such Lender Party not less than three Business Days'
notice, to convert all (but not less than all) of any such Eurodollar Loans
into ABR Loans.
Section 3.4. Availability. If (a) any change in applicable Laws, or in
the interpretation or administration thereof of or in any jurisdiction
whatsoever, domestic or foreign, shall make it unlawful or impracticable for
any Lender Party to fund or maintain Eurodollar Loans, or shall materially
restrict the authority of any Lender Party to purchase or take offshore
deposits of dollars (i.e., "eurodollars"), or (b) any Lender Party determines
that matching deposits appropriate to fund or maintain any Eurodollar Loan are
not available to it, or (c) any Lender Party determines that the formula for
calculating the Adjusted Eurodollar Rate does not fairly reflect the cost to
such Lender Party of making or maintaining loans based on such rate, then, upon
notice by such Lender Party to Borrower and Agent, Borrower's right to elect
Eurodollar Loans from such Lender Party shall be suspended to the extent and
for the duration of such illegality, impracticability or restriction and all
Eurodollar Loans of such Lender Party which are then outstanding or are then
the subject of any Borrowing Notice and which cannot lawfully or practicably be
maintained or funded shall immediately become or remain, or shall be funded as,
ABR Loans of such Lender Party. Borrower agrees to indemnify each Lender Party
and hold it harmless against all costs, expenses, claims, penalties,
liabilities and damages which may result from any such change in Law,
interpretation or administration. Such indemnification shall be on an
after-tax basis, taking into account any taxes imposed on the amounts paid as
indemnity.
Section 3.5. Funding, Losses. In addition to its other obligations
hereunder, Borrower will indemnify each Lender Party against, and reimburse
each Lender Party on demand for, any loss or expense incurred or sustained by
such Lender Party (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by a Lender
Party to fund or maintain Eurodollar Loans), as a result of (a) any payment or
prepayment (whether authorized or required hereunder or otherwise) of all or a
portion of a Eurodollar Loan on a day other than the day on which the
applicable Interest Period ends, (b) any payment or prepayment, whether
required hereunder or otherwise, of a Loan made after the delivery, but before
the effective date, of a Continuation/Conversion Notice, if such payment or
prepayment prevents such Continuation/Conversion Notice from becoming fully
effective, (c) the failure of any Loan to be made or of any
Continuation/Conversion Notice to become effective due to any condition
precedent not being satisfied or due to any other action or inaction of any
Restricted Person, or (d) any conversion (whether authorized or required
hereunder or otherwise) of all or any portion of any Eurodollar Loan into an
ABR Loan or into a different Eurodollar Loan on a day other than the day on
which the applicable Interest Period ends. Such indemnification shall be on an
after-tax basis, taking into account any taxes imposed on the amounts paid as
indemnity.
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Section 3.6. Reimbursable Taxes. Borrower covenants and agrees that:
(a) Borrower will indemnify each Lender Party against and
reimburse each Lender Party for all present and future income, stamp and
other taxes, levies, costs and charges whatsoever imposed, assessed,
levied or collected on or in respect of this Agreement or any Eurodollar
Loans (whether or not legally or correctly imposed, assessed, levied or
collected), excluding, however, any taxes imposed on or measured by the
overall net income of Agent or such Lender Party or any lending office
of such Lender Party by any jurisdiction in which such Lender Party or
any such lending office is located (all such non-excluded taxes, levies,
costs and charges being collectively called "Reimbursable Taxes" in this
section). Such indemnification shall be on an after-tax basis, taking
into account any taxes imposed on the amounts paid as indemnity.
(b) All payments on account of the principal of, and interest
on, each Lender Party's Loans and Note, and all other amounts payable by
Borrower to any Lender Party hereunder, shall be made in full without
set-off or counterclaim and shall be made free and clear of and without
deductions or withholdings of any nature by reason of any Reimbursable
Taxes, all of which will be for the account of Borrower. In the event
of Borrower being compelled by Law to make any such deduction or
withholding from any payment to any Lender Party, Borrower shall pay on
the due date of such payment, by way of additional interest, such
additional amounts as are needed to cause the amount receivable by such
Lender Party after such deduction or withholding to equal the amount
which would have been receivable in the absence of such deduction or
withholding. If Borrower should make any deduction or withholding as
aforesaid, Borrower shall within 60 days thereafter forward to such
Lender Party an official receipt or other official document evidencing
payment of such deduction or withholding.
(c) If Borrower is ever required to pay any Reimbursable Tax
with respect to any Eurodollar Loan, Borrower may elect, by giving to
Agent and such Lender Party not less than three Business Days' notice,
to convert all (but not less than all) of any such Eurodollar Loan into
an ABR Loan, but such election shall not diminish Borrower's obligation
to pay all Reimbursable Taxes.
(d) Notwithstanding the foregoing provisions of this section,
Borrower shall be entitled, to the extent it is required to do so by
Law, to deduct or withhold (and not to make any indemnification or
reimbursement for) income or other similar taxes imposed by the United
States of America (other than any portion thereof attributable to a
change in federal income tax Laws effected after the date hereof) from
interest, fees or other amounts payable hereunder for the account of any
Lender Party, other than a Lender Party (i) who is a U.S. person for
Federal income tax purposes or (ii) who has the Prescribed Forms on file
with Agent (with copies provided to Borrower) for the applicable year to
the extent deduction or withholding of such taxes is not required as a
result of the filing of such Prescribed Forms, provided that if Borrower
shall so deduct or withhold any such taxes, it shall provide a statement
to Agent and such Lender Party, setting forth the amount of such taxes
so deducted or withheld, the applicable rate and
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any other information or documentation which such Lender Party may
reasonably request for assisting such Lender Party to obtain any
allowable credits or deductions for the taxes so deducted or withheld in
the jurisdiction or jurisdictions in which such Lender Party is subject
to tax. As used in this section, "Prescribed Forms" means such duly
executed forms or statements, and in such number of copies, which may,
from time to time, be prescribed by Law and which, pursuant to
applicable provisions of (x) an income tax treaty between the United
States and the country of residence of the Lender Party providing the
forms or statements, (y) the Internal Revenue Code of 1986, as amended
from time to time, or (z) any applicable rules or regulations
thereunder, permit Borrower to make payments hereunder for the account
of such Lender Party free of such deduction or withholding of income or
similar taxes.
Section 3.7. Change of Applicable Lending Office. Each Lender Party
agrees that, upon the occurrence of any event giving rise to the operation of
any of Sections 3.2, 3.3, 3.4, 3.5 or 3.6 with respect to such Lender Party, it
will, if requested by Borrower, use reasonable efforts (subject to overall
policy considerations of such Lender Party) to designate another Lending
Office, provided that such designation is made on such terms that such Lender
Party and its Lending Office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding the consequence of the event giving
rise to the operation of any such section. Nothing in this section shall
affect or postpone any of the obligations of Borrower or the rights of any
Lender Party provided in any of Sections 3.2, 3.3, 3.4, 3.5 or 3.6.
Section 3.8. Replacement of Lenders. If any Lender Party seeks
reimbursement for increased costs under any of Sections 3.2, 3.3, 3.4, 3.5 or
3.6, then within ninety days thereafter -- provided no Event of Default then
exists -- Borrower shall have the right (unless such Lender Party withdraws its
request for additional compensation) to replace such Lender Party by requiring
such Lender Party to assign its Loans and Notes and its commitments hereunder
to an Eligible Transferee reasonably acceptable to Agent and to Borrower,
provided that: (i) all Obligations of Borrower owing to such Lender Party being
replaced (including such increased costs, but excluding principal and accrued
interest on the Notes being assigned) shall be paid in full to such Lender
Party concurrently with such assignment, and (ii) the replacement Eligible
Transferee shall purchase the Note being assigned by paying to such Lender
Party a price equal to the principal amount thereof plus accrued and unpaid
interest thereon. In connection with any such assignment Borrower, Agent, such
Lender Party and the replacement Eligible Transferee shall otherwise comply
with Section 10.6. Notwithstanding the foregoing rights of Borrower under this
section, however, Borrower may not replace any Lender Party which seeks
reimbursement for increased costs under any of Sections 3.2, 3.3, 3.4, 3.5 or
3.6, unless Borrower is at the same time replacing all Lender Parties which are
then seeking such compensation.
Section 3.9 Participants. If a Lender has assigned a participation in
its Loans or commitment hereunder to another Person in accordance with Section
10.6, any amount otherwise payable by Borrower to such Lender under Section 3.3
through 3.6 (in this section called "Increased Costs"), shall include that
portion of the Increased Costs determined by such
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Lender to be allocable to the amount of any interest or participation
transferred by such Lender in such Lender's Loan or commitments under this
Agreement.
ARTICLE IV - Conditions Precedent to Lending
Section 4.1. Documents to be Delivered. No Lender has any obligation
to make its first Loan unless Agent shall have received all of the following,
duly executed and delivered and in form, substance and date satisfactory to
Agent:
(a) This Agreement and any other documents that Lenders are to
execute in connection herewith.
(b) Each Note.
(c) Each Security Document listed in the Security Schedule.
(d) Certain certificates of Borrower including:
(i) An "Omnibus Certificate" of the Secretary and of the
Chairman of the Board or President of Borrower, which shall
contain the names and signatures of the officers of Borrower
authorized to execute Loan Documents and which shall certify to
the truth, correctness and completeness of the following exhibits
attached thereto: (1) a copy of resolutions duly adopted by the
Board of Directors of Borrower and in full force and effect at
the time this Agreement is entered into, authorizing the
execution of this Agreement and the other Loan Documents
delivered or to be delivered in connection herewith and the
consummation of the transactions contemplated herein and therein,
(2) a copy of the charter documents of Borrower and all
amendments thereto, certified by the appropriate official of
Borrower's state of organization, and (3) a copy of any bylaws of
Borrower; and
(ii) A "Compliance Certificate" of the Chairman of the
Board or President and of the chief financial officer of
Borrower, of even date with such Loan, in which such officers
certify to the satisfaction of the conditions set out in
subsections (a), (b), (c) and (d) of Section 4.2.
(e) A certificate (or certificates) of the due formation, valid
existence and good standing of Borrower in its state of organization,
issued by the appropriate authorities of such jurisdiction, and
certificates of Borrower's good standing and due qualification to do
business, issued by appropriate officials in any states in which
Borrower owns property subject to Security Documents.
(f) Documents similar to those specified in subsections (d)(i)
and (e) of this section with respect to Eastern American and the
execution by it of its deed of trust described in the Security Schedule.
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(g) A favorable opinion of Goodwin & Goodwin, counsel for
Restricted Persons, substantially in the form set forth in Exhibit G,
and favorable opinions of local counsel in the States of Pennsylvania,
Ohio, Illinois and Virginia in form and substance acceptable to Agent
and its counsel.
(h) The Initial Engineering Report, the Initial Financial
Statements and the Initial Financial Projections, each satisfactory to
Agent, in its sole discretion.
(i) Certificates or binders evidencing Restricted Persons'
insurance in effect on the date hereof.
(j) Favorable title and environmental reports, in scope and
results acceptable to Agent.
(k) Solvency Certificates of Eastern American and each party to
the Security Documents other than Agent.
(l) A copy of the form of Subordinated Notes and the Indenture
pursuant to which the Subordinated Notes are to be issued.
(m) Documents (i) confirming the payment in full of all
Indebtedness under the Existing Credit Documents, (ii) releasing and
terminating all Liens on any Restricted Person's property securing such
Indebtedness (or assigning such Liens to Agent for the benefit of
Lenders, and (iii) terminating the credit facility under the Existing
Credit Documents.
Section 4.2. Additional Conditions Precedent to First Loan. No Lender
has any obligation to make its first Loan, unless the following conditions
precedent have been satisfied:
(a) Borrower shall have issued the Subordinated Notes on terms
and conditions (including but not limited to the principal amount, the
coupon rate, the maturity, the absence of collateral and guaranties, and
the terms of the subordination thereof), satisfactory to Agent, in its
sole discretion, pursuant to an indenture satisfactory to Agent, in its
sole discretion, and shall have repaid in full the 10.75% Notes due 2005
issued by Eastern Systems in the amount of $35,000,000 payable to
Hancock Mutual Insurance Company.
(b) Agent shall have completed its due diligence with respect
to the Restricted Persons and their properties (including, but not
limited to due diligence with respect to capital structure, title and
environmental matters) and shall have received such reports and data as
it shall have deemed necessary in connection therewith, and such due
diligence, reports and data shall be satisfactory to Agent, in its sole
discretion.
(c) Agent shall have received payment of all commitment,
facility, agency and other fees required to be paid to any Lender Party
pursuant to any Loan Documents or
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any commitment agreement heretofore entered into and all fees and
disbursements of Agent's counsel.
(d) Borrower shall have appointed CT Corporation Systems as its
agent for service of process in the State of New York.
Section 4.3. Additional Conditions Precedent to All Loans. No Lender
has any obligation to make any Loan (including its first), unless the following
conditions precedent have been satisfied:
(a) All representations and warranties made by any Restricted
Person in any Loan Document shall be true on and as of the date of such
Loan (except to the extent that the facts upon which such
representations are based have been changed by the extension of credit
hereunder) as if such representations and warranties had been made as of
the date of such Loan.
(b) No Default shall exist at the date of such Loan.
(c) No Material Adverse Change shall have occurred to, and no
event or circumstance shall have occurred that could cause a Material
Adverse Change to, Borrower's Consolidated financial condition or
businesses since the date of this Agreement.
(d) Each Restricted Person shall have performed and complied
with all agreements and conditions required in the Loan Documents to be
performed or complied with by it on or prior to the date of such Loan.
(e) The making of such Loan shall not be prohibited by any Law
and shall not subject any Lender to any penalty or other onerous
condition under or pursuant to any such Law.
(f) Agent shall have received on or before the date of any
Advance which would cause the aggregate amount of all Advances
outstanding hereunder to exceed $2,000,000, original recorded
counterparts, file stamped copies or certified copies of all Security
Documents and file stamped copies of all related financing statements.
(g) Agent shall have received all documents and instruments
which Agent has then requested, in addition to those described in Section 4.1
and 4.3 (f) (including opinions of legal counsel for Restricted Persons and
Agent; corporate documents and records; documents evidencing governmental
authorizations, consents, approvals, licenses and exemptions; and certificates
of public officials and of officers and representatives of Borrower and other
Persons), as to (i) the accuracy and validity of or compliance with all
representations, warranties and covenants made by any Restricted Person in this
Agreement and the other Loan Documents, (ii) the satisfaction of all conditions
contained herein or therein, and (iii) all other
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matters pertaining hereto and thereto. All such additional documents and
instruments shall be satisfactory to Agent in form, substance and date.
ARTICLE V - Representations and Warranties
To confirm each Lender Party's understanding concerning Restricted
Persons and Restricted Persons' businesses, properties and obligations and to
induce each Lender Party to enter into this Agreement and to extend credit
hereunder, Borrower represents and warrants to each Lender Party that:
Section 5.1. No Default. No Restricted Person is in default in the
performance of any of the covenants and agreements contained in any Loan
Document. No event has occurred and is continuing which constitutes a Default.
Section 5.2. Organization and Good Standing. Each Restricted Person is
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, having all powers required to carry on its
business and enter into and carry out the transactions contemplated hereby.
Each Restricted Person is duly qualified, in good standing, and authorized to
do business in all other jurisdictions within the United States wherein the
character of the properties owned or held by it or the nature of the business
transacted by it makes such qualification necessary. Each Restricted Person
has taken all actions and procedures customarily taken in order to enter, for
the purpose of conducting business or owning property, each jurisdiction
outside the United States wherein the character of the properties owned or held
by it or the nature of the business transacted by it makes such actions and
procedures desirable.
Section 5.3. Authorization. Each Restricted Person has duly taken all
action necessary to authorize the execution and delivery by it of the Loan
Documents to which it is a party and to authorize the consummation of the
transactions contemplated thereby and the performance of its obligations
thereunder. Borrower is duly authorized to borrow funds hereunder.
Section 5.4. No Conflicts or Consents. The execution and delivery by
the various Restricted Persons of the Loan Documents to which each is a party,
the performance by each of its obligations under such Loan Documents, and the
consummation of the transactions contemplated by the various Loan Documents, do
not and will not (i) conflict with any provision of (1) any Law, (2) the
organizational documents of any Restricted Person, or (3) any agreement,
judgment, license, order or permit applicable to or binding upon any Restricted
Person, (ii) result in the acceleration of any Indebtedness owed by any
Restricted Person, or (iii) result in or require the creation of any Lien upon
any assets or properties of any Restricted Person except as expressly
contemplated in the Loan Documents. Except as expressly contemplated in the
Loan Documents no consent, approval, authorization or order of, and no notice
to or filing with, any Tribunal or third party is required in connection with
the execution, delivery or performance by any Restricted Person of any Loan
Document or to
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consummate any transactions contemplated by the Loan Documents, except consents
which will be obtained within 180 days after the date hereof.
Section 5.5. Enforceable Obligations. This Agreement is, and the other
Loan Documents when duly executed and delivered will be, legal, valid and
binding obligations of each Restricted Person which is a party hereto or
thereto, enforceable in accordance with their terms except as such enforcement
may be limited by bankruptcy, insolvency or similar Laws of general application
relating to the enforcement of creditors' rights.
Section 5.6. Initial Financial Statements. Borrower has heretofore
delivered to each Lender Party true, correct and complete copies of the Initial
Financial Statements. The Initial Financial Statements fairly present
Borrower's Consolidated financial position at the respective dates thereof and
the Consolidated results of Borrower's operations and Borrower's Consolidated
cash flows for the respective periods thereof. Since the date of the audited
Initial Financial Statements no Material Adverse Change has occurred, except as
reflected in the quarterly Initial Financial Statements or in the Disclosure
Schedule. All Initial Financial Statements were prepared in accordance with
GAAP.
Section 5.7. Other Obligations and Restrictions. No Restricted Person
has any outstanding Liabilities of any kind (including contingent obligations,
tax assessments, and unusual forward or long-term commitments) which is, in the
aggregate, material to Borrower or material with respect to Borrower's
Consolidated financial condition and not shown in the Initial Financial
Statements or disclosed in the Disclosure Schedule or a Disclosure Report.
Except as shown in the Initial Financial Statements or disclosed in the
Disclosure Schedule or a Disclosure Report, no Restricted Person is subject to
or restricted by any franchise, contract, deed, charter restriction, or other
instrument or restriction which could cause a Material Adverse Change.
Section 5.8. Full Disclosure. No certificate, statement or other
information delivered herewith or heretofore by any Restricted Person to any
Lender Party in connection with the negotiation of this Agreement or in
connection with any transaction contemplated hereby contains any untrue
statement of a material fact or omits to state any material fact known to any
Restricted Person (other than industry-wide risks normally associated with the
types of businesses conducted by Restricted Persons) necessary to make the
statements contained herein or therein not misleading as of the date made or
deemed made. There is no fact known to any Restricted Person (other than
industry-wide risks normally associated with the types of businesses conducted
by Restricted Persons) that has not been disclosed to each Lender Party in
writing which could cause a Material Adverse Change. There are no statements
or conclusions in any Engineering Report which are based upon or include
misleading information or fail to take into account material information
regarding the matters reported therein, it being understood that each
Engineering Report is necessarily based upon professional opinions, estimates
and projections and that Borrower does not warrant that such opinions,
estimates and projections will ultimately prove to have been accurate.
Borrower has heretofore delivered to each Lender Party true, correct and
complete copies of the Initial Engineering Report.
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Section 5.9. Litigation. Except as disclosed in the Initial Financial
Statements or in the Disclosure Schedule: (i) there are no actions, suits or
legal, equitable, arbitrative or administrative proceedings pending, or to the
knowledge of any Restricted Person threatened, against any Restricted Person
before any Tribunal which could cause a Material Adverse Change, and (ii) there
are no outstanding judgments, injunctions, writs, rulings or orders by any such
Tribunal against any Restricted Person or any Restricted Person's stockholders,
partners, directors or officers which could cause a Material Adverse Change.
Section 5.10. Labor Disputes and Acts of God. Except as disclosed in
the Disclosure Schedule or a Disclosure Report, neither the business nor the
properties of any Restricted Person has been affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which could cause a Material Adverse
Change.
Section 5.11. ERISA Plans and Liabilities. All currently existing
ERISA Plans are listed in the Disclosure Schedule or a Disclosure Report.
Except as disclosed in the Initial Financial Statements or in the Disclosure
Schedule or a Disclosure Report, no Termination Event has occurred with respect
to any ERISA Plan and all ERISA Affiliates are in compliance with ERISA in all
material respects. No ERISA Affiliate is required to contribute to, or has any
other absolute or contingent liability in respect of, any "multiemployer plan"
as defined in Section 4001 of ERISA. Except as set forth in the Disclosure
Schedule or a Disclosure Report: (i) no "accumulated funding deficiency" (as
defined in Section 412(a) of the Internal Revenue Code of 1986, as amended)
exists with respect to any ERISA Plan, whether or not waived by the Secretary
of the Treasury or his delegate, and (ii) the current value of each ERISA
Plan's benefits does not exceed the current value of such ERISA Plan's assets
available for the payment of such benefits by more than $500,000.
Section 5.12. Environmental and Other Laws. Except as disclosed in the
Disclosure Schedule or a Disclosure Report: (a) Restricted Persons are
conducting their businesses in compliance with all applicable Laws, including
Environmental Laws, and have and are in compliance with all licenses and
permits required under any such Laws and there are no circumstances that may
prevent or interfere with the ability of the Restricted Persons to conduct
their business in compliance with applicable Laws, including Environmental
Laws; (b) none of the operations or properties of any Restricted Person is the
subject of a pending Environmental Claim or to the best of Borrower's knowledge
a threatened Environmental Claim; (c) no Restricted Person (and to the best
knowledge of Borrower, no other Person) has filed any notice under any Law
indicating that any Restricted Person is responsible for the improper Release,
or the improper storage or disposal, of any Hazardous Materials or that any
Hazardous Materials have been improperly Released, or are improperly stored or
disposed of, upon any property of any Restricted Person; (d) except as
necessary to conduct the business of the Restricted Persons, Hazardous
Materials have not been present, generated, used, treated, or stored on or
transported to or from the property of any Restricted Person, and no Restricted
Person has transported or arranged for the transportation of any Hazardous
Material to any location which is (i) listed on the National Priorities List
under the Comprehensive
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Environmental Response, Compensation and Liability Act of 1980, as amended,
listed for possible inclusion on such National Priorities List by the
Environmental Protection Agency in its Comprehensive Environmental Response,
Compensation and Liability Information System List, or listed on any similar
state list or (ii) the subject of federal, state or local enforcement actions
or other investigations which may lead to Environmental Claims against any
Restricted Person; and (e) no Restricted Person otherwise has any known
material contingent liability under any Environmental Laws or in connection
with a Release, or the storage or disposal, of any Hazardous Materials.
Section 5.13. Names and Places of Business. No Restricted Person has,
during the preceding five years, had, been known by, or used any other trade or
fictitious name, except as disclosed in the Disclosure Schedule. Except as
otherwise indicated in the Disclosure Schedule or a Disclosure Report, the
chief executive office and principal place of business of each Restricted
Person are (and for the preceding five years have been) located at the address
of Borrower set out in Section 10.3. Except as indicated in the Disclosure
Schedule or a Disclosure Report, no Restricted Person has any other office or
place of business.
Section 5.14. Borrower's Subsidiaries. Borrower does not presently
have any Subsidiary or own any stock in any other corporation or association
which owns assets having a value in excess of $250,000, except those listed in
the Disclosure Schedule or a Disclosure Report. Neither Borrower nor any
Restricted Person is a member of any general or limited partnership, joint
venture or association of any type whatsoever which owns assets having a value
in excess of $250,000 except (i) those listed in the Disclosure Schedule or a
Disclosure Report, and (ii) associations, joint ventures or other relationships
whose businesses are limited to the exploration, development and operation of
oil, gas or mineral properties and interests owned directly by the parties in
such associations, joint ventures or relationships. Except as otherwise
revealed in a Disclosure Report, Borrower owns, directly or indirectly, the
equity interest in each of its Subsidiaries which is indicated in the
Disclosure Schedule.
Section 5.15. Title to Properties; Licenses. Each Restricted Person
has good and marketable title to all of its material properties and assets,
free and clear of all Liens other than Permitted Liens and of all impediments
to the use of such properties and assets in such Restricted Person's business,
except that no representation or warranty is made with respect to any oil, gas
or mineral property or interest to which no proved oil or gas reserves are
properly attributed. Each Restricted Person possesses all licenses, permits,
franchises, patents, copyrights, trademarks and trade names, and other
intellectual property (or otherwise possesses the right to use such
intellectual property without violation of the rights of any other Person)
which are necessary to carry out its business as presently conducted and as
presently proposed to be conducted hereafter, and no Restricted Person is in
violation in any material respect of the terms under which it possesses such
intellectual property or the right to use such intellectual property.
Section 5.16. Government Regulation. Neither Borrower nor any other
Restricted Person owing Obligations is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940 (as any of the
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preceding acts have been amended) or any other Law which regulates the
incurring by such Person of Indebtedness, including Laws relating to common
contract carriers or the sale of electricity, gas, steam, water or other public
utility services.
Section 5.17. Insider. No Restricted Person, nor any Person having
"control" (as that term is defined in 12 U.S.C. Section 375b(9) or in
regulations promulgated pursuant thereto) of any Restricted Person, is a
"director" or an "executive officer" or "principal shareholder" (as those terms
are defined in 12 U.S.C. Section 375b(8) or (9) or in regulations promulgated
pursuant thereto) of any Lender Party, of a bank holding company of which any
Lender Party is a Subsidiary or of any Subsidiary of a bank holding company of
which any Lender Party is a Subsidiary.
ARTICLE VI - Affirmative Covenants of Borrower
To conform with the terms and conditions under which each Lender Party
is willing to have credit outstanding to Borrower, and to induce each Lender
Party to enter into this Agreement and extend credit hereunder, Borrower
warrants, covenants and agrees that until the full and final payment of the
Obligations and the termination of this Agreement, unless Required Lenders have
previously agreed otherwise:
Section 6.1. Payment and Performance. Borrower will pay all amounts
due under the Loan Documents in accordance with the terms thereof and will
observe, perform and comply with every covenant, term and condition expressed
or implied in the Loan Documents. Borrower will cause each other Restricted
Person to observe, perform and comply with every such term, covenant and
condition.
Section 6.2. Books' Financial Statements and Reports. Each Restricted
Person will at all times maintain full and accurate books of account and
records. Borrower will maintain and will cause its Subsidiaries to maintain a
standard system of accounting, will maintain its Fiscal Year, and will furnish
the following statements and reports to each Lender Party at Borrower's
expense:
(a) As soon as available, and in any event by the earlier of
five (5) days after the filing thereof with the SEC and the one hundred
twentieth (120th) day after the end of each Fiscal Year, complete
Consolidated and consolidating financial statements of Borrower together
with all notes thereto, prepared in reasonable detail in accordance with
GAAP, together with an unqualified opinion, based on an audit using
generally accepted auditing standards, by Deloitte & Touche, or other
independent certified public accountants selected by Borrower and
acceptable to Required Lenders, stating that such Consolidated and
consolidating financial statements have been so prepared. These
financial statements shall contain Consolidated and consolidating
balance sheet as of the end of such Fiscal Year and Consolidated and
consolidating statements of earnings, of cash flows, and of changes in
owners' equity for such Fiscal Year, each setting forth in comparative
form the corresponding figures for the preceding Fiscal Year. Together
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with such financial statements, Borrower will furnish a report signed by
such accountants (i) stating that they have read this Agreement, (ii)
containing calculations showing compliance (or non-compliance) at the
end of such Fiscal Year with the requirements of Sections 7.1, 7.11,
7.12 and 7.13, and (iii) further stating that in making their
examination and reporting on the Consolidated and consolidating
financial statements described above they did not conclude that any
Default existed at the end of such Fiscal Year or at the time of their
report, or, if they did conclude that a Default existed, specifying its
nature and period of existence.
(b) As soon as available, and in any event by the earlier of
five (5) days after the filing thereof with the SEC and the sixtieth
(60th) day after the end of the first three Fiscal Quarters in each
Fiscal Year, Borrower's Consolidated balance sheet as of the end of such
Fiscal Quarter and Consolidated statements of Borrower's earnings and
cash flows for the period from the beginning of the then current Fiscal
Year to the end of such Fiscal Quarter, all in reasonable detail and
prepared in accordance with GAAP, subject to changes resulting from
normal year-end adjustments. In addition Borrower will, together with
each such set of financial statements and each set of financial
statements furnished under subsection (a) of this section], furnish a
certificate in the form of Exhibit D signed by the chief financial
officer of Borrower stating that such financial statements are accurate
and complete (subject to normal year-end adjustments), stating that he
has reviewed the Loan Documents, containing calculations showing
compliance (or non-compliance) at the end of such Fiscal Quarter with
the requirements of Sections 7.1, 7.11, 7.12 and 7.13 and stating that
no Default exists at the end of such Fiscal Quarter or at the time of
such certificate or specifying the nature and period of existence of any
such Default.
(c) Promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent by any
Restricted Person to its stockholders and all registration statements,
periodic reports and other statements and schedules filed by any
Restricted Person with any securities exchange, the SEC or any similar
governmental authority.
(d) By September 1 of each year, an engineering report prepared
by Ryder Scott Company, or other independent petroleum engineers chosen
by Borrower and acceptable to Required Lenders, concerning all oil and
gas properties and interests owned by any Restricted Person which are
located in or offshore of the United States and which have attributable
to them proved oil or gas reserves. This report shall be satisfactory
to Agent, shall take into account any "over-produced" status under gas
balancing arrangements, and shall contain information and analysis
comparable in scope to that contained in the Initial Engineering Report.
This report shall distinguish (or shall be delivered together with a
certificate from an appropriate officer of Borrower which distinguishes)
those properties treated in the report which are Collateral from those
properties treated in the report which are not Collateral.
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(e) With the delivery of each Engineering Report, the Borrower
shall provide to each Lender Party, a certificate from the president or
chief financial officer of Eastern American certifying that, to the best
of his knowledge and in all material respects: (i) the information
contained in such Engineering Report and any other information delivered
in connection therewith is true and correct, (ii) Eastern American (and
Eastern Pipeline Corporation as to the pipelines and gathering systems)
owns good and defensible title to the oil and gas properties, the
pipeline properties, the gas plant properties, and the partnership
assets evaluated in such Engineering Report (in this section called the
"Covered Properties") and are free of all Liens except for Liens
permitted by Section 7.2, (iii) except as set forth on an exhibit to the
certificate, on a net basis there are no gas imbalances, take or pay or
other prepayments with respect to its oil and gas properties and the
partnership assets evaluated in such Engineering Report (other than
those permitted by the Security Documents) which would require the
Eastern American or any partnership to deliver hydrocarbons produced
from such oil and gas properties or partnership assets at some future
time without then or thereafter receiving full payment therefor, (iv)
none of the Covered Properties has been sold since the date of the last
Borrowing Base determination except as set forth on an exhibit to the
certificate, which certificate shall list all of such properties sold
and in such detail as reasonably required by Agent, (v) attached to the
certificate is a list of all Persons disbursing proceeds to Eastern
American from its oil and gas properties, and (vi) set forth on a
schedule attached to the certificate is the present discounted value of
all Covered Properties that are part of the Mortgaged Properties
together with a list of all wells that are owned by partnerships, (vii)
oil and gas properties which comprise at least eighty percent (80%) of
the total value of the oil and gas properties which are included within
the Covered Properties and which are also owned directly by Eastern
American, are part of the Mortgaged Properties, and (viii) oil and gas
properties which comprise at least eighty percent (80%) of the total
value of the oil and gas properties which are included within the
Covered Properties and which are owned either directly by Eastern
American or by partnerships in which Eastern American has an interest,
are part of the Mortgaged Properties (either by virtue of a mortgage on
the oil and gas properties or a security interest in the partnership
interests).
(f) As soon as available, and in any event within one hundred
twenty (120) days after the end of each Fiscal Year, a report describing
(i) the gross volume of production and sales attributable to production
during such Fiscal Year from the properties described in subsection (d)
above and describing the related taxes, leasehold operating expenses and
capital costs attributable thereto and incurred during such Fiscal Year;
(ii) the pipeline volumes of Natural Gas delivered by Restricted Persons
for such Fiscal Year in connection with, and transportation fees charged
by the Restricted Persons for such Fiscal Year delivered through all
pipeline facilities of Restricted Persons; and (iii) volumes, prices and
margins for all marketing activities of the Restricted Persons.
Section 6.3. Other Information and Inspections. Each Restricted Person
will furnish to each Lender Party any information which Agent may from time to
time request in writing concerning any covenant, provision or condition of the
Loan Documents or any matter in
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connection with Restricted Persons' businesses and operations. Each Restricted
Person will permit representatives appointed by Agent (including independent
accountants, auditors, agents, attorneys, appraisers and any other Persons) to
visit and inspect during normal business hours any of such Restricted Person's
property, including its books of account, other books and records, and any
facilities or other business assets, and to make extra copies therefrom and
photocopies and photographs thereof, and to write down and record any
information such representatives obtain, and each Restricted Person shall
permit Agent or its representatives to investigate and verify the accuracy of
the information furnished to Agent or any Lender in connection with the Loan
Documents and to discuss all such matters with its officers, employees and
representatives.
Section 6.4. Notice of Material Events and Change of Address. Borrower
will promptly notify each Lender Party in writing, stating that such notice is
being given pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Change,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any Indebtedness owed
by any Restricted Person or of any default by any Restricted Person
under any indenture, mortgage, agreement, contract or other instrument
to which any of them is a party or by which any of them or any of their
properties is bound, if such acceleration or default could cause a
Material Adverse Change,
(d) the occurrence of any Termination Event,
(e) any matter for which notice is required under Section
6.12(d),
(f) the filing of any suit or proceeding against any Restricted
Person in which an adverse decision could cause a Material Adverse
Change, and
(g) the occurrence of any material change or disruption under
or with respect to any Material Contract (listed on Exhibit B to item 7
of the Security Schedule which includes Eastern American's gas contract
with Mountaineer) or any other material gas purchase or sales contract.
Upon the occurrence of any of the foregoing Restricted Persons will take all
necessary or appropriate steps to remedy promptly any such Material Adverse
Change, Default, acceleration, default or Termination Event, to protect against
any such adverse claim, to defend any such suit or proceeding, and to resolve
all controversies on account of any of the foregoing. Borrower will also
notify Agent and Agent's counsel in writing at least twenty Business Days prior
to the date that any Restricted Person changes its name or the location of its
chief executive office or principal place of business or the place where it
keeps its books
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and records concerning the Collateral, furnishing with such notice any
necessary financing statement amendments or requesting Agent and its counsel to
prepare the same.
Section 6.5. Maintenance of Properties. Each Restricted Person will
maintain, preserve, protect, and keep all Collateral and all other property
used or useful in the conduct of its business in good condition and in
compliance with all applicable Laws, and will from time to time make all
repairs, renewals and replacements needed to enable the business and operations
carried on in connection therewith to be promptly and advantageously conducted
at all times.
Section 6.6. Maintenance of Existence and Qualifications. Each
Restricted Person will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by applicable Law, except where the
failure so to qualify will not cause a Material Adverse Change.
Section 6.7. Payment of Trade Liabilities, Taxes, etc. Each Restricted
Person will (a) timely file all required tax returns; (b) timely pay all taxes,
assessments, and other governmental charges or levies imposed upon it or upon
its income, profits or property; (c) within ninety (90) days after the same
becomes due pay all Liabilities owed by it on ordinary trade terms to vendors,
suppliers and other Persons providing goods and services used by it in the
ordinary course of its business; (d) pay and discharge when due all other
Liabilities now or hereafter owed by it; and (e) maintain appropriate accruals
and reserves for all of the foregoing in accordance with GAAP. Each Restricted
Person may, however, delay paying or discharging any of the foregoing so long
as it is in good faith contesting the validity thereof by appropriate
proceedings (promptly instituted and diligently concluded) and has set aside on
its books adequate reserves therefor.
Section 6.8. Insurance. Each Restricted Person will keep or cause to
be kept insured by financially sound and reputable insurers its property in
accordance with the Insurance Schedule.
Section 6.9. Performance on Borrower's Behalf. If any Restricted
Person fails to pay any taxes, insurance premiums, expenses, attorneys' fees or
other amounts it is required to pay under any Loan Document, Agent may pay the
same. Borrower shall immediately reimburse Agent for any such payments and
each amount paid by Agent shall constitute an Obligation owed hereunder which
is due and payable on the date such amount is paid by Agent.
Section 6.10. Interest. Borrower hereby promises to each Lender Party
to pay interest at the Late Payment Rate on all Obligations (including
Obligations to pay fees or to reimburse or indemnify any Lender Party) which
Borrower has in this Agreement promised to pay to such Lender Party and which
are not paid when due. Such interest shall accrue from the date such
Obligations become due until they are paid.
Section 6.11. Compliance with Agreements and Law. Each Restricted
Person will perform all material obligations it is required to perform under
the terms of each indenture,
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mortgage, deed of trust, security agreement, lease, franchise, agreement,
contract or other instrument or obligation to which it is a party or by which
it or any of its properties is bound. Each Restricted Person will conduct its
business and affairs in compliance with all Laws applicable thereto.
Section 6.12. Environmental Matters; Environmental Reviews.
(a) Each Restricted Person will comply in all material respects
with all Environmental Laws now or hereafter applicable to such
Restricted Person and shall obtain, at or prior to the time required by
applicable Environmental Laws, all environmental, health and safety
permits, licenses and other authorizations necessary for its operations
and will maintain such authorizations in full force and effect.
(b) The Restricted Persons will not dispose of, Release, treat,
store, use, recycle or generate or transport Hazardous Material or
permit same to occur on their properties other than in the regular
course of business in compliance with Environmental Laws in all material
respects.
(c) Borrower will promptly furnish to Agent all written notices
of violation, orders, claims, citations, complaints, penalty
assessments, suits or other proceedings received by Borrower, or of
which it has notice, pending or threatened against Borrower, by any
governmental authority or any other Person with respect to any alleged
violation of or non-compliance with any Environmental Laws or any
permits, licenses or authorizations in connection with its ownership or
use of its properties or the operation of its business, as well as a
reasonably entailed files of any material Release or existence involving
a Hazardous Material; and Borrower shall conduct and complete any
investigation, sampling, monitoring and testing and undertake any action
required under Environmental Laws with due diligence and in compliance
therewith in all material respects.
(d) Borrower will promptly furnish to Agent all requests for
information, notices of claim, demand letters, and other notifications,
involving an Environmental Claim in excess of $250,000 received by
Borrower in connection with its ownership or use of its properties or
the conduct of its business, relating to potential responsibility with
respect to any investigation or clean-up of Hazardous Material at any
location.
(e) Concurrent with the furnishing of financial statements
pursuant to Section 6.2(a), Borrower will furnish to Agent a reasonably
detailed written description of all material environmental claims and
violation of Environmental Laws.
Section 6.13. Evidence of Compliance. Each Restricted Person will
furnish to each Lender Party at such Restricted Person's or Borrower's expense
all evidence which Agent from time to time reasonably requests in writing as to
the accuracy and validity of or compliance with all representations, warranties
and covenants made by any Restricted Person
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in the Loan Documents, the satisfaction of all conditions contained therein,
and all other matters pertaining thereto.
Section 6.14. Solvency. Upon giving effect to the issuance of the
Notes, the execution of the Loan Documents by Borrower and the consummation of
the transactions contemplated hereby and the making of each Advance, (i)
Borrower will be solvent (as such term is used in applicable bankruptcy,
liquidation, receivership, insolvency or similar laws), and (ii) Eastern
American will be solvent (as such term is used in applicable bankruptcy,
liquidation, receivership, insolvency or similar laws).
Section 6.15. Maintenance of Liens on Eighty Percent of Properties.
The Mortgaged Properties shall constitute at least eighty percent (80%) of the
total value of the oil and gas properties of Eastern American and its
Subsidiaries. Within thirty (30) days following each Determination Date,
Borrower will execute and deliver documentation in form and substance
satisfactory to Agent, granting to Agent first perfected Liens on and in oil
and gas properties that are not then part of the Mortgaged Properties,
sufficient to cause the Mortgaged Properties to constitute eighty percent (80%)
of the total value of the oil and gas properties directly owned by Eastern
American and its Subsidiaries and partnership interests that are not then part
of the Mortgaged Properties, sufficient to cause the Mortgaged Properties to
constitute eighty percent (80%) of the total value of the oil and gas
properties directly owned by Eastern American and its Subsidiaries and the oil
and gas properties interests held by partnerships in which the Eastern American
owns an interest. In addition, Borrower will furnish to Agent title due
diligence in form and substance satisfactory to Agent and will furnish all
other documents and information relating to such properties as Agent may
reasonably request.
Section 6.16. Perfection and Protection of Security Interests and
Liens. Borrower will from time to time deliver, and will cause each other
Restricted Person from time to time to deliver, to Agent any financing
statements, continuation statements, extension agreements and other documents,
properly completed and executed (and acknowledged when required) by Restricted
Persons in form and substance satisfactory to Agent, which Agent requests for
the purpose of perfecting, confirming, or protecting any Liens or other rights
in Collateral securing any Obligations. At the time of recording of the
Security Documents, counsel for Borrower shall conduct searches of the lien,
judgment, litigation and UCC records of the counties and offices where such
documents are filed and promptly upon receipt thereof from such offices forward
such searches to Agent's counsel together with the original recorded Security
Documents and file stamped copies of the related financing statements.
Section 6.17. Bank Accounts; Offset. To secure the repayment of the
Obligations Borrower hereby grants to each Lender Party a security interest, a
lien, and a right of offset, each of which shall be in addition to all other
interests, liens, and rights of any Lender Party at common law, under the Loan
Documents, or otherwise, and each of which shall be upon and against (a) any
and all moneys, securities or other property (and the proceeds therefrom) of
Borrower now or hereafter held or received by or in transit to any Lender Party
from or for the account of Borrower, whether for safekeeping, custody, pledge,
transmission, collection or
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otherwise, (b) any and all deposits (general or special, time or demand,
provisional or final) of Borrower with any Lender Party, and (c) any other
credits and claims of Borrower at any time existing against any Lender Party,
including claims under certificates of deposit. At any time and from time to
time after the occurrence of any Default, each Lender Party is hereby
authorized to foreclose upon, or to offset against the Obligations then due and
payable (in either case without notice to Borrower), any and all items
hereinabove referred to. The remedies of foreclosure and offset are separate
and cumulative, and either may be exercised independently of the other without
regard to procedures or restrictions applicable to the other.
Section 6.18. Production Proceeds. Notwithstanding that, by the terms
of the various Security Documents, the grantors thereunder are and will be
assigning to Agent and Lenders all of the "Production Proceeds" and
"Transportation, Separation and Processing Proceeds" (as defined therein and in
this section collectively called "Proceeds") accruing to the property covered
thereby, so long as no Default has occurred such Persons may continue to
receive from the purchasers of production all such Proceeds, subject, however,
to the Liens created under the Security Documents, which Liens are hereby
affirmed and ratified. Upon the occurrence of a Default, Agent and Lenders may
exercise all rights and remedies granted under the Security Documents,
including the right to obtain possession of all Proceeds then held by
Restricted Persons or to receive directly from the purchasers of production all
other Proceeds. In no case shall any failure, whether purposed or inadvertent,
by Agent or Lenders to collect directly any such Proceeds constitute in any way
a waiver, remission or release of any of their rights under the Security
Documents, nor shall any release of any Proceeds by Agent or Lenders to
Restricted Persons constitute a waiver, remission, or release of any other
Proceeds or of any rights of Agent or Lenders to collect other Proceeds
thereafter.
Section 6.19. Subsidiary Guaranties. In the event that any Subsidiary
of Borrower delivers a Guaranty to the Trustee under the Indenture pursuant to
Section 4.14 thereof, such Subsidiary shall simultaneously (i) execute and
deliver to Agent an unconditional Guaranty of the Obligations substantially in
the form of Exhibit G, (ii) waive and agree not in any manner whatsoever to
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against Borrower or any other
Restricted Person as a result of any payment by such Subsidiary under such
Guaranty, and (iii) deliver to Agent an opinion of counsel to the effect that
(A) such Guaranty has been duly executed and authorized and (B) such Guaranty
constitutes a valid, binding and enforceable obligation of such Subsidiary,
except insofar as enforcement thereof may be limited by bankruptcy, insolvency
or similar laws (including, without limitation, all laws relating to fraudulent
transfers) and except insofar as enforcement thereof is subject to general
principles of equity.
ARTICLE VII - Negative Covenants of Borrower
To conform with the terms and conditions under which each Lender Party
is willing to have credit outstanding to Borrower, and to induce each Lender
Party to enter into this Agreement and make the Loans, Borrower warrants,
covenants and agrees that until the full and final payment of the Obligations
and the termination of this Agreement, unless Required
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Lenders have previously agreed otherwise:
Section 7.1. Indebtedness. No Restricted Person will in any manner owe
or be liable for Indebtedness except:
(a) the Obligations.
(b) unsecured Indebtedness among the Restricted Persons and
Mountaineer; provided that such Indebtedness to Mountaineer shall be
incurred in an Arm's Length Transaction.
(c) the Subordinated Notes.
(d) Indebtedness outstanding under the instruments and
agreements described on the Disclosure Schedule, and any renewals or
extensions thereof provided that the amount of such Liabilities is not
increased nor the terms thereof changed in any manner which is less
favorable to such Restricted Person than the original terms of such
Liabilities.
(e) Indebtedness arising under Hedging Contracts that are
permitted under Section 7.3.
(f) obligations arising with respect to sale and lease-back
transactions and operating leases entered into in the ordinary course of
such Restricted Person's business in arm's length transactions at
competitive market rates under competitive terms and conditions in all
respects, provided that the obligations required to be paid in any
Fiscal Year under or with respect to such sale and lease-back
transactions and any such operating leases do not in the aggregate
exceed $2,500,000.
(g) Acquisition Indebtedness.
(h) production imbalances which are permitted under the
Security Documents.
(i) obligations of Borrower in an aggregate amount not to
exceed $1,000,000 with respect to letters of credit (calculated based on
the undrawn amount under such letters of credit as well as any amounts
which have been drawn and have not been repaid) provided to
counterparties to secure obligations of the Restricted Persons with
respect to Hedging Contracts permitted under Section 7.3 .
(j) unsecured miscellaneous items of Indebtedness not described
in subsections (a) through (i) (including but not limited to
Indebtedness of the type permitted by subsection (i) above) which do not
in the aggregate (taking into account all such Indebtedness of all
Restricted Persons) exceed an amount equal to $5,000,000, at any one
time outstanding.
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Section 7.2. Limitation on Liens. No Restricted Person will create,
assume or permit to exist any Lien upon any of the properties or assets which
it now owns or hereafter acquires, except, to the extent not otherwise
forbidden by the Security Documents the following ("Permitted Liens"):
(a) Liens which secure Obligations only.
(b) statutory Liens for taxes, statutory mechanics' and
materialmen's Liens incurred in the ordinary course of business, and
other similar Liens incurred in the ordinary course of business,
provided such Liens do not secure Indebtedness and secure only
obligations which are not delinquent or which are being contested as
provided in Section 6.7 and which do not exceed $5,000,000 in the
aggregate.
(c) as to property which is Collateral, any Liens expressly
permitted to encumber such Collateral under any Security Document
covering such Collateral.
(d) liens securing Acquisition Indebtedness only; provided that
such Liens shall secure only the assets acquired with the proceeds of
such Acquisition Debt.
(e) judgment liens which do not give rise to an Event of
Default so long as any appropriate legal proceeding that may have been
duly initiated for the review of such judgment shall not have been
finally terminated or the period within which such proceeding may be
duly initiated shall not have expired.
(f) purchase money security interests in equipment acquired by
the Restricted Persons, provided that such security interests secure
only the Indebtedness incurred for the purchase of such equipment and
such security interests encumber only the equipment acquired with the
proceeds of such Indebtedness.
(g) deposits made to counterparties in connection with Hedging
Contracts; provided that the aggregate amount of such deposits shall not
exceed $3,000,000.
Section 7.3. Hedging Contracts. No Restricted Person will be a party
to or in any manner be liable on any forward, future, swap or hedging contract,
except:
(a) contracts entered into with the purpose and effect of
fixing prices on oil or gas which is expected to be produced by
Restricted Persons or which the Restricted Persons are legally obligated
to purchase under purchase contracts then in effect, provided that at
all times: (1) the aggregate monthly production covered by all such
contracts (determined, in the case of contracts that are not settled on
a monthly basis, by a monthly proration acceptable to Agent) for any
single month does not in the aggregate exceed the sum of eighty-five
percent (85%) of Restricted Persons' aggregate Projected Oil and Gas
Production anticipated to be sold in the ordinary course of Restricted
Persons' businesses for such month and eighty-five percent (85%) of the
oil and gas which Restricted Persons are legally obligated to purchase
in such month, (2) no such
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contract requires any Restricted Person to put up money (except as
provided in Section 7.2(g)), assets, letters of credit (unless the
Indebtedness arising with respect thereto is permitted under Section
7.1(i) or (j)), or other security against the event of its
nonperformance prior to actual default by such Restricted Person in
performing its obligations thereunder, and (3) each such contract is
with a counterparty or has a guarantor of the obligation of the
counterparty who (unless such counterparty is a Lender Party or one of
its Affiliates) at the time the contract is made has long-term
obligations rated BBB- or Baa3 or better, respectively, by either Rating
Agency or is an investment grade-rated industry participant. As used in
this subsection, the term "Projected Oil and Gas Production" means the
projected production of oil or gas (measured by volume unit or BTU
equivalent, not sales price) for the term of the contracts or a
particular month, as applicable, from properties and interests owned by
any Restricted Person which are located in or offshore of the United
States and which have attributable to them proved oil or gas reserves,
as such production is projected in the most recent report delivered
pursuant to Section 6.2(d), after deducting projected production from
any properties or interests sold or under contract for sale that had
been included in such report and after adding projected production from
any properties or interests that had not been reflected in such report
but that are reflected in a separate or supplemental reports meeting the
requirements of such Section 6.2(d) above and otherwise are satisfactory
to Agent.
(b) contracts entered into by a Restricted Person with the
purpose and effect of fixing interest rates on a principal amount of
indebtedness of such Restricted Person that is accruing interest at a
variable rate, provided that (1) the aggregate notional amount of such
contracts never exceeds seventy-five percent (75%) of the anticipated
outstanding principal balance of the indebtedness to be hedged by such
contracts or an average of such principal balances calculated using a
generally accepted method of matching interest swap contracts to
declining principal balances, (2) the floating rate index of each such
contract generally matches the index used to determine the floating
rates of interest on the corresponding indebtedness to be hedged by such
contract and (3) each such contract is with a counterparty or has a
guarantor of the obligation of the counterparty who (unless such
counterparty is a Lender Party or one of its Affiliates) at the time the
contract is made has long-term obligations rated AA or Aa2 or better,
respectively, by either Rating Agency.
Section 7.4. Limitation on Mergers, Issuances of Securities. Except as
expressly provided in this subsection no Restricted Person will merge or
consolidate with or into any other business entity. Any Subsidiary of Borrower
may, however, be merged into or consolidated with (i) another Subsidiary of
Borrower, or (ii) Borrower, so long as Borrower is the surviving business
entity. Borrower will not issue any securities other than shares of its common
stock and any options or warrants giving the holders thereof only the right to
acquire such shares. No Subsidiary of Borrower will issue any additional
shares of its Capital Stock or other securities or any options, warrants or
other rights to acquire such additional shares or other securities except (i)
to Borrower, (ii) for the purposes of implementing employee stock options
plans, and (iii) Nonvoting Common Stock to officers and employees of the
Restricted Persons, but only to the extent not otherwise forbidden under the
terms hereof.
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Section 7.5. Limitation on Sales of Property. No Restricted Person
will sell, transfer, lease, exchange, alienate or dispose of any of its
material assets or properties] or any material interest therein except, to the
extent not otherwise forbidden under the Security Documents:
(a) equipment which is worthless or obsolete or which is
replaced by equipment of equal suitability and value.
(b) inventory (including oil, natural gas, natural gas liquids
or hydrocarbons or mineral products and seismic data) which is sold in
the ordinary course of business on ordinary trade terms.
(c) interests in oil and gas properties, or portions thereof,
to which no proved reserves of oil, gas or other liquid or gaseous
hydrocarbons are properly attributed.
(d) transfers of property by one Restricted Person to another
Restricted Person.
(e) transfers of property by any Restricted Person to
Mountaineer in an Arm's Length Transaction.
(f) other property (excluding Collateral) which is sold for
fair consideration not in the aggregate in excess of $5,000,000 in any
Fiscal Year, so long as property sold is not included in the Borrowing
Base.
Neither Borrower nor any of Borrower's Subsidiaries will sell, transfer or
otherwise dispose of Capital Stock of any of Borrower's Subsidiaries except
that any Subsidiary of Borrower may sell or issue its own Capital Stock to the
extent not otherwise prohibited hereunder. No Restricted Person will discount,
sell, pledge or assign any notes payable to it, accounts receivable or future
income except to the extent expressly permitted under the Loan Documents.
Section 7.6. Limitation on Distributions, Redemptions and Prepayments
of Subordinated Notes. No Restricted Person will make any Distribution, except
as expressly provided in this section, and Borrower will not redeem, purchase,
prepay or defease any Subordinated Notes prior to the original maturity
thereof. Distributions may be made (i) by Subsidiaries of Borrower without
limitation to Borrower and by Subsidiaries of Borrower to officers and
directors of the Restricted Persons with respect to Nonvoting Common Stock, in
an aggregate amount not to exceed $350,000; and (ii) by Borrower, to the extent
that the aggregate value of all Distributions made by Borrower in any Four
Quarter Period does not exceed fifty percent (50%) of Borrower's Consolidated
Net Income for such Four Quarter Period so long as no Default or Event of
Default or Borrowing Base Deficiency exists at the time such Distribution is
made, or will occur as a result of the making thereof. In addition to the
foregoing Borrower may (A) declare and pay to any Persons dividends payable
only in its common stock and (B) repurchase its common stock from officers and
directors of the Restricted Persons and Mountaineer so long as the amount paid
by Borrower in connection with such repurchases does not exceed $2,000,000 in
the aggregate during any Four Quarter Period and so long as
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no Default or Event of Default or Borrowing Base Deficiency exists at the time
such repurchase is made, or will occur as a result of the making thereof.
Section 7.7. Limitation on Investments and New Businesses. No
Restricted Person will (i) make any expenditure or commitment or incur any
obligation or enter into or engage in any transaction except in the ordinary
course of business or except as otherwise expressly permitted hereunder, (ii)
engage directly or indirectly in any business or conduct any operations except
the energy business, (iii) make any acquisitions of or Investments in any
Person, except Investments in Cash Equivalents and Investments in Wholly-owned
Subsidiaries of Borrower, (iv) make any significant acquisition of or
Investments in any properties except properties used in the energy business, or
(v) make Investments through Eastern Capital Corporation in an aggregate amount
in excess of $5,000,000; provided that no acquisition or Investment permitted
under the immediately preceding clauses (iii) and (iv) and under this clause
(v) may be made if a Default, Event of Default or Borrowing Base Deficiency
exists at the time such acquisition or Investment is made or will occur as a
result thereof.
Section 7.8. Limitation on Credit Extensions. Except for Investments
permitted by Section 7.7, no Restricted Person will extend credit, make
advances or make loans other than (i) normal and prudent extensions of credit
to customers buying goods and services in the ordinary course of business,
which extensions shall not be for longer periods than those extended by similar
businesses operated in a normal and prudent manner, (ii) loans to other
Restricted Persons or to Mountaineer, so long as no Default, Event of Default
or Borrowing Base Deficiency exists at the time such loan is made and any such
loan to Mountaineer is an Arm's Length Transaction, and (iii) loans to officers
and directors of the Restricted Persons made by the Restricted Persons from
time to time in an aggregate amount not to exceed $500,000.
Section 7.9. Transactions with Affiliates. No Restricted Person will
engage in any material transaction with any of its Affiliates on terms which
are less favorable to it than those which would have been obtainable at the
time in arm's-length dealing with Persons other than such Affiliates, provided
that such restriction shall not apply to transactions among the Restricted
Persons, or to drilling program investments made by officers and directors of
the Restricted Persons from time to time consistent with past practices.
Section 7.10. Certain Contracts; Amendments; Multiemployer ERISA Plans.
Except as expressly provided for in the Loan Documents, no Restricted Person
will, directly or indirectly, enter into, create, or otherwise allow to exist
any contract or other consensual restriction on the ability of any Subsidiary
of Borrower to: (i) pay dividends or make other distributions to Borrower, (ii)
to redeem equity interests held in it by Borrower, (iii) to repay loans and
other indebtedness owing by it to Borrower, or (iv) to transfer any of its
assets to Borrower. No Restricted Person will enter into any "take-or-pay"
contract or other contract or arrangement for the purchase of goods or services
which obligates it to pay for such goods or service regardless of whether they
are delivered or furnished to it. Borrower will not amend or otherwise modify
the Subordinated Notes or the Indenture in any respect or permit any such
amendment or modification which would (1) increase the principal amount payable
thereunder
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or with respect thereto, (2) increase the rate of interest thereon or any fees
payable with respect thereto, (3) provide for an earlier date for the payment
of any such principal, interest or fees, (4) change any provision relating to
guaranties of the Subordinated Notes, (5) provide for any collateral to secure
the Subordinated Notes, (6) change any provision relating to the subordination
of the Senior Notes or any guaranties thereof, or (7) make any other changes
which, taken as a whole, would be less favorable to Borrower than the original
terms of the Subordinated Notes. No Restricted Person will amend or permit any
amendment to any other contract or lease which releases, qualifies, limits,
makes contingent or otherwise detrimentally affects the rights and benefits of
Agent or any Lender under or acquired pursuant to any Security Documents. No
ERISA Affiliate will incur any obligation to contribute to any "multiemployer
plan" as defined in Section 4001 of ERISA.
Section 7.11. Current Ratio. The ratio of Borrower's Consolidated
current assets to Borrower's Consolidated current liabilities will never be
less than 1.0 to 1.0. For purposes of this section, Borrower's Consolidated
current assets will include any unused portion of the Borrowing Base which is
then available for borrowing, and Borrower's Consolidated current liabilities
will be calculated without including any payments of principal on the Notes or
the Subordinated Notes which are required to be repaid within one year from the
time of calculation.
Section 7.12. Tangible New Worth. Borrower's Consolidated Tangible Net
Worth will never be less than the sum of (i) $30,000,000 plus (ii) fifty
percent (50%) of Borrower's Consolidated Net Income earned during the period
from June 30, 1997, through and including the last day of the calendar month
immediately preceding the date of calculation.
Section 7.13. Interest Coverage. At the end of any Fiscal Quarter
(beginning with the Fiscal Quarter ended September 30, 1997), the ratio of (a)
Adjusted EBITDA to (b) Adjusted Interest Expense for the Four Quarter Period
then ended shall not be less than 1.5 to 1.0; provided that for the Fiscal
Quarters ended September 30, 1997 and December 31, 1997, Interest Expense shall
be calculated for the period from June 1, 1997 to the end of the Fiscal Quarter
with respect to which the determination is being made and shall be annualized).
Section 7.14. Fiscal Year. No Restricted Person will change its fiscal
year.
ARTICLE VIII - Events of Default and Remedies
Section 8.1. Events of Default. Each of the following events
constitutes an Event of Default under this Agreement:
(a) Any Restricted Person fails to pay the principal component
of any Obligation when due and payable, whether at a date for the
payment of a fixed installment or as a contingent or other payment
becomes due and payable or as a result of acceleration or otherwise;
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(b) Any Restricted Person fails to pay any Obligation (other
than the Obligations in clause (a) above) when due and payable, whether
at a date for the payment of a fixed installment or as a contingent or
other payment becomes due and payable or as a result of acceleration or
otherwise, within three Business Days after the same becomes due;
(c) Any "default" or "event of default" occurs under any Loan
Document which defines either such term, and the same is not remedied
within the applicable period of grace (if any) provided in such Loan
Document;
(d) Any Restricted Person fails to duly observe, perform or
comply with any covenant, agreement or provision of Section 6.4 or
Article VII;
(e) Any Restricted Person fails (other than as referred to in
subsections (a), (b), (c) or (d) above) to duly observe, perform or
comply with any covenant, agreement, condition or provision of any Loan
Document, and such failure remains unremedied for a period of thirty
(30) days after notice of such failure is given by Agent to Borrower;
(f) Any representation or warranty previously, presently or
hereafter made in writing by or on behalf of any Restricted Person in
connection with any Loan Document shall prove to have been false or
incorrect in any material respect on any date on or as of which made, or
any Loan Document at any time ceases to be valid, binding and
enforceable as warranted in Section 5.5 for any reason other than its
release or subordination by Agent;
(g) Any Restricted Person fails to duly observe, perform or
comply with any agreement with any Person or any term or condition of
any instrument, if such agreement or instrument is materially
significant to Borrower or to Borrower and its subsidiaries on a
Consolidated basis or materially significant to Eastern American or
Eastern Systems, and such failure is not remedied within the applicable
period of grace (if any) provided in such agreement or instrument;
(h) Any Restricted Person (i) fails to pay any portion, when
such portion is due, of any of its Indebtedness in excess of $5,000,000,
or (ii) breaches or defaults in the performance of any agreement or
instrument by which any such Indebtedness is issued, evidenced,
governed, or secured, and any such failure, breach or default continues
beyond any applicable period of grace provided therefor;
(i) Either (i) any "accumulated funding deficiency" (as defined
in Section 412(a) of the Internal Revenue Code of 1986, as amended) in
excess of $100,000 exists with respect to any ERISA Plan, whether or not
waived by the Secretary of the Treasury or his delegate, or (ii) any
Termination Event occurs with respect to any ERISA Plan and the then
current value of such ERISA Plan's benefit liabilities exceeds the then
current value of such ERISA Plan's assets available for the payment of
such benefit liabilities by more than $1,000,000 (or in the case of a
Termination Event involving the withdrawal of
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a substantial employer, the withdrawing employer's proportionate share
of such excess exceeds such amount); and
(j) Any Restricted Person or Mountaineer or any Subsidiary of
Mountaineer:
(i) suffers the entry against it of a judgment, decree
or order for relief by a Tribunal of competent jurisdiction in an
involuntary proceeding commenced under any applicable bankruptcy,
insolvency or other similar Law of any jurisdiction now or
hereafter in effect, including the federal Bankruptcy Code, as
from time to time amended, or has any such proceeding commenced
against it which remains undismissed for a period of thirty days;
or
(ii) commences a voluntary case under any applicable
bankruptcy, insolvency or similar Law now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time
amended; or applies for or consents to the entry of an order for
relief in an involuntary case under any such Law; or makes a
general assignment for the benefit of creditors; or fails
generally to pay (or admits in writing its inability to pay) its
debts as such debts become due; or takes corporate or other
action to authorize any of the foregoing; or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator
or similar official of all or a substantial part of its assets or
of any part of the Collateral in a proceeding brought against or
initiated by it, and such appointment or taking possession is
neither made ineffective nor discharged within thirty days after
the making thereof, or such appointment or taking possession is
at any time consented to, requested by, or acquiesced to by it;
or
(iv) suffers the entry against it of a final judgment for
the payment of money in excess of $1,000,000 (not covered by
insurance satisfactory to Agent in its discretion), unless the
same is discharged within thirty days after the date of entry
thereof or an appeal or appropriate proceeding for review thereof
is taken within such period and a stay of execution pending such
appeal is obtained; or
(v) suffers a writ or warrant of attachment or any
similar process to be issued by any Tribunal against all or any
substantial part of its assets or any part of the Collateral, and
such writ or warrant of attachment or any similar process is not
stayed or released within thirty days after the entry or levy
thereof or after any stay is vacated or set aside; and
(k) The Environmental Claims against the Restricted Persons
exceed an aggregate amount of $5,000,000;
(l) Any Change in Control occurs;
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(m) Any Material Adverse Change occurs;
(n) Any Loan Document or any Lien created thereby shall be
invalid, or any Person shall have asserted that such Loan Document or
Lien is invalid; and
(o) Any "Event of Default" occurs under the Indenture or the
Subordinated Notes.
Upon the occurrence of an Event of Default described in subsection (j)(i),
(j)(ii) or (j)(iii) of this section with respect to Borrower, all of the
Obligations shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Restricted Person who at any time
ratifies or approves this Agreement. Upon any such acceleration, any
obligation of any Lender to make any further Loans shall be permanently
terminated. During the continuance of any other Event of Default, Agent at any
time and from time to time may (and upon written instructions from Required
Lenders, Agent shall), without notice to Borrower or any other Restricted
Person, do either or both of the following: (1) terminate any obligation of
Lenders to make Loans hereunder, and (2) declare any or all of the Obligations
immediately due and payable, and all such Obligations shall thereupon be
immediately due and payable, without demand, presentment, notice of demand or
of dishonor and nonpayment, protest, notice of protest, notice of intention to
accelerate, declaration or notice of acceleration, or any other notice or
declaration of any kind, all of which are hereby expressly waived by Borrower
and each Restricted Person who at any time ratifies or approves this Agreement.
Section 8.2. Remedies. If any Default shall occur and be continuing,
each Lender Party may protect and enforce its rights under the Loan Documents
by any appropriate proceedings, including proceedings for specific performance
of any covenant or agreement contained in any Loan Document, and each Lender
Party may enforce the payment of any Obligations due it or enforce any other
legal or equitable right which it may have. All rights, remedies and powers
conferred upon Lender Parties under the Loan Documents shall be deemed
cumulative and not exclusive of any other rights, remedies or powers available
under the Loan Documents or at Law or in equity.
ARTICLE IX - Agent
Section 9.1. Appointment and Authority. Each Lender Party hereby
irrevocably authorizes Agent, and Agent hereby undertakes, to receive payments
of principal, interest and other amounts due hereunder as specified herein and
to take all other actions and to exercise such powers under the Loan Documents
as are specifically delegated to Agent by the terms hereof or thereof, together
with all other powers reasonably incidental thereto. The relationship of Agent
to the other Lender Parties is only that of one commercial lender acting as
administrative agent for others, and nothing in the Loan Documents shall be
construed to
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constitute Agent a trustee or other fiduciary for any holder of any of the
Notes or of any participation therein nor to impose on Agent duties and
obligations other than those expressly provided for in the Loan Documents.
With respect to any matters not expressly provided for in the Loan Documents
and any matters which the Loan Documents place within the discretion of Agent,
Agent shall not be required to exercise any discretion or take any action, and
it may request instructions from Lenders with respect to any such matter, in
which case it shall be required to act or to refrain from acting (and shall be
fully protected and free from liability to all Lenders in so acting or
refraining from acting) upon the instructions of Required Lenders (including
itself), provided, however, that Agent shall not be required to take any action
which exposes it to a risk of personal liability that it considers unreasonable
or which is contrary to the Loan Documents or to applicable Law. Upon receipt
by Agent from Borrower of any communication calling for action on the part of
Lenders or upon notice from any other Lender Party to Agent of any Default or
Event of Default, Agent shall promptly notify each other Lender Party thereof.
Section 9.2. Exculpation, Agent's Reliance, Etc. Neither Agent nor any
of its directors, officers, agents, attorneys, or employees shall be liable for
any action taken or omitted to be taken by any of them under or in connection
with the Loan Documents, INCLUDING THEIR NEGLIGENCE OF ANY KIND, except that
each shall be liable for its own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, Agent (a) may treat the payee
of any Note as the holder thereof until Agent receives written notice of the
assignment or transfer thereof in accordance with this Agreement, signed by
such payee and in form satisfactory to Agent; (b) may consult with legal
counsel (including counsel for Borrower), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (c) makes no warranty or representation to any
other Lender Party and shall not be responsible to any other Lender Party for
any statements, warranties or representations made in or in connection with the
Loan Documents; (d) shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or conditions of
the Loan Documents on the part of any Restricted Person or to inspect the
property (including the books and records) of any Restricted Person; (e) shall
not be responsible to any other Lender Party for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of any Loan
Document or any instrument or document furnished in connection therewith; (f)
may rely upon the representations and warranties of each Restricted Person and
the Lenders in exercising its powers hereunder; and (g) shall incur no
liability under or in respect of the Loan Documents by acting upon any notice,
consent, certificate or other instrument or writing (including any telecopy,
telegram, cable or telex) believed by it to be genuine and signed or sent by
the proper Person or Persons.
Section 9.3. Credit Decisions. Each Lender Party acknowledges that it
has, independently and without reliance upon any other Lender Party, made its
own analysis of Borrower and the transactions contemplated hereby and its own
independent decision to enter into this Agreement and the other Loan Documents.
Each Lender Party also acknowledges that it will, independently and without
reliance upon any other Lender Party and based on such
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documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Loan
Documents.
Section 9.4. Indemnification. Each Lender agrees to indemnify Agent
(to the extent not reimbursed by Borrower within ten (10) days after demand)
from and against such Lender's Percentage Share of any and all liabilities,
obligations, claims, losses, damages, penalties, fines, actions, judgments,
suits, settlements, costs, expenses or disbursements (including reasonable fees
of attorneys, accountants, experts and advisors) of any kind or nature
whatsoever (in this section collectively called "liabilities and costs") which
to any extent (in whole or in part) may be imposed on, incurred by, or asserted
against Agent growing out of, resulting from or in any other way associated
with any of the Collateral, the Loan Documents and the transactions and events
(including the enforcement thereof) at any time associated therewith or
contemplated therein (including any Environmental Claims or violation or
noncompliance with any Environmental Laws by any Person or any liabilities or
duties of any Person with respect to the presence or Release of Hazardous
Materials found in or released into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY
CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY AGENT,
provided only that no Lender shall be obligated under this section to indemnify
Agent for that portion, if any, of any liabilities and costs which is
proximately caused by Agent's own individual gross negligence or willful
misconduct, as determined in a final judgment. Cumulative of the foregoing,
each Lender agrees to reimburse Agent promptly upon demand for such Lender's
Percentage Share of any costs and expenses to be paid to Agent by Borrower
under Section 10.4(a) to the extent that Agent is not timely reimbursed for
such expenses by Borrower as provided in such section. As used in this section
the term "Agent" shall refer not only to the Person designated as such in
Section 1.1 but also to each director, officer, agent, attorney, employee,
representative and Affiliate of such Person.
Section 9.5. Rights as Lender. In its capacity as a Lender, Agent
shall have the same rights and obligations as any Lender and may exercise such
rights as though it were not Agent. Agent may accept deposits from, lend money
to, act as Trustee under indentures of, and generally engage in any kind of
business with any Restricted Person or their Affiliates, all as if it were not
Agent hereunder and without any duty to account therefor to any other Lender.
Section 9.6. Sharing of Set-Offs and Other Payments. Each Lender Party
agrees that if it shall, whether through the exercise of rights under Security
Documents or rights of banker's lien, set off, or counterclaim against Borrower
or otherwise, obtain payment of a portion of the aggregate Obligations owed to
it which, taking into account all distributions made by Agent under Section
3.1, causes such Lender Party to have received more than it would have received
had such payment been received by Agent and distributed pursuant to Section
3.1, then (a) it shall be deemed to have simultaneously purchased and shall be
obligated to purchase interests in the Obligations as necessary to cause all
Lender Parties to share all payments as provided for in Section 3.1,
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and (b) such other adjustments shall be made from time to time as shall be
equitable to ensure that Agent and all Lenders share all payments of
Obligations as provided in Section 3.1; provided, however, that nothing herein
contained shall in any way affect the right of any Lender Party to obtain
payment (whether by exercise of rights of banker's lien, set-off or
counterclaim or otherwise) of indebtedness other than the Obligations.
Borrower expressly consents to the foregoing arrangements and agrees that any
holder of any such interest or other participation in the Obligations, whether
or not acquired pursuant to the foregoing arrangements, may to the fullest
extent permitted by Law exercise any and all rights of banker's lien, set-off,
or counterclaim as fully as if such holder were a holder of the Obligations in
the amount of such interest or other participation. If all or any part of any
funds transferred pursuant to this section is thereafter recovered from the
seller under this section which received the same, the purchase provided for in
this section shall be deemed to have been rescinded to the extent of such
recovery, together with interest, if any, if interest is required pursuant to
Tribunal order to be paid on account of the possession of such funds prior to
such recovery.
Section 9.7. Investments. Whenever Agent in good faith determines that
it is uncertain about how to distribute to Lenders any funds which it has
received, or whenever Agent in good faith determines that there is any dispute
among Lenders about how such funds should be distributed, Agent may choose to
defer distribution of the funds which are the subject of such uncertainty or
dispute. If Agent in good faith believes that the uncertainty or dispute will
not be promptly resolved, or if Agent is otherwise required to invest funds
pending distribution to Lenders, Agent shall invest such funds pending
distribution; all interest on any such investment shall be distributed upon the
distribution of such investment and in the same proportion and to the same
Persons as such investment. All moneys received by Agent for distribution to
Lenders (other than to the Person who is Agent in its separate capacity as a
Lender) shall be held by Agent pending such distribution solely as Agent for
such Lenders, and Agent shall have no equitable title to any portion thereof.
Section 9.8. Benefit of Article IX. The provisions of this Article
(other than the following Section 9.9) are intended solely for the benefit of
Lender Parties, and no Restricted Person shall be entitled to rely on any such
provision or assert any such provision in a claim or defense against any Lender
Party. Lender Parties may waive or amend such provisions as they desire
without any notice to or consent of Borrower or any Restricted Person.
Section 9.9. Resignation. Agent may resign at any time by giving
written notice thereof to Lenders and Borrower. Each such notice shall set
forth the date of such resignation. Required Lenders shall have the right to
appoint a successor Agent. A successor must be appointed for any retiring
Agent, and such Agent's resignation shall become effective when such successor
accepts such appointment. If, within thirty days after the date of the
retiring Agent's resignation, no successor Agent has been appointed and has
accepted such appointment, then the retiring Agent may appoint a successor
Agent, which shall be a financial institution organized under the Laws of the
United States of America or of any state thereof.
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Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
the retiring Agent shall be discharged from its duties and obligations under
this Agreement and the other Loan Documents. After any retiring Agent's
resignation hereunder the provisions of this Article IX shall continue to inure
to its benefit as to any actions taken or omitted to be taken by it while it
was Agent under the Loan Documents.
ARTICLE X - Miscellaneous
Section 10.1. Waivers and Amendments; Acknowledgements.
(a) Waivers and Amendments. No failure or delay (whether by
course of conduct or otherwise) by any Lender Party in exercising any
right, power or remedy which such Lender Party may have under any of the
Loan Documents shall operate as a waiver thereof or of any other right,
power or remedy, nor shall any single or partial exercise by any Lender
Party of any such right, power or remedy preclude any other or further
exercise thereof or of any other right, power or remedy. No waiver of
any provision of any Loan Document and no consent to any departure
therefrom shall ever be effective unless it is in writing and signed as
provided below in this section, and then such waiver or consent shall be
effective only in the specific instances and for the purposes for which
given and to the extent specified in such writing. No notice to or
demand on any Restricted Person shall in any case of itself entitle any
Restricted Person to any other or further notice or demand in similar or
other circumstances. This Agreement and the other Loan Documents set
forth the entire understanding between the parties hereto with respect
to the transactions contemplated herein and therein and supersede all
prior discussions and understandings with respect to the subject matter
hereof and thereof, and no waiver, consent, release, modification or
amendment of or supplement to this Agreement or the other Loan Documents
shall be valid or effective against any party hereto unless the same is
in writing and signed by (i) if such party is Borrower, by Borrower,
(ii) if such party is Agent, by such party, and (iii) if such party is a
Lender, by such Lender or by Agent on behalf of Lenders with the written
consent of Required Lenders (which consent has already been given as to
the termination of the Loan Documents as provided in Section 10.9).
Notwithstanding the foregoing or anything to the contrary herein, Agent
shall not, without the prior consent of each individual Lender, execute
and deliver on behalf of such Lender any waiver or amendment which
would: (1) waive any of the conditions specified in Article IV (provided
that Agent may in its discretion withdraw any request it has made under
Section 4.2(e)), (2) increase the Commitment of such Lender or subject
such Lender to any additional obligations, (3) reduce any fees payable
to such lender hereunder, or the principal of, or interest on, such
Lender's Note, (4) postpone any date fixed for any payment of any such
fees, principal or interest, (5) amend the definition herein of
"Required Lenders" or otherwise change the aggregate amount of
Percentage Shares which is required for Agent, Lenders or any of them to
take any particular action under the Loan Documents, (6) release
Borrower from its obligation to pay such Lender's Note or (7) release
all or substantially all of the Collateral.
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(b) Acknowledgements and Admissions. Borrower hereby
represents, warrants, acknowledges and admits that (i) it has been
advised by counsel in the negotiation, execution and delivery of the
Loan Documents to which it is a party, (ii) it has made an independent
decision to enter into this Agreement and the other Loan Documents to
which it is a party, without reliance on any representation, warranty,
covenant or undertaking by Agent or any Lender, whether written, oral or
implicit, other than as expressly set out in this Agreement or in
another Loan Document delivered on or after the date hereof, (iii) there
are no representations, warranties, covenants, undertakings or
agreements by any Lender Party as to the Loan Documents except as
expressly set out in this Agreement or in another Loan Document
delivered on or after the date hereof, (iv) no Lender Party has any
fiduciary obligation toward Borrower with respect to any Loan Document
or the transactions contemplated thereby, (v) the relationship pursuant
to the Loan Documents between Borrower and the other Restricted Persons,
on one hand, and each Lender Party, on the other hand, is and shall be
solely that of debtor and creditor, respectively, (vi) no partnership or
joint venture exists with respect to the Loan Documents between any
Restricted Person and any Lender Party, (vii) Agent is not Borrower's
Agent, but Agent for Lenders, (viii) should an Event of Default or
Default occur or exist, each Lender Party will determine in its sole
discretion and for its own reasons what remedies and actions it will or
will not exercise or take at that time, (ix) without limiting any of the
foregoing, Borrower is not relying upon any representation or covenant
by any Lender Party, or any representative thereof, and no such
representation or covenant has been made, that any Lender Party will, at
the time of an Event of Default or Default, or at any other time, waive,
negotiate, discuss, or take or refrain from taking any action permitted
under the Loan Documents with respect to any such Event of Default or
Default or any other provision of the Loan Documents, and (x) all Lender
Parties have relied upon the truthfulness of the acknowledgements in
this section in deciding to execute and deliver this Agreement and to
become obligated hereunder.
(c) Representation by Lenders. Each Lender hereby represents
that it will acquire its Note for its own account in the ordinary course
of its commercial lending business; however, the disposition of such
Lender's property shall at all times be and remain within its control
and, in particular and without limitation, such Lender may sell or
otherwise transfer its Note, any participation interest or other
interest in its Note, or any of its other rights and obligations under
the Loan Documents.
(d) Joint Acknowledgment. THIS WRITTEN AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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Section 10.2. Survival of Agreements; Cumulative Nature. All of
Restricted Persons' various representations, warranties, covenants and
agreements in the Loan Documents shall survive the execution and delivery of
this Agreement and the other Loan Documents and the performance hereof and
thereof, including the making or granting of the Loans and the delivery of the
Notes and the other Loan Documents, and shall further survive until all of the
Obligations are paid in full to each Lender Party and all of Lender Parties'
obligations to Borrower are terminated. All statements and agreements
contained in any certificate or other instrument delivered by any Restricted
Person to any Lender Party under any Loan Document shall be deemed
representations and warranties by Borrower or agreements and covenants of
Borrower under this Agreement. The representations, warranties, indemnities,
and covenants made by Restricted Persons in the Loan Documents, and the rights,
powers, and privileges granted to Lender Parties in the Loan Documents, are
cumulative, and, except for expressly specified waivers and consents, no Loan
Document shall be construed in the context of another to diminish, nullify, or
otherwise reduce the benefit to any Lender Party of any such representation,
warranty, indemnity, covenant, right, power or privilege. In particular and
without limitation, no exception set out in this Agreement to any
representation, warranty, indemnity, or covenant herein contained shall apply
to any similar representation, warranty, indemnity, or covenant contained in
any other Loan Document, and each such similar representation, warranty,
indemnity, or covenant shall be subject only to those exceptions which are
expressly made applicable to it by the terms of the various Loan Documents.
Section 10.3. Notices. All notices, requests, consents, demands and
other communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document (provided
that Agent may give telephonic notices to the other Lender Parties), and shall
be deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy or telex, by delivery service with proof of delivery, or by registered
or certified United States mail, postage prepaid, to Borrower and Restricted
Persons at the address of Borrower specified on the signature pages hereto and
to each Lender Party at its address specified in the Lenders Schedule as its
lending offices for ABR Loans (unless changed by similar notice in writing
given by the particular Person whose address is to be changed). Any such
notice or communication shall be deemed to have been given (a) in the case of
personal delivery or delivery service, as of the date of first attempted
delivery during normal business hours at the address provided herein, (b) in
the case of telecopy or telex, upon receipt, or (c) in the case of registered
or certified United States mail, three days after deposit in the mail;
provided, however, that no Borrowing Notice shall become effective until
actually received by Agent.
Section 10.4. Payment of Expenses; Indemnity.
(a) Payment of Expenses. Whether or not the transactions
contemplated by this Agreement are consummated, Borrower will promptly
(and in any event, within 30 days after any invoice or other statement
or notice) pay: (i) all transfer, stamp, mortgage, documentary or other
similar taxes, assessments or charges levied by any governmental or
revenue authority in respect of this Agreement or any of the other Loan
Documents or any other document referred to herein or therein, (ii) all
reasonable costs and expenses
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incurred by or on behalf of Agent (including attorneys' fees,
consultants' fees and engineering fees, travel costs and miscellaneous
expenses) in connection with (1) the negotiation, preparation, execution
and delivery of the Loan Documents, and any and all consents, waivers or
other documents or instruments relating thereto, (2) the filing,
recording, refiling and re-recording of any Loan Documents and any other
documents or instruments or further assurances required to be filed or
recorded or refiled or re-recorded by the terms of any Loan Document,
(3) the borrowings hereunder and other action reasonably required in the
course of administration hereof, (4) monitoring or confirming (or
preparation or negotiation of any document related to) Borrower's
compliance with any covenants or conditions contained in this Agreement
or in any Loan Document, and (iii) all reasonable costs and expenses
incurred by or on behalf of any Lender Party (including attorneys' fees,
consultants' fees and accounting fees) in connection with the defense or
enforcement of any of the Loan Documents (including this section) or the
defense of any Lender Party's exercise of its rights thereunder. In
addition to the foregoing, until and all Obligations have been paid in
full, Borrower will also pay or reimburse Agent for all reasonable
out-of-pocket costs and expenses of Agent or its agents or employees in
connection with the continuing administration of the Loans and the
related due diligence of Agent, including travel and miscellaneous
expenses and fees and expenses of Agent's outside counsel, reserve
engineers and consultants engaged in connection with the Loan Documents.
(b) Indemnity. Borrower agrees to indemnify each Lender Party,
upon demand, from and against any and all liabilities, obligations,
claims, losses, damages, penalties, fines, actions, judgments, suits,
settlements, costs, expenses or disbursements (including reasonable fees
of attorneys, accountants, experts and advisors) of any kind or nature
whatsoever (in this section collectively called "liabilities and costs")
which to any extent (in whole or in part) may be imposed on, incurred
by, or asserted against such Lender Party growing out of, resulting from
or in any other way associated with any of the Collateral, the Loan
Documents and the transactions and events (including the enforcement or
defense thereof) at any time associated therewith or contemplated
therein (including any Environmental Claims or violation or
noncompliance with any Environmental Laws by any Restricted Person or
any liabilities or duties of any Restricted Person or any Lender Party
with respect to the presence or Release of Hazardous Materials found in
or released into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY
CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY LENDER PARTY,
provided only that no Lender Party shall be entitled under this section to
receive indemnification for that portion, if any, of any liabilities and costs
which is proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment. If any Person (including
Borrower or any of its Affiliates) ever alleges such gross
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negligence or willful misconduct by any Lender Party, the indemnification
provided for in this section shall nonetheless be paid upon demand, subject to
later adjustment or reimbursement, until such time as a court of competent
jurisdiction enters a final judgment as to the extent and effect of the alleged
gross negligence or willful misconduct. As used in this section the term
"Lender Parties" shall refer not only to the Persons designated as such in
Section 1.1 but also to each director, officer, agent, attorney, employee,
representative and Affiliate of such Persons.
Section 10.5. Joint and Several Liability; Parties in Interest. All
Obligations which are incurred by two or more Restricted Persons shall be their
joint and several obligations and liabilities. All grants, covenants and
agreements contained in the Loan Documents shall bind and inure to the benefit
of the parties thereto and their respective successors and assigns; provided,
however, that no Restricted Person may assign or transfer any of its rights or
delegate any of its duties or obligations under any Loan Document without the
prior consent of Required Lenders. Neither Borrower nor any Affiliates of
Borrower shall directly or indirectly purchase or otherwise retire any
Obligations owed to any Lender nor will any Lender accept any offer to do so,
unless each Lender shall have received substantially the same offer with
respect to the same Percentage Share of the Obligations owed to it. If
Borrower or any Affiliate of Borrower at any time purchases some but less than
all of the Obligations owed to all Lender Parties, such purchaser shall not be
entitled to any rights of any Lender Party under the Loan Documents unless and
until Borrower or its Affiliates have purchased all of the Obligations.
Section 10.6. Assignments.
(a) Any Lender may sell a participation interest in its
commitment hereunder or any of its rights under its Loans or under the
Loan Documents to any Person, provided that the agreement between such
Lender and such participant must at all times provide: (i) that such
participation exists only as a result of the agreement between such
participant and such Lender and that such transfer does not give such
participant any right to vote as a Lender or any other direct claims or
rights against any Person other than such Lender, (ii) that such
participant is not entitled to payment from any Restricted Person under
any of Sections 3.2, 3.3, 3.4, 3.5 or 3.6 of amounts in excess of those
payable to such Lender under such sections (determined without regard to
the sale of such participation), and (iii) unless such participant is an
Affiliate of such Lender, that such participant shall not be entitled to
require such Lender to take any action under any Loan Document or to
obtain the consent of such participant prior to taking any action under
any Loan Document, except for actions which would require the consent of
all Lenders under the next-to-last sentence of subsection (a) of Section
10.1. No Lender selling such a participation shall, as between the
other parties hereto and such Lender, be relieved of any of its
obligations hereunder as a result of the sale of such participation.
Each Lender which sells any such participation to any Person (other than
an Affiliate of such Lender) shall give prompt notice thereof to Agent
and Borrower.
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(b) Except for sales of participations under the immediately
preceding subsection (a), no Lender shall make any assignment or
transfer of any kind of its commitments or any of its rights under its
Loans or under the Loan Documents, except for assignments to an Eligible
Transferee, and then only if such assignment is made in accordance with
the following requirements:
(i) Each such assignment shall apply to all Obligations
owing to the assignor Lender hereunder and to the unused portion
of the assignor Lender's commitments, so that after such
assignment is made the assignor Lender shall have a fixed (and
not a varying) Percentage Share in its Loans and Note and be
committed to make that Percentage Share of all future Loans, the
assignee shall have a fixed Percentage Share in such Loans and
Note and be committed to make that Percentage Share of all future
Loans, and the Percentage Share of the Commitment of both the
assignor and assignee shall equal or exceed $5,000,000.
(ii) The parties to each such assignment shall execute
and deliver to Agent, for its acceptance and recording in the
"Register" (as defined below in this section), an Assignment and
Acceptance in the form of Exhibit E, appropriately completed,
together with the Note subject to such assignment and a
processing fee payable to Agent of $2,500. Upon such execution,
delivery, and payment and upon the satisfaction of the conditions
set out in such Assignment and Acceptance, then (i) Borrower
shall issue new Notes to such assignor and assignee upon return
of the old Notes to Borrower, and (ii) as of the "Settlement
Date" specified in such Assignment and Acceptance the assignee
thereunder shall be a party hereto and a Lender hereunder and
Agent shall thereupon deliver to Borrower and each Lender a
schedule showing the revised Percentage Shares of such assignor
Lender and such assignee Lender and the Percentage Shares of all
other Lenders.
(iii) Each assignee Lender which is not a United States
person (as such term is defined in Section 7701(a)(30) of the
Internal Revenue Code of 1986, as amended) for Federal income tax
purposes, shall (to the extent it has not already done so)
provide Agent and Borrower with the "Prescribed Forms" referred
to in Section 3.6(d).
(c) Nothing contained in this section shall prevent or prohibit
any Lender from assigning or pledging all or any portion of its Loans
and Note to any Federal Reserve Bank as collateral security pursuant to
Regulation A of the Board of Governors of the Federal Reserve System and
any Operating Circular issued by such Federal Reserve Bank or to one of
its Affiliates; provided that no such assignment or pledge shall relieve
such Lender from its obligations hereunder.
(d) By executing and delivering an Assignment and Acceptance,
each assignee Lender thereunder will be confirming to and agreeing with
Borrower, Agents and each other Lender hereunder that such assignee
understands and agrees to the terms hereof, including Article IX hereof.
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(e) Agent shall maintain a copy of each Assignment and
Acceptance and a register for the recordation of the names and addresses
of Lenders and the Percentage Shares of, and principal amount of the
Loans owing to, each Lender from time to time (in this section called
the "Register"). The entries in the Register shall be conclusive, in
the absence of manifest error, and Borrower and each Lender Party may
treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes. The Register shall be available for
inspection by Borrower or any Lender Party at any reasonable time and
from time to time upon reasonable prior notice.
Section 10.7. Confidentiality. Each Lender Party agrees that it will
take all reasonable steps to keep confidential any proprietary information
given to it by any Restricted Person, provided, however, that this restriction
shall not apply to information which (i) has at the time in question entered
the public domain, (ii) is required to be disclosed by Law (whether valid or
invalid) of any Tribunal, (iii) is disclosed to any Lender Party's Affiliates,
auditors, attorneys, or agents, (iv) is furnished to any other Lender Party or
to any purchaser or prospective purchaser of participations or other interests
in any Loan or Loan Document (provided each such purchaser or prospective
purchaser first agrees to hold such information in confidence on the terms
provided in this section), or (v) is disclosed in the course of enforcing its
rights and remedies during the existence of an Event of Default.
Section 10.8. Governing Law; Submission to Process.
(a) EXCEPT TO THE EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS
EXPRESSLY ELECTED IN A LOAN DOCUMENT, THE LOAN DOCUMENTS SHALL BE DEEMED
CONTRACTS AND INSTRUMENTS MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK AND THE LAWS OF THE UNITED STATES OF AMERICA, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. BORROWER HEREBY AGREES THAT ANY
LEGAL ACTION OR PROCEEDING AGAINST BORROWER WITH RESPECT TO THIS AGREEMENT, THE
NOTES OR ANY OF THE LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF
NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW
YORK AS LENDER PARTIES MAY ELECT, AND, BY EXECUTION AND DELIVERY HEREOF,
BORROWER ACCEPTS AND CONSENTS FOR ITSELF AND IN RESPECT TO ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS, AND
FURTHER AGREES TO A TRANSFER OF ANY SUCH PROCEEDING TO A FEDERAL COURT SITTING
IN THE STATE OF NEW YORK TO THE EXTENT THAT IT HAS SUBJECT MATTER JURISDICTION,
AND OTHERWISE TO A STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT SUCH
JURISDICTION SHALL BE EXCLUSIVE, UNLESS WAIVED BY LENDER PARTIES IN WRITING,
WITH RESPECT TO ANY ACTION OR PROCEEDING BROUGHT BY IT AGAINST LENDER PARTIES
AND ANY QUESTIONS RELATING TO USURY. BORROWER AGREES THAT SECTIONS 5-1401 AND
5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL
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APPLY TO THE LOAN DOCUMENTS AND WAIVE ANY RIGHT TO STAY OR TO DISMISS ANY
ACTION OR PROCEEDING BROUGHT BEFORE SAID COURTS ON THE BASIS OF FORUM NON
CONVENIENS. IN FURTHERANCE OF THE FOREGOING, BORROWER HEREBY DESIGNATES AND
APPOINTS CT CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NEW YORK 10019, AS
AGENT OF BORROWER TO RECEIVE SERVICE OF ALL PROCESS BROUGHT AGAINST BORROWER
WITH RESPECT TO ANY SUCH PROCEEDING IN ANY SUCH COURT IN NEW YORK, SUCH SERVICE
BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT. COPIES OF ANY SUCH PROCESS SO SERVED SHALL ALSO, IF PERMITTED
BY LAW, BE SENT BY REGISTERED MAIL TO BORROWER AT ITS ADDRESS SET FORTH BELOW,
BUT THE FAILURE OF BORROWER TO RECEIVE SUCH COPIES SHALL NOT AFFECT IN ANY WAY
THE SERVICE OF SUCH PROCESS AS AFORESAID. BORROWER SHALL FURNISH TO LENDER
PARTIES A CONSENT OF CT CORPORATION SYSTEM AGREEING TO ACT HEREUNDER PRIOR TO
THE EFFECTIVE DATE OF THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
LENDER PARTIES TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT OF LENDER PARTIES TO BRING PROCEEDINGS AGAINST BORROWER IN THE
COURTS OF ANY OTHER JURISDICTION. BORROWER SHALL NOT REVOKE SUCH APPOINTMENT
BUT IF FOR ANY REASON CT CORPORATION SYSTEM SHALL RESIGN OR OTHERWISE CEASE TO
ACT AS BORROWER'S AGENT, BORROWER HEREBY IRREVOCABLY AGREES TO (A) IMMEDIATELY
DESIGNATE AND APPOINT A NEW AGENT ACCEPTABLE TO AGENT TO SERVE IN SUCH CAPACITY
AND, IN SUCH EVENT, SUCH NEW AGENT SHALL BE DEEMED TO BE SUBSTITUTED FOR CT
CORPORATION SYSTEM FOR ALL PURPOSES HEREOF AND (B) PROMPTLY DELIVER TO LENDER
PARTIES THE WRITTEN CONSENT (IN FORM AND SUBSTANCE SATISFACTORY TO AGENT) OF
SUCH NEW AGENT AGREEING TO SERVE IN SUCH CAPACITY.
(b) BORROWER FURTHER AGREES THAT ANY LEGAL ACTION OR PROCEEDING
AGAINST BORROWER WITH RESPECT TO ANY SECURITY DOCUMENT MAY BE BROUGHT IN THE
COURTS OF THE STATES OF WEST VIRGINIA, PENNSYLVANIA, OHIO, ILLINOIS OR
VIRGINIA, OR THE COURTS OF THE UNITED STATES OF AMERICA LOCATED IN ANY SUCH
STATE AND, BY EXECUTION AND DELIVERY HEREOF, BORROWER ACCEPTS AND CONSENTS FOR
ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. BORROWER HEREBY IRREVOCABLY SUBMITS
ITSELF AND EACH OTHER RELATED PERSON TO THE NON-EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS SITTING IN THE STATES OF WEST VIRGINIA, PENNSYLVANIA,
OHIO, ILLINOIS AND VIRGINIA AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY
BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THE SECURITY DOCUMENTS OR
THE OBLIGATIONS BY ANY MEANS ALLOWED UNDER THE LAW OF SUCH STATES OR FEDERAL
LAW.
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(c) The parties, having actively considered the issue of what law
should apply to the construction and enforcement of this Agreement and the
Notes, have determined that New York law should apply. New York commercial law
is well-known and highly elaborated, and the parties believe that its
application will reduce uncertainty about the construction and enforcement of
this Agreement and the Notes.
Section 10.9. Limitation on Interest.
Lender Parties, Restricted Persons and the other parties to the Loan
Documents intend to contract in strict compliance with applicable usury Law
from time to time in effect. In furtherance thereof such persons stipulate and
agree that none of the terms and provisions contained in the Loan Documents
shall ever be construed to provide for interest in excess of the maximum amount
of interest permitted to be charged by applicable Law from time to time in
effect. Neither any Restricted Person nor any present or future guarantors,
endorsers, or other Persons hereafter becoming liable for payment of any
Obligation shall ever be liable for unearned interest thereon or shall ever be
required to pay interest thereon in excess of the maximum amount that may be
lawfully charged under applicable Law from time to time in effect, and the
provisions of this section shall control over all other provisions of the Loan
Documents which may be in conflict or apparent conflict herewith.
Section 10.10. Termination: Limited Survival. In its sole and absolute
discretion Borrower may at any time that no Obligations are owing elect in a
written notice delivered to Agent to terminate this Agreement. Upon receipt by
Agent of such a notice, if no Obligations are then owing this Agreement and all
other Loan Documents shall thereupon be terminated and the parties thereto
released from all prospective obligations thereunder. Notwithstanding the
foregoing or anything herein to the contrary, any waivers or admissions made by
any Restricted Person in any Loan Document, any Obligations under any of
Sections 3.2, 3.3, 3.4, 3.5 or 3.6, and any obligations which any Person may
have to indemnify or compensate any Lender Party shall survive any termination
of this Agreement or any other Loan Document. At the request and expense of
Borrower, Agent shall prepare and execute all necessary instruments to reflect
and effect such termination of the Loan Documents. Agent is hereby authorized
to execute all such instruments on behalf of all Lenders, without the joinder
of or further action by any Lender.
Section 10.11. Severability. If any term or provision of any Loan
Document shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable Law.
Section 10.12. Counterparts. This Agreement may be separately executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
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Section 10.13. Waiver of Jury Trial, Punitive Damages, etc.
BORROWER AND EACH LENDER PARTY HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY, AND IRREVOCABLY (A) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED
BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN
CONNECTION WITH THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED THEREBY OR
ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (B) WAIVES, TO THE MAXIMUM
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
SUCH LITIGATION ANY "SPECIAL DAMAGES", AS DEFINED BELOW, (C) CERTIFIES THAT NO
PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
AS USED IN THIS SECTION, "SPECIAL DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL,
EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE
ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR
DELIVER TO ANY OTHER PARTY HERETO.
65
<PAGE> 71
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
BORROWER:
ENERGY CORPORATION OF AMERICA
By: /s/ Joseph Casabona
--------------------------------------
Joseph Casabona
Executive Vice President
Address: 4643 South Ulster Street
Suite 1100
Denver, Colorado 80237
Telephone: (303) 694-2667
Fax: (303) 694-2763
AGENT:
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and Lender
By: /s/ Jane Reichle
-------------------------------------
Jane Reichle
Manager - Operations
Address: Structured Finance Group
1600 Summer Street,
6th Floor
Stamford, CT 06927
Attention: Compliance
Officer
Telephone: (203) 357-3735
Fax: (203) 961-2017
66
<PAGE> 72
THE BANK OF NOVA SCOTIA, as
Documentation Agent and Lender
By: /s/ S.C.H. ASBY
-------------------------------------
Name: S.C.H. ASHBY
Title:
67
<PAGE> 1
EXHIBIT 4.2
================================================================================
MOUNTAINEER GAS COMPANY
$60,000,000
7.59% Senior Notes due October 1, 2010
---------------------
NOTE PURCHASE AGREEMENT
---------------------
Dated as of October 12, 1995
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. AUTHORIZATION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. SALE AND PURCHASE OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.2. Performance; No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.3. Compliance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.4. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.5. Purchase Permitted By Applicable Law, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.6. Intentionally omitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.8. Private Placement Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.9. Changes in Corporate Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.10. Acquisition and Financing by Eastern Systems Corporation . . . . . . . . . . . . . . . . . . . . . . . 4
4.11. Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.12. Payment of Outstanding Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.13. Proceedings and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1. Organization; Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.2. Authorization, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.3. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.4. Organization and Ownership of Shares of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.5. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.6. Compliance with Laws, Other Instruments, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.7. Governmental Authorizations, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.8. Litigation; Observance of Statutes and Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.9. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.10. Title to Property; Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.11. Licenses, Permits, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.12. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.13. Private Offering by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.14. Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.15. Existing Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.16. Foreign Assets Control Regulations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.17. Status under Certain Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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<TABLE>
<S> <C> <C>
5.18. Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.19. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6. REPRESENTATIONS OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.1. Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.2. Source of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7. INFORMATION AS TO COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.1. Financial and Business Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.2. Compliance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.3. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8. PREPAYMENT OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.1. Required Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.2. Optional Prepayments with Make-Whole Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.3. Allocation of Partial Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.4. Maturity; Surrender, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.5. Purchase of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.6. Make-Whole Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
9. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.1. Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.2. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.3. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.4. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.5. Corporate Existence, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.6 Gas Purchase Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.7 Amendment of Bank Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.1. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.2. Merger, Consolidation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.3. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.4. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.5. Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.6 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.7 Issuance and Sale of Restricted Subsidiaries' Stock . . . . . . . . . . . . . . . . . . . . . . . . 26
10.8 Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.9 Line of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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<TABLE>
<S> <C> <C>
12. REMEDIES ON DEFAULT, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.1. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.2. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.3. Rescission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
12.4. No Waivers or Election of Remedies, Expenses. etc. . . . . . . . . . . . . . . . . . . . . . . . . . 29
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.1. Registration of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.2. Transfer and Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.3. Replacement of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
14. PAYMENT ON NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
14.1. Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
14.2. Home Office Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
15. EXPENSES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.1. Transaction Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
15.2. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
17. AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
17.1. Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
17. Solicitation of Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
17.3. Binding Effect, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
17.4. Notes Held by Company, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
18. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
19. REPRODUCTION OF DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
20. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
21. SUBSTITUTION OF PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
22. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
22.1. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
22.2. Payments Due on Non-Business Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
22.3. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
22.4. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
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<TABLE>
<S> <C> <C>
22.5. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
22.6. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
SCHEDULE A - INFORMATION RELATING TO PURCHASERS
SCHEDULE B - DEFINED TERMS
SCHEDULE 4.9 - Changes in Corporate Structure
SCHEDULE 5.3 - Disclosure Materials
SCHEDULE 5.4 - Subsidiaries of the Company and
Ownership of Subsidiary Stock
SCHEDULE 5.5 - Financial Statements
SCHEDULE 5.8 - Certain Litigation
SCHEDULE 5.11 - Patents, etc.
SCHEDULE 5.14 - Use of Proceeds
SCHEDULE 5.15 - Existing Indebtedness and Liens
SCHEDULE 5.19 - Environmental Matters
EXHIBIT 1 - Form of 7.59% Senior Note due October 1, 2010
EXHIBIT 4.4(a) - Form of Opinion of Special Counsel for the Company
EXHIBIT 4.4(b) - Form of Opinion of Special Counsel for the Purchasers
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<PAGE> 6
MOUNTAINEER GAS COMPANY
414 Summers Street
Charleston, West Virginia 25301
7.59% Senior Notes due October 1, 2010
As of October 12, 1995
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
Mountaineer Gas Company, a West Virginia corporation (the
"Company"), agrees with you as follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $60.000,000 aggregate
principal amount of its 7.59% Senior Notes due October 1, 2010 (the "NOTES",
such term to include any such notes issued in substitution therefor pursuant to
Section 13 of this Agreement). The Notes shall be substantially in the form
set out in Exhibit 1, with such changes therefrom, if any, as may be approved
by you and the Company. Certain capitalized terms used in this Agreement are
defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless
otherwise specified, to a Schedule or an Exhibit attached to this Agreement.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Company
will issue and sell to you and you will purchase from the Company, at the
Closing provided for in Section 3, Notes in the principal amount specified
opposite your name in Schedule A at the purchase price of 100% of the principal
amount thereof.
3. CLOSING.
The sale and purchase of the Notes to be purchased by you shall occur
at the offices of Day, Berry & Howard, CityPlace, Hartford, Connecticut
06103-3499, at 10:00 a.m., New York, New York time, at a closing (the
"Closing") on October 12, 1995 or on such other Business Day thereafter
<PAGE> 7
on or prior to October 31, 1995, as may be agreed upon by the company and you.
At the Closing the Company will deliver to you the Notes to be purchased by you
in the form of a single Note (or such greater number of Notes as are specified
in Schedule A) dated the date of the Closing and registered in your name (or in
the name of your nominee), against delivery by you to the Company or its order
of immediately available funds in the amount of the purchase price therefor by
wire transfer of immediately available funds for the account of the Company to
account number 654-642-8 at One Valley Bank, N.A. (ABA #0519-0035-3), One
Valley Square, Charleston, West Virginia 25301, attention Sharon Pugh,
Commercial Lending. If at the Closing the Company shall fail to tender such
Notes to you as provided above in this Section 3, or any of the conditions
specified in Section 4 shall not have been fulfilled to your satisfaction, you
shall, at your election, be relieved of all further obligations under this
Agreement, without thereby waiving any rights you may have by reason of such
failure or such nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your satisfaction, prior to or at
the Closing, of the following conditions:
4.1. Representations and Warranties.
The representations and warranties of the Company in this Agreement
shall be correct when made and at the time of the Closing.
4.2. Performance; No Default.
The Company shall have performed and complied with all agreements and
conditions contained in this Agreement required to be performed or complied
with by it prior to or at the Closing and after giving effect to the issue and
sale of the Notes (and the application of the proceeds thereof as contemplated
by Schedule 5.14) no Default or Event of Default shall have occurred and be
continuing.
4.3. Compliance Certificates.
(a) Officer's Certificate. The Company shall have delivered to
you an Officer's Certificate, dated the date of the Closing, certifying that
the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.
(b) Secretary's Certificate. The Company shall have delivered to
you a certificate certifying as to the bylaws and resolutions attached thereto
and other corporate proceedings relating to the authorization, execution and
delivery of the Notes and the Agreements.
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<PAGE> 8
4.4. Opinions of Counsel.
You shall have received opinions in form and substance satisfactory to
you, dated the date of the Closing (a) from Goodwin & Goodwin, counsel for the
Company, covering the matters set forth in Exhibit 4.4(a) and covering such
other matters incident to the transactions contemplated hereby as you or your
counsel may reasonably request (and the Company hereby instructs its counsel to
deliver such opinion to you) and (b) from Day, Berry & Howard, your special
counsel in connection with such transactions, substantially in the form set
forth in Exhibit 4.4(b) and covering such other matters incident to such
transactions as you may reasonably request.
4.5. Purchase Permitted By Applicable Law, etc.
On the date of the Closing your purchase of Notes shall (i) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as Section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (ii) not
violate any applicable law or regulation (including, without limitation,
Regulation G, T or X of the Board of Governors of the Federal Reserve System)
and (iii) not subject you to any tax, penalty or liability under or pursuant to
any applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by you, you shall have received an Officer's
Certificate certifying as to such matters of fact as you may reasonably specify
to enable you to determine whether such purchase is so permitted.
4.6. Intentionally omitted.
4.7. Payment of Special Counsel Fees.
Without limiting the provisions of Section 15.1, the Company shall
have paid on or before the Closing the fees, charges and disbursements of your
special counsel referred to in Section 4.4 to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the Closing.
4.8. Private Placement Number.
A Private Placement number issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for the Notes.
4.9. Changes in Corporate Structure.
Except as specified in Schedule 4.9, the Company shall not have
changed its jurisdiction of incorporation or been a party to any merger or
consolidation and shall not have succeeded to all or
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<PAGE> 9
any substantial part of the liabilities of any other entity, at any time
following the date of the most recent financial statements referred to in
Schedule 5.5.
4.10. Acquisition and Financing by Eastern Systems Corporation.
Eastern Systems Corporation, a West Virginia corporation, ("ESC")
shall have acquired, or shall acquire contemporaneously with the Closing, all
of the outstanding Voting Stock of the Company and shall have issued or shall
issue contemporaneously with the Closing, $35,000,000 in aggregate principal
amount of its Senior Secured Notes due October 1. 2005 (the "ESC Notes") and
$35,000,000 of its preferred stock (the "ESC Preferred Stock"), each on terms
and subject to conditions reasonably satisfactory to you, and ESC shall have
entered into a note purchase agreement with you (the "ESC Agreement") with
respect to the ESC Notes and have pledged to you all of the issued and
outstanding shares of Voting Stock of the Company as security for the ESC Notes
in accordance with a pledge agreement in the form attached to the ESC Agreement
(the "ESC Pledge Agreement").
4.11. Regulatory Approvals.
All consents, approvals and authorizations of, and registrations.
filings and declarations with, any Governmental Authority, including without
limitation the West Virginia Public Service Commission ("WVPSC") and the
Federal Energy Regulatory Commission, required in connection with the
execution, delivery or performance of this Agreement, the issuance of the
Notes, the ESC Notes or the ESC Preferred Stock, or the acquisition by ESC of
all of the outstanding Voting Stock of the Company and the pledge of such stock
in accordance with the ESC Pledge Agreement, shall have been received or made,
and all such consents, approvals and authorizations shall be final and binding
on all parties.
4.12. Payment of Outstanding Indebtedness.
Concurrently with the Closing, the Company shall pay in full its
outstanding Indebtedness to the CIGNA Companies and Teachers Insurance and
Annuity Association of America and shall apply the balance of the proceeds from
the sale of the Notes, after payment of expenses of the transaction, to the
reduction of its Indebtedness to the various banks identified in Schedule 5.15.
4.13. Proceedings and Documents.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to you and your special
counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.
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5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
5.1. Organization; Power and Authority.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Company has the corporate power and authority to own or
hold under lease the properties it purports to own or hold under lease, to
transact the business it transacts and proposes to transact, to execute and
deliver this Agreement and the Notes and to perform the provisions hereof and
thereof. All of the issued and outstanding Voting Stock of the Company, as
reflected on its most recent balance sheet furnished to you, has been validly
issued and is fully paid and nonassessable, and is owned beneficially and of
record by ESC. ESC acquired all of the issued and outstanding Voting Stock of
the Company on June 23, 1995 as a result of the following series of
transactions:
(i) Allegheny & Western Energy Corporation ("A&W"), the Company's
former parent, was merged with Appalachian Eastern Systems
Corporation, with A&W as the surviving company and with ESC
becoming the owner of all of the outstanding capital stock of
A&W.
(ii) A&W then dividended all of the outstanding Voting Stock of the
Company to ESC.
(iii) ESC then transferred all of the outstanding capital stock of
A&W to its Affiliate, Eastern American Energy Corporation
("EAEC"). A&W continues to be a wholly-owned subsidiary of
EAEC.
5.2. Authorization, etc.
This Agreement and the Notes have been duly authorized by all
necessary corporate action on the part of the Company, and this Agreement
constitutes, and upon execution and delivery thereof each Note will constitute,
a legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
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5.3. Disclosure.
The Company, through its agent, Scotia McLeod (USA) Inc., has
delivered to you a copy of a Private Placement Memorandum, dated May 1995 (the
"Memorandum"), relating to the transactions contemplated hereby. Except as
disclosed in Schedule 5.3, this Agreement, the Memorandum, the documents,
certificates or other writings identified in Schedule 5.3 and the financial
statements listed in Schedule 5.5, taken as a whole, do not contain any untrue
statement of a material fact or omit to state any untrue statement of a
material fact necessary to make the statements therein not misleading in light
of the circumstances under which they were made; provided that although all
projections furnished to you by or on behalf of the Company have been based on
assumptions and estimates which are reasonable in light of existing conditions,
the future performance of the Company and its Restricted Subsidiaries may vary
materially from the projected results. There is no agreement, restriction or
other factual matter which the Company has not disclosed to you in writing
which materially affects adversely nor, so far as the Company can now foresee,
will materially affect adversely the properties, business, franchises,
prospects. profits or financial condition of the Company, the rates to be
charged by the Company, the valuation of its property for ratemaking purposes
or the ability of the Company to perform this Agreement. Except as disclosed
in the Memorandum or as expressly described in Schedule 5.3, or in one of the
documents, certificates or other writings identified therein, or in the
financial statements listed in Schedule 5.5, since June 30, 1994, there has
been no change in the financial condition, operations, business or properties
of the Company or any of its Subsidiaries except changes that individually or
in the aggregate would not reasonably be expected to have a Material Adverse
Effect.
5.4. Organization and Ownership of Shares of Subsidiaries.
(a) Schedule 5.4 is (except as noted therein) a complete and
correct list of the Company's Restricted Subsidiaries and Unrestricted
Subsidiaries, including Mountaineer Gas Services, Inc. ("MGS"), showing, as to
each Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its capital stock
or similar equity interests outstanding owned by the Company and each other
Subsidiary.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the
Company and its Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by the Company or another Subsidiary free and clear
of any Lien (except as otherwise disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and is duly qualified as a
foreign corporation or other legal entity and is in good standing in each
jurisdiction in which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in good standing
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Each such Subsidiary has the corporate
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or other power and authority to own or hold under lease the properties it
purports to own or hold under lease and to transact the business it transacts
and proposes to transact.
5.5. Financial Statements.
The Company has delivered to you copies of the financial statements of
the Company and its Subsidiaries listed on Schedule 5.5. All of said financial
statements (including in each case the related schedules and notes) fairly
present in all material respects the consolidated financial position of the
Company and its Subsidiaries as of the respective dates specified in such
Schedule and the consolidated results of their operations and cash flows for
the respective periods so specified and have been prepared in accordance with
GAAP consistently applied throughout the periods involved except as set forth
in the notes thereto (subject, in the case of any interim financial statements,
to normal year-end adjustments).
5.6. Compliance with Laws, Other Instruments, etc.
The execution, delivery and performance by the Company of this
Agreement and the Notes, the acquisition by ESC of all of the outstanding
Voting Stock of the Company and the pledge of that Voting Stock to you and the
issuance by ESC of the ESC Notes and the ESC Preferred Stock did not and will
not (i) contravene, result in any breach of, or constitute a default under, or
result in the creation of any Lien (other than the Lien created by the pledge
of Company Voting Stock in accordance with the ESC Pledge Agreement) in respect
of any property of ESC, the Company or any Subsidiary under, any indenture,
mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate
charter or by-laws, or any other Material agreement or instrument to which ESC,
the Company or any Subsidiary is bound or by which ESC, the Company or any
Subsidiary or any of their respective properties may be bound or affected, (ii)
conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any court, arbitrator
or Governmental Authority applicable to ESC, the Company or any Subsidiary or
(iii) violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to ESC, the Company or any Subsidiary.
5.7. Governmental Authorizations, etc.
Except for the WVPSC's approval of the acquisition by ESC of all of
the issued and outstanding Voting Stock of A&W by its order dated May 23, 1995,
a copy of which has been furnished to you, no consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by the Company of this Agreement or issuance and sale by the Company of the
Notes, the acquisition by ESC of all of the capital stock of A&W and the
dividending by A&W of all of the outstanding Voting Stock of the Company to ESC
and the pledge of that Voting Stock in accordance with the ESC Pledge Agreement
and the issuance and sale by ESC of the ESC Notes and the ESC Preferred Stock.
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5.8. Litigation; Observance of Statutes and Orders.
(a) Except as disclosed in Schedule 5.8, there are no actions,
suits or proceedings pending or, to the knowledge of the Company, threatened
against or affecting ESC, the Company or any Subsidiary or any property of ESC,
the Company or any Subsidiary in any court or before any arbitrator of any kind
or before or by any Governmental Authority that, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
(b) Neither ESC nor the Company nor any Subsidiary is in default
under any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance,
rule or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
5.9. Taxes.
The Company and its Subsidiaries (or A&W on behalf of the Company and
its Subsidiaries) have filed all income tax and other tax returns that are
required to have been filed in any jurisdiction, and have paid all taxes shown
to be due and payable on such returns and all other taxes and assessments
payable by them, to the extent such taxes and assessments have become due and
payable and before they have become delinquent, except for any taxes and
assessments (i) the amount of which is not individually or in the aggregate
Material or (ii) the amount, applicability or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which the Company or a Subsidiary, as the case may be, has established adequate
reserves in accordance with GAAP. The Federal income tax liabilities of the
Company and its Subsidiaries have been determined by the Internal Revenue
Service and paid for all fiscal years up to and including the fiscal year ended
June 30, 1989 and the fiscal year ended June 30, 1990 is closed to further
assessments. The Company knows of no proposed additional tax assessment
against it or any Subsidiary.
5.10. Title to Property; Leases.
The Company and each Subsidiary has good and marketable title in fee
simple (or its equivalent under applicable law) to all its real properties, and
has good title to all its other property, including all such properties
reflected in the most recent balance sheet referred to in Section 5.5 or
purported to have been acquired by the Company or any Subsidiary after said
date (except as sold or otherwise disposed of in the ordinary course of
business), in each case free and clear of Liens other than those identified in
Schedule 5.15 or which are otherwise permitted by Section 10.5. All Material
leases are valid and subsisting and are in full force and effect in all
material respects.
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<PAGE> 14
5.11. Licenses, Permits, etc.
Except as disclosed in Schedule 5.11, the Company and each Subsidiary
owns or possesses all licenses, permits, franchises, authorizations, patents,
copyrights, service marks, trademarks and trade names, or rights thereto
necessary for the present and planned future conduct of its business, without
known conflict with the rights of others.
5.12. Compliance with ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for such
instances of noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor any
ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA
or the penalty or excise tax provisions of the Code relating to employee
benefit plans (as defined in Section 3 of ERISA), and no event, transaction or
condition has occurred or exists that would reasonably be expected to result in
the incurrence of any such liability by the Company or any ERISA Affiliate, or
in the imposition of any Lien on any of the rights, properties or assets of the
Company or any ERISA Affiliate, in either case pursuant to Title I or IV of
ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or
412 of the Code, other than such liabilities or Liens as would not be
individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities under
each of the Plans (other than Multiemployer Plans), determined as of the end of
such Plan's most recently ended plan year on the basis of the actuarial
assumptions specified for funding purposes in such Plan's most recent actuarial
valuation report, did not exceed the aggregate current value of the assets of
such Plan allocable to such benefit liabilities by more than $6,000,000 in the
case of any single Plan and by more than $6,000,000 in the aggregate for all
Plans. The term "benefit liabilities" has the meaning specified in section
4001 of ERISA and the terms "current value" and "present value" have the
meaning specified in section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.
(d) The expected postretirement benefit obligation (determined as
of the last day of the Company's most recently ended fiscal year in accordance
with Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section 4980B of
the Code) of the Company and its Subsidiaries is not Material.
(e) The execution and delivery of this Agreement and the issuance
and sale of the Notes hereunder will not involve any transaction that is
subject to the prohibitions of section 406 of ERISA or in connection with which
a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The
representation by the Company in the first sentence of this Section 5.12(e) is
made in
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<PAGE> 15
reliance upon and subject to the accuracy of your representation in Section 6.2
as to the sources of the funds to be used to pay the purchase price of the
Notes to be purchased by you.
5.13. Private Offering by the Company.
Neither the Company nor anyone acting on its behalf has offered the
Notes or any similar securities for sale to, or solicited any offer to buy any
of the same from, or otherwise approached or negotiated in respect thereof
with, any person other than you, the Other Purchasers and not more than 3 other
Institutional Investors, each of which has been offered the Notes at a private
sale for investment. Neither the Company nor anyone acting on its behalf has
taken, or will take, any action that would subject the issuance or sale of the
Notes to the registration requirements of Section 5 of the Securities Act.
5.14. Use of Proceeds; Margin Regulations.
The Company will apply the proceeds of the sale of the Notes as set
forth in Schedule 5.14. No part of the proceeds from the sale of the Notes
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System (12 CFR 267), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve the Company in a violation of Regulation X of said Board (12 CFR 224)
or to involve any broker or dealer in a violation of Regulation T of said Board
(12 CFR 220). Margin stock does not constitute more than 0% of the value of
the consolidated assets of the Company and its Subsidiaries and the Company
does not have any present intention that margin stock will constitute more than
0% of the value of such assets. As used in this Section, the terms "margin
stock" and "purpose of buying or carrying" shall have the meanings assigned to
them in said Regulation G.
5.15. Existing Indebtedness.
Schedule 5.15 sets forth a complete and correct list of all
outstanding Indebtedness and Liens of the Company and its Subsidiaries.
Neither the Company nor any Subsidiary is in default and no waiver of default
is currently in effect, in the payment of any principal or interest on any
Indebtedness of the Company or any Subsidiary and no event or condition exists
with respect to any Indebtedness of the Company or any Subsidiary that would
permit (or that with notice or the lapse of time, or both, would permit) one or
more Persons to cause such Indebtedness to become due and payable before its
stated maturity or before its regularly scheduled dates of payment.
5.16. Foreign Assets Control Regulations, etc.
Neither the sale of the Notes by the Company hereunder nor its use of
the proceeds thereof will violate the Trading with the Enemy Act, as amended,
or any of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
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<PAGE> 16
5.17. Status under Certain Statutes.
Neither ESC nor the Company nor any Subsidiary is subject to
regulation under the Investment Company Act of 1940, as amended, or the Public
Utility Holding Company Act of 1935, as amended, or the Interstate Commerce
Act, as amended. The Company is a West Virginia utility company subject to
regulation by the WVPSC. The Company is a "subsidiary" of a holding company
within the meaning of the Public Utility Holding Company Act of 1935, but is
exempt from all of the provisions of that Act (except Section 9(a)(2)) pursuant
to Section 3(a)(1) of the Act by virtue of the filing of exemption statements
on Form U-3A-2 with the SEC by ESC's parent, Eastern Systems Corporation. The
Company is not subject to the jurisdiction of the Federal Energy Regulatory
Commission or, except as set forth above, any other utility regulatory
authority. MGS is not a utility and is not subject to the jurisdiction of
either WVPSC or the Federal Energy Regulatory Commission, except that MGS is
bound by the terms of the January 19, 1993 WVPSC Order in case No.
92-0825-G-PC, a copy of which has been previously provided to you.
5.18. Nature of Business.
The Company is legally authorized to purchase, manufacture, produce,
transmit, sell and distribute natural gas, and to carry on its business in the
place or places where it is now engaged in such activities, namely, the
counties in West Virginia identified in the Offering Memorandum, which
authorizations and franchises are unlimited as to time and free from burdensome
restrictions. The Company's charges for transportation and sales of gas are
subject to the jurisdiction of WVPSC, and the Company's present tariffs for
such service have been accepted by WVPSC. MGS is an oil and gas exploration,
production and transmission company located entirely within the State of West
Virginia.
5.19. Environmental Matters.
Except as disclosed in Schedule 5.19, neither the Company nor any
Subsidiary has knowledge of any claim or has received any notice of any claim,
and no proceeding has been instituted raising any claim against the Company or
any of its Subsidiaries or any of their respective real properties now or
formerly owned, leased or operated by any of them or other assets, alleging any
damage to the environment or violation of any Environmental Laws. Except as
otherwise disclosed to you in writing:
(a) neither the Company nor any Subsidiary has knowledge of any
facts which would give rise to any claim, public or private, of violation of
Environmental Laws or damage to the environment emanating from, occurring on or
in any way related to real properties now or formerly owned, leased or operated
by any of them or to other assets or their use, except, in each case, such as
could not reasonably be expected to result in a Material Adverse Effect;
(b) although the Company and its Subsidiaries store in the
ordinary course of their business petroleum or other petroleum products and
such quantities of Hazardous Materials as may
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<PAGE> 17
be necessary for the operation of any wells owned by the Company and its
Subsidiaries, neither the Company nor any of its Subsidiaries has stored any
Hazardous Materials on real properties now or formerly owned, leased or
operated by any of them or disposed of any Hazardous Materials in a manner
contrary to any Environmental Laws in each case in any manner that could
reasonably be expected to result in a Material Adverse Effect; and
(c) all buildings on all real properties now owned, leased or
operated by the Company or any of its Subsidiaries are in compliance with
applicable Environmental Laws, except where failure to comply could not
reasonably be expected to result in a Material Adverse Effect.
6. REPRESENTATIONS OF THE PURCHASER.
6.1. Purchase for Investment.
You represent that you are purchasing the Notes for your own account
or for one or more separate accounts maintained by you or for the account of
one or more pension or trust funds and not with a view to the distribution
thereof, provided that the disposition of your or their property shall at all
times be within your or their control. You understand that the Notes have not
been registered under the Securities Act and may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Company is
not required to register the Notes.
6.2. Source of Funds.
You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "Source") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:
(a) The Source is an "insurance company general account," as such
term is defined in section V(e) of Prohibited Transaction Class Exemption 95-60
(issued July 12, 1995) (PTE 95-60), and the purchase is exempt under the
provisions of PTE 95-60;
(b) The Source is a "governmental plan" as defined in Title I,
section 3(32) of ERISA;
(c) The Source is either (i) an insurance company pooled separate
account, and the purchase is exempt in accordance with Prohibited Transaction
Exemption ("PTE") 90-1 (issued January 29, 1990), or (ii) a bank collective
investment fund, in which case the purchase is exempt in accordance with PTE
91-38 (issued July 12, 1991);
(d) the source is an "investment fund" managed by a "qualified
professional asset manager" or "QPAM" (as defined in Part V of PTE 84-14,
issued March 13, 1984) which QPAM has been identified in writing, and the
purchase is exempt under PTE 84-14, provided that no other
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<PAGE> 18
party to the transactions described in this Agreement and no "affiliate" of
such other party (as defined in Section V(c) of PTE 84-14) has at this time,
and has not exercised at any time during the immediately preceding year, the
authority to appoint or terminate said QPAM as manager of the assets of any
"plan" identified in writing pursuant to this paragraph (d) or to negotiate the
terms of said QPAM's management agreement on behalf of any such identified
"plans";
(e) The Source is one or more "plans," or a separate account or
trust fund comprised of one or more "plans," each of which has been identified
in writing pursuant to this paragraph (e).
As used in this Section, "plant" or "plans" shall have the meaning set
forth in Title I, section 3(3) of ERISA.
7. INFORMATION AS TO COMPANY.
7.1. Financial and Business Information.
The Company shall deliver to each holder of Notes that is an
Institutional Investor:
(a) Quarterly Statements -- within 45 days after the end of each
quarterly fiscal period in each fiscal year of the Company (other than the last
quarterly fiscal period of each such fiscal year), duplicate copies of,
(i) a consolidated and consolidating balance sheet of the
Company and its Restricted Subsidiaries as at the end of such quarter,
and
(ii) consolidated and consolidating statements of income,
changes in shareholders' equity and cash flows of the Company and its
Restricted Subsidiaries, for such quarter and (in the case of the
second and third quarters) for the portion of the fiscal year ending
with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP applicable to quarterly financial statements
generally, and certified by a Senior Financial Officer as fairly presenting, in
all material respects, the financial position of the companies being reported
on and their results of operations and cash flows, subject to changes resulting
from year-end adjustments;
(b) Annual Statements -- within 90 days after the end of each
fiscal year of the Company, duplicate copies of,
(i) a consolidated and consolidating balance sheet of the
Company and its Restricted Subsidiaries, as at the end of such year,
and
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(ii) consolidated and consolidating statements of income,
changes in shareholders' equity and cash flows of the Company and its
Restricted Subsidiaries, for such year.
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied by an opinion thereon of independent certified public accountants
of recognized national standing, which opinion shall state that such financial
statements present fairly, in all material respects, the financial position of
the companies being reported upon and their results of operations and cash
flows and have been prepared in conformity with GAAP, and that the examination
of such accountants in connection with such financial statements has been made
in accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances;
(c) Audit Reports -- promptly upon receipt thereof, one copy of
each other report submitted to the Company or any Subsidiary by independent
accountants in connection with any annual, interim or special audit made by
them of the books of the Company or any Subsidiary;
(d) SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or proxy
statement sent by the Company or any Subsidiary to public securities holders
generally, and (ii) each regular or periodic report, each registration
statement that shall have become effective (without exhibits except as
expressly requested by such holder), and each final prospectus and all
amendments thereto filed by the Company or any Subsidiary with the Securities
and Exchange Commission;
(e) Notice of Default or Event of Default -- promptly, and in any
event within five days after a Responsible Officer becoming aware of the
existence of any Default or Event of Default, a written notice specifying the
nature and period of existence thereof and what action the Company is taking or
proposes to take with respect thereto ;
(f) Notice of Claimed Default -- immediately upon becoming aware
that the holder of any Indebtedness or security of the Company or any
Subsidiary has given notice or taken any other action with respect to a claimed
default or Event of Default, a notice specifying the notice given or action
taken by such holder, the nature of the claimed default or Event of Default and
the action the Company is taking with respect thereto;
(g) ERISA Matters -- promptly, and in any event within five days
after a Responsible Officer becoming aware of any of the following, a written
notice setting forth the nature thereof and the action, if any, that the
Company or an ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as
defined in section 4043(b) of ERISA and the regulations thereunder,
for which notice thereof has not been waived pursuant to such
regulations as in effect on the date hereof; or
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<PAGE> 20
(ii) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Company or any
ERISA Affiliate of a notice from a Multiemployer Plan that such action
has been taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could result
in the incurrence of any liability by the Company or an ERISA
Affiliate pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, or in
the imposition of any Lien on any of the rights, properties or assets
of the Company or any ERISA Affiliate pursuant to Title I or IV of
ERISA or such penalty or excise tax provisions, if such liability or
Lien, taken together with any other such liabilities or Liens then
existing, would reasonably be expected to have a Material Adverse
Effect;
(h) WVPSC Reports -- promptly upon its becoming available, one
copy of each annual report filed by the Company or any Subsidiary with the
WVPSC;
(i) Rate Orders -- promptly upon their becoming available, one
copy of (i) any notices received from Federal or state regulatory agencies
relating to an order, ruling, statute or other law or any application or other
presentation made by the Company or a Subsidiary to any such agency or other
information which might materially and adversely affect the right of the
Company or any Subsidiary to carry on business substantially as now conducted,
or would materially affect adversely the ability of the Company to perform this
Agreement or the properties, business, prospects, profits or condition
(financial or otherwise) of the Company or any Subsidiary or the valuation of
its properties for ratemaking purposes; and (ii) any decision or order of the
WVPSC relating to a change in rates or a fuel adjustment clause or similar
rate-setting mechanism for the Company;
(j) Change of Control -- not later than two Business Days after
knowledge by a Responsible Officer that a Change of Control has occurred or is
proposed to occur, a notice specifying (1) the date on which such Change of
Control occurred or is expected to occur and describing such Change of Control
in detail, and (2) that each holder of Notes may require prepayment of its
Notes pursuant to Section 8.1(b); and
(k) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations, affairs,
financial condition, assets or properties of the Company or any of its
Subsidiaries or relating to the ability of the Company to perform its
obligations hereunder and under the Notes as from time to time may be
reasonably requested by any such holder of Notes.
7.2. Compliance Certificates.
(a) Each set of audited financial statements delivered to a holder
of Notes pursuant to Section 7.1(b) shall be accompanied by a certificate of
the independent certified public accountants
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whose opinion accompanies such statements stating whether in the course of
their audit such accountants have become aware of any condition or event that
constitutes a Default or an Event of Default, and, if any such condition or
event existed or exists, specifying the nature and period of existence thereof.
(b) Each set of financial statements delivered to a holder of
Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied
by a certificate of a Senior Financial Officer setting forth:
(i) Covenant Compliance -- the information (including
detailed calculations) required in order to establish whether the
Company was in compliance with the requirements of Section 10.3
through Section 10.6 and Section 10.8 hereof, inclusive, during the
quarterly or annual period covered by the statements then being
furnished (including with respect to each such Section, where
applicable, the calculations of the maximum or minimum amount, ratio
or percentage, as the case may be, permissible under the terms of such
Sections, and the calculation of the amount, ratio or percentage then
in existence and the information required by Section 10.3(d)); and
(ii) Default or Event of Default -- a statement that such
officer has reviewed the relevant terms hereof and has made, or caused
to be made, under his or her supervision, a review of the transactions
and conditions of the Company and its Subsidiaries from the beginning
of the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall
not have disclosed the existence during such period of any condition
or event that constitutes a Default or an Event of Default or, if any
such condition or event existed or exists (including, without
limitation, any such event or condition resulting from the failure of
the Company or any Subsidiary to comply with any Environmental Law),
specifying the nature and period of existence thereof and what action
the Company shall have taken or proposes to take with respect thereto.
7.3. Inspection.
The Company shall permit the representatives of each holder of Notes
that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then exists,
at the expense of such holder and upon reasonable prior notice to the Company,
to visit the principal executive office of the Company, to discuss the affairs,
finances and accounts of the Company and its Subsidiaries with the Company's
officers, and, with the consent of the Company (which consent will not be
unreasonably withheld) to visit the other offices and properties of the Company
and each Subsidiary, all at such reasonable times and as often as may be
reasonably requested in writing; and
(b) Default -- if a Default or Event of Default then exists, at
the expense of the Company to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine
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all their respective books of account, records, reports and other papers, to
make copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers and independent public
accountants (and by this provision the Company authorizes said accountants to
discuss the affairs, finances and accounts of the Company and its
Subsidiaries), all at such times and as often as may be requested.
8. PREPAYMENT OF THE NOTES.
8.1. Required Prepayments.
(a) On October 1, 2001, and on each October 1 thereafter to and
including October 1, 2009, the company will prepay $3,333,000 principal amount
(or such lesser principal amount as shall then be outstanding) of the Notes at
par and without payment of the Make-Whole Amount or any premium provided that
upon any partial prepayment of the Notes pursuant to Section 8.1(b) or Section
8.2 or purchase of the Notes permitted by Section 8.5 the principal amount of
each required prepayment of the Notes becoming due under this Section 8.1 on
and after the date of such prepayment or purchase shall be reduced in the same
proportion as the aggregate unpaid principal amount of the Notes is reduced as
a result of such prepayment or purchase.
(b) Within 45 days of receipt of a notice of Change of Control
given pursuant to Section 7.1(j), each holder of Notes may give notice to the
Company requiring that the entire outstanding principal amount of its Notes,
but not less than such entire outstanding principal amount, be prepaid. Upon
receipt of a notice requiring the prepayment of a holder's Notes pursuant to
this Section 8.1(b), the Company shall, on a date within 30 days of such
receipt to be fixed by the Company by notice to the holder given at least 10
days prior to the prepayment date, prepay the entire outstanding principal
amount of such holder's Notes at 101% of such principal amount, together with
accrued interest on such Notes to the prepayment date.
8.2. Optional Prepayments with Make-Whole Amount.
The Company may, at its option, upon notice as provided below, prepay
at any time all, or from time to time any part of, the Notes, in an amount not
less than 10% of the aggregate principal amount of the Notes then outstanding
in the case of a partial prepayment, at par, plus the Make-Whole Amount
determined for the prepayment date with respect to the principal amount so
prepaid. The Company will give each holder of Notes written notice of each
optional prepayment under this Section 8.2 not less than 30 days and not more
than 60 days prior to the date fixed for such prepayment. Each such notice
shall specify such date, the aggregate principal amount of the Notes to be
prepaid on such date, the principal amount of each Note held by such holder to
be prepaid (determined in accordance with Section 8.3), and the interest to be
paid on the prepayment date with respect to such principal amount been prepaid,
and shall be accompanied by a certificate of a Senior Financial Officer as to
the estimated Make-Whole Amount due in connection with such prepayment
(calculated as if the date of such notice were the date of the prepayment),
setting forth the details of such computation. Two Business Days prior to such
prepayment, the Company shall deliver to each
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<PAGE> 23
holder of Notes a certificate of a Senior Financial Officer specifying the
calculation of such Make-Whole Amount as of the specified prepayment date.
8.3. Allocation of Partial Prepayments.
In the case of each partial prepayment of the Notes, other than a
prepayment pursuant to Section 8.1(b), the principal amount of the Notes to
prepaid shall be allocated among all of the Notes at the time outstanding in
proportion, as nearly as practicable, to the respective unpaid principal
amounts thereof not theretofore called for prepayment.
8.4. Maturity; Surrender, etc.
In the case of each prepayment of Notes pursuant to this Section 8,
the principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable Make-Whole Amount, if
any. From and after such date, unless the Company shall fail to pay such
principal amount when so due and payable, together with the interest and
Make-Whole Amount, if any, as aforesaid, interest on such principal amount
shall cease to accrue. Any Note paid or prepaid in full shall be surrendered
to the Company and cancelled and shall not be reissued, and no Note shall be
issued in lieu of any prepaid principal amount of any Note.
8.5. Purchase of Notes.
The Company will not and will not permit any Affiliate to purchase,
redeem, prepay or otherwise acquire, directly or indirectly, any of the
outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes. The Company will
promptly cancel all Notes acquired by it or any Affiliate pursuant to any
payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any such
Notes.
8.6. Make-Whole Amount.
The term "Make-Whole Amount" means, with respect to any Note, an
amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, provided that the Make-Whole Amount may in no
event be less than zero. For the purposes of determining the Make-Whole
Amount, the following terms have the following meanings:
"Called Principal" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to Section 8.2
or has become or is declared to be immediately due and payable
pursuant to Section 12.1, as the context requires.
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<PAGE> 24
"Discounted Value" means, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining
Scheduled Payments with respect to such Called Principal from their
respective scheduled due dates to the Settlement Date with respect to
such Called Principal, in accordance with accepted financial practice
and at a discount factor (applied on the same periodic basis as that
on which interest on the Notes is payable) equal to the Treasury Rate
with respect to such Called Principal.
"Treasury Rate" means, with respect to the Called Principal of
any Note, 0.50% over the yield to maturity implied by the yields
reported, as of 10:00 A.M. (New York City time) on the second Business
Day preceding the Settlement Date with respect to such Called
Principal for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date (as compiled and published in the
most recent Federal Reserve Statistical Release H.15 (519) which has
been publicly available for at least two Business Days prior to the
Settlement Date, or, if such Statistical Release is no longer
published, any publicly available source of similar market data);
provided, however, that if there is no U.S. Treasury security for
which a weekly average yield is given which has a constant maturity
equal to the Remaining Average Life of the Notes, the Treasury Rate
shall be obtained by interpolating linearly between (1) the U.S.
Treasury security for which a weekly average yield is given with the
duration closest to and greater than the Remaining Average Life and
(2) the U.S. Treasury security for which a weekly average yield is
given with the duration closest to and less than the Remaining Average
Life, except that if the Remaining Average Life is less than one year,
the weekly average yield on actively traded U.S. Treasury securities
adjusted to a constant maturity of one year shall be used.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum
of the products obtained by multiplying (a) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (b) the number of years (calculated to the nearest one-twelfth
year) that will elapse between the Settlement Date with respect to
such Called Principal and the scheduled due date of such Remaining
Scheduled Payment.
"Remaining Scheduled Payments" means, with respect to the
Called Principal of any Note, all payments of such Called Principal
and interest thereon that would be due after the Settlement Date with
respect to such Called Principal if no payment of such Called
Principal were made prior to its scheduled due date, provided that if
such Settlement Date is not a date on which interest payments are due
to be made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of
interest accrued to such Settlement Date and required to be paid on
such Settlement Date pursuant to Section 8.2 or 12.1.
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"Settlement Date" means, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid
pursuant to Section 8.2 or has become or is declared to be immediately
due and payable pursuant to Section 12.1, as the context requires.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
9.1. Compliance with Law.
The Company will and will cause each of its Subsidiaries to comply
with all laws, ordinances or governmental rules or regulations to which each of
them is subject, including, without limitation, Environmental Laws, and will
obtain and maintain in effect all licenses, certificates, permits, franchises
and other governmental authorizations and make all filings and registrations
necessary to the ownership of their respective properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure
that non-compliance with such laws, ordinances or governmental rules or
regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations or to
make such filings and registrations would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
9.2. Insurance.
The Company will and will cause each of its Subsidiaries to maintain,
with financially sound and reputable insurers, insurance with respect to their
respective properties and businesses against such casualties and contingencies,
of such types, on such terms and in such amounts (including deductibles,
co-insurance and self-insurance, if adequate reserves are maintained with
respect thereto) as is customary in the case of entities of established
reputations engaged in the same or a similar business and similarly situated.
9.3. Maintenance of Properties.
The Company will and will cause each of its Subsidiaries to maintain
and keep, or cause to be maintained and kept, their respective properties in
good repair, working order and condition (other than ordinary wear and tear),
so that the business carried on in connection therewith may be properly
conducted at all times, provided that this Section shall not prevent the
Company or any Subsidiary from discontinuing the operation and the maintenance
of any of its properties if such discontinuance is desirable in the conduct of
its business and the Company has concluded that such discontinuance would not,
individually or in the aggregate, have a Material Adverse Effect.
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9.4. Payment of Taxes.
The Company will and will cause each of its Subsidiaries to file all
income tax or similar tax returns required to be filed in any jurisdiction and
to pay and discharge all taxes shown to be due and payable on such returns and
all other taxes, assessments, governmental charges, or levies payable by any of
them, to the extent such taxes and assessments have become due and payable and
before they have become delinquent, provided that neither the Company nor any
Subsidiary need pay any such tax or assessment if (i) the amount, applicability
or validity thereof is contested by the Company or such Subsidiary on a timely
basis in good faith and in appropriate proceedings, and the Company or a
Subsidiary has established adequate reserves therefor in accordance with GAAP
on the books of the Company or such Subsidiary or (ii) nonpayment of all such
taxes and assessments in the aggregate would not reasonably be expected to have
a Material Adverse Effect.
9.5. Corporate Existence, etc.
The Company will at all times do or cause to be done all things
necessary (i) to preserve and keep in full force and effect its existence,
rights and franchises and (ii) to maintain each Restricted Subsidiary as a
Restricted Subsidiary, except as otherwise permitted by Section 10.7.
9.6 Gas Purchase Contracts.
If at any time the Company does not have in effect a fuel adjustment
clause or a similar mechanism approved by the WVPSC by which the rates charged
by the Company are automatically adjusted to reflect variations in natural gas
prices paid by the Company, the Company shall have in place hedging mechanisms
that are reasonably sufficient to protect against market fluctuations in the
wholesale natural gas market for an amount of natural gas equal to at least 66
2/3% of the natural gas to be purchased by the Company including, without
limitation, natural gas to be purchased under a contract between the Company
and MGS or EAEC.
9.7 Amendment of Bank Agreements.
On or before December 15, 1995, the Company will amend or replace the
covenants in its loan arrangements with One Valley Bank, N.A., Pittsburgh
National Bank and Bank One, West Virginia either (i) to substitute a
requirement that the Company comply with the applicable covenants in this
Agreement, including but not limited to Section 10.4, for the covenants which
presently, incorporate requirements of the CIGNA agreements or which otherwise
limit the payment of Restricted Payments by the Company or (ii) to eliminate
entirely any limitations on the payment of Restricted Payments by the Company.
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10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
10.1. Transactions with Affiliates.
The Company will not, and will not permit any Restricted Subsidiary
to, enter into directly or indirectly any transaction or group of related
transactions (including without limitation the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate unless (i) such transaction or group of related transactions are
between or among the Company and its Restricted Subsidiaries or (ii) such
transaction or group of transactions are pursuant to the reasonable
requirements of the Company's or such Restricted Subsidiary's business and upon
fair and reasonable terms no less favorable to the Company or such Restricted
Subsidiary than would be obtainable in a comparable arm's-length transaction
with a Person not an Affiliate; provided, however, that the Company and its
Restricted Subsidiaries may, in each fiscal year of the Company, pay up to an
aggregate of $720,000 to Affiliates for management or other services provided
by such Affiliates if such payments are permitted under Section 10.4 and are
approved, to the extent required, by the WVPSC.
10.2. Merger, Consolidation, etc.
(a) The Company shall not consolidate with or merge with any other
corporation or sell, convey, assign, transfer, lease or otherwise dispose of
all or substantially all of the assets of the Company and its Restricted
Subsidiaries in a single transaction or series of transactions to any Person or
Persons unless:
(1) (i) the Company is the surviving person of such
merger or consolidation; or (ii) the successor formed by such
consolidation or the survivor of such merger or the Person that
acquires all or substantially all of the assets of the Company and its
Restricted Subsidiaries as an entirety, as the case may be (the
"Surviving Entity"), shall be a solvent corporation organized and
existing under the laws of the United States or any State thereof
(including the District of Columbia), and, if the Company is not such
corporation, such corporation shall have executed and delivered to
each holder of any Notes its assumption of the due and punctual
performance and observance of each covenant and condition of this
Agreement and the Notes; and
(2) immediately before and after giving effect to such
transaction or series of transactions (including any Indebtedness
incurred in connection therewith), no Default or Event of Default
shall have occurred and be continuing; and
(3) immediately after giving effect to such transaction
or series of transactions, the Company or the Surviving Entity, as the
case may be, could incur $1.00 of additional Consolidated Funded
Indebtedness pursuant to Section 10.3.
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No such conveyance, assignment, transfer, lease or other disposition of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
shall have the effect of releasing the Company or any successor corporation
that shall theretofore have become such in the manner prescribed in this
Section 10.2 from its liability under this Agreement or the Notes.
(b) The Company shall not permit any Restricted Subsidiary to
consolidate with or merge into any other corporation or sell, convey, assign,
transfer, lease or otherwise dispose of all or substantially all of its assets
except as permitted by Section 10.2(a).
10.3. Indebtedness.
(a) The Company will not directly or indirectly become liable for,
create, issue, assume, guarantee, renew or extend any Funded Indebtedness
(other than the Notes) unless:
(i) immediately after giving effect to the incurrence of
such Funded Indebtedness and the application of the proceeds
therefrom, the ratio of Consolidated Funded Indebtedness to Total
Capitalization of the Company and its Restricted Subsidiaries on a
consolidated basis will not exceed 0.65 to 1.00; and
(ii) the ratio of EBIT to Pro Forma Interest Expense for
the Company and its Restricted Subsidiaries on a consolidated basis,
after given effect to the incurrence of such Funded Indebtedness and
the application of the proceeds therefrom on a pro forma basis, would
not have been less than 1.5 to 1.0 in a period of at least 12
consecutive months during the preceding 15 calendar months.
(b) The Company will not permit any Restricted Subsidiary
to become liable for, create, issue, assume, guarantee, renew or
extend, directly or indirectly, any Indebtedness.
(c) The Company will not directly or indirectly become
liable for, create, issue, assume, guarantee, renew or extend any
Indebtedness if in connection therewith, the Company must agree to a
limitation on Restricted Payments that is more restrictive than the
provisions of Section 10.4.
(d) The Company will not permit Current Debt to exceed
$70,000,000 at any time. The Company will either (i) have no Current
Debt outstanding on any day during a period of at least thirty
consecutive days during each period of twelve consecutive months, or
(ii) there shall be a period of thirty consecutive days during each
twelve month period when the Company would be entitled to incur at
least $1 of additional Funded Indebtedness under Section 10.3(a) if,
for purposes of the test provided in clause (i) of Section 10.3(a),
Consolidated Funded Indebtedness included the average balance of
Current Debt outstanding during such thirty-day period plus the
highest balance of Funded Indebtedness of the Company outstanding on
any day during such thirty-day period. Each quarterly compliance
certificate delivered pursuant to Section 7.2(b) shall designate the
most recent thirty-day
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period during which the Company satisfied the requirements of this
Section 10.3(d) and the average balance of Current Debt, if any,
outstanding during such thirty-day period. If during such thirty-day
period Current Debt was outstanding, an amount of Current Debt equal
to the average balance during such period shall be included in Funded
Indebtedness of the Company for all purposes of this Agreement until
the Company next satisfies the requirements of this Section by having
no Current Debt outstanding for at least thirty consecutive days.
10.4. Restricted Payments.
The Company will not, and will not permit any Restricted Subsidiary
to, declare, make or become obligated to make, directly or indirectly, any
Restricted Payment unless, after giving effect to such Restricted Payment, (1)
no Default or Event of Default shall have occurred and be continuing, (2) the
Company can incur $1.00 of additional Funded Indebtedness under Section 10.3,
and (3) the aggregate amount of all Restricted Payments made by the Company and
its Restricted Subsidiaries since the date of issuance of the Notes does not
exceed the sum of (i) $8,000,000 plus (ii) 90% of the cumulative Consolidated
Net Income from the date of issuance of the Notes (or, if Consolidated Net
Income is a loss for such period, minus 100% of such loss).
10.5. Negative Pledge.
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, cause or permit, or agree or consent to cause or
permit in the future (upon the happening of a contingency or otherwise) any of
its property now owned or hereafter acquired, including the property of any
Restricted Subsidiary, or any income, profits of proceeds therefrom, to be
subject to a Lien of any kind except:
(1) Liens securing the payment of taxes, assessments or
governmental charges or levies or the demands of suppliers, mechanics,
carriers, warehousers, landlords and other like Persons, provided that
(A) such Liens do not in the aggregate materially reduce the value of
any properties subject to the Liens or materially interfere with their
use in the ordinary conduct of the owning company's business and (B)
all claims which the Liens secure are not yet due or are being
actively contested in good faith and by appropriate proceedings and
for which such owning company has established adequate reserves in
accordance with GAAP;
(2) Liens incurred or deposits made in the ordinary
course of business (A) in connection with worker's compensation,
unemployment insurance. social security and other like laws, or (B) to
secure the performance of letters of credit, bids, tenders, sales
contracts, leases, statutory obligations, surety, appeal and
performance bonds and other similar obligations, in each case not
incurred in connection with the borrowing of money, the obtaining of
advances or the payment of the deferred purchase price or property;
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(3) attachment, and other similar Liens arising in
connection with court or regulatory proceedings, provided that (A)
execution and other enforcement are effectively stayed, (B) all claims
which the Liens secure are being actively contested in good faith and
by appropriate proceedings and (C) adequate book reserves have been
established with respect thereto;
(4) mechanics', workmen's, materialmen's', construction
and other similar liens arising in the ordinary course of business or
incident to the construction or improvement of any property, provided
that the obligations which those Liens secure are not yet due;
(5) Liens identified in Schedule 5.15 existing on the
date hereof, provided that the Indebtedness secured by such Liens
shall not be increased or renewed and the time for repayment of such
Indebtedness shall not be extended:
(6) Purchase Money Mortgages or conditional sale.
Capital Lease, sale/leaseback or other title retention agreements or
other Liens incurred, taken subject to or assumed in connection with
the purchase. lease, improvement or construction of property or to
secure Indebtedness incurred solely for the purpose of financing the
acquisition, lease, construction or improvement of any such property
to be subject to such mortgages, agreements or other Liens; provided,
however, that (A) such property is to be used in the business of the
Company or its Restricted Subsidiaries, (B) the Indebtedness secured
by any such Lien is permitted by Section 10.3 and does not exceed 80%
of the lesser of the purchase price or the fair market value of the
property subject to such Lien, and (C) no such Lien shall extend to or
cover any property not originally subject thereto, other than
improvements to the property originally subject thereto; and
(7) Liens securing an aggregate amount of Funded
Indebtedness, in addition to that permitted by paragraph (6), which is
incurred as permitted by Section 10.3 and does not exceed 5% of
Consolidated Net Tangible Assets.
10.6 Disposition of Assets.
(a) Neither the Company nor any Restricted Subsidiary will sell,
lease, transfer or otherwise dispose or any or its assets, other than
Restricted Investments, if the aggregate net book value of assets disposed of
since the date of issuance of the Notes would exceed $10,000,000.
(b) Any sale of assets by the Company or any Restricted Subsidiary
permitted by paragraph (a) (other than sales of assets in the ordinary course
of business) shall be for not less than the fair market value of the assets
sold, as determined by a resolution of the Board of Directors of the Company or
the Restricted Subsidiary, whose determination shall be conclusive in the
absence of bad faith. Not less than 85% of the consideration received by the
Company or a Restricted Subsidiary on a sale of assets shall consist of cash or
cash equivalents.
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10.7 Issuance and Sale of Restricted Subsidiaries' Stock.
Neither the Company nor any Restricted Subsidiary will sell or
otherwise dispose of any Indebtedness owned by it or any shares owned by it of
the stock (or any options or warrants to purchase stock or other Securities
exchangeable for or convertible into stock) of a Restricted Subsidiary (said
stock, options, warrants and other Securities herein called "Subsidiary
Stock"), nor will any Restricted Subsidiary issue, sell or otherwise dispose of
any shares of its own Subsidiary Stock, except to the Company or a Wholly-Owned
Restricted Subsidiary; provided that the foregoing restrictions do not apply to
the issue of directors' qualifying shares.
10.8 Net Worth.
The Company will at all times maintain Consolidated Tangible
Shareholders' Equity of at least $53,000,000.
10.9 Line of Business.
Neither the Company nor MGS will own or operate any business other
than the business of an operating natural gas distribution utility or the
business of an oil and gas exploration, production, marketing and transmission
company; provided, however, that the Company and MGS may own or operate any
business or businesses engaged in operations related to and consistent with
their current lines of business.
11. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following conditions
or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal, interest
or Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the performance of or compliance with
any term contained in Section 7.1(e), (f) or (j or Section 10.1 through Section
10.9; or
(c) the Company defaults in the performance of or compliance with
any term contained herein (other than those referred to in paragraphs (a) and
(b) of this Section 11) and such default is not remedied within 30 days after
the earlier of (i) a Responsible Officer obtaining actual knowledge of such
default and (ii) the Company receiving written notice of such default from any
holder of a Note (any such written notice to be identified as a "notice of
default" and to refer specifically to this paragraph (c) of Section 11); or
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(d) any representation or warranty made in writing by or on behalf
of the Company or by any officer of the Company in this Agreement or in any
writing furnished in connection with the transactions contemplated hereby
proves to have been false or incorrect in any material respect on the date as
of which made; or
(e) (i) the Company or any Restricted Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any principal of
or premium or make-whole amount or interest on any Indebtedness that is
outstanding in an aggregate principal amount of at least $5,000,000 beyond any
period of grace provided with respect thereto, or (ii) the Company or any
Restricted Subsidiary is in default in the performance of or compliance with
any term of any evidence of any Indebtedness in an aggregate outstanding
principal amount of at least $5,000,000 or of any mortgage, indenture or other
agreement relating thereto or any other condition exists, and as a consequence
of such default or condition such Indebtedness has become or has been declared
due and payable, or any holder of such Indebtedness or a trustee is permitted
to declare such Indebtedness to be due and payable, before its stated maturity
or before its regularly scheduled dates of payment; or
(f) the Company or any Restricted Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they become
due, (ii) files, or consents by answer or otherwise to the filing against it
of, a petition for relief or reorganization or arrangement or any other
petition in bankruptcy, for liquidation or to take advantage of any bankruptcy,
insolvency, reorganization, moratorium or other similar law of any
jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv)
consents to the appointment of a custodian, receiver, trustee or other officer
with similar powers with respect to it or with respect to any substantial part
of its property, (v) is adjudicated as insolvent or to be liquidated, or takes
corporate action for the purpose of any of the foregoing; or
(g) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Company or any of its
Restricted Subsidiaries, a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial part of
its property, or constituting an order for relief or approving a petition for
relief or reorganization or any other petition in bankruptcy or for liquidation
or to take advantage of any bankruptcy or insolvency law of any jurisdiction.
or ordering the dissolution, winding-up or liquidation of the Company or any of
its Restricted Subsidiaries, or any such petition shall be filed against the
Company or any of its Restricted Subsidiaries and such petition shall not be
dismissed within 60 days; or
(h) a final judgment or judgments for the payment of money
aggregating in excess of $500,000 are rendered against one or more of the
Company and its Restricted Subsidiaries and such judgments are not, within 30
days after entry thereof, bonded, discharged or staved pending appeal, or are
not discharged within 30 days after the expiration of such stay; or
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<PAGE> 33
(i) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a waiver of
such standards or extension of any amortization period is sought Or granted
under section 412 of the Code. (ii) a notice of intent to terminate any Plan
shall have been or is reasonably expected to be filed with the PBGC or the PBGC
shall have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have notified the
Company or any ERISA Affiliate that a Plan may become a subject Of any such
proceedings, (iii) the aggregate "amount of unfunded benefit liabilities"
(within the meaning of section 4001(a)(18) of ERISA) under all Plans,
determined in accordance with Title IV of ERISA, shall exceed $10,000,000, (iv)
the Company or any ERISA Affiliate shall have incurred or is reasonably
expected to incur any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit
plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer
Plan, or (vi) the Company or any Subsidiary establishes or amends any employee
welfare benefit plan that provides post-employment welfare benefits in a manner
that would increase the liability of the Company or any Subsidiary thereunder;
and any such event or events described in clauses (i) through (vi) above,
either individually or together with any other such event or events, would
reasonably be expected to have a Material Adverse Effect.
As used in Section 11(i), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such term
in Section 3 of ERISA.
12. REMEDIES ON DEFAULT, ETC.
12.1. Acceleration.
(a) If an Event of Default with respect to the Company described
in paragraph (f) or (g) of Section 11 (other than an Event of Default described
in clause (i) of paragraph (f)) has occurred, all the Notes then outstanding
shall automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is continuing,
any holder or holders of more than 50% in principal amount of the Notes at the
time outstanding may at any time at its or their option, by notice or notices
to the Company, declare all the Notes then outstanding to be immediately due
and payable.
(c) If any Event of Default described in paragraph (a) of Section
11 has occurred and is continuing, any holder or holders of Notes at the time
outstanding affected by such Event of Default may at any time, at its or their
option, by notice or notices to the Company, declare all the Notes held by it
or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1.
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Make-Whole Amount determined
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<PAGE> 34
in respect of such principal amount (to the full extent permitted by applicable
law), shall all be immediately due and payable, in each and every case without
presentment, demand, protest or further notice, all of which are hereby waived.
The Company acknowledges, and the parties hereto agree, that each holder of a
Note has the right to maintain its investment in the Notes free from repayment
by the Company (except as herein specifically provided for) and that the
provision for payment of a Make-Whole Amount by the Company in the event that
the Notes are prepaid or are accelerated as a result of an Event of Default, is
intended to provide compensation for the deprivation of such right under such
circumstances.
12.2. Other Remedies.
If any Default or Event of Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under Section 12.1, the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any Note, or for
an injunction against a violation of any of the terms hereof or thereof, or in
aid of the exercise of any power granted hereby or thereby or by law or
otherwise.
12.3. Rescission.
At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 51
% in principal amount of the Notes then outstanding, by written notice to the
Company, may rescind and annul any such declaration and its consequences if (a)
the Company has paid all overdue interest on the Notes, all principal of and
Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid
other than by reason of such declaration, and all interest on such overdue
principal and Make-Whole Amount, if any, and (to the extent permitted by
applicable law) any overdue interest in respect of the Notes, at the Default
Rate, (b) all Events of Default and Defaults, other than non-payment of amounts
that have become due solely by reason of such declaration, have been cured or
have been waived pursuant to Section 17, and (c) no judgment or decree has been
entered for the payment of any monies due pursuant hereto or to the Notes. No
rescission and annulment under this Section 12.3 will extend to or affect any
subsequent Event of Default or Default or impair any right consequent thereon.
12.4. No Waivers or Election of Remedies, Expenses. etc.
No course of dealing and no delay on the part of any holder of any
Note in exercising any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice such holder's rights, powers or remedies. No right,
power or remedy conferred by this Agreement or by any Note upon any holder
thereof shall be exclusive of any other right, power or remedy referred to
herein or therein or now or hereafter available at law, in equity, by statute
or otherwise. Without limiting the obligations of the Company under Section
15, the Company will pay to the holder of each Note on demand such further
amount as shall be sufficient to cover all costs and expenses of such holder
-29-
<PAGE> 35
incurred in any enforcement or collection under this Section 12, including,
without limitation, reasonable attorneys' fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1. Registration of Notes.
The Company shall keep at its principal executive office a register
for the registration and registration of transfers of Notes. The name and
address of each holder of one or more Notes, each transfer thereof and the name
and address of each transferee of one or more Notes, shall be registered in
such register. Prior to due presentment for registration of transfer, the
Person in whose name any Note shall be registered shall be deemed and treated
as the owner and holder thereof for all purposes hereof, and the Company shall
not be affected by any notice or knowledge to the contrary. The Company shall
give to any holder of a Note that is an Institutional Investor, promptly upon
request therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
13.2. Transfer and Exchange of Notes.
Upon surrender of any Note at the principal executive office of the
Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of such
Note or his attorney duly authorized in writing and accompanied by the address
for notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one
or more new Notes (as requested by the holder thereof) in exchange therefor, in
an aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be substantially in the form of Exhibit 1. Each
such new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes. Notes shall not be
transferred in denominations of less than $500,000, provided that if necessary
to enable the registration of transfer by a holder of its entire holding of
Notes, one Note may be in a denomination of less than $500,000. Any transferee,
by its acceptance of a Note registered in its name (or the name of its
nominee), shall be deemed to have made the representation set forth in Section
6.2.
13.3. Replacement of Notes.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the ownership of and the loss, theft, destruction or mutilation of any Note
(which evidence shall be, in the case of an Institutional Investor, notice from
such Institutional Investor of such ownership and such loss, theft, destruction
or mutilation), and
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<PAGE> 36
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note is, or
is a nominee for, an original Purchaser or an Institutional Investor, such
Person's own unsecured agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof, the Company at its own expense shall execute and deliver, in lieu
thereof, a new Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Note or dated
the date of such lost, stolen, destroyed or mutilated Note if no interest shall
have been paid thereon.
14. PAYMENT ON NOTES.
14.1. Place of Payment.
Subject to Section 14.2, payments of principal, Make-Whole Amount, if
any, and interest becoming due and payable on the Notes shall be made in
Charleston, West Virginia at the principal office of the Company in such
jurisdiction. The Company may at any time, by notice to each holder of a Note,
change the place of payment of the Notes so long as such place of payment shall
be either the principal office of the Company in the United States or the
principal office of a bank or trust company in the United States.
14.2. Home Office Payment.
So long as you or your nominee shall be the holder of any Note, and
notwithstanding anything contained in Section 14.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for
principal, Make-Whole Amount, if any, and interest by the method and at the
address specified for such purpose below your name in Schedule A, or by such
other method or at such other address as you shall have from time to time
specified to the Company in writing for such purpose, without the presentation
or surrender of such Note or the making of any notation thereon, except that
upon written request of the Company made concurrently with or reasonably
promptly after payment or prepayment in full of any Note, you shall surrender
such Note for cancellation, reasonably promptly after any such request, to the
Company at its principal executive office or at the place of payment most
recently designated by the Company pursuant to Section 14.1. Prior to any sale
or other disposition of any Note held by you or your nominee you will, at your
election, either endorse thereon the amount of principal paid thereon and the
last date to which interest has been paid thereon or surrender such Note to the
Company in exchange for a new Note or Notes pursuant to Section 13.2. The
Company will afford the benefits of this Section 14.2 to any Institutional
Investor that is the direct or indirect transferee of any Note purchased by you
under this Agreement and that has made the same agreement relating to such Note
as you have made in this Section 14.2.
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<PAGE> 37
15. EXPENSES, ETC.
15.1. Transaction Expenses.
Whether or not the transactions contemplated hereby are consummated,
the Company will pay all costs and expenses (including reasonable attorneys'
fees of a special counsel and, if reasonably required, local or other counsel)
incurred by you and each holder of a Note in connection with such transactions
and in connection with any amendments, waivers or consents under or in respect
of this Agreement or the Notes (whether or not such amendment, waiver or
consent becomes effective), including, without limitation: (a) the costs and
expenses incurred in enforcing or defending (or determining whether or how to
enforce or defend) any rights under this Agreement or the Notes or in
responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Agreement or the Notes, or by reason of
being a holder of any Note, and (b) the costs and expenses, including financial
advisors' fees, incurred in connection with the insolvency or bankruptcy of the
Company or any Subsidiary or in connection with any work-out or restructuring
of the transactions contemplated hereby and by the Notes. The Company will
pay, and will save you and each other holder of a Note harmless from, all
claims in respect of any fees, costs or expenses, if any, of brokers and
finders (other than those retained by you).
15.2. Survival.
The obligations of the Company under this Section 15 will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement or the Notes, and the termination of this
Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or
transfer by you of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any subsequent holder of a Note,
regardless of any investigation made at any time by or on behalf of you or any
other holder of a Note. All statements contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant to this Agreement
shall be deemed representations and warranties of the Company under this
Agreement. Subject to the preceding sentence, this Agreement and the Notes
embody the entire agreement and understanding between you and the Company and
supersede all prior agreements and understandings relating to the subject
matter hereof.
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<PAGE> 38
17. AMENDMENT AND WAIVER.
17.1. Requirements.
This Agreement and the Notes may be amended. and the observance of any
term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and the
Required Holders, except that (a) no amendment or waiver of any of the
provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it
is used therein), will be effective as to you unless consented to by you in
writing, and (b) no such amendment or waiver may, without the written consent
of the holder of each Note at the time outstanding affected thereby, (i)
subject to the provisions of Section 12 relating to acceleration or rescission,
change the amount or time of any prepayment or payment of principal of, or
reduce the rate or change the time of payment or method of computation of
interest or of the Make-Whole Amount on, the Notes or change the currency in
which such payments are to be made, (ii) change the percentage of the principal
amount of the Notes the holders of which are required to consent to any such
amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or
20.
17. Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 17 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay or
cause to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, to any holder of Notes as
consideration for or as an inducement to the entering into by any holder of
Notes or any waiver or amendment of any of the terms and provisions hereof
unless such remuneration is concurrently paid, or security is concurrently
granted, on the same terms, ratably to each holder of Notes then outstanding
even if such holder did not consent to such waiver or amendment.
17.3. Binding Effect, etc.
Any amendment or waiver consented to as provided in this Section 17
applies equally to all holders of Notes and is binding upon them and upon each
future holder of any Note and upon the Company without regard to whether such
Note has been marked to indicate such amendment or waiver. No such amendment
or waiver will extend to or affect any obligation, covenant, agreement, Default
or Event of Default not expressly amended or waived or impair any right
consequent
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thereon. No course of dealing between the Company and the holder of any Note
nor any delay in exercising any rights hereunder or under any Note shall
operate as a waiver of any rights of any holder of such Note. As used herein,
the term "THIS AGREEMENT" and references thereto shall mean this Agreement as
it may from time to time be amended or supplemented.
17.4. Notes Held by Company, etc.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or the Notes, or have directed the taking of any
action provided herein or in the Notes to be taken upon the direction of the
holders of a specified percentage of the aggregate principal amount of Notes
then outstanding, Notes directly or indirectly owned by the Company or any of
its Affiliates shall be deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the
address specified for such communications in Schedule A, or at such
other address as you or it shall have specified to the Company in
writing,
(ii) if to any other holder of any Note, to such holder at
such address as such other holder shall have specified to the Company
in writing, or
(iii) if to the Company, to the Company at its address set
forth at the beginning hereof to the attention of Michael S. Fletcher,
Senior Vice President and Chief Financial Officer, or at such other
address as the Company shall have specified to the holder of each Note
in writing.
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including. without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
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<PAGE> 40
photographic, photostatic. microfilm, microcard, miniature photographic or
other similar process and you may destroy any original document so reproduced.
The Company agrees and stipulates that, to the extent permitted by applicable
law, any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you
in the regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
This Section 19 shall not prohibit the Company or any other holder of Notes
from contesting any such reproduction to the same extent that it could contest
the original, or from introducing evidence to demonstrate the inaccuracy of any
such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means
information delivered to you by or on behalf of the Company or any Subsidiary
in connection with the transactions contemplated by or otherwise pursuant to
this Agreement that is proprietary in nature and that was clearly marked or
labeled or otherwise adequately identified when received by you as being
confidential information of the Company or such Subsidiary, provided that such
term does not include information that (a) was publicly known or otherwise
known to you prior to the time of such disclosure, (b) subsequently becomes
publicly known through no act or omission by you or any person acting on your
behalf, (c) otherwise becomes known to you other than through disclosure by the
Company or any Subsidiary or (d) constitutes financial statements delivered to
you under Section 7.1 that are otherwise publicly available. You will maintain
the confidentiality of such Confidential Information in accordance with
procedures adopted by you in good faith to protect confidential information of
third parties delivered to you, provided that you may deliver or disclose
Confidential Information to (i) your directors, officers, employees, agents,
attorneys and affiliates (to the extent such disclosure reasonably relates to
the administration of the investment represented by your Notes), (ii) your
financial advisors and other professional advisors who agree to hold
confidential the Confidential Information substantially in accordance with the
terms of this Section 20, (iii) any other holder of any Note, any Institutional
Investor to which you sell or offer to sell such Note or any part thereof or
any participation therein (if such Person has agreed in writing prior to its
receipt of such Confidential Information to be bound by the provisions of this
Section 20), (v) any Person from which you offer to purchase any security of
the Company (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 20),
(vi) any federal or state regulatory authority having jurisdiction over you,
(vii) the National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires access
to information about your investment portfolio, or (viii) any other Person to
which such delivery or disclosure may be necessary or appropriate (w) to effect
compliance with any law, rule, regulation or order applicable to you, (x) in
response to any subpoena or other legal process, (y) in connection with any
litigation to which you are a parry or (z) if an Event of Default has occurred
and is continuing, to the extent you may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under your Notes and this Agreement.
Each holder
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of a Note, by its acceptance of a Note, will be deemed to have agreed to be
bound by and to be entitled to the benefits of this Section 20 as though it
were a party to this Agreement. On reasonable request by the Company in
connection with the delivery to any holder of a Note of information required to
be delivered to such holder under this Agreement or requested by such holder
(other than a holder that is a party to this Agreement to its nominee), such
holder will enter into an agreement with the Company embodying the provisions
of this Section 20.
21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates as
the purchaser of the Notes that you have agreed to purchase hereunder, by
written notice to the Company, which notice shall be signed by both you and
such Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than
in this Section 21), such word shall be deemed to refer to such Affiliate in
lieu of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word "you" is used in this Agreement (other than in this Section
21), such word shall no longer be deemed to refer to such Affiliate, but shall
refer to you, and you shall have all the rights of an original holder of the
Notes under this Agreement.
22. MISCELLANEOUS.
22.1. Successors and Assigns.
All covenants and other agreements contained in this Agreement by or
on behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any
subsequent holder of a Note) whether so expressed or not.
22.2. Payments Due on Non-Business Days.
Anything in this Agreement or the Notes to the Contrary
notwithstanding, any payment of principal of or Make- Whole Amount or interest
on any Note that is due on a date other than a Business Day shall be made on
the next succeeding Business Day without including the additional days elapsed
in the computation of the interest payable on such next succeeding Business
Day.
22.3. Severability.
Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without
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invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by
law) not invalidate or render unenforceable such provision in any other
jurisdiction.
22.4. Construction.
Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not (absent
such an express contrary provision) be deemed to excuse compliance with any
other covenant. Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
22.5. Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
22.6. Governing Law.
This Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the Commonwealth of
Massachusetts excluding choice-of-law principles of the law of such State that
would require the application of the laws of a jurisdiction other than such
State.
* * * * *
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If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to
the Company, whereupon the foregoing shall become a binding agreement between
you and the Company.
Very truly yours,
MOUNTAINEER GAS COMPANY
By /s/ Richard L. Grant
-----------------------------------
Name: Richard L. Grant
Title: President
The foregoing is hereby
agreed to as of the
date thereof.
JOHN HANCOCK MUTUAL
LIFE INSURANCE COMPANY
By [Illegible]
----------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 4.3
================================================================================
ENERGY CORPORATION OF AMERICA
As Issuer
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
------------------
INDENTURE
Dated as of May 23, 1997
------------------
------------------
THE BANK OF NEW YORK
As Trustee
------------------
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
<S> <C>
310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3
313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . 7.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6;11.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3;11.2
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . 11.4
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . 11.4
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3-10.5
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5;11.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316 (a)(last sentence) . . . . . . . . . . . . . . . . . . 2.9
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . 6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . 6.4
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.11
317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
</TABLE>
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<TABLE>
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318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1
</TABLE>
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N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE> 4
TABLE OF CONTENTS
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ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Other Definitions . . . . . . . . . . . . . . . . . . 22
Section 1.3. Incorporation By Reference of Trust Indenture Act . . 23
Section 1.4. Rules of Construction . . . . . . . . . . . . . . . . 23
ARTICLE 2
THE NOTES
Section 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . 24
Section 2.2. Execution and Authentication . . . . . . . . . . . . 26
Section 2.3. Registrar and Paying Agent . . . . . . . . . . . . . 27
Section 2.4. Paying Agent To Hold Money in Trust . . . . . . . . . 27
Section 2.5. Securityholder Lists . . . . . . . . . . . . . . . . 28
Section 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . 28
Section 2.7. Replacement Securities . . . . . . . . . . . . . . . 35
Section 2.8. Outstanding Securities . . . . . . . . . . . . . . . 36
Section 2.9. Temporary Securities . . . . . . . . . . . . . . . . 36
Section 2.10. Cancellation . . . . . . . . . . . . . . . . . . . . 37
Section 2.11. Defaulted Interest . . . . . . . . . . . . . . . . . 37
Section 2.12. CUSIP Numbers . . . . . . . . . . . . . . . . . . . 37
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.1. Notices to Trustee . . . . . . . . . . . . . . . . . 37
Section 3.2. Selection of Securities to Be Redeemed . . . . . . . 38
Section 3.3. Notice of Redemption . . . . . . . . . . . . . . . . 38
Section 3.4. Effect of Notice of Redemption . . . . . . . . . . . 39
Section 3.5. Deposit of Redemption Price . . . . . . . . . . . . . 40
Section 3.6. Securities Redeemed in Part . . . . . . . . . . . . . 40
Section 3.7. Optional Redemption . . . . . . . . . . . . . . . . . 40
Section 3.8. Mandatory Redemption . . . . . . . . . . . . . . . . 41
Section 3.9. Offer to Purchase By Application of Excess Proceeds. . 41
</TABLE>
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ARTICLE 4
COVENANTS
Section 4.1. Payment of Securities . . . . . . . . . . . . . . . . 44
Section 4.2. Maintenance of Office or Agency . . . . . . . . . . . 44
Section 4.3. SEC Reports . . . . . . . . . . . . . . . . . . . . . 45
Section 4.4. Compliance Certificate . . . . . . . . . . . . . . . 45
Section 4.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 4.6. Limitations on Restricted Payments . . . . . . . . . 46
Section 4.7. Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock . . . . . . . . . . . . . . . 49
Section 4.8. Limitations on Dividend and Other Payment
Restrictions Affecting Subsidiaries . . . . . . . . . . . . 52
Section 4.9. Asset Sales . . . . . . . . . . . . . . . . . . . . . 53
Section 4.10. Liens . . . . . . . . . . . . . . . . . . . . . . . 54
Section 4.11. Offer to Repurchase Upon Change of Control . . . . . 55
Section 4.12. Transactions with Affiliates . . . . . . . . . . . . 57
Section 4.13. Sale and Leaseback Transactions . . . . . . . . . . 58
Section 4.14. Limitation on Guarantees of Indebtedness by
Restricted Subsidiaries . . . . . . . . . . . . . . . . . . 58
Section 4.15. Limitation on the Sale or Issuance of Capital
Stock of Restricted Subsidiaries . . . . . . . . . . . . . . 59
Section 4.16. Corporate Existence . . . . . . . . . . . . . . . . 60
Section 4.17. No Layering . . . . . . . . . . . . . . . . . . . . 60
Section 4.18. Business Activities . . . . . . . . . . . . . . . . 61
ARTICLE 5
SUCCESSORS
Section 5.1. Merger, Consolidation, or Sale of Substantially
All Assets . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 5.2. Successor Corporation Substituted . . . . . . . . . . 62
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1. Events of Default . . . . . . . . . . . . . . . . . . 63
Section 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . 65
Section 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . 66
</TABLE>
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Section 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . 66
Section 6.5. Control by Majority . . . . . . . . . . . . . . . . . 66
Section 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . 67
Section 6.7. Rights of Holders of Securities to Receive Payment . . 67
Section 6.8. Collection Suit by Trustee . . . . . . . . . . . . . 67
Section 6.9. Trustee May File Proofs of Claim . . . . . . . . . . 68
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . 68
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . 69
Section 6.12. Stay, Extension and Usury Laws . . . . . . . . . . . 69
ARTICLE 7
TRUSTEE
Section 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . 70
Section 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . 71
Section 7.3. Individual Rights of Trustee . . . . . . . . . . . . 72
Section 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . 72
Section 7.5. Notice of Defaults . . . . . . . . . . . . . . . . . 73
Section 7.6. Reports by Trustee to Holders of the Securities . . . 73
Section 7.7. Compensation and Indemnity . . . . . . . . . . . . . 73
Section 7.8. Replacement of Trustee . . . . . . . . . . . . . . . 74
Section 7.9. Successor Trustee by Merger, etc. . . . . . . . . . 76
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . 76
Section 7.11. Preferential Collection of Claims Against Company . 76
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1. Option to Effect Legal Defeasance or Covenant
Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 8.2. Legal Defeasance and Discharge . . . . . . . . . . . 76
Section 8.3. Covenant Defeasance . . . . . . . . . . . . . . . . . 77
Section 8.4. Conditions to Legal or Covenant Defeasance . . . . . 78
Section 8.5. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions . . . . . . . 79
Section 8.6. Repayment to Company . . . . . . . . . . . . . . . . 80
Section 8.7. Reinstatement . . . . . . . . . . . . . . . . . . . . 80
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . 81
Section 9.1. Without Consent of Holders of Securities . . . . . . 81
</TABLE>
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Section 9.2. With Consent of Holders of Securities . . . . . . . . 82
Section 9.3. Compliance with Trust Indenture Act . . . . . . . . . 84
Section 9.4. Revocation and Effect of Consents . . . . . . . . . . 84
Section 9.5. Notation on or Exchange of Securities . . . . . . . . 84
Section 9.6. Trustee to Sign Amendment, etc. . . . . . . . . . . 84
ARTICLE 10
SUBORDINATION
Section 10.1. Agreement to Subordinate . . . . . . . . . . . . . . 85
Section 10.2. Designated Senior Debt . . . . . . . . . . . . . . . 85
Section 10.3. Liquidation; Dissolution; Bankruptcy . . . . . . . . 85
Section 10.4. Default on Designated Senior Debt . . . . . . . . . 86
Section 10.5. Acceleration of Securities . . . . . . . . . . . . . 87
Section 10.6. When Distribution Must Be Paid Over . . . . . . . . 88
Section 10.7. Notice by Company . . . . . . . . . . . . . . . . . 88
Section 10.8. Subrogation . . . . . . . . . . . . . . . . . . . . 88
Section 10.9. Relative Rights . . . . . . . . . . . . . . . . . . 89
Section 10.10. Subordination May Not Be Impaired by Company . . . 89
Section 10.11. Payment, Distribution or Notice to Representative . 89
Section 10.12. Rights of Trustee and Paying Agent . . . . . . . . 90
Section 10.13. Authorization to Effect Subordination . . . . . . . 90
Section 10.14. Amendments . . . . . . . . . . . . . . . . . . . . 91
Section 10.15. No Waiver of Subordination Provisions . . . . . . . 91
Section 10.16. Not To Prevent Events of Default or Limit Right To
Accelerate . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 10.17. Trust Moneys Not Subordinated . . . . . . . . . . . 91
Section 10.18. "Trustee" to Include Paying Agent . . . . . . . . . 92
ARTICLE 11
MISCELLANEOUS
Section 11.1. Trust Indenture Act Controls . . . . . . . . . . . . 92
Section 11.2. Notices . . . . . . . . . . . . . . . . . . . . . . 92
Section 11.3. Communication by Holders of Securities with Other
Holders of Securities . . . . . . . . . . . . . . . . . . . 93
Section 11.4. Certificate and Opinion as to Conditions Precedent. . 93
Section 11.5. Statements Required in Certificate or Opinion . . . 94
Section 11.6. Acts of Holders; Rules by Trustee and Agents . . . . 95
</TABLE>
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Section 11.7. No Personal Liability of Directors, Officers,
Employees and Stockholders . . . . . . . . . . . . . . . . . 95
Section 11.8. Governing Law . . . . . . . . . . . . . . . . . . . 95
Section 11.9. No Adverse Interpretation of Other Agreements . . . 95
Section 11.10. Successors . . . . . . . . . . . . . . . . . . . . . 96
Section 11.11. Severability . . . . . . . . . . . . . . . . . . . . 96
Section 11.12. Counterpart Originals . . . . . . . . . . . . . . . 96
Section 11.13. Table of Contents, Headings, Etc. . . . . . . . . . 96
</TABLE>
EXHIBITS
Exhibit A FORM OF INITIAL NOTE
Exhibit B FORM OF EXCHANGE NOTE
Exhibit C FORM OF TRANSFEREE LETTER OF REPRESENTATIONS
Exhibit D FORM OF SUPPLEMENTAL INDENTURE
-v-
<PAGE> 9
INDENTURE dated as of May 23, 1997 between Energy Corporation of
America, a West Virginia corporation (the "Company"), as issuer, and The Bank
of New York, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of
each other and for the equal and ratable benefit of the Holders of the 9 1/2%
Senior Subordinated Notes due 2007 of the Company (the "Initial Notes") and, if
and when issued in exchange for Initial Notes as provided in the Registration
Rights Agreement (as hereinafter defined), the Company's 9 1/2% Senior
Subordinated Notes due 2007 (the "Exchange Notes" and, together with the
Initial Notes, the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1. Definitions.
"Acquired Debt" means, with respect to any specified Person (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms
"controlling,""controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement
or otherwise; provided that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Asset Sale" by a Person means (i) the sale, lease, conveyance or
other disposition (but excluding the creation of a Lien) of any assets
including, without limitation, by way of a sale and leaseback (provided that
the sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Company and its Restricted Subsidiaries taken as a whole
shall be governed by Sections 4.11 and/or 5.1 hereof and not by Section 4.9
hereof), and (ii) the issuance or sale by such Person or any of its Restricted
Subsidiaries of Equity Interests of any of such Person's Subsidiaries
(including the sale by the Company or a Restricted Subsidiary of Equity
Interests in an Unrestricted Subsidiary), in the case of either clause (i) or
(ii), whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $5 million or 1% of Total
<PAGE> 10
Assets at the time of such transaction or (b) for net proceeds in excess of the
greater of $5 million or 1% of Total Assets at the time of such transaction.
Notwithstanding the foregoing, the following shall not be deemed to be Asset
Sales: (i) a transfer of assets by such Person to a Wholly Owned Restricted
Subsidiary of such Person by a Wholly Owned Restricted Subsidiary of such
Person to such Person or to another Wholly Owned Restricted Subsidiary of such
Person, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary of such Person to such Person or to another Wholly Owned Restricted
Subsidiary of such Person, (iii) the making of a Restricted Payment or a
Permitted Investment that is permitted by Section 4.6, (iv) the abandonment,
farm-out, lease or sublease of undeveloped oil and gas properties in the
ordinary course of business, (v) the trade or exchange by such Person or any
Restricted Subsidiary of such Person of any oil and gas property owned or held
by such Person or such Restricted Subsidiary for any oil and gas property or
properties owned or held by another Person, which the Board of Directors of the
Company determines in good faith to be of approximately equivalent value, (vi)
the sale or transfer of oil, natural gas, natural gas liquids or hydrocarbons
or mineral products or surplus or obsolete equipment in the ordinary course of
business, (vii) the sale or lease of equipment, inventory, accounts receivable
or obsolete or surplus equipment or assets in the ordinary course of business
consistent with past practice, (viii) the trade or exchange by the Company or
any Restricted Subsidiary of the Company of any oil and gas property or
properties owned or held by the Company or such Restricted Subsidiary for any
oil and gas property or properties owned or held by another Person provided
that the fair market value of the properties traded or exchanged by the Company
or such Restricted Subsidiary (including any cash or Cash Equivalents to be
delivered by the Company or such Restricted Subsidiary) is reasonably
equivalent to the fair market value of the properties (together with any cash
or Cash Equivalents) to be received by the Company or such Restricted
Subsidiary as determined in good faith by (A) any officer of the Company if
such fair market value is less than $5 million and (B) the Board of Directors
of the Company as certified by a resolution delivered to the Trustee if such
fair market value is equal to or in excess of $5 million.
"Attributable Debt" in respect of a sale and leaseback
transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP) of the obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback transaction
(including any period for which such lease has been extended or may, at the
option of the lessor, be extended). As used in the preceding sentence, the
"net rental payment" under any lease for any such period shall mean the sum of
rental and other payments required to be paid with respect to such period by
the lessee thereunder, excluding any amounts required to be paid by such lessee
on account of maintenance and repairs, insurance, taxes, assessments, water
rates or similar charges.
"Bankruptcy Code" means Title 11 of the United States Code, as
amended.
"Board of Directors" means the Board of Directors of the Company
or a Subsidiary Guarantor, if any, or any authorized committee of such Board of
Directors.
"Business Day" means any day other than a Legal Holiday.
<PAGE> 11
"Capital Lease Obligation" means an obligation that is required
to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed as to full and timely
payment or insured by the United States government or any agency or
instrumentality thereof having maturities of not more than one year from the
date of acquisition, (iii) demand or time deposits,certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any lender party to the Credit
Agreement or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having a rating of at least P1 from Moody's
(or its successor) and a rating of at least A1 from S&P (or its successor) and
(vi) investments in money market or other mutual funds substantially all of
whose assets comprise securities of the types described in clauses (ii) through
(v) above.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other than by
way of merger or consolidation), in one or a series of related transactions, of
all or substantially all of the assets of the Company and its Subsidiaries
taken as a whole to any "person" or group of related "persons" (a "Group") (as
such terms are used in Section 13(d)(3) of the Exchange Act), (ii) the adoption
of a plan relating to the liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any purchase,
sale, acquisition, disposition, merger or consolidation) the result of which is
that any "person" (as defined above) or Group becomes the "beneficial owner"
(as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act)
of more than 35% of the outstanding Voting Stock of the Company having the
right to elect directors under ordinary circumstances other than any such
transaction where (A) the outstanding Voting Stock of the Company is changed
into or exchanged for voting stock of the surviving corporation which is not
Disqualified Stock or (B) John Mork and Julie Mork continue to own, directly or
indirectly, not less than a majority of the Voting Stock of the surviving
corporation immediately after such transaction
3
<PAGE> 12
or (iv) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors.
"Closing Date" the date of the closing of the sale of the
Securities offered pursuant to the Offering.
"Commission" means the Securities and Exchange Commission.
"Consolidated Cash Flow" means, with respect to any Person for
any period, the Consolidated Net Income of such Person for such period plus (i)
an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale (together with any related provision for taxes),
to the extent such losses were included in computing such Consolidated Net
Income, plus (ii) an amount equal to the provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period
(including state franchise taxes), to the extent that such provision for taxes
was deducted in computing such Consolidated Net Income, plus (iii) consolidated
interest expense of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued (including, without limitation, amortization of
original issue discount and capitalized debt issuance costs, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Interest Rate
Hedging Agreements), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, depletion and
amortization expenses (including amortization of goodwill and other
intangibles) for such Person and its Restricted Subsidiaries for such period to
the extent that such depreciation, depletion and amortization expenses were
deducted in computing such Consolidated Net Income, plus (v) exploration and
impairment expenses for such Person and its Restricted Subsidiaries for such
period to the extent such expenses were deducted in computing such Consolidated
Net Income, plus (vi) other non-cash charges (excluding any such non-cash
charge to the extent that it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Restricted Subsidiaries for such
period to the extent that such other noncash charges were deducted in computing
such Consolidated Net Income, in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation,
depletion and amortization and other non-cash charges and expenses of, a
Restricted Subsidiary of the referent Person shall be added to Consolidated Net
Income to compute Consolidated Cash Flow only to the extent (and in the same
proportion) that the Net Income of such Restricted Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to such Person by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
4
<PAGE> 13
"Consolidated Net Income" means, with respect to any Person for
any period, the aggregate of the Net Income of such Person and its Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof during such period, (ii) the Net Income of any Restricted
Subsidiary shall be included (x) to the extent that the declaration or payment
of dividends or similar distributions by that Restricted Subsidiary of that Net
Income is at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders and (y), with respect to a Restricted Subsidiary
that is not a Wholly Owned Restricted Subsidiary, in an amount equal to the pro
rata share of such dividend or distribution (in accordance with the Equity
Interests thereof held by the Company and its Restricted Subsidiaries), (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means the total of the amounts shown on
the balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of
the most recent fiscal quarter of the Company ending prior to the taking of any
action for the purpose of which the determination is being made and for which
financial statements are available (but in no event ending more than 135 days
prior to the taking of such action), as (i) the par or stated value of all
outstanding Capital Stock of the Company, plus (ii) paid-in capital or capital
surplus relating to such Capital Stock, plus (iii) any retained earnings or
earned surplus, less (A) any accumulated deficit (in each case excluding any
minority interest) and (B) any amounts attributable to Disqualified Stock.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of
such Board of Directors on the date of original issuance of the Securities or
(ii) was nominated for election or elected to such Board of Directors with the
approval of (A) two-thirds of the Continuing Directors who were members of such
Board at the time of such nomination or election or (B) two-thirds of those
Directors who were previously approved by Continuing Directors.
"Corporate Trust Office of the Trustee" shall be at the address
of the Trustee specified in Section 11.2 hereof or such other address as to
which the Trustee may give notice to the Company.
"Credit Agreement" means that certain Credit Agreement, dated as
of May 20, 1997, between the Company, and General Electric Capital Corporation,
as agent and lender, and certain other financial institutions, as lenders,
providing for up to $50 million of Indebtedness, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
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<PAGE> 14
connection therewith, and in each case as amended, restated, modified, renewed,
refunded, replaced or refinanced, in whole or in part, from time to time,
whether or not with the same lenders or agents.
"Credit Facilities" means, with respect to the Company, one or
more debt facilities (including, without limitation, the Credit Agreement) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, Production Payments, receivables
financing (including through the sale of receivables to such lenders or to
special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated,
modified, renewed, refunded, replaced or refinanced in whole or in part from
time to time. Indebtedness under Credit Facilities outstanding on the date on
which the Securities are first issued and authenticated under this Indenture
(after giving effect to the use of proceeds thereof) shall be deemed to have
been incurred on such date in reliance on the exception provided by clause (b)
of the definition of Permitted Indebtedness set forth in Section 4.7 hereof.
"Debt to Cash Flow Ratio" means with respect to any Person for
any period, the ratio of the Indebtedness of such Person for such period to the
Consolidated Cash Flow of such Person for such period; provided, that, for
purposes of the foregoing, Indebtedness shall not include Indebtedness of such
Person that is required to be repaid within 12 months after the incurrence
thereof except to the extent that the aggregate principal amount of any such
Indebtedness outstanding at any time exceeds the amount permitted to be
outstanding by any credit agreement to which such Person is a party. In the
event that such Person or any of its Subsidiaries incurs, assumes, guarantees
or redeems any Indebtedness (other than revolving credit borrowings) subsequent
to the commencement of the period for which the Debt Coverage Ratio is being
calculated but prior to the date on which the calculation of the Debt Coverage
Ratio is made (the "Debt to Cash Flow Calculation Date"), then the Debt
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, as if the same had
occurred at the beginning of the applicable four-quarter reference period. In
addition, for purposes of making the computation referred to above, (i)
acquisitions that have been made by such Person or any of its Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Debt to Cash Flow Calculation Date
(including, without limitation, any acquisition to occur on the Debt to Cash
Flow Calculation Date) shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income, (ii) the net proceeds
of Indebtedness incurred or Disqualified Stock issued by such Person pursuant
to Section 4.7 hereof during the four-quarter reference period and on or prior
to the Debt to Cash Flow Calculation Date shall be deemed to have been received
by such Person or any of its Subsidiaries on the first day of the four-quarter
reference period and applied to its intended use on such date and (iii) the
Consolidated Cash Flow attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Debt to Cash Flow Calculation Date, shall be excluded.
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"Default" means any event that is or with the passage of time or
the giving of notice or both would be an Event of Default.
"Depository" means, with respect to the Securities issued in the
form of one or more Global Securities, The Depository Trust Company or another
Person designated as Depository by the Company, which must be a clearing
agency registered under the Exchange Act.
"Designated Senior Debt" means (i) the Credit Agreement and (ii)
any other Senior Debt permitted under this Indenture the principal amount of
which is $25 million or more and that has been designated by the Company as
"Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms
(or by the terms of any security into which it is convertible or for which it
is exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, is convertible
or exchangeable for Indebtedness or Disqualified Stock or redeemable at the
option of the holder thereof, in whole or in part, on or prior to the date that
is 91 days after the date on which the Securities mature.
"Dollar-Denominated Production Payments" means production payment
obligations recorded as liabilities in accordance with GAAP, together with all
undertakings and obligations in connection therewith.
"Energy Business" means (i) the operation of one or more natural
gas distribution businesses, (ii) the acquisition, exploration, development,
operation and disposition of interests in oil, gas and other hydrocarbon
properties, (iii) the gathering, purchasing, marketing, treating, processing,
storage, selling and transporting of any natural oil, gas and other minerals or
hydrocarbon products, (iv) any business related to any business or activity
described in clause (i) or clause (iii) of this definition, including, without
limitation, (a) the production of electricity or other sources of power
utilizing oil, gas or other hydrocarbon products and (b) providing services in
support of or incidental to any business or activity described in clause (i) or
clause (ii) of this definition and (v) any activity that is ancillary to or
necessary to appropriate for the activities described in clauses (i) through
(iv) of this definition.
"Equity Interests" means Capital Stock and all warrants, options
or other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"ESC" means Eastern Systems Corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fixed Charge Coverage Ratio" means with respect to any Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such
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<PAGE> 16
Person for such period. In the event that the Company or any of its Restricted
Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other
than revolving credit borrowings) or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date on which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation
Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect to such incurrence, assumption, guarantee or redemption of
Indebtedness, or such issuance or redemption of preferred stock, as if the same
had occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of making the computation referred to above,
Consolidated Cash Flow and Fixed Charges shall be calculated on a pro forma
basis, in the manner specified below, with respect to the following events: (i)
acquisitions that have been made by such Person or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
(including, without limitation, any acquisition to occur on the Calculation
Date) shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall be
calculated (a) without giving effect to clause (iii) of the proviso set forth
in the definition of Consolidated Net Income and (b) giving effect to pro forma
adjustments relating to such acquisition that would generally be permitted
under applicable accounting standards with respect to pro forma financial
statements, (ii) the net proceeds of Indebtedness incurred or Disqualified
Stock issued by such Person pursuant to the first paragraph of Section 4.7
hereof during the four-quarter reference period or subsequent to such reference
period and on or prior to the Calculation Date shall be deemed to have been
received by such Person or any of its Restricted Subsidiaries on the first day
of the four-quarter reference period and applied to its intended use on such
date, (iii) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded and (iv) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall
be excluded, but only to the extent that the obligations giving rise to such
Fixed Charges shall not be obligations of the referent Person or any of its
Restricted Subsidiaries following the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period,
the sum, without duplication, of (i) the consolidated interest expense of such
Person and its Restricted Subsidiaries (excluding the interest expense at
Mountaineer) for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Interest Rate
Hedging Agreements), (ii) the consolidated interest expense of such Person and
its Restricted Subsidiaries that was capitalized during such period, (iii) any
interest expense on Indebtedness of another Person that is guaranteed by such
Person or any of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or any of its Restricted Subsidiaries (whether or not such
guarantee or Lien is called upon) and (iv)
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<PAGE> 17
the product of (a) all cash dividend payments (and non-cash dividend payments
in the case of a Person that is a Restricted Subsidiary) on any series of
preferred stock of such Person or any of its Restricted Subsidiaries, times (b)
a fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession as of the date hereof.
"Government Securities" means securities that are (a) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such
Government Security or a specific payment of principal of or interest on any
such Government Security held by such custodian for the account of the holder
of such depository receipt; provided, that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the custodian
in respect of the Government Security or the specific payment of principal of
or interest on the Government Security evidenced by such depository receipt.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Guarantor Senior Indebtedness" means any Indebtedness of a
Subsidiary Guarantor permitted to be incurred under the terms of this
Indenture, unless the Instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Subsidiary Guarantee of such Subsidiary Guarantor, including
interest accruing subsequent to the filing of, or which would have accrued but
for the filing of, a petition for bankruptcy, whether or not such interest is
an allowable claim in such bankruptcy proceeding. Notwithstanding anything to
the contrary in the foregoing, Guarantor Senior Indebtedness will not include
(1) any liability for federal, state, local or other taxes owed or owing by any
Subsidiary Guarantor, (2) any obligation of a Subsidiary Guarantor to the
Company, (3) any accounts payable or trade liabilities of a Subsidiary
Guarantor arising in the ordinary course of business (including instruments
evidencing such liabilities), (4) any Indebtedness of a Subsidiary Guarantor
that is incurred in violation of this Indenture, (5) Indebtedness of a
Subsidiary Guarantor which, when
9
<PAGE> 18
incurred and without respect to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to such Subsidiary Guarantor, (6) any
Indebtedness, guarantee or obligation of a Subsidiary Guarantor which is
subordinate or junior to any other Indebtedness, guarantee or obligation of
such Subsidiary Guarantor, (7) Indebtedness evidenced by a Subsidiary Guarantee
and (8) Capital Stock of a Subsidiary Guarantor.
"Holder" means a Person in whose name a Security is registered on
the Registrar's books.
"Indebtedness" means, with respect to any Person, without
duplication, (a) any indebtedness of such Person, whether or not contingent,
(i) in respect of borrowed money, (ii) evidenced by bonds, notes, debentures or
similar instruments, (iii) evidenced by letters of credit (or reimbursement
agreements in respect thereof) or banker's acceptances, (iv) representing
Capital Lease Obligations, (v) representing the balance deferred and unpaid of
the purchase price of any property, except any such balance that constitutes an
accrued expense or trade payable, (vi) representing any obligations in respect
of Interest Rate Hedging Agreements or Oil and Gas Hedging Contracts, and (vii)
in respect of any Production Payment, (b) all indebtedness of others secured by
a Lien on any asset of such Person (whether or not such indebtedness is assumed
by such Person), (c) obligations of such Person in respect of production
imbalances, (d) Attributable Debt of such Person and (e) to the extent not
otherwise included in the foregoing, the guarantee by such Person of any
indebtedness of any other Person.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Initial Purchasers" means Chase Securities Inc. and Prudential
Securities Incorporated.
"Interest Rate Hedging Agreements" means, with respect to any
Person, the obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investments" means, with respect to any Person, all investments
by such Person in other Persons (including Affiliates) in the form of direct or
indirect loans (including guarantees of Indebtedness or other obligations, but
excluding trade credit and other ordinary course advances customarily made in
the Energy Business), advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that the following shall not constitute
Investments: (i) an acquisition of assets, Equity Interests or other
securities by the Company for consideration consisting of common equity
securities of the Company, (ii) Interest Rate Hedging Agreements entered into
in accordance with the limitations set forth in clause (g) of the definition of
"Permitted Indebtedness"
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set forth in Section 4.7 hereof and (iii) Oil and Gas Hedging Contracts entered
into in accordance with the limitations set forth in clause (h) of the
definition of "Permitted Indebtedness" set forth in Section 4.7 hereof. If
such Person or any Restricted Subsidiary of such Person sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary of such
Person such that, after giving effect to any such sale or disposition, such
entity is no longer a Subsidiary of such Person, such Person shall be deemed to
have made an Investment on the date of any such sale or disposition equal to
the fair market value of the Equity Interests of such Subsidiary not sold or
disposed of.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York, the City of Denver or at a place
of payment are authorized by law, regulation or executive order to remain
closed. If a payment date is a Legal Holiday at a place of payment, payment
may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction other than a precautionary financing statement respecting a lease
not intended as a security agreement and other than a financing statement
relating to a sale of accounts receivable).
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions)
or (b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries and (ii) any extraordinary or
nonrecurring gain (but not loss), together with any related provision for taxes
on such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale, but
excluding cash amounts placed in escrow, until such amounts are released to the
Company), net of the direct costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees and expenses,
and sales commissions) and any relocation expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing arrangements),
amounts required to be applied to the
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repayment of Indebtedness (other than Indebtedness under any Credit Facility)
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP and any reserve established for
future liabilities.
"Non-Recourse Debt" means Indebtedness as to which (i) neither
the Company nor any Restricted Subsidiary is directly or indirectly liable
pursuant to the terms of such Indebtedness and (ii) no default with respect to
such Indebtedness would permit (upon notice, lapse of time or otherwise) any
holder of any other Indebtedness of the Company or any Restricted Subsidiary to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Securities by the Company.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary, the Assistant Secretary or any Vice-President of
such Person.
"Officers' Certificate" means a certificate signed on behalf of
the Company, by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.5 hereof.
"Oil and Gas Hedging Contracts" means any oil and gas purchase or
hedging agreement, and other agreement or arrangement, in each case, that is
designed to provide protection against oil and gas price fluctuations.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.5 hereof. The counsel may be an employee of or counsel to the Company or
the Trustee.
"Pari Passu Debt" means (a) with respect to the Securities,
Indebtedness which ranks pari passu in right of payment to the Securities and
(b) with respect to any Subsidiary Guarantee, Indebtedness which ranks pari
passu in right of payment to such Subsidiary Guarantee.
"Permitted Indebtedness" has the meaning ascribed to it in
Section 4.7 hereof.
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<PAGE> 21
"Permitted Investments" of a Person means (a) any Investment in
such Person or in a Wholly Owned Restricted Subsidiary of such Person; (b) any
Investment in Cash Equivalents or securities issued or directly and fully
guaranteed as to full and timely payment or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than one year from the date of acquisition; (c) any Investment by such
Person or any Restricted Subsidiary of such Person in a Person if, as a result
of such Investment and any related transactions that at the time of such
Investment are contractually mandated to occur, (i) such Person becomes a
Wholly Owned Restricted Subsidiary of such Person or (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys all
or substantially all of its assets to, or is liquidated into, such Person or a
Wholly Owned Restricted Subsidiary of such Person; (d) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was
made pursuant to and in compliance with Section 4.9 hereof; (e) Investments by
the Company or any Wholly Owned Restricted Subsidiary in any Person which is a
Wholly Owned Restricted Subsidiary; (f) Investments in the Company by any
Wholly Owned Restricted Subsidiary; (g) Investments in any Person the
consideration for which consists of Equity Interests in the Company (other than
Disqualified Stock); (h) other Investments in any Person or Persons having an
aggregate fair market value (measured on the date each such Investment was made
and without giving effect to subsequent changes in value (as determined in good
faith by the Board of Directors of the Company, which determination shall be
evidenced by a resolution of such Board)), when taken together with all other
Investments made by the Company and its Restricted Subsidiaries pursuant to
this clause (h) that are at the time outstanding not to exceed 5% of Total
Assets at the time such Investment is made; (i) any Investment acquired by the
Company in exchange for Equity Interests in the Company (other than
Disqualified Stock); (j) shares of Capital Stock received in connection with
any good faith settlement of a bankruptcy proceeding involving a trade
creditor; (k) entry into operating agreements, joint ventures, partnership
agreements, working interests, royalty interests, mineral leases, processing
agreements, farm-in agreements, farm-out agreements, contracts for the sale,
transportation or exchange of oil and natural gas, unitization agreements,
pooling arrangements, area of mutual interest agreements, joint development
agreements, concession, license or permit agreements relating to exploration
and development of oil and gas properties, production sharing agreements or
other similar or customary agreements, transactions, properties, interests or
arrangements, and Investments and expenditures in connection therewith or
pursuant thereto, in each case made or entered into the ordinary course of the
Energy Business, excluding, however, Investments in corporations other than any
Investment otherwise permitted by this definition; (l) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments; (m) the acceptance of notes payable from employees
of the Company or any of its Subsidiaries as payment for the purchase of
Capital Stock of the Company or any of its Subsidiaries by such employees
provided that any such note payable is secured by a pledge of the shares of
Capital Stock of a Subsidiary purchased therewith; (n) endorsements of
negotiable instruments and documents in the ordinary course of business; and
(o) any Investments outstanding on the date hereof (and any reinvestment of the
proceeds thereof in any similar investment).
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"Permitted Liens" means (i) Liens securing Indebtedness of a
Restricted Subsidiary or Senior Debt that is outstanding on the date of
issuance of the Securities (after giving effect to the application of the
proceeds therefrom), Liens securing Senior Debt that is permitted by the terms
of this Indenture to be incurred and Liens securing Permitted Refinancing Debt
relating to Indebtedness or Senior Debt referred to in this clause (i)
(provided that, with respect to Permitted Refinancing Debt, such Liens extend
to or cover only the property or assets securing the Indebtedness or Senior
Debt being refinanced); (ii) Liens in favor of the Company; (iii) Liens on
property existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company, Liens upon any property of any Person existing at
the time such Person is merged or consolidated with the Company or any
Subsidiary and Liens on property or assets of a Subsidiary existing at the time
it became a Subsidiary, provided, that in each case such Lien has not been
created in contemplation of such acquisition, merger, consolidation or
transfer, and provided further that in each such case no such Lien shall extend
to or cover any property of the Company or any Subsidiary other than the
property being acquired (through purchase, merger, consolidation or otherwise)
and improvements thereon; (iv) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance or other kinds of social security, old age pension or public
liability obligations or to secure the payment or performance of bids, tenders,
statutory or regulatory obligations, surety, stay or appeal bonds, performance
bonds or other obligations of a like nature incurred in the ordinary course of
business (including lessee or operator obligations under statutes, governmental
regulations or instruments related to the ownership, exploration and production
of oil, gas and minerals on state or federal lands or waters), (v) Liens
existing on the date of this Indenture (after giving effect to the application
of proceeds therefrom), (vi) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent, that do not materially adversely
affect the operations of the company or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded,
provided, that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefor; (vii) statutory liens of
landlords, mechanics, suppliers, vendors, warehousemen, carriers or other like
Liens arising in the ordinary course of business; (viii) judgment Liens not
giving rise to an Event of Default so long as any appropriate legal proceeding
that may have been duly initiated for the review of such judgment shall not
have been finally terminated or the period within which such proceeding may be
initiated shall not have expired; (ix) Liens on, or related to, properties or
assets to secure all or part of the costs incurred in the ordinary course of
the Energy Business for the exploration, drilling, development or operation
thereof; (x) Liens in pipelines or pipeline facilities that arise under
operation of law; (xi) Liens arising under operating agreements, joint venture
agreements, joint development agreements, partnership agreements, oil and gas
leases, farm-out agreements, division orders, contracts for the sale,
transportation or exchange of oil or natural gas, unitization and pooling
declarations and agreements, area of mutual interest agreements and other
agreements that are customary in the Energy Business; (xii) Liens reserved in
oil and gas mineral leases for bonus and rental payments and for compliance
with the terms of such leases; (xiii) Liens securing any Interest Rate Hedging
Agreement permitted to be entered into pursuant to Section 4.7 hereof; (xiv)
Liens securing any Oil and Gas Hedging Contract permitted to be entered into
pursuant to Section 4.7 hereof; (xv) survey exceptions, encumbrances, easements
or reservations of, or rights of others for, rights of way, zoning or other
restrictions as to the use of real properties, and minor defects in title
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<PAGE> 23
which, in the case of any of the foregoing, were not incurred or created to
secure the payment of borrowed money or the deferred purchase price of property
or services, and in the aggregate do not materially adversely affect the value
of such properties or materially impair use for the purposes of which such
properties are held by the Company or any Subsidiaries; (xvi) judgment and
attachment Liens not giving rise to an Event of Default or Liens created by or
existing from any litigation or legal proceeding that are currently being
contested in good faith by appropriate proceedings and for which adequate
reserves have been made; (xvii) Liens in favor of collecting or payor banks
having a right of setoff, revocation, refund or chargeback with respect to
money or instruments of the Company or any Subsidiary on deposit with or in
possession of such bank; (xviii) purchase money security interests granted in
connection with the acquisition of fixed assets in the ordinary course of
business and consistent with past practices, provided, that (A) such Liens
attach only to the property so acquired with the purchase money indebtedness
secured thereby and (B) such Liens secure only Indebtedness that is not in
excess of 100% of the purchase price of such fixed assets; (xix) Liens to
secure Dollar-Denominated Production Payments; and Volumetric Production
Payments; (xx) Liens securing the Securities and (xxi) Liens not otherwise
permitted by clauses (i) through (xx) that are incurred in the ordinary course
of business of the Company or any Subsidiary of the Company with respect to
obligations that do not exceed $5 million at any one time outstanding.
"Permitted Refinancing Debt" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness (other than Indebtedness incurred under a Credit
Facility) of the Company or any of its Restricted Subsidiaries; provided that:
(i) the principal amount of such Permitted Refinancing Debt (or, if such
Indebtedness is issued at a price less than the principal amount thereof, the
aggregate amount of gross proceeds therefrom) does not exceed the principal
amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased
or refunded plus the amount of reasonable expenses incurred in connection
therewith (or if the Indebtedness being renewed, extended, refinanced, refunded
or repurchased was issued at a price less than the principal amount thereof,
then not in excess of the amount of liability in respect thereof determined in
accordance with GAAP); (ii) such Permitted Refinancing Debt has a final
maturity date on or later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Securities or the Subsidiary Guarantees, if any, as the case may be, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the
Securities or the Subsidiary Guarantees, if any, as the case may be, on terms
at least as favorable taken as a whole to the Holders of the Securities or the
Subsidiary Guarantees, if any, as the case may be, as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either
by the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
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<PAGE> 24
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Production Payments" means Dollar-Denominated Production
Payments and Volumetric Production Payments, collectively.
"QIB" means any "qualified institutional buyer" (as defined under
the Securities Act).
"Registered Exchange Offer" shall have the meaning set forth in
the Registration Rights Agreement.
"Registration Rights Agreement" means the Exchange and
Registration Rights Agreement, dated May 23, 1997, among the Company, Chase
Securities Inc. and Prudential Securities Incorporated.
"Representative" means the indenture trustee or other trustee,
agent or representative for any Senior Debt.
"Responsible Officer" when used with respect to the Trustee,
means any officer within the Corporate Trust Department of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Subsidiary" means any direct or indirect Subsidiary
of the Company that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group and its successors.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the Trustee or the Registrar, as
custodian with respect to the Securities in global form, or any successor
entity thereto or any entity acting as custodian with respect to Securities in
global form.
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"Senior Debt" means (i) Indebtedness of the Company or any
Subsidiary of the Company under or in respect of any Credit Facility, whether
for principal, interest (including interest accruing after the filing of a
petition initiating any proceeding pursuant to any bankruptcy law, whether or
not the claim for such interest is allowed as a claim in such proceeding),
reimbursement obligations, fees, commissions, expenses, indemnities or other
amounts, and (ii) any other Indebtedness permitted under the terms hereof,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment to the
Securities. Notwithstanding anything to the contrary in the foregoing
sentence, Senior Debt will not include (w) any liability for federal, state,
local or other taxes owed or owing by the Company, (x) any Indebtedness of the
Company to any of its Subsidiaries or other Affiliates, (y) any trade payables
or (z) any Indebtedness that is incurred in violation hereof (other than
Indebtedness under (i) any Credit Agreement or (ii) any other Credit Facility
that is incurred on the basis of a representation by the Company to the
applicable lenders that it is permitted to incur such Indebtedness under this
Indenture).
"Senior Subordinated Indebtedness" means the Securities and any
other Indebtedness of the Company or a Subsidiary Guarantor, if any, that (i)
specifically provides that such Indebtedness is to rank pari passu with the
Securities or is otherwise entitled "Senior Subordinated" Indebtedness and (ii)
is not expressly subordinated by its terms in right of payment to any
Indebtedness of the Company that is not Senior Debt.
"Shelf Registration Statement" has the meaning ascribed to such
term in the Registration Rights Agreement.
"Subordinated Indebtedness" means any Indebtedness of the Company
or any Restricted Subsidiary (whether outstanding on the date of the issuance
of the Securities or thereafter incurred) which is subordinate or junior in
right of payment to the Securities pursuant to a written agreement.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock, entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or indirectly,
by such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means any guarantee of the obligations of
the Company under this Indenture and the Securities by any Person in accordance
with the provisions of this Indenture.
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<PAGE> 26
"Subsidiary Guarantor" means any Person that incurs a Subsidiary
Guarantee; provided that upon the release and discharge of such Person from its
Subsidiary Guarantee in accordance with this Indenture, such Person shall cease
to be a Subsidiary Guarantor.
"Tax Sharing Agreement" means the Tax Sharing Agreement, if any,
among the Company and its Subsidiaries, as the same may be amended,
supplemented, waived or otherwise modified from time to time.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Total Assets" means, with respect to any Person, the total
consolidated assets of such Person and its Restricted Subsidiaries, as shown on
the most recent balance sheet of such Person.
"Transfer Restricted Securities" means Securities that bear or
are required to bear the legend set forth in Section 2.6 hereof.
"Trustee" means the party named as such in the preamble to this
Indenture until a successor replaces it in accordance with the applicable
provisions of this Indenture and thereafter means the successor serving
hereunder.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
which at the time of determination shall be an Unrestricted Subsidiary (as
designated by the Board of Directors of the Company, as provided below) and
(ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of
the Company may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary or a Person becoming a Subsidiary through
merger or consolidation or Investment therein) to be an Unrestricted Subsidiary
only if (a) such Subsidiary does not own any Capital Stock of, or own or hold
any Lien on any property of, any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary; (b) all the Indebtedness of such Subsidiary shall, at the date of
designation, and will at all times thereafter; consist of Non-Recourse Debt;
(c) the Company certifies that such designation was permitted by Section 4.6;
(d) such Subsidiary, either alone or in the aggregate with all other
Unrestricted Subsidiaries, does not operate, directly or indirectly, all or
substantially all of the business of the Company and its Subsidiaries; (e) such
Subsidiary does not, directly or indirectly, own any Indebtedness of or Equity
Interest in, and has no Investments in, the Company or any Restricted
Subsidiary; (f) such Subsidiary is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (1) to subscribe for additional Equity Interests or (2) to maintain
or preserve such Person's financial condition or to cause such Person to
achieve any specified levels of operating results; and (g) on the date such
Subsidiary is designated an Unrestricted Subsidiary, such Subsidiary is not a
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary with terms substantially less favorable to the
Company than those that might have been obtained from Persons who are not
Affiliates of the Company. Any such designation by the Board of Directors of
the
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<PAGE> 27
Company shall be evidenced to the Trustee by filing with the Trustee a
resolution of the Board of Directors of the Company giving effect to such
designation and an Officer's Certificate certifying that such designation
complied with the foregoing conditions. If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of this Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred as of such date. The Board of Directors of the Company
may designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided, that immediately after giving effect to such designation, no Default
or Event of Default shall have occurred and be continuing or would occur as a
consequence thereof and the Company could incur at least $1.00 of additional
Indebtedness (excluding Permitted Indebtedness) pursuant to Section 4.7 on a
pro forma basis taking into account such designation.
"Volumetric Production Payments" means production payment
obligations recorded as deferred revenue in accordance with GAAP, together with
all undertakings and obligations in connection therewith.
"Voting Stock" means, with respect to any Person, securities of
any class or classes of Capital Stock in such Person normally entitling the
holders thereof to vote in the election of members of the Board of Directors or
other governing body of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a
Restricted Subsidiary of such Person, all of the outstanding Capital Stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned, directly or indirectly, by such Person or by one or
more Wholly Owned Restricted Subsidiaries of such Person.
Section 1.2. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
<S> <C>
"Affiliate Transaction" . . . . . . . . . . . . . . . 4.12
"Agent Members" . . . . . . . . . . . . . . . . . . . 2.1
"Asset Sale Offer" . . . . . . . . . . . . . . . . . . 3.9
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . 6.1
"Change of Control Offer" . . . . . . . . . . . . . . 4.11
"Change of Control Payment" . . . . . . . . . . . . . 4.11
</TABLE>
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<PAGE> 28
<TABLE>
<S> <C>
"Change of Control Payment Date" . . . . . . . . . . . 4.11
"Common Stock" . . . . . . . . . . . . . . . . . . . . 3.7
"Covenant Defeasance" . . . . . . . . . . . . . . . . 8.3
"Custodian" . . . . . . . . . . . . . . . . . . . . . 6.1
"Definitive Securities" . . . . . . . . . . . . . . . 2.1
"Eastern American" . . . . . . . . . . . . . . . . . . 4.12
"Energy Business Assets" . . . . . . . . . . . . . . . 4.9
"Event of Default" . . . . . . . . . . . . . . . . . . 6.1
"Excess Proceeds" . . . . . . . . . . . . . . . . . . 4.9
"Global Security" . . . . . . . . . . . . . . . . . . 2.1
"Guaranteed Debt" . . . . . . . . . . . . . . . . . . 4.14
"incur" . . . . . . . . . . . . . . . . . . . . . . . 4.7
"Legal Defeasance" . . . . . . . . . . . . . . . . . . 8.2
"Mountaineer" . . . . . . . . . . . . . . . . . . . . 4.7
"Non-Global Purchasers" . . . . . . . . . . . . . . . 2.1
"non-payment default" . . . . . . . . . . . . . . . . 10.4
"Notice of Default" . . . . . . . . . . . . . . . . . 6.1
"Offer Amount" . . . . . . . . . . . . . . . . . . . . 3.9
"Offer Period" . . . . . . . . . . . . . . . . . . . . 3.9
"Other Consideration" . . . . . . . . . . . . . . . . 4.9
"Paying Agent" . . . . . . . . . . . . . . . . . . . . 2.3
"Payment Blockage Notice" . . . . . . . . . . . . . . 10.4
"Payment Default" . . . . . . . . . . . . . . . . . . 6.1
"Purchase Date" . . . . . . . . . . . . . . . . . . . 3.9
"Register" . . . . . . . . . . . . . . . . . . . . . . 2.3
"Registrar" . . . . . . . . . . . . . . . . . . . . . 2.3
"Restricted Payments" . . . . . . . . . . . . . . . . 4.6
"Restricted Securities Legend" . . . . . . . . . . . . 2.6
"Rule 144A" . . . . . . . . . . . . . . . . . . . . . 2.1(a)
"Surviving Entity" . . . . . . . . . . . . . . . . . . 5.1
</TABLE>
Section 1.3. Incorporation By Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Securities;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
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<PAGE> 29
"obligor" with respect to the Securities means the Company and
with respect to the Subsidiary Guarantees, if any, means the Subsidiary
Guarantors and any successor obligor upon the Securities and the Subsidiary
Guarantees, respectively.
All other terms used in this indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by rule enacted by
the Commission under the TIA have the meanings so assigned to them.
Section 1.4. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and transactions;
and
(6) references to sections of or rules under the Securities
Act shall be deemed to include substitute, replacement of successor
sections or rules adopted by the Commission from time to time.
ARTICLE 2
THE NOTES
Section 2.1. Form and Dating. The Initial Notes and the
Trustee'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
Indenture. Any Exchange Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit B, which is incorporated in and
expressly made a part of this Indenture. The Securities 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
Security shall be dated the date of its authentication. The terms of the
Securities set forth in Exhibit A and B are part of the terms of this
Indenture.
(a) Global Securities. The Initial Notes are being offered
and sold by the Company pursuant to the Purchase Agreement.
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<PAGE> 30
Initial Notes offered and sold to QIBs in accordance with Rule
144A under the Securities Act ("Rule 144A") as provided in the Purchase
Agreement, shall be issued initially in the form of a single, permanent Global
Security in definitive, fully registered form without interest coupons with the
legend called for by Exhibit A hereto (the "Global Security"), which shall be
deposited on behalf of the Initial Purchasers of the Initial Securities
represented thereby with the Trustee, as Securities Custodian for the
Depository, and registered in the name of Cede & Co., as nominee of the
Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Global Security
may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as Securities Custodian, and the Depository or its
nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply
only to Global Securities deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance
with this Section 2.1(b), authenticate and deliver initially one or more Global
Securities that (i) shall be registered in the name of the Depository for such
Global Security or Global Securities or the nominee of such Depository and (ii)
shall be held by the Trustee as custodian for the Depository. After the
issuance of Exchange Notes under a Registered Exchange Offer, the Trustee shall
have no duty to hold any Global Security as custodian for the Depository or any
other Security registered in the name of the Depository or a nominee of the
Depository.
Members of, or participants in, the Depository ("Agent Members")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depository or by the Trustee as the custodian of
the Depository or under such Global Security, and the Depository may be treated
by the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices of such Depository governing the exercise of the rights of
a holder of a beneficial interest in any Global Security.
(c) Certificated Securities. Except as otherwise provided
herein, owners of beneficial interests in Global Securities will not be
entitled to receive physical delivery of certificated Securities. Purchasers
of Initial Securities who are not QIBs (referred to herein as the "Non-Global
Purchasers") will receive certificated Initial Securities bearing the
Restricted Securities Legend ("Definitive Securities"); provided, however, that
upon transfer of such Restricted Certificated Securities to a QIB, such
Restricted Certificated Securities will, unless the relevant Global Security
has previously been exchanged, be exchanged for an interest in a Global
Security pursuant to the provisions of Section 2.6 hereof. Definitive
Securities will include the Restricted Securities Legend unless removed in
accordance with this Section 2.1(c) or Section 2.6(g) hereof.
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<PAGE> 31
After a transfer of any Initial Notes during the period of the
effectiveness of, and pursuant to, a Shelf Registration Statement with respect
to the Initial Notes, all requirements pertaining to legends on such Initial
Notes will cease to apply, the requirements requiring that any such Initial
Notes issued to certain Holders be issued in global form will cease to apply,
and certificated Initial Notes without legends will be made available to the
Holders of such Initial Notes. Upon the consummation of a Registered Exchange
Offer with respect to the Initial Notes pursuant to which Holders of Initial
Notes are issued Exchange Notes in exchange for their Initial Notes, all
requirements pertaining to such Initial Notes that Initial Notes issued to
certain Holders be issued in global form will cease to apply and certificated
Initial Notes with the Restricted Notes Legend will be available to Holders of
such Initial Notes that do not exchange their Initial Notes, and Exchange Notes
in certificated form will be available to Holders that exchange such Initial
Notes in such Registered Exchange Offer.
Section 2.2. Execution and Authentication. One Officer shall
sign the Securities for the Company by manual or facsimile signature.
If an Officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates the Security, the Security
shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Security.
The signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee shall authenticate and make available for delivery
(1) Initial Notes for original issue in an aggregate principal amount of $200.0
million, and (2) Exchange Notes for issue only in a Registered Exchange Offer,
pursuant to the Registration Rights Agreement, for Initial Notes for a like
principal amount of Initial Notes exchanged pursuant thereto, in each case upon
a written order of the Company signed by one Officer. Such order shall specify
the amount of the Securities to be authenticated, the date on which the
original issue of Securities is to be authenticated and whether the Securities
are to be Initial Notes or Exchange Notes. The aggregate principal amount of
Securities outstanding at any time may not exceed $200.0 million.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate the Securities. Any such appointment shall be
evidenced by an instrument in writing signed by a Trust Officer, a copy of
which instrument shall be promptly furnished to the Company. Unless limited by
the terms of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Registrar, Paying Agent or
agent for service of notices and demands.
Section 2.3. Registrar and Paying Agent. The Company shall
maintain an office or agency where Securities may be presented for registration
of transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying
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<PAGE> 32
Agent"). The Registrar shall keep a register of the Securities and of their
transfer and exchange (the "Register"). The ownership of Securities shall be
proved by such Register. The Company may have one or more co-registrars and one
or more additional paying agents. The term "Paying Agent" includes any
additional paying agent.
The Company shall enter into an appropriate agency agreement with
any Registrar, Paying Agent or co-registrar not a party to this Indenture,
which shall incorporate the terms of the TIA. The agreement shall implement
the provisions of this Indenture that relate to such agent. The Company shall
notify the Trustee of the name and address of any such agent. The Company or
any of its Wholly Owned Restricted Subsidiaries may act as Paying Agent,
Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and
Paying Agent in connection with the Securities.
The Company initially appoints The Depository Trust Company to
act as Depository with respect to the Global Securities.
Section 2.4. Paying Agent To Hold Money in Trust. On or prior
to 11:00 a.m. on each due date of the principal and interest on any Security,
the Company shall deposit with the Paying Agent a sum sufficient to pay such
principal and interest when so becoming due. The Company shall require each
Paying Agent (other than the Trustee) to agree in writing that the Paying Agent
shall hold in trust for the benefit of Securityholders or the Trustee all money
held by the Paying Agent for the payment of principal of or interest on the
Securities and shall notify the Trustee of any default by the Company in making
any such payment. If the Company or a Subsidiary acts as Paying Agent, it
shall, on or immediately prior to each due date of the principal and interest
on any Security, segregate the money held by it as Paying Agent and hold it as
a separate trust fund. The Company at any time may require a Paying Agent to
pay all money held by it to the Trustee and to account for any funds disbursed
by the Paying Agent. Upon complying with this Section, the Paying Agent shall
have no further liability for the money delivered to the Trustee.
Any money deposited with the Trustee or any Paying Agent in trust
for the payment of principal and interest on any Security and remaining
unclaimed for two years after such principal and interest has become due and
payable shall be paid to the Company at its request; and the Holder of such
Security shall thereafter look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money
shall thereupon cease.
Section 2.5. Securityholder Lists. The Trustee shall preserve
in as current a form as is reasonably practicable the most recent list
available to it of the names and addresses of Securityholders. If the Trustee
is not the Registrar, the Company shall furnish to the Trustee, in writing at
least five Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of
Securityholders.
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<PAGE> 33
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of principal or interest on any
Security and remaining unclaimed for two years after such principal and
interest has become due and payable shall be paid to the Company at its
request, or, if then held by the Company, shall be discharged from such trust;
and the Holder of such Security shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of
the Trustee or such Paying Agent with respect to such trust money, and all
liability of the Company as trustee thereof, shall thereupon cease.
Section 2.6. Transfer and Exchange. (a) Transfer and Exchange
of Definitive Securities. When Definitive Securities are presented to the
Registrar or a co-registrar with a request:
(x) to register the transfer of such Definitive Securities; or
(y) to exchange such Definitive Securities for an equal
principal amount of Definitive Securities of other authorized
denominations,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Securities surrendered for transfer or
exchange:
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form and substance reasonably satisfactory to
the Company and the Registrar or co-registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing; and
(ii) in the case of Transfer Restricted Securities that are
Definitive Securities, are being transferred or exchanged pursuant to an
effective registration statement under the Securities Act or pursuant to
clause (A), (B) or (C) below, and are accompanied by the following
additional information and documents, as applicable:
(A) if such Transfer Restricted Securities are being
delivered to the Registrar 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 set forth on the
reverse of the Security); or
(B) if such Transfer Restricted Securities are being
transferred to the Company or to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act, a
certification to that effect (in substantially the form set forth
on the reverse of the Security); or
(C) if such Transfer Restricted Securities are being
transferred (w) pursuant to an exemption from registration in
accordance with Rule 144 or Regulation S under the Securities
Act; or (x) to an institutional "accredited investor" within the
meaning of Rules 501(a)(1), (2), (3) or (7) under the Securities
Act that is acquiring the
25
<PAGE> 34
security for its own account, or for the account of such an
institutional accredited investor, with respect to which it
exercises sole discretion, in each case in a minimum principal
amount of the Securities of $250,000 for investment purposes and
not with a view to, or for offer or sale in connection with, any
distribution in violation of the Securities Act; or (y) in
reliance on another exemption from the registration requirements
of the Securities Act: (i) a certification to that effect (in
substantially the form set forth on the reverse of the Security),
(ii) if the Company or Registrar so requests, an Opinion of
Counsel reasonably acceptable to the Company and to the Registrar
to the effect that such transfer is in compliance with the
Securities Act and (iii) in the case of clause (x), a signed
letter substantially in the form of Exhibit C hereto.
(b) Restrictions on Transfer of a Definitive Security for a
Beneficial Interest in a Global Security. A Definitive Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee
of a Definitive Security, duly endorsed or accompanied by appropriate
instruments of transfer, in form and substance satisfactory to the Trustee and
the Company, together with:
(i) if such Definitive Security is a Transfer Restricted
Security, certification, substantially in the form set forth on the
reverse of the Security, that such Definitive Security is being
transferred to a QIB in accordance with Rule 144A under the Securities
Act; and
(ii) whether or not such Definitive Security is a Transfer
Restricted Security, written instructions directing the Trustee to make,
or to direct the Securities Custodian to make, an adjustment on its
books and records with respect to such Global Security to reflect an
increase in the aggregate principal amount of the Securities represented
by the Global Security,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased accordingly. If no Global Securities are then outstanding, the
Company shall issue and the Trustee shall authenticate, upon written order of
the Company in the form of an Officer's Certificate, a new Global Security in
the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer
and exchange of Global Securities or beneficial interests therein shall be
effected through the Depository, in accordance with this Indenture (including
applicable restrictions on transfer set forth herein, if any) and the
procedures of the Depository therefor.
(d) Transfer of a Beneficial Interest in a Global Security for a
Definitive Security.
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<PAGE> 35
(i) Any person having a beneficial interest in a Global
Security that is being transferred or exchanged pursuant to an effective
registration statement under the Securities Act or pursuant to clause
(A),(B) or (C) below may upon request, and if accompanied by the
information specified below, exchange such beneficial interest for a
Definitive Security of the same aggregate principal amount. Upon
receipt by the Trustee of written instructions or such other form of
instructions as is customary for the Depository from the Depository or
its nominee on behalf of any Person having a beneficial interest in a
Global Security and upon receipt by the Trustee of a written order or
such other form of instructions as is customary for the Depository or
the Person designated by the Depository as having such a beneficial
interest in a Transfer Restricted Security only, the following
additional information and documents:
(A) if such beneficial interest is being transferred to
the Person designated by the Depository as being the owner of a
beneficial interest in a Global Security, a certification from
such Person to that effect (in substantially the form set forth
on the reverse of the Security); or
(B) if such beneficial interest is being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a
certification to that effect (in substantially the form set forth
on the reverse of the Security); or
(C) if such beneficial interest is being transferred (w)
pursuant to an exemption from registration in accordance with
Rule 144 or Regulation S under the Securities Act; or (x) to an
institutional "accredited investor" within the meaning of Rules
501(a)(1), (2), (3) and (7) under the Securities Act that is
acquiring the security for its own account, or for the account of
such an institutional accredited investor, with respect to which
it exercises sole discretion, in each case in a minimum principal
amount of the Securities of $250,000 for investment purposes and
not with a view to, or for offer or sale in connection with, any
distribution in violation of the Securities; or (y) in reliance
on another exemption from the registration requirements of the
Securities Act: (i) a certification to that effect from the
transferee or transferor (in substantially the form set forth on
the reverse of the Security), (ii) if the Company or Registrar so
requests, an Opinion of Counsel from the transferee or transferor
reasonably acceptable to the Company and to the Registrar to the
effect that such transfer is in compliance with the Securities
Act, and (iii) in the case of clause (x), a signed letter
substantially in the form of Exhibit C hereto,
then the Trustee or the Securities Custodian, at the direction of the
Trustee, will cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian,
the aggregate principal amount of the Global Security to be reduced on
its books and records and, following such reduction, the Company will
execute and the Trustee will authenticate and make available for
delivery to the transferee a Definitive Security.
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<PAGE> 36
(ii) Definitive Securities issued in exchange for a beneficial
interest in a Global Security pursuant to this Section 2.6(d) shall be
registered in such names and in such authorized denominations as the
Depository, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee
shall make such Definitive Securities available for delivery to the
persons in whose names such Securities are so registered in accordance
with the instructions of the Depository.
(e) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.6), a Global Security
may not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Authentication of Definitive Securities in Absence of
Depository. If at any time:
(i) the Depository for the Securities notifies the Company
that the Depository is unwilling or unable to continue as Depository for
the Global Securities and a successor Depository for the Global
Securities is not appointed by the Company within 90 days after delivery
of such notice; or
(ii) the Company, in its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of Definitive Securities
under this Indenture,
then the Company will execute, and the Trustee, upon receipt of an Officer's
Certificate requesting the authentication and delivery of Definitive Securities
to the Persons designated by the Company, will authenticate and make available
for delivery Definitive Securities, in an aggregate principal amount equal to
the principal amount of Global Securities, in exchange for such Global
Securities.
(g) Legend.
(i) Except as permitted by the following paragraph (ii), each
Security certificate evidencing the Global Securities and the Definitive
Securities (and all Securities issued in exchange therefor or
substitution thereof) shall bear a legend (the "Restricted Securities
Legend") in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION.
28
<PAGE> 37
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES, ON
ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT
HAS PURCHASED SECURITIES, TO OFFER, SELL OR OTHERWISE TRANSFER
SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY
OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF SUCH SECURITY) ONLY (A) TO THE COMPANY,
(B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER
THE SECURITIES ACT, IN A TRANSACTION COMPLYING WITH THE
REQUIREMENTS OF RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS
A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF RULES 501(A)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM
PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000 FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN
CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES
ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE
COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM, AND IN THE CASE OF ANY
OF THE FOREGOING CLAUSES (A)-(F), A CERTIFICATE OF TRANSFER IN
THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE
TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE."
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<PAGE> 38
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Securities Act or an
effective registration statement under the Securities Act:
(A) in the case of any Transfer Restricted Security that
is a Definitive Security, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a
Definitive Security that does not bear the legend set forth above
and rescind any restriction on the transfer of such Transfer
Restricted Security; and
(B) any such Transfer Restricted Security represented by
a Global Security shall not be subject to the provisions set
forth in clause (i) of this Section 2.6(g) (such sales or
transfers being subject only to the provisions of Section 2.6(c)
hereof); provided, however, that with respect to any request for
an exchange of a Transfer Restricted Security that is represented
by a Global Security for a Definitive Security that does not bear
a legend, which request is made in reliance upon Rule 144, the
Holder thereof shall certify in writing to the Registrar that
such request is being made pursuant to Rule 144 (such
certification to be substantially in the form set forth on the
reverse of the Security).
(h) Cancellation and/or Adjustment of Global Security. At such
time as all beneficial interests in a Global Security have either been
exchanged for Definitive Securities, redeemed, repurchased or canceled, such
Global Security shall be returned to the Depository for cancellation or
retained and canceled by the Trustee. At any time prior to such cancellation,
if any beneficial interest in a Global Security is exchanged for Definitive
Securities, redeemed, repurchased or canceled, the principal amount of
Securities represented by such Global Security shall be reduced and an
adjustment shall be made on the books and records of the Trustee (if it is then
the Securities Custodian for such Global Security) or the Securities Custodian
with respect to such Global Security, by the Trustee or the Securities
Custodian, to reflect such reduction.
(i) Obligations with Respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Definitive
Securities and Global Securities at the Registrar's or co-registrar's
request.
(ii) No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar
governmental charge payable in connection therewith.
(iii) The Registrar or co-registrar shall not be required to
register the transfer of or exchange of (a) any Definitive Security
selected for redemption in whole or in part pursuant to Article 3,
except the unredeemed portion of any Definitive Security being
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<PAGE> 39
redeemed in part, or (b) any Security for a period beginning 15 Business
Days before the mailing of a notice of an offer to repurchase or redeem
Securities or 15 Business Days before an interest payment date.
(iv) Prior to the due presentation for registration of
transfer of any Security, each of the Company, the Trustee, the Paying
Agent, the Registrar and any co-registrar may deem and treat the person
in whose name a Security is registered as the absolute owner of such
Security for the purpose of receiving payment of principal of and
interest on such Security and for all other purposes whatsoever, whether
or not such Security is overdue, and none of the Company, the Trustee,
the Paying Agent, the Registrar and any co-registrar shall be affected
by notice to the contrary.
(v) All Securities issued upon any transfer or exchange
pursuant to the terms of this Indenture shall evidence the same debt and
shall be entitled to the same benefits under this Indenture as the
Securities surrendered upon such transfer or exchange.
(j) No Obligation of the Trustee. (i) The Trustee shall have
no responsibility or obligation to any beneficial owner of a Global Security, a
member of, or a participant in the Depository or other Person with respect to
the accuracy of the records of the Depository or its nominee or of any
participant or member thereof, with respect to any ownership interest in the
Securities or with respect to the delivery to any participant, member,
beneficial owner or other Person (other than the Depository) of any notice
(including any notice of redemption) or the payment of any amount, under or
with respect to such Securities. All notices and communications to be given to
the Holders and all payments to be made to Holders under the Securities shall
be given or made only to or upon the order of the registered Holders (which
shall be the Depository or its nominee in the case of a Global Security). The
rights of beneficial owners in any Global Security in global form shall be
exercised only through the Depository subject to the applicable rules and
procedures of the Depository. The Trustee may conclusively rely and shall be
fully protected in relying upon information furnished by the Depository with
respect to its members, participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to
monitor, determine or inquire as to compliance with any restrictions on
transfer imposed under this Indenture or under applicable law with respect to
any transfer of any interest in any Security (including, without limitation,
any transfers between or among Depository participants, members or beneficial
owners in any Global Security) 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 Indenture,
and to examine the same to determine substantial compliance as to form with the
express requirements hereof.
Section 2.7. Replacement Securities. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security
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<PAGE> 40
if the requirements of Article 8 of the Uniform Commercial Code and any other
applicable law are met, and if the Holder (i) satisfies the Company and the
Trustee, within a reasonable time after such Holder has notice thereof, with
respect to such loss, destruction or wrongful taking and the Registrar does not
register a transfer prior to receiving such notification, (ii) so requests the
Company or the Trustee prior to the Security being acquired by a bonafide
purchaser and (iii) satisfies any other reasonable requirements of the Company
and the Trustee. Such Holder shall furnish an indemnity bond sufficient in the
judgment of the Company and the Trustee to protect the Company, the Trustee,
the Paying Agent, the Registrar and any co-registrar from any loss that any of
them may suffer if a Security is replaced. The Company and the Trustee may
charge the Holder for their expenses in replacing a Security (including amounts
necessary to pay taxes or other governmental charges associated with such
replacement).
Every replacement Security is an additional obligation of the
Company.
The provisions of this Section 2.7 shall (to the extent lawful)
be exclusive and preclude all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 2.8. Outstanding Securities. Securities outstanding at
any time are all Securities authenticated by the Trustee except for those
canceled by it, those delivered to it for cancellation and those described in
this Section as not outstanding. A Security does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.7, it ceases to
be outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bonafide purchaser.
If the Paying Agent segregates and holds in trust, in accordance
with this Indenture, on a redemption date or maturity date money sufficient to
pay all principal and interest payable on that date with respect to the
Securities (or portions thereof) to be redeemed or maturing, as the case may
be, and the Paying Agent is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
Section 2.9. Temporary Securities. Until definitive Securities
are ready for delivery, the Company may prepare and the Trustee shall
authenticate temporary Securities. Temporary Securities shall be substantially
in the form of definitive Securities but may have variations that the Company
considers appropriate for temporary Securities. Without unreasonable delay,
the Company shall prepare and the Trustee shall authenticate definitive
Securities and make them available for delivery in exchange for temporary
Securities.
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Section 2.10. Cancellation. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for
registration of transfer, exchange or payment. The Trustee and no one else
shall cancel and deliver canceled Securities to the Company. The Company may
not issue new Securities to replace Securities it has delivered to the Trustee
for cancellation. The Trustee shall not authenticate Securities in place of
canceled Securities other than pursuant to the terms of this Indenture.
Section 2.11. Defaulted Interest. If the Company defaults in a
payment of interest on the Securities, the Company shall pay the defaulted
interest (plus interest on such defaulted interest to the extent lawful) in any
lawful manner. The Company may pay the defaulted interest to the persons who
are Holders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail to each Holder a
notice that states the special record date, the payment date and the amount of
defaulted interest to be paid.
Section 2.12. CUSIP Numbers. The Company in issuing the
Securities may use "CUSIP" numbers (if then generally in use) and, if so, the
Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders; provided, however, that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Company will promptly notify the Trustee of any
change in the CUSIP numbers.
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.1. Notices to Trustee.
If the Company elects to redeem Securities pursuant to the
optional redemption provisions of Section 3.7 hereof, then it shall furnish to
the Trustee, at least 30 days but not more than 60 days before a redemption
date, an Officers' Certificate setting forth (i) the paragraph of the
Securities and/or Section of this Indenture pursuant to which the redemption
shall occur, (ii) the redemption date, (iii) the principal amount of Securities
to be redeemed (with CUSIP numbers) and (iv) the redemption price.
Section 3.2. Selection of Securities to Be Redeemed.
If less than all of the Securities are to be redeemed at any
time, selection of Securities for redemption shall be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Securities are listed, or, if such Securities are not
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<PAGE> 42
so listed, on a pro rata basis, by lot or by such method as the Trustee shall
deem fair and appropriate; provided that no Security of $1,000 or less shall be
redeemed in part. In the event of partial redemption by lot, the particular
Securities to be redeemed shall be selected, unless otherwise provided herein,
not less than 30 nor more than 60 days prior to the redemption date by the
Trustee from the outstanding Securities not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Security selected
for partial redemption, the principal amount thereof to be redeemed.
Securities and portions of Securities selected shall be in amounts of $1,000 or
whole multiples of $1,000; except that if all of the Securities of a Holder are
to be redeemed, the entire outstanding amount of Securities held by such
Holder, even if not a multiple of $1,000, shall be redeemed. A new Security in
principal amount equal to the unredeemed portion thereof shall be issued in the
name of the Holder thereof upon cancellation of the original Security. On and
after the redemption date, unless the Company defaults in payment of the
redemption price, interest ceases to accrue on Securities or portions of them
called for redemption. Except as provided in this Section 3.2, provisions of
this Indenture that apply to Securities called for redemption also apply to
portions of Securities called for redemption.
The provisions of the two preceding paragraphs of this Section
3.2 shall not apply with respect to any redemption affecting only a Global
Security, whether such Global Security is to be redeemed in whole or in part.
In case of any such redemption in part, the unredeemed portion of the principal
amount of the Global Security shall be in an authorized denomination.
Section 3.3. Notice of Redemption.
Subject to the provisions of Section 3.9 hereof, at least 30 days
but not more than 60 days before a redemption date, the Company shall mail or
cause to be mailed, by first class mail, a notice of redemption to each Holder
of Securities to be redeemed at such Holder's registered address, provided,
however, that the Company shall provide notice to the Trustee pursuant to
Section 3.1 hereof at least five days prior to the mailing of the notice
pursuant to this Section 3.3.
The notice shall identify the Securities to be redeemed
(including CUSIP numbers) and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and that, after the
redemption date upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion shall be
issued upon cancellation of the original Security;
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<PAGE> 43
(d) the name and address of the Paying Agent;
(e) that Securities called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such
redemption payment, interest on Securities called for redemption cease
to accrue on and after the redemption date;
(g) the paragraph of the Securities and/or Section of this
Indenture pursuant to which the Securities called for redemption are
being redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the Securities.
If any of the Securities to be redeemed is in the form of a
Global Security, then such notice shall be modified in form but not substance
to the extent appropriate to accord with the procedures of the Depository
applicable to redemptions.
At the Company's request and expense, the Trustee shall give the
notice of redemption in the Company's name; provided, however, that the Company
shall have delivered to the Trustee, at least 45 days prior to the redemption
date, an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph.
Section 3.4. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section
3.3 hereof, Securities called for redemption become irrevocably due and payable
on the redemption date at the redemption price. A notice of redemption may not
be conditional. If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Securities or the portions of Securities called for redemption. If a
Security is redeemed on or after an interest record date but on or prior to the
related interest payment date, then any accrued and unpaid interest shall be
paid to the Person in whose name such Security was registered at the close of
business on such record date. If any Security called for redemption shall not
be so paid upon surrender for redemption because of the failure of the Company
to comply with the preceding paragraph, interest shall be paid on the unpaid
principal, from the redemption date until such principal is paid, and to the
extent lawful on any interest not paid on such unpaid principal, in each case
at the rate provided in the Securities and in Section 4.1 hereof.
Section 3.5. Deposit of Redemption Price.
On or prior to 11:00 a.m. on the redemption date, the Company
shall deposit with the Trustee or with the Paying Agent money sufficient to pay
the redemption price of and accrued
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interest on all Securities to be redeemed on that date. The Trustee or the
Paying Agent shall promptly return to the Company any money deposited with the
Trustee or the Paying Agent by the Company in excess of the amounts necessary
to pay the redemption price of and accrued interest on, all Securities to be
redeemed.
Section 3.6. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the
Company shall issue and, upon the receipt of a written authentication order of
the Company signed by two Officers of the Company, the Trustee shall
authenticate for the Holder at the expense of the Company a new Security equal
in principal amount to the unredeemed portion of the Security surrendered.
Section 3.7. Optional Redemption.
(a) Except as set forth in clause (b) of this Section 3.7, the
Company shall not have the option to redeem the Securities pursuant to this
Section 3.7 prior to May 15, 2002. From and after May 15, 2002, the Company
shall have the option to redeem the Securities, in whole or in part, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on May 15 of each of
the years indicated below:
<TABLE>
<CAPTION>
Percentage of
Year Principal Amount
---- ----------------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . 104.750%
2003 . . . . . . . . . . . . . . . . . . . . . 103.167%
2004 . . . . . . . . . . . . . . . . . . . . . 101.583%
2005 and thereafter . . . . . . . . . . . . . . 100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this
Section 3.7, at any time prior to May 15, 2000, the Company may, at its option,
on any one or more occasions, redeem up to 33 1/3% of the original aggregate
principal amount of the Securities at a redemption price equal to 109.500% of
the principal amount thereof, plus accrued and unpaid interest, if any, thereon
to the redemption date with all or a portion of the net proceeds of public
sales of common stock of the Company, par value $.01 (the "Common Stock");
provided that at least 66 2/3% of the original aggregate principal amount of
the Securities remains outstanding immediately after the occurrence of such
redemption; and provided, further, that such redemption shall occur within 60
days of the date of the closing of the related sale of Common Stock of the
Company.
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(c) Any redemption pursuant to this Section 3.7 shall be made
pursuant to the provisions of Sections 3.1 through 3.6 hereof.
(d) In addition to the foregoing, (i) upon a Change of Control
each Holder will have the right to require the Company to repurchase all or
part of such Holder's Securities as described in Section 4.11 and (ii) as
described in Sections 3.9 and 4.9, the Company may from time to time make Asset
Sales Offers.
Section 3.8. Mandatory Redemption.
Except as set forth under Sections 4.9 and 4.11 hereof, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Securities.
Section 3.9. Offer to Purchase By Application of Excess
Proceeds.
In the event that, pursuant to Section 4.9 hereof, the Company
shall be required to commence an offer to all Holders of Securities and, to the
extent required by the terms thereof, to all holders or lenders of other Pari
Passu Indebtedness, to purchase Securities and any such Pari Passu Indebtedness
(an "Asset Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Securities
required to be purchased pursuant to Section 4.9 hereof, giving effect to any
related offer for Pari Passu Indebtedness pursuant to Section 4.9 (the "Offer
Amount") or, if less than the Offer Amount has been tendered, all Securities
tendered in response to the Asset Sale Offer. Payment for any Securities so
purchased shall be made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid interest
shall be paid to the Person in whose name a Security is registered at the close
of business on such record date, and no additional interest shall be payable to
Holders who tender Securities pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall
send, by first class mail, a notice to the Trustee and each of the Holders.
The notice shall contain all instructions and materials necessary to enable
such Holders to tender Securities pursuant to the Asset Sale Offer. The Asset
Sale Offer shall be made to all Holders. The notice, which shall govern the
terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.9 and Section 4.9 hereof;
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(b) the length of the Offer Period, the Offer Amount, the
purchase price and the Purchase Date;
(c) that any Security not tendered or accepted for payment
shall continue to accrue interest;
(d) that, unless the Company defaults in making such payment,
any Security accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest after the Purchase Date;
(e) that Holders electing to have a Security purchased
pursuant to an Asset Sale Offer may only elect to have all of such
Security purchased and may not elect to have only a portion of such
Security purchased;
(f) that Holders electing to have a Security purchased
pursuant to any Asset Sale Offer shall be required to surrender the
Security, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Security completed, or transfer by book-entry
transfer, to the Company, a Depository, if appointed by the Company, or
a Paying Agent at the address specified in the notice at least three
Business Days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election
if the Company, the Depository or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to
have such Security purchased;
(h) that, if the aggregate principal amount of Securities
surrendered by Holders exceeds the Offer Amount, the Company shall
select the Securities to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only
Securities in denominations of $1,000, or integral multiples thereof,
shall be purchased) in the manner provided in Section 4.9; and
(i) that Holders whose Securities were purchased only in part
shall be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered (or transferred by
book-entry transfer).
If any of the Securities subject to an Asset Sale Offer is in the
form of a Global Security, then such notice may be modified in form but not
substance to the extent appropriate to accord with the procedures of the
Depository applicable to repurchases.
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Securities or portions thereof tendered pursuant to the Asset
Sale Offer, or if less than the Offer Amount has been tendered,
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all Securities tendered, and shall deliver to the Trustee an Officers'
Certificate stating that such Securities or portions thereof were accepted for
payment by the Company in accordance with the terms of this Section 3.9. The
Company, the Depository or the Paying Agent, as the case may be, shall promptly
(but in any case not later than five days after the Purchase Date) mail or
deliver to each tendering Holder an amount equal to the purchase price of the
Securities tendered by such Holder and accepted by the Company for purchase,
and the Company shall promptly issue a new Security, and the Trustee, upon
receipt of a written authentication order of the Company signed by two Officers
of the Company shall authenticate and mail or deliver such new Security to such
Holder, in a principal amount equal to any unpurchased portion of the Security
surrendered. Any Security not so accepted shall be promptly mailed or
delivered by the Company to the Holder thereof. The Company shall publicly
announce the results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.9, any
purchase pursuant to this Section 3.9 shall be made pursuant to the provisions
of Sections 3.1 through 3.6 hereof.
ARTICLE 4
COVENANTS
Section 4.1. Payment of Securities.
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Securities on the dates and in the manner
provided in the Securities. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Company
or a Subsidiary thereof, holds as of 12:00 noon Eastern Time on the due date
money deposited by the Company in immediately available funds and designated
for and sufficient to pay all such amounts then due.
The Company shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal at the rate
equal to 1% per annum in excess of the then applicable interest rate on the
Securities to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest (without regard to any applicable grace period) at the same rate to
the extent lawful.
Section 4.2. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City
of New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where principal, premium,
if any, and interest on the Securities will be paid and where Securities may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Securities and this Indenture
may be served. The Company shall give prompt written notice to the Trustee of
the location, and any change in the
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location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain an office or
agency in the Borough of Manhattan, the City of New York for such purposes.
The Company shall give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.
The Company hereby designates the following office of the Trustee
as one such office or agency of the Company in accordance with Section 2.3: 101
Barclay Street, Floor 21 West, New York, New York 10286.
Section 4.3. SEC Reports.
Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, to the extent permitted by the Exchange Act, the Company shall file with
the Commission and provide, within 15 days after such filing, the Trustee and
Holders and prospective Holders (upon request) with the annual reports and the
information, documents and other reports that are specified in Sections 13 and
15(d) of the Exchange Act (but without exhibits in the case of the Holders and
prospective Holders). In the event that the Company is not permitted to file
such reports, documents and information with the Commission, the Company will
provide substantially similar information to the Trustee, the Holders and
prospective Holders (upon request) as if the Company were subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act. The Company
shall at all times comply with the other provisions of TIA Section 314(a).
Section 4.4. Compliance Certificate.
(a) The Company shall deliver to the Trustee, within 90 days
after the end of each fiscal year of the Company, an Officers' Certificate
stating that a review of the activities of the Company and its Subsidiaries
during the preceding fiscal year has been made under the supervision of the
signing Officers with a view to determining whether the Company has kept,
observed, performed and fulfilled its obligations under this Indenture, and
further stating, as to each such Officer signing such certificate, that to the
best of his or her knowledge the Company has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is not in
default in the performance or observance of any of the terms, provisions and
conditions of this Indenture (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he or she
may have knowledge and what action the Company is taking
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or proposes to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of, premium, if any, or interest on the
Securities is prohibited or if such event has occurred, a description of the
event and what action the Company is taking or proposes to take with respect
thereto. As of the date hereof, the Company's fiscal year ends on June 30 of
each calendar year. In the event the Company changes its fiscal year, it shall
promptly notify the Trustee in writing of such change.
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
fiscal year-end financial statements delivered pursuant to Section 4.4(a) above
shall be accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial
statements, nothing has come to their attention that would lead them to believe
that the Company has violated any provisions of Article 4 or Article 5 hereof
or, if any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall not be
liable directly or indirectly to any Person for any failure to obtain knowledge
of any such violation.
(c) The Company and each Subsidiary Guarantor, if any, shall,
so long as any of the Securities are outstanding, deliver to the Trustee,
within five Business Days of any Officer of such Person becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default
or Event of Default and what action the Company is taking or proposes to take
with respect thereto.
Section 4.5. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries
to pay, prior to delinquency all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate
proceedings or where the failure to effect such payment is not adverse in any
material respect to the Holders of the Securities.
Section 4.6. Limitations on Restricted Payments.
The Company shall not and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any other payment or distribution on account of the Equity Interests of
the Company or any Restricted Subsidiary (including, without limitation, any
payment in connection with any merger or consolidation involving the Company)
to the direct or indirect holders of the Company's Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or a Restricted
Subsidiary and other than dividends or distributions payable to the Company or
a Restricted Subsidiary so long as, in the case of any dividend or distribution
payable on or in respect of any class or series of securities issued by a
Subsidiary other than a Wholly Owned Restricted Subsidiary, the Company or a
Restricted Subsidiary receives at least its pro rata share of such dividend or
distribution in accordance with its Equity Interests in such class or series of
securities);
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(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company or any direct or indirect parent or other Affiliate of
the Company that is not a Restricted Subsidiary of the Company; (iii) make any
principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Securities,
except at final maturity; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.7 hereof; and
(c) such Restricted Payment, together with the aggregate of
all other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of this Indenture (excluding Restricted
Payments permitted by clauses (2), (3) and (5) of the next succeeding
paragraph), is less than the sum of (i) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing after the date
of this Indenture to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, less 100% of such deficit), plus (ii) 100% of
the aggregate net cash proceeds received by the Company from the issue
or sale since the date of this Indenture of Equity Interests of the
Company or of debt securities of the Company that have been converted
into or exchanged for such Equity Interests (other than Equity Interests
(or convertible debt securities) sold to a Subsidiary of the Company and
other than Disqualified Stock or debt securities that have been
converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the date of this Indenture is
sold for cash or otherwise liquidated or repaid for cash, the lesser of
(A) the net proceeds of such sale, liquidation or repayment and (B) the
initial amount of such Restricted Investment.
The foregoing provisions shall not prohibit (1) the payment of
any dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of
this Indenture; (2) the redemption, repurchase, retirement or other acquisition
of any Equity Interests of the Company in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to a Subsidiary of the
Company) of other Equity Interests of the Company (other than any Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (c)(ii) of the preceding paragraph; (3) the
defeasance, redemption or
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repurchase of Subordinated Indebtedness with the net cash proceeds from an
incurrence of subordinated Permitted Refinancing Debt or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity Interests
of the Company (other than Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (4) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Subsidiary
of the Company held by any of the Company's (or any of its Subsidiaries')
employees pursuant to any stock repurchase agreement, management equity
subscription agreement or stock option agreement in effect as of the date of
this Indenture or any similar agreement entered into after the date of this
Indenture that is consistent with past practices; provided that the aggregate
price paid for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed $2 million in any twelve-month period; and provided,
further, that no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; (5) repurchases of Equity
Interests deemed to occur upon exercise of stock options if such Equity
Interests represent a portion of the exercise price of such options; (6) the
payment of the redemption price of rights issued pursuant to any shareholders'
rights plan not in excess of $0.05 per right and not in excess of $1,000,000 in
the aggregate; (7) payments made by the Company to any Subsidiary or by any
Subsidiary to the Company or another Subsidiary pursuant to the Tax Sharing
Agreement; (8) the payment of dividends with respect to shares of Capital Stock
of any Subsidiary of the Company to holders thereof who are employees or
directors of such Subsidiary in an aggregate amount not to exceed $350,000 in
any 12-month period for all such shares of Capital Stock of Subsidiaries of the
Company; and (10) Restricted Payments in an aggregate amount since the date
hereof not to exceed $10,000,000.
The amount of all Restricted Payments (other than cash) shall be
the fair market value (as determined in good faith by a resolution of the Board
of Directors set forth in an Officers' Certificate delivered to the Trustee,
which determination shall be conclusive evidence of compliance with this
provision) on the date of the Restricted Payment of the asset(s) proposed to be
transferred by the Company or the applicable Restricted Subsidiary, as the case
may be, pursuant to the Restricted Payment. Not later than five days after the
date of making any Restricted Payment, the Company shall deliver to the Trustee
an Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this Section
4.6 were computed.
In computing Consolidated Net Income for purposes of this Section
4.6, (i) the Company shall use audited financial statements for the portion of
the relevant period for which audited financial statements are available on the
date of determination and unaudited financial statements and other current
financial data based on the books and records of the Company for the remaining
portion of such period and (ii) the Company shall be permitted to rely in good
faith on the financial statements and other financial data derived from the
books and records of the Company that are available on the date of
determination. If the Company makes a Restricted Payment which, at the time of
the making of such Restricted Payment, would on the good faith determination of
the Company be permitted under the requirements of this Indenture, such
Restricted Payment shall be
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deemed to have been made in compliance with this Indenture notwithstanding any
subsequent adjustments made in good faith to the Company's financial statements
affecting Consolidated Net Income of the Company for any period.
The Board of Directors may designate any Restricted Subsidiary to
be an Unrestricted Subsidiary if such designation would not cause a Default.
For purposes of making such determination, all outstanding Restricted
Investments by the Company and its Restricted Subsidiaries (except to the
extent repaid in cash) in the Subsidiary so designated shall be deemed to be
Restricted Payments at the time of such designation and shall reduce the amount
available for Restricted Payments under clause (c) of the first paragraph of
this covenant. All such outstanding Investments shall be deemed to constitute
Investments in an amount equal to the greater of the fair market value or the
book value of such Investments at the time of such designation. Such
designation shall only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
Section 4.7. Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt), neither the Company nor any Subsidiary Guarantor, if any, shall
issue any Disqualified Stock and the Company shall not permit any of its
Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that the Company may incur Indebtedness (including Acquired Debt) or
issue shares of Disqualified Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued
would have been at least 2.5 to 1, determined on a pro forma basis as
set forth in the definition of Fixed Charge Coverage Ratio; and
(ii) no Default or Event of Default shall have occurred and
be continuing at the time such additional Indebtedness is incurred or
such Disqualified Stock is issued or would occur as a consequence of the
incurrence of the additional Indebtedness or the issuance of the
Disqualified Stock.
Notwithstanding the foregoing, this Indenture shall not prohibit
any of the following (collectively, "Permitted Indebtedness"): (a) the
Indebtedness evidenced by the Securities; (b) the incurrence by the Company and
any Subsidiary Guarantor, if any, of Indebtedness pursuant to Credit
Facilities, so long as the aggregate principal amount of all Indebtedness
outstanding under all Credit Facilities does not, at any one time, exceed the
greater of (i) $50 million or (ii) 10% of Total Assets determined as of the
incurrence of the Indebtedness; (c) the guarantee by any Restricted Subsidiary
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of any Indebtedness that is permitted by this Indenture to be incurred by the
Company, provided that Section 4.14 is satisfied in connection with the
issuance of such guarantee; (d) all Indebtedness, Disqualified Stock and
preferred stock of the Company and its Restricted Subsidiaries in existence as
of the date of this Indenture or permitted to be incurred under any agreement
to which any Restricted Subsidiary of the Company is a party in existence on
the date of this Indenture; (e) intercompany Indebtedness between or among the
Company and any of its Wholly Owned Restricted Subsidiaries, or between or
among Wholly Owned Restricted Subsidiaries; provided, however, that (i) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinate to the payment in full of all Obligations with respect to the
Securities and (ii)(A) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Wholly Owned Subsidiary and (B) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a Wholly Owned
Subsidiary shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Subsidiary, as the case may be; (f)
Indebtedness in connection with one or more standby letters of credit,
guarantees, performance bonds or other reimbursement obligations, in each case,
issued in the ordinary course of business and not in connection with the
borrowing of money or the obtaining of advances or credit (other than advances
or credit on open account, includible in current liabilities, for goods and
services in the ordinary course of business and on terms and conditions which
are customary in the Energy Business, and other than the extension of credit
represented by such letter of credit guarantee or performance bond itself), not
to exceed, in the aggregate at any given time 5% of Total Assets; (g)
Indebtedness under Interest Rate Hedging Agreements entered into for the
purpose of limiting interest rate risks, provided that the obligations under
such agreements are related to payment obligations on Indebtedness otherwise
permitted by the terms of this covenant and that the aggregate notional
principal amount of such agreements does not exceed the principal amount of the
Indebtedness to which such agreements relate; (h) Indebtedness under Oil and
Gas Hedging Contracts, provided that such contracts were entered into in the
ordinary course of business for the purpose of limiting risks that arise in the
ordinary course of business of the Company and its Restricted Subsidiaries; (i)
the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness not otherwise permitted to be incurred pursuant to this paragraph,
provided that the aggregate principal amount of all Indebtedness incurred
pursuant to this clause (i), together with all Permitted Refinancing Debt
incurred pursuant to clause (j) of this paragraph in respect of Indebtedness
previously incurred pursuant to this clause (i), does not exceed, at any one
time, 5% of Total Assets; (j) Permitted Refinancing Debt incurred in exchange
for, or the net proceeds of which are used to refinance, extend, renew,
replace, defease or refund, Indebtedness that was permitted by this Indenture
to be incurred (including Indebtedness previously incurred pursuant to this
clause (j), but excluding Indebtedness under clauses (c), (e), (f), (g), (h),
(k), (l) and (m)); (k) accounts payable or other obligations of the Company or
any Restricted Subsidiary to trade creditors created or assumed by the Company
or such Restricted Subsidiary in the ordinary course of business in connection
with the obtaining of goods or services; (l) Indebtedness consisting of
obligations in respect of purchase price adjustments, guarantees or indemnities
in connection with the acquisition or disposition of assets; (m) production
imbalances that do not, at any one time outstanding, exceed 2% of the Total
Assets of the Company; (n) Indebtedness of a Subsidiary Guarantor, if any, in
respect of the Subsidiary Guarantee, if any of such Subsidiary Guarantor; and
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(o) the incurrence of Indebtedness or the issuance of Disqualified Stock by
Mountaineer Gas Company ("Mountaineer") so long as (i) the Debt to Cash Flow
Ratio for Mountaineer's most recently ended four full fiscal quarters
immediately preceding the date on which such additional Indebtedness is
incurred or such Disqualified Stock is issued would have been no more than 3 to
1, determined on a pro forma basis as set forth in the definition of Debt to
Cash Flow Ratio and (ii) no Default or Event of Default shall have occurred and
be continuing at the time such additional Indebtedness is incurred or would
occur as a consequence of the incurrence of the additional Indebtedness. ESC
may not incur any additional Indebtedness.
Section 4.8. Limitations on Dividend and Other Payment
Restrictions Affecting Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(x) pay dividends or make any other distributions
to the Company or any of the Restricted Subsidiaries of the Company on its
Capital Stock or (y) pay any indebtedness owed to the Company or any Restricted
Subsidiary of the Company, (ii) make loans or advances to the Company or any
Restricted Subsidiary of the Company or (iii) transfer any of its properties or
assets to the Company or any Restricted Subsidiary of the Company, except for
such encumbrances or restrictions existing under or by reason of (a) the Credit
Agreement as in effect as of the date of this Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof or any other Credit Facility, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements, refinancings or other Credit Facilities
are no more restrictive with respect to such dividend and other payment
restrictions than those contained in the Credit Facilities as in effect on the
date of this Indenture, (b) this Indenture and the Securities, (c) applicable
law or regulations or any order, ruling or other determination by a
governmental regulatory authority, (d) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries (through the acquisition of Capital Stock or through a merger or
consolidation) as in effect at the time of such acquisition (except, in the
case of Indebtedness, to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person and its Subsidiaries, or the property or assets
of the Person and its Subsidiaries, so acquired, provided that, in the case of
Indebtedness, such Indebtedness or Disqualified Stock was permitted by the
terms of this Indenture to be incurred, (e) by reason of customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (f) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions
of the nature described in clause (iii) above on the property so acquired, (g)
Permitted Refinancing Debt, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Debt are no more restrictive
than those contained in the agreements governing the Indebtedness being
refinanced or (h) any instrument governing Indebtedness or preferred stock of a
Restricted Subsidiary in existence on the date of this Indenture.
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Section 4.9. Asset Sales.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time
of such Asset Sale at least equal to the fair market value (as determined in
good faith by a resolution of the Board of Directors set forth in an Officer's
Certificate delivered to the Trustee, which determination shall be conclusive
evidence of compliance with this provision) of the assets or Equity Interests
issued or sold or otherwise disposed of and (ii) the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash,
Cash Equivalents or assets that are useful in the Energy Business ("Energy
Business Assets"); provided that (A) the amount of (x) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance
sheet), of the Company or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the
Securities or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability and (y) any non-
cash consideration received by the Company or any such Restricted Subsidiary
from such transferee that are converted by the Company or such Restricted
Subsidiary into cash within 180 days of closing such Asset Sale, shall be
deemed to be cash for purposes of this provision (to the extent of the cash
received) and (B) the Company or such Restricted Subsidiary may accept
consideration (including consideration in the form of assumption of
liabilities) from such Asset Sale in other than cash, Cash Equivalents and
Energy Business Assets if the aggregate fair market value (as determined in
good faith by the Company's Board of Directors and evidenced by a resolution of
such Board) of all consideration from all Asset Sales since the date hereof
that is other than cash, Cash Equivalents and Energy Business Assets ("Other
Consideration") at the time of such Asset Sale, less the sum of the amount of
any cash and Cash Equivalents and the fair market value (as determined in good
faith by the Company's Board of Directors and evidenced by a resolution of such
Board) of any Energy Business Assets realized from, or received in exchange
for, any Other Consideration prior to the time of such Asset Sale, does not
exceed 5% of Total Assets at the time of such Asset Sale.
Within 360 days after the receipt of any Net Proceeds from an
Asset Sale, the Company may apply such Net Proceeds, at its option, (a) to
reduce Senior Debt, Guarantor Senior Indebtedness or Pari Passu Debt (provided
that, in connection with a reduction of Pari Passu Debt, the Company or such
Restricted Subsidiary redeems a pro rata portion of the Securities), (b) to
acquire a controlling interest in another Energy Business if, as a result of
such acquisition, such other Energy Business became a Restricted Subsidiary,
(c) to make capital expenditures in respect of the Company's or its Restricted
Subsidiaries' Energy Business, (d) to purchase long-term assets that are used
or useful in such Energy Business or (e) to repurchase any Securities. Pending
the final application of any such Net Proceeds, the Company may temporarily
reduce Senior Debt that is revolving debt or otherwise invest such Net Proceeds
in any manner that is not prohibited by this Indenture. Any Net Proceeds from
Asset Sales that are not applied as provided in the first sentence of this
paragraph shall (after the expiration of the 360 day period specified in the
first sentence of this paragraph) be deemed to constitute "Excess Proceeds."
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When the aggregate amount of Excess Proceeds from one or more
Asset Sales exceeds $10 million, the Company shall make an offer to all Holders
of the Securities and, to the extent required by the terms of Pari Passu Debt,
to all holders or lenders thereof (an "Asset Sale Offer") to purchase the
maximum principal amount of the Securities and any such Pari Passu Debt to
which the Asset Sale Offer applies that may be purchased out of the Excess
Proceeds, at an offer price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest thereon to the date of purchase and,
with respect to Pari Passu Debt, any applicable premium specified in the
agreements relating thereto, in accordance with the procedures set forth in
this Indenture or the agreements governing the Pari Passu Debt, as applicable.
To the extent that the aggregate principal amount of the
Securities and Pari Passu Debt tendered pursuant to an Asset Sale Offer, plus
accrued and unpaid interest thereon to the date of purchase and, if applicable,
premium on Pari Passu Debt, is less than the Excess Proceeds, the Company or
any Restricted Subsidiary may use any remaining Excess Proceeds for general
corporate purposes.
If the aggregate principal amount of the Securities surrendered
by Holders thereof and other Pari Passu Debt surrendered by holders or lenders
thereof, collectively, plus accrued and unpaid interest thereon to the date of
purchase and, if applicable, premium on Pari Passu Debt, exceeds the amount of
Excess Proceeds, the Trustee shall select the Securities and Pari Passu Debt to
be purchased on a pro rata basis, based on the aggregate principal amount
thereof surrendered in such Asset Sale Offer.
Upon completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
Section 4.10. Liens.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien securing Indebtedness of any kind (other than
Permitted Liens) upon any of its property or assets, now owned or hereafter
acquired, unless contemporaneously therewith all payments under the Securities
are secured on an equal and ratable basis with the obligations so secured until
such time as such obligations are no longer secured by a Lien.
No Subsidiary Guarantor, if any, shall directly or indirectly
create, incur, assume or suffer to exist any Lien that secures obligations
under any Pari Passu Debt or under any subordinated Indebtedness of such
Subsidiary Guarantor on any asset or property of such Subsidiary Guarantor or
any income or profits therefrom, or assign or convey any right to receive
income therefrom, unless the Subsidiary Guarantee, if any, of such Subsidiary
Guarantor is equally and ratably secured with the obligations so secured or
until such time as such obligations are no longer secured by a Lien.
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Section 4.11. Offer to Repurchase Upon Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder of
the Securities shall have the right to require the Company to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of such Holder's
Securities pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 101% of the aggregate principal
amount of the Securities plus accrued and unpaid interest if any, thereon to
the date of purchase (the "Change of Control Payment"). Within 30 days
following any Change of Control, the Company shall mail a notice to each Holder
stating: (1) a description of the transaction or transactions that constitute
the Change of Control; (2) that the Change of Control Offer is being made
pursuant to this Section 4.11 and that all Securities tendered shall be
accepted for payment; (3) the purchase price and the purchase date described
below; (4) that any Security not tendered shall continue to accrue interest, if
any; (5) that, unless the Company defaults in the payment of the Change of
Control Payment, all Securities accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest, if any, after the Change of
Control Payment Date; (6) that Holders electing to have any Securities
purchased pursuant to a Change of Control Offer shall be required to surrender
the Securities, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Securities completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third Business
Day preceding the Change of Control Payment Date; (7) that Holders shall be
entitled to withdraw their election if the Paying Agent receives, not later
than the close of business on the second Business Day preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Securities
delivered for purchase, and a statement that such Holder is withdrawing his
election to have the Securities purchased; and (8) that Holders whose
Securities are being purchased only in part shall be issued new Securities
equal in principal amount to the unpurchased portion of the Securities
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof. The Company shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable to such party in connection with the repurchase of the Securities as
a result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
(b) On a Business Day that is no earlier than 30 days nor
later than 60 days from the date that the Company mails or causes to be mailed
notice of the Change of Control to the Holders (the "Change of Control Payment
Date"), the Company shall, to the extent lawful, (i) accept for payment all
Securities or portions thereof properly tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change
of Control Payment in respect of all the Securities or portions thereof so
tendered and (iii) deliver or cause to be delivered to the Trustee the relevant
Securities so accepted together with an Officers' Certificate stating the
aggregate principal amount of such Securities or portions thereof being
purchased by the Company. The Paying Agent shall promptly mail to each Holder
of the Securities so tendered the Change of
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Control Payment for such Securities, and the Trustee shall promptly
authenticate and mail (or cause to be transferred by book entry) to each
tendering Holder a new Security equal in principal amount to any unpurchased
portion of the Securities surrendered, if any; provided that each such new
Security shall be in a principal amount of $1,000 or an integral multiple
thereof. Prior to complying with the provisions of this Section 4.11, but in
any event within 30 days following a Change of Control, the Company will either
repay all outstanding Senior Debt or obtain the requisite consents, if any,
under all agreements governing outstanding Senior Debt to permit the repurchase
of the Securities required by this Section 4.11. The Company shall publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described above shall be
applicable whether or not any other provisions of this Indenture are
applicable.
The Company shall not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Section 4.15 and purchases all Securities (or
portions thereof) validly tendered and not withdrawn under such Change of
Control Offer.
Section 4.12. Transactions with Affiliates.
The Company shall not, and shall not permit any of its
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any of
its Affiliates (each of the foregoing, an "Affiliate Transaction"), unless (i)
such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Subsidiary than those that would have been obtained in
a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to an
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $2 million but less than or equal to $5
million, an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above, (b) with respect to any Affiliate Transaction
or series of related Affiliate Transactions involving aggregate consideration
in excess of $5 million but less than or equal to $10 million, a resolution of
the Board of Directors set forth in an Officer's Certificate certifying that
such Affiliate Transaction complies with clause (i) above and that such
Affiliate Transaction has been approved in good faith by a majority of the
members of the Board of Directors who are disinterested with respect to such
Affiliate Transaction, which resolution shall be conclusive evidence of
compliance with this provision, and (c) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $10 million, an opinion as to the fairness to the
Holders of such Affiliate Transaction from a financial point of view issued by
an accounting, appraisal, engineering or investment banking firm of national
standing; provided that the following shall not be deemed Affiliate
Transactions: (1) transactions contemplated by any employment agreement or
other compensation plan or arrangement
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entered into by the Company or any of its Subsidiaries in the ordinary course
of business and consistent with the past practice of the Company or such
Subsidiary, (2) transactions between or among the Company and/or its
Subsidiaries, (3) Restricted Payments and Permitted Investments that are
permitted by Section 4.6 hereof and (4) the following agreements in effect on
the date hereof: (i) that certain Lease Agreement dated May 11, 1987 between
Texas International Petroleum Corporation, predecessor to Energy Centre, Inc.,
and Eastern American Energy Corporation ("Eastern American"), including all
amendments thereto; (ii) that certain Agreement dated June 30, 1993 between
Kenneth W. Brill and the Company granting the Company an option to purchase
15,400 shares of the Company's common stock owned by Mr. Brill; (iii) that
certain Buy-Sell Stock Option Agreement dated May 20, 1997] between F. H.
McCullough, III, Kathy L. McCullough and the Company granting the Company an
option to purchase 11,920 shares of the Company's Common Stock owned jointly by
F. H. McCullough, III and Kathy L. McCullough; (iv) that certain Buy-Sell Stock
Option Agreement dated July 8, 1996 between Kenneth W. Brill and the Company
granting the Company an option to purchase 64,000 shares of the Company's
common stock owned by Mr. Brill; (v) the Eastern American Incentive Stock Plan
implemented by the Company in 1987; (vi) those certain Incentive Stock Option
Agreements dated December 1994 between the Company and J. Michael Forbes,
Donald C. Supcoe and Richard E. Heffelfinger, granting the individuals the
option to purchase 3,200, 3,200 and 6,400 shares of the Company's common stock,
respectively; and (vii) Drilling Programs between the Company and its officers
and directors.
Section 4.13. Sale and Leaseback Transactions.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company or its Restricted Subsidiaries may enter into a sale and leaseback
transaction if (i) the Company could have incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to the test set forth in the first paragraph of Section 4.7 hereof or
(ii) the gross cash proceeds of such sale and leaseback transaction are at
least equal to the fair market value (as determined in good faith by a
resolution the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee, which determination shall be conclusive evidence of
compliance with this provision) of the property that is the subject of such
sale and leaseback transaction and the transfer of assets in such sale and
leaseback transaction is permitted by, and the Company applies the net proceeds
of such transaction in compliance with Section 4.9 hereof.
Section 4.14. Limitation on Guarantees of Indebtedness by
Restricted Subsidiaries.
(a) The Company shall not permit any Restricted Subsidiary to
guarantee the payment of any Indebtedness of the Company or any Indebtedness of
any other Restricted Subsidiary (in each case, the "Guaranteed Debt" ) unless
(i) if such Restricted Subsidiary is not a Subsidiary Guarantor, such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture, substantially in the form of Exhibit D hereto or such other form as
may be reasonably satisfactory to the Trustee and the Company, to this
Indenture providing for a Subsidiary Guarantee of payment of the Securities by
such Restricted Subsidiary, (ii) if the Securities or the Subsidiary
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Guarantee (if any) of such Restricted Subsidiary are subordinated in right of
payment to the Guaranteed Debt, the Subsidiary Guarantee under the supplemental
indenture shall be subordinated to such Restricted Subsidiary's guarantee with
respect to the Guaranteed Debt substantially to the same extent as the
Securities or the Subsidiary Guarantee are subordinated to the Guaranteed Debt
under this Indenture, (iii) if the Guaranteed Debt is by its express terms
subordinated in right of payment to the Securities or the Subsidiary Guarantee
(if any) of such Restricted Subsidiary, any such guarantee of such Restricted
Subsidiary with respect to the Guaranteed Debt shall be subordinated in right
of payment to such Restricted Subsidiary's Subsidiary Guarantee with respect to
the Securities substantially to the same extent as the Guaranteed Debt is
subordinated to the Securities or the Subsidiary Guarantee (if any) of such
Restricted Subsidiary, (iv) such Restricted Subsidiary waives and will not in
any manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee; and (v) such Restricted
Subsidiary shall deliver to the Trustee an Opinion of Counsel to the effect
that (A) such Subsidiary Guarantee of the Securities has been duly executed and
authorized and (B) such Subsidiary Guarantee of the Securities constitutes a
valid, binding and enforceable obligation of such Restricted Subsidiary, except
insofar as enforcement thereof may be limited by bankruptcy, insolvency or
similar laws (including, without limitation, all laws relating to fraudulent
transfers) and except insofar as enforcement thereof is subject to general
principles of equity; provided that this paragraph (a) shall not be applicable
to any guarantee of any Restricted Subsidiary that (A) existed at the time such
Person became a Restricted Subsidiary of the Company and (B) was not incurred
in connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary of the Company.
(b) Notwithstanding the foregoing and the other provisions of
this Indenture, any Subsidiary Guarantee by a Restricted Subsidiary of the
Securities shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the
Company's Capital Stock in, or all or substantially all the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is not prohibited by
this Indenture ) or (ii) in the case of a guarantee incurred pursuant to clause
(a) of this covenant, the release or discharge of the guarantee which resulted
in the creation of such Subsidiary Guarantee, except a discharge or release by
or as a result of payment under such guarantee.
Section 4.15. Limitation on the Sale or Issuance of Capital
Stock of Restricted Subsidiaries.
The Company shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of
any shares of its Capital Stock except (i) to the Company or a Wholly Owned
Restricted Subsidiary, (ii) if, immediately after giving effect to such
issuance, sale or other disposition, such Restricted Subsidiary remains a
Restricted Subsidiary, (iii) shares of nonvoting
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Capital Stock of Restricted Subsidiaries may be issued or sold to employees or
directors of the Company or any Subsidiary; or (iv) if all shares of Capital
Stock of such Restricted Subsidiary are sold or otherwise disposed of;
provided, however, that in connection with any sale pursuant to this clause
(iv), the Company may retain no more than 10% of the outstanding Capital Stock
of the Restricted Subsidiary being sold as security for the payment of the
purchase price in connection with such sale or as security for the payment or
performance of any other obligation or liability of the purchaser in connection
therewith. In connection with any such sale or disposition of Capital Stock,
the Company shall comply with Section 4.9 hereof.
Section 4.16. Corporate Existence.
Subject to Article 5 hereof, the Company and the Subsidiaries
shall do or cause to be done all things necessary to preserve and keep in full
force and effect (i) its corporate existence, and the corporate, partnership or
other existence of each of the Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Subsidiary and (ii) the rights (charter, partnership
agreement and statutory), licenses and franchises of the Company and the
Subsidiaries; provided, however, that the Company and the Subsidiaries shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of the Subsidiaries, if the
Board of Directors of the relevant Person shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company
and the Subsidiaries, taken as a whole, and that the loss thereof is not
adverse in any material respect to the Holders of the Securities.
Section 4.17. No Layering.
Notwithstanding the provisions of Section 4.7 hereof, the Company
shall not incur, create, issue, assume, guarantee or otherwise become liable
for any Indebtedness that is subordinate or junior in right of payment to any
Senior Debt and senior in any respect in right of payment to the Securities.
No Subsidiary Guarantor, if any, shall incur any Indebtedness if such
Indebtedness is expressly subordinate in right of payment to any Guarantor
Senior Indebtedness of such Subsidiary Guarantor unless such Indebtedness is
Senior Subordinated Indebtedness of such Subsidiary Guarantor or is
contractually subordinated in right of payment to Senior Subordinated
Indebtedness of such Subsidiary Guarantor. The foregoing limitations shall not
apply to distinctions between categories of Indebtedness that exist by reason
of any Liens arising or created in accordance with the provisions of this
Indenture in respect of some but not all such Indebtedness.
Section 4.18. Business Activities.
The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any material respect in any business other than the
Energy Business.
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ARTICLE 5
SUCCESSORS
Section 5.1. Merger, Consolidation, or Sale of Substantially All
Assets.
The Company shall not consolidate or merge with or into (whether
or not the Company is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its
properties or assets, in one or more related transactions, to another Person,
and the Company may not permit any of its Restricted Subsidiaries to enter into
any such transaction or series of transactions if such transaction or series of
transactions would, in the aggregate, result in a sale, assignment, transfer,
lease, conveyance, or other disposition of all or substantially all of the
properties or assets of the Company to another Person unless (i) the Company is
the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (the "Surviving Entity") is a corporation organized or existing under the
laws of the United States, any state thereof or the District of Columbia; (ii)
the Surviving Entity (if the Company is not the continuing obligor under this
Indenture) assumes all the obligations of the Company under the Securities and
this Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately before and after giving effect
to such transaction or series of transactions no Default or Event of Default
exists; (iv) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (and treating any Indebtedness not previously
an obligation of the Company and its Subsidiaries which becomes the obligation
of the Company or any of its Subsidiaries as a result of such transaction as
having been incurred at the time of such transaction or series of
transactions), the Consolidated Net Worth of the Company and its Subsidiaries
or the Surviving Entity (if the Company is not the continuing obligor under
this Indenture) is equal to or greater than the Consolidated Net Worth of the
Company and its Subsidiaries immediately prior to such transaction or series of
transactions; (v) each Subsidiary Guarantor, if any, unless it is the other
party to the transactions described above, shall have by supplemental indenture
confirmed that its Subsidiary Guarantee, if any, shall apply to such Person's
obligations under this Indenture and the Securities; (vi) the Company or
Surviving Entity (if the Company is not the continuing obligor under this
Indenture) will, at the time of such transaction or series of transactions and
after giving pro forma effect thereto as if such transaction or series of
transactions had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the test set forth in the first paragraph of Section 4.7 hereof;
and (vii) the Company will have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each to the effect that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture; provided that (x) in giving such opinion such
counsel may rely on such Officer's Certificate as to any matters of fact
(including without limitation as to compliance with the foregoing clauses
(iii), (iv) and (v), and (y) no Opinion of Counsel will be required for a
consolidation, merger or transfer described in the last paragraph of this
Section 5.1; provided, however that the requirements of clause (iv) and (vi)
above shall not apply with respect to a merger of the Company with and into a
Wholly Owned Restricted Subsidiary, a
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merger of a Wholly Owned Restricted Subsidiary with and into the Company or a
merger of a Wholly Owned Restricted Subsidiary with and into another Wholly
Owned Restricted Subsidiary.
Any Indebtedness that becomes an obligation of the Company or any
Restricted Subsidiary (or that is deemed to be incurred by any Restricted
Subsidiary that becomes a Restricted Subsidiary) as a result of such
transaction undertaken in compliance with this covenant, and any Refinancing
Indebtedness with respect thereto, shall be deemed to have been Incurred in
compliance with Section 4.7.
Section 5.2. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.1 hereof, the Surviving
Entity shall succeed to, and be substituted for (so that from and after the
date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the Surviving Entity and not to the Company), and may exercise
every right and power of the Company under this Indenture with the same effect
as if such successor Person had been named as the Company herein; provided,
however, that the predecessor Company shall not be relieved from the obligation
to pay the principal of and interest on the Securities except in the case of a
sale of all of the Company's assets that meets the requirements of Section 5.1
hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest, if any,
on the Securities when the same becomes due and payable and the Default
continues for a period of 30 days, whether or not such payment is
prohibited by the provisions of Article 10 hereof;
(2) the Company defaults in the payment of the principal of or
premium, if any, on the Securities, whether or not such payment is
prohibited by the provisions of Article 10 hereof;
(3) the Company fails to observe or perform any covenant,
condition or agreement on the part of the Company to be observed or
performed pursuant to Article 5 hereof;
(4) the Company fails to observe or perform any covenant,
condition or agreement on the part of the Company to be observed or
performed pursuant to Sections 4.3, 4.6, 4.7,
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4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.17 and 4.18 hereof and
the Default continues for the period and after the notice specified
below;
(5) the Company fails to comply with any of its other agreements
or covenants in, or provisions of, the Securities or this Indenture and
the Default continues for 60 consecutive days after the notice specified
below;
(6) except as permitted herein, any Subsidiary Guarantee, if
any, shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or
a Subsidiary Guarantor, if any, or any Person acting on behalf of such
Subsidiary Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee;
(7) a default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company
or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries),
whether such Indebtedness or guarantee now exists or shall be created
hereafter, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date
of such default (a "Payment Default") or (b) results in the acceleration
of such Indebtedness prior to its express maturity and, in each case,
the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there is
then existing a Payment Default or the maturity of which has been so
accelerated, aggregates $10 million (or its equivalent in any other
currency) or more;
(8) a final non-appealable judgment or order or final non-
appealable judgments or orders are rendered against the Company or any
Restricted Subsidiary that remain unpaid or discharged for a period of
90 days and that require the payment of money, either individually or in
an aggregate amount, in excess of $10 million (net of applicable
insurance coverage which is acknowledged in writing by the insurer or
which has been determined to be applicable by a final, non-appealable
determination by a court of competent jurisdiction);
(9) the Company or any Restricted Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(a) commences a voluntary case or proceeding,
(b) consents to the entry of an order for relief
against it in an involuntary case or proceeding,
(c) consents to the appointment of a Custodian of it or
for all or substantially all of its property or
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(d) makes a general assignment for the benefit of its
creditors;
(10) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(a) is for relief against the Company or any Restricted
Subsidiary in an involuntary case or proceeding,
(b) appoints a Custodian of the Company or any
Restricted Subsidiary or for all or substantially all of the
property of the Company or any Restricted Subsidiary or
(c) orders the liquidation of the Company or any
Subsidiary,
and in each case the order or decree remains unstayed and in effect for
60 consecutive days.
The term "Bankruptcy Law" means Title 11, United States Code, or
any similar federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
A Default under clause (4) is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in principal
amount of the then outstanding Securities notify the Company and the Trustee,
of the Default and the Company does not cure the Default within 30 consecutive
days after receipt of the notice. A Default under clause (5) is not an Event
of Default until the Trustee notifies the Company, or the Holders of at least
25% in principal amount of the then outstanding Securities notify the Company
and the Trustee, of the Default and the Company does not cure the Default
within 60 days after receipt of the notice. The notice must specify the
Default, demand that it be remedied and state that the notice is a "Notice of
Default."
Section 6.2. Acceleration.
If an Event of Default (other than an Event of Default specified
in clauses (9) and (10) of Section 6.1 hereof) relating to the Company or any
Subsidiary Guarantor, if any, occurs and is continuing, the Trustee by notice
to the Company, or the Holders of at least 25% in principal amount of the then
outstanding Securities by written notice to the Company and the Trustee, may
declare the unpaid principal amount of and any accrued and unpaid interest on
all the Securities to be due and payable immediately. If payment of the
Securities is accelerated because of an Event of Default, the Company or the
Trustee shall notify the holders of Designated Senior Debt of such
acceleration. Upon such declaration the principal and interest shall be due
and payable immediately; provided, however, that so long as any Designated
Senior Debt or any commitment therefor is outstanding, any such notice or
declaration shall not become effective until the earlier of (a) five Business
Days after such notice is delivered to the representative for the Designated
Senior Debt or (b) the acceleration of any Designated Senior Debt and
thereafter, payments on the Securities pursuant to this Article 6
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shall be made only to the extent permitted pursuant to Article 10 herein.
Notwithstanding the foregoing, if any Event of Default specified in clause (9)
or (10) of Section 6.1 hereof relating to the Company, or any Subsidiary
occurs, such an amount shall ipso facto become and be immediately due and
payable without any declaration or other act or notice on the part of the
Trustee or any Holder.
After a declaration of acceleration under this Indenture, but
before a judgment or decree for payment of principal, premium, if any, and
interest on the Securities due under this Article 6 has been obtained by the
Trustee, Holders of a majority in principal amount of the then outstanding
Securities by written notice to the Company and the Trustee may rescind an
acceleration and its consequences if (i) the Company or any Subsidiary
Guarantor, if any, has paid or deposited with the Trustee a sum sufficient to
pay (a) all sums paid or advanced by the Trustee under this Indenture and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and (b) all overdue interest on the Securities, if any,
(ii) the rescission would not conflict with any judgment or decree of a court
of competent jurisdiction and (iii) all existing Events of Default (except
nonpayment of principal, premium, if any, or interest that has become due
solely because of the acceleration) have been cured or waived.
Section 6.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Securities or to enforce the performance of any
provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Security in exercising any
right or remedy accruing upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.
Section 6.4. Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount
of the Securities then outstanding by notice to the Trustee may on behalf of
the Holders of all of the Securities waive any existing Default or Event of
Default and its consequences hereunder, except a continuing Default or Event of
Default in the payment of principal of, premium and liquidated damages, if any,
or interest on, the Securities (including in connection with an offer to
purchase) (provided, however, that the Holders of a majority in aggregate
principal amount of the then outstanding Securities may rescind an acceleration
and its consequences, including any related payment default that resulted from
such acceleration). Upon any such waiver, such Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
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Section 6.5. Control by Majority.
Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee or exercising any trust or
power conferred on it. However, the Trustee may refuse to follow any direction
that conflicts with law or this Indenture that the Trustee determines may be
unduly prejudicial to the rights of other Holders of Securities or that may
involve the Trustee in personal liability it being understood that (subject to
Section 7.1) the Trustee shall have no duty to ascertain whether or not such
actions or forebearances are unduly prejudicial to such holders.
Section 6.6. Limitation on Suits.
A Holder of a Security may pursue a remedy with respect to this
Indenture or the Securities only if:
(a) the Holder of a Security gives to the Trustee written
notice of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the
then outstanding Securities make a written request to the Trustee to
pursue the remedy;
(c) such Holder of a Security or Holders of Securities offer
and, if requested, provide to the Trustee indemnity satisfactory to the
Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Securities do not give the
Trustee a direction inconsistent with the request.
A Holder of a Security may not use this Indenture to prejudice the rights of
another Holder of a Security or to obtain a preference or priority over another
Holder of a Security.
Section 6.7. Rights of Holders of Securities to Receive Payment.
Notwithstanding any other provision of this Indenture, the right
of any Holder of a Security to receive payment of principal, premium, if any,
and interest on the Security, on or after the respective due dates expressed in
the Security (including in connection with an offer to purchase), or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
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Section 6.8. Collection Suit by Trustee.
If an Event of Default specified in Section 6.1(1) or (2) occurs
and is continuing, the Trustee is authorized to recover judgment in its own
name and as trustee of an express trust against the Company or any Subsidiary
Guarantor, if any, for the whole amount of principal of, premium, if any, and
interest remaining unpaid on the Securities and interest on overdue principal
and, to the extent lawful, interest and such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
Section 6.9. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel)
and the Holders of the Securities allowed in any judicial proceedings relative
to the Company or any Subsidiary Guarantors, if any (or any other obligor upon
the Securities), its creditors or its property and shall be entitled and
empowered to collect, receive and distribute any money or other property
payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments
to the Trustee, and in the event that the Trustee shall consent to the making
of such payments directly to the Holders, to pay to the Trustee any amount due
to it for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due the Trustee
under Section 7.7 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment
of the same shall be secured by a Lien on, and shall be paid out of, any and
all distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to
or accept or adopt on behalf of any Holder any plan of reorganization,
arrangement, adjustment or composition affecting the Securities or the rights
of any Holder, or to authorize the Trustee to vote in respect of the claim of
any Holder in any such proceeding provided, however, that the Trustee may, on
behalf of the Holders, vote for the election of a trustee in bankruptcy or
similar official and may be a member of the creditors' committee.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it
shall, subject to the provisions of Article 10, pay out the money in the
following order:
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First: to the Trustee, its agents and attorneys for amounts due
under Sections 6.8 and 7.7 hereof, including payment of all
compensation, expense and liabilities incurred, and all advances made,
by the Trustee and the costs and expenses of collection;
Second: to Senior Debt to the extent required by Article 10;
Third: to Holders of Securities for amounts due and unpaid on
the Securities for principal, premium, if any, and accrued interest,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for principal, premium, if
any, and accrued interest, as the case may be, respectively; and
Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Securities pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Security pursuant to Section 6.7 hereof, or a suit by Holders of more than 10%
in principal amount of the then outstanding Securities.
Section 6.12. Stay, Extension and Usury Laws.
Each of the Company and the Subsidiary Guarantors, if any,
covenants (to the extent that it may lawfully do so) that it shall not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay, extension or usury law wherever enacted, now or at
any time hereafter in force, that may affect the covenants or the performance
of this Indenture; and each of the Company and the Subsidiary Guarantors, if
any (to the extent that it may lawfully do so), hereby expressly waives all
benefit or advantage of any such law, and covenants that it shall not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law has been enacted.
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ARTICLE 7
TRUSTEE
Section 7.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform
only those duties that are specifically set forth in this Indenture and
no others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon any notices, requests,
statements, certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However, the Trustee
shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.5 hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject
to paragraphs (a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its
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rights and powers under this Indenture at the request of any Holders, unless
such Holder shall have furnished to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.2. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document
believed by it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from the Company or any Subsidiary
Guarantor, if any, shall be sufficient if signed by an Officer of the Company
or such Subsidiary Guarantor.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders unless such Holders shall have furnished to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
(g) Except with respect to Sections 4.1 and 4.4 hereof, the
Trustee shall have no duty to inquire as to the performance of the Company's
covenants in Article 4 hereof. In addition, the Trustee shall not be deemed to
have knowledge of any Default or Event of Default except (i) any Event of
Default occurring pursuant to Sections 4.1, 4.4 and 6.1(1) or (2) hereof or
(ii) any Default or Event of Default of which the Trustee shall have received
written notification or obtained actual
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knowledge. For the purposes of this clause (g) only, "actual knowledge" shall
mean the actual fact or statement of knowing, without any duty to make
investigation with regard thereto.
(h) The Trustee shall not be required to give any bond or surety
in respect of the performance of its powers and duties hereunder.
(i) The Trustee shall not be bound to ascertain or inquire as to
the performance or observance of any covenants, conditions, or agreements on
the part of the Company, except as otherwise set forth herein, but the Trustee
may require of the Company full information and advice as to the performance of
the covenants, conditions and agreements contained herein and shall be entitled
in connection herewith to examine the books, records and premises of the
Company.
(j) The permissive rights of the Trustee to perform the acts
enumerated in this Indenture shall not be construed as a duty and the Trustee
shall not be answerable for other than its negligence or willful misconduct.
Section 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may otherwise deal with the Company, the
Subsidiary Guarantors, if any, or any Affiliate of the Company with the same
rights it would have if it were not Trustee. However, in the event that the
Trustee acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue as trustee
or resign. Any Agent may do the same with like rights and duties. The Trustee
is also subject to Sections 7.10 and 7.11 hereof.
Section 7.4. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture, the
Securities, or the Subsidiary Guarantees, if any, it shall not be accountable
for the Company's use of the proceeds from the Securities or any money paid to
the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or in any certificate delivered
pursuant hereto or any statement in the Securities or any other document in
connection with the sale of the Securities or pursuant to this Indenture other
than its certificate of authentication.
Section 7.5. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if
it is actually known to the Trustee, the Trustee shall mail to Holders of
Securities a notice of the Default or Event of Default within 90 days after it
occurs. Except in the case of a Default or Event of Default in payment of
principal of, premium, if any, or interest on, any Security, the Trustee may
withhold the
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notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of
the Securities.
Section 7.6. Reports by Trustee to Holders of the Securities.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Securities remain
outstanding, the Trustee shall mail to the Holders of the Securities a brief
report dated as of such reporting date that complies with TIA Section 313(a)
(but if no event described in TIA Section 313(a) has occurred within the
twelve months preceding the reporting date, no report need be transmitted).
The Trustee also shall comply with TIA Section 313(b)(2) and transmit by mail
all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders
of Securities shall be mailed to the Company and filed with the Commission and
each stock exchange on which the Securities are listed in accordance with TIA
Section 313(d). The Company shall promptly notify the Trustee when the
Securities are listed on any stock exchange.
Section 7.7. Compensation and Indemnity.
The Company and the Subsidiary Guarantors, if any, shall pay to
the Trustee from time to time such compensation as the parties shall agree in
writing from time to time for its acceptance of this Indenture and services
hereunder, including, without limitation, extraordinary services such as
default administration. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Company and the
Subsidiary Guarantors, if any, shall reimburse the Trustee promptly upon
request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company and the Subsidiary Guarantors, if any, shall
indemnify the Trustee against any and all losses, liabilities or expenses
incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture, including the costs and
expenses of enforcing this Indenture against the Company and the Subsidiary
Guarantors, if any (including this Section 7.7), and investigating or defending
itself against any claim (whether asserted by the Company, the Subsidiary
Guarantors, if any, or any Holder or any other person) or liability in
connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall notify the
Company and the Subsidiary Guarantors, if any, promptly of any claim for which
it may seek indemnity. Failure by the Trustee to so notify the Company and the
Subsidiary Guarantors, if any, shall not relieve the Company and the Subsidiary
Guarantors, if any, of their obligations hereunder. The Company and the
Subsidiary Guarantors, if any, shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the
Company and the Subsidiary Guarantors, if any, shall pay the reasonable fees
and expenses of such
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counsel. The Company and the Subsidiary Guarantors, if any, need not pay for
any settlement made without their consent, which consent shall not be
unreasonably withheld.
The obligations of the Company and the Subsidiary Guarantors, if
any, under this Section 7.7 are joint and several and shall survive the
satisfaction and discharge of this Indenture.
To secure the Company's and the Subsidiary Guarantors', if any,
payment obligations in this Section, the Trustee shall have a Lien prior to the
Securities on all money or property held or collected by the Trustee, except
that held in trust to pay principal and interest on particular Securities.
Such Lien shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(9) or (10) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.8. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged
from the trust hereby created by so notifying the Company. The Holders of
Securities of a majority in principal amount of the then outstanding Securities
may remove the Trustee by so notifying the Trustee and the Company in writing.
The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee
or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding
Securities may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
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If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company,
or the Holders of Securities of at least 10% in principal amount of the then
outstanding Securities may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Security
who has been a Holder of a Security for at least six months, fails to comply
with Section 7.10, such Holder of a Security may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Securities. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.7 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.8, the Company's obligations under Section 7.7
hereof shall continue for the benefit of the retiring Trustee.
Section 7.9. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $50 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a). The Trustee is subject to TIA Section
310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
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ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1. Option to Effect Legal Defeasance or Covenant
Defeasance.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.2 or 8.3 hereof be applied to all outstanding
Securities upon compliance with the conditions set forth below in this Article
8.
Section 8.2. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.2, the Company and the Subsidiary
Guarantors, if any, shall, subject to the satisfaction of the conditions set
forth in Section 8.4 hereof, be deemed to have been discharged from their
obligations with respect to all outstanding Securities and the Subsidiary
Guarantees, if any, thereof on the date the conditions set forth below are
satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding Securities, which shall
thereafter be deemed to be "outstanding" only for the purposes of Section 8.5
hereof and the other Sections of this Indenture referred to in (a) and (b)
below, and to have satisfied all its other obligations under such Securities
and this Indenture (and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding Securities to
receive payments in respect of the principal of, premium, if any, and interest
on such Securities when such payments are due from the trust fund described in
Section 8.4 hereof, and as more fully set forth in such Section, (b) the
Company's obligations with respect to such Securities under Article 2 and
Section 4.2 hereof, (c) the rights, powers, trusts, duties and immunities of
the Trustee hereunder and the Company's obligations in connection therewith and
(d) this Article 8. Subject to compliance with this Article 8, the Company may
exercise its option under this Section 8.2 notwithstanding the prior exercise
of its option under Section 8.3 hereof.
Section 8.3. Covenant Defeasance.
Upon the Company's exercise under Section 8.1 hereof of the
option applicable to this Section 8.3, the Company and the Subsidiary
Guarantors, if any, shall, subject to the satisfaction of the conditions set
forth in Section 8.4 hereof, be released from their obligations under the
covenants contained in Sections 4.3, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12,
4.13, 4.14, 4.15, 4.17 and 4.18 hereof and in clause (iv) of Section 5.1 and
the covenants contained in the Subsidiary Guarantees, if any, with respect to
the outstanding Securities on and after the date the conditions set forth below
are satisfied (hereinafter, "Covenant Defeasance"), and the Securities shall
thereafter be deemed not "outstanding" for the purposes of any compliance
certificate, direction, waiver, consent or declaration or act of Holders (and
the consequences of any thereof) in connection with
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such covenants, but shall continue to be deemed "outstanding" for all other
purposes hereunder (it being understood that such Securities shall not be
deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Securities, the Company
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or an Event of Default under Section 6.1 hereof, but, except as
specified above, the remainder of this Indenture, such Securities and such
Subsidiary Guarantees, if any, shall be unaffected thereby. In addition, upon
the Company's exercise under Section 8.1 hereof of the option applicable to
this Section 8.3 hereof, subject to the satisfaction of the conditions set
forth in Section 8.4 hereof, Sections 6.1(3) (but only with respect to the
Company's failure to observe or perform the covenants, conditions and
agreements of the Company under clause (iv) of Section 5.1), 6.1(4), 6.1(7) and
6.1(8) hereof shall not constitute Events of Default.
Section 8.4. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.2 or 8.3 hereof to the outstanding Securities:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Securities, cash in United
States dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the outstanding
Securities on the stated maturity or on the applicable redemption date,
as the case may be, and the Company must specify whether the Securities
are being defeased to maturity or to a particular redemption date;
(b) in the case of an election under Section 8.2 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that (A)
the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of this
Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such Opinion
of Counsel shall confirm that, the Holders of the outstanding Securities
will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred;
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(c) in the case of an election under Section 8.3 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that the
Holders of the outstanding Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Section 6.1(9) or 6.1(10) hereof is concerned, at
any time in the period ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, any
material agreement or instrument (other than this Indenture) to which
the Company or any of its Restricted Subsidiaries is a party or by which
the Company or any of its Restricted Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) the Company shall deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders of the Securities over the other
creditors of the Company, or with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and
(h) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
Section 8.5. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions.
Subject to Section 8.6 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.5, the "Trustee") pursuant to Section 8.4 hereof in respect of the
outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as Paying Agent) as the Trustee may determine, to the Holders of such
Securities of all sums due and to become due thereon in respect of principal,
premium, if any, and interest, but such money need not be segregated from other
funds except to the extent required by law.
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The Company and the Subsidiary Guarantors, if any, shall pay and
indemnify the Trustee against any tax, fee or other charge imposed on or
assessed against the cash or non-callable Government Securities deposited
pursuant to Section 8.4 hereof or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the outstanding Securities.
Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.4 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.4(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
Section 8.6. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest on any Security and remaining unclaimed for two years after
such principal, premium, if any, or interest has become due and payable shall
be paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall thereafter,
as a general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
shall be repaid to the Company.
Section 8.7. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United
States dollars or non-callable Government Securities in accordance with Section
8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the obligations of the Company and the
Subsidiary Guarantors, if any, under this Indenture, the Securities and the
Subsidiary Guarantees, if any, shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.2 or 8.3 hereof, as the case may be;
provided, however, that if the Company or any Subsidiary Guarantor, if any,
makes any payment of principal of, premium, if any, or interest on any Security
following the reinstatement of its obligations, the Company or such Subsidiary
Guarantor, if any, shall be subrogated to the rights of the Holders of such
Securities to receive such payment from the money held by the Trustee or Paying
Agent.
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ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.1. Without Consent of Holders of Securities.
Notwithstanding Section 9.2 of this Indenture, the Company, the
Subsidiary Guarantors, if any, and the Trustee may amend or supplement this
Indenture, the Securities or the Subsidiary Guarantees, if any, without the
consent of any Holder of a Security:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Securities in addition to or
in place of certificated Securities;
(c) to provide for the assumption of the Company's obligations
or any Subsidiary Guarantor's, if any, obligations to the Holders of the
Securities in the case of a merger or consolidation pursuant to Article
5 hereof;
(d) to make any change that would provide any additional
rights or benefits to the Holders of the Securities or that does not
adversely affect the legal rights hereunder of any Holder of the
Security;
(e) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the TIA; or
(f) to add a Subsidiary Guarantee under this Indenture.
Upon the request of the Company accompanied by a resolution of
the Board of Directors of the Company and each of the Subsidiary Guarantors, if
any, as the case may be, authorizing the execution of any such amended or
supplemental indenture, and upon receipt by the Trustee of the documents
described in Section 7.2 hereof, the Trustee shall join with the Company and
the Subsidiary Guarantors, if any, in the execution of any amended or
supplemental indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations that may be
therein contained, but the Trustee shall not be obligated to enter into such
amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.
Section 9.2. With Consent of Holders of Securities.
Except as provided below in this Section 9.2, the Company, the
Subsidiary Guarantors, if any, and the Trustee may amend or supplement this
Indenture, the Securities and the Subsidiary Guarantees, if any, with the
consent of the Holders of at least a majority in aggregate
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principal amount of the Securities then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, the Securities), and, subject to Sections 6.4 and 6.7
hereof, any existing Default or Event of Default (other than a Default or Event
of Default in the payment of the principal of, premium, if any, or interest on
the Securities, except a payment default resulting from an acceleration that
has been rescinded) or compliance with any provision of this Indenture or the
Securities may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Securities (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for the Securities).
Any amendment to the provisions of Article 10 of this Indenture
shall require the consent of the Holders of at least 66 2/3% in principal
amount of the Securities then outstanding if such amendment would adversely
affect the rights of Holders of such Securities; provided that, no amendment
may be made to the provisions of Article 10 of this Indenture that adversely
affects the rights of any holder of Senior Debt then outstanding unless the
holders of such Senior Debt (or any group or representative thereof authorized
to consent) consent to such change.
Subject to Sections 6.4 and 6.7 hereof, the Holders of a majority
in aggregate principal amount of the Securities then outstanding may waive
compliance in a particular instance by the Company or any Subsidiary Guarantor,
if any, with any provision of this Indenture, the Securities or the Subsidiary
Guarantee, if any. However, without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Securities held by a
non-consenting Holder):
(a) reduce the principal amount of Securities whose Holders
must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of
any Security;
(c) reduce the rate of or change the time for payment of
interest on any Security;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Securities (except a
rescission of acceleration of the Securities by the Holders of at least
a majority in principal amount of such Securities and a waiver of the
payment default that resulted from such acceleration);
(e) make any Security payable in money other than that stated
in the Securities;
(f) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of
Securities to receive payments of principal or premium, if any, or
interest on the Securities;
(g) make any change in the foregoing amendment and waiver
provisions; or
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(h) except as provided for in Article 8 hereof, release a
Subsidiary Guarantor, if any, from its obligations under its Subsidiary
Guarantee, if any, or make any change in a Subsidiary Guarantee, if any,
that would adversely affect the Holders.
Upon the request of the Company accompanied by a resolution of
the Board of Directors of the Company and each of the Subsidiary Guarantors, if
any, as the case may be, authorizing the execution of any such amended or
supplemental indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Securities as
aforesaid, and upon receipt by the Trustee of the documents described in
Section 7.2 hereof, the Trustee shall join with the Company and the Subsidiary
Guarantors, if any, in the execution of such amended or supplemental indenture
unless such amended or supplemental indenture affects the Trustee's own rights,
duties or immunities under this indenture or otherwise, in which case the
Trustee may in its discretion, but shall not be obligated to, enter into such
amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of
Securities under this Section 9.2 to approve the particular form of any
proposed amendment or waiver, but it shall be sufficient if such consent
approves the substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders of Securities affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental indenture or waiver.
Section 9.3. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Securities
shall be set forth in an amended or supplemental Indenture that complies with
the TIA as then in effect.
Section 9.4. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Security is a continuing consent by the Holder
of a Security and every subsequent Holder of a Security or portion of a
Security that evidences the same debt as the consenting Holder's Security, even
if notation of the consent is not made on any Security. However, any such
Holder of a Security or subsequent Holder of a Security may revoke the consent
as to its Security if the Trustee receives written notice of revocation before
the date the waiver, supplement or amendment becomes effective. An amendment,
supplement or waiver becomes effective in accordance with its terms and
thereafter binds every Holder.
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Section 9.5. Notation on or Exchange of Securities.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Security thereafter authenticated. The Company in
exchange for all Securities may issue and the Trustee shall authenticate new
Securities that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Security
shall not affect the validity and effect of such amendment, supplement or
waiver.
Section 9.6. Trustee to Sign Amendment, etc.
The Trustee shall sign any amended or supplemental indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
Neither the Company nor any Subsidiary Guarantor, if any, may sign an amendment
or supplemental Indenture until its respective Board of Directors approves it.
In executing any amended or supplemental indenture, the Trustee shall be
entitled to receive and (subject to Section 7.1) shall be fully protected in
relying upon, an Officer's Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental indenture is authorized or
permitted by this Indenture and that there has been compliance with all
conditions precedent.
ARTICLE 10
SUBORDINATION
Section 10.1. Agreement to Subordinate.
The Company agrees, and each Holder by accepting a Security
agrees, that (i) the Indebtedness evidenced by the Securities, including, but
not limited to, the payment of principal of, premium, if any, and interest on
the Securities, and any other payment Obligation of the Company in respect of
the Securities (including any obligation to repurchase the Securities) is
subordinated in right of payment, to the extent and in the manner provided in
this Article, to the prior payment in full in cash of all Senior Debt of the
Company, whether outstanding on the date hereof or hereafter created, incurred,
assumed or guaranteed, which will include borrowings under the Credit
Agreement, and (ii) the subordination is for the benefit of the holders of
Senior Debt. The Securities shall in all respects rank pari passu with all
other Senior Subordinated Indebtedness of the Company and only Indebtedness of
the Company that is Senior Debt shall rank senior to the Securities in
accordance with the provisions set forth herein. For purposes of these
subordination provisions, the Indebtedness evidenced by the Securities is
deemed to include the liquidated damages payable pursuant to the provisions set
forth in the Securities and the Exchange and Registration Rights Agreement.
All provisions of this Article 10 shall be subject to Section 10.12.
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Section 10.2. Designated Senior Debt.
All Designated Senior Debt now or hereafter existing and all
other Obligations relating thereto shall not be deemed to have been paid in
full unless the holders or owners thereof shall have received payment in full
in cash (or other form of payment consented to by the holders of such
Designated Senior Debt) with respect to such Designated Senior Debt and all
other Obligations with respect thereto.
Section 10.3. Liquidation; Dissolution; Bankruptcy.
Upon any payment or distribution of property or securities to
creditors of the Company in a liquidation or dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, or in an assignment for the benefit of
creditors or any marshalling of the Company's assets and liabilities:
(1) the holders of Senior Debt of the Company shall be entitled
to receive payment in full in cash of all Obligations in respect of such
Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether
or not a claim for such interest would be allowed in such proceeding)
before the Holders of Securities shall be entitled to receive any
payment with respect to the Securities; and
(2) until all Obligations with respect to Senior Debt are paid
in full, any distribution to which the Holders of the Securities would
be entitled shall be made to the Holders of Senior Debt.
In each case, notwithstanding the foregoing, Holders of Securities may receive
Equity Interests and securities that are subordinated at least to the same
extent as the Securities are subordinated to Senior Debt and payments made from
any defeasance trust created pursuant to Section 8.1 hereof provided that the
applicable deposit does not violate Article 8 or 10 of this Indenture.
To the extent any payment of or distribution in respect of Senior
Debt (whether by or on behalf of the Company or any Subsidiary Guarantor, if
any, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then if such payment or distribution is
recovered by, or paid over to, such receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person, the Senior Debt or part
thereof originally intended to be satisfied shall be deemed to be reinstated
and outstanding as if such payment had not occurred. To the extent the
obligation to repay any Senior Debt is declared to be fraudulent, invalid or
otherwise set aside under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then the obligation so declared fraudulent, invalid
or otherwise set aside (and all other amounts that would come due with respect
thereto had such obligation not been so affected) shall be deemed
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to be reinstated and outstanding as Senior Debt for all purposes hereof as if
such declaration, invalidity or setting aside had not occurred.
Section 10.4. Default on Designated Senior Debt.
The Company may not make any payment (whether by redemption,
purchase, retirements, defeasance or otherwise) upon or in respect of the
Securities (other than payment of Equity Interests and securities that are
subordinated at least to the same extent as the Securities are subordinated to
Senior Debt and payments and other distributions made from any defeasance trust
created pursuant to Section 8.1 hereof if the applicable deposit does not
violate Article 8 or 10 of this Indenture), until all principal and other
Obligations with respect to the Senior Debt of the Company have been paid in
full if:
(i) a default in the payment of any principal of, premium,
if any, or interest on Designated Senior Debt occurs; or
(ii) any other default occurs and is continuing with respect
to Designated Senior Debt that permits, or with the giving of notice or
passage of time or both (unless cured or waived) would permit, holders
of the Designated Senior Debt as to which such default relates to
accelerate its maturity ("non-payment default") and the Trustee receives
a notice of the default (a "Payment Blockage Notice") from the Company
or the holders of any Designated Senior Debt.
If the Trustee receives any such Payment Blockage Notice, no subsequent Payment
Blockage Notice shall be effective for purposes of this Section unless and
until 360 days shall have elapsed since the date of commencement of the payment
blockage period resulting from the immediately prior Payment Blockage Notice.
No non-payment default in respect of any Designated Senior Debt that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice, unless such default shall have been cured or waived for a period of no
less than 90 days.
The Company shall resume payments on and distributions in respect
of the Securities upon:
(1) in the case of a default referred to in Section 10.4(i)
hereof the date upon which the default is cured or waived, or
(2) in the case of a default referred to in Section 10.4(ii)
hereof, the earliest of (1) the date on which such nonpayment default is
cured or waived and (2) 179 days after the date on which the applicable
Payment Blockage Notice is received unless (A) the maturity of any
Designated Senior Debt has been accelerated or (B) a Default or Event of
Default under Section 6.1(9) or (10) has occurred and is continuing,
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if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
Section 10.5. Acceleration of Securities.
If payment of the Securities is accelerated because of an Event
of Default, the Company shall promptly notify holders of Senior Debt of the
acceleration.
Section 10.6. When Distribution Must Be Paid Over.
In the event that the Trustee or any Holder receives any payment
or distribution of or in respect of any Obligations with respect to the
Securities at a time when such payment or distribution is prohibited by Section
10.3 or Section 10.4 hereof, such payment or distribution shall be held by the
Trustee (if the Trustee has actual knowledge that such payment or distribution
is prohibited by Section 10.3 or 10.4) or such Holder, in trust for the benefit
of, and shall be paid forthwith over and delivered to, the holders of Senior
Debt as their interests may appear or their Representative under the indenture
or other agreement (if any) pursuant to which such Senior Debt may have been
issued, as their respective interests may appear, for application to the
payment of all Obligations with respect to Senior Debt remaining unpaid to the
extent necessary to pay such Obligations in full in accordance with their
terms, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Debt.
With respect to the holders of Senior Debt, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into this
Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt, and, except as provided in
Section 10.12, shall not be liable to any such holders if the Trustee shall pay
over or distribute to or on behalf of Holders of Securities or the Company or
any other Person money or assets to which any holders of Senior Debt shall be
entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or gross negligence of the Trustee.
Section 10.7. Notice by Company.
The Company shall promptly notify the Trustee and the Paying
Agent of any facts known to the Company or any Subsidiary Guarantor, if any,
that would cause a payment of any Obligations with respect to the Securities or
the related Subsidiary Guarantees, if any, to violate this Article, but failure
to give such notice shall not affect the subordination of the Securities and
the related Subsidiary Guarantees, if any, to the Senior Debt as provided in
this Article.
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Section 10.8. Subrogation.
After all Senior Debt is paid in full and until the Securities
are paid in full, Holders of Securities shall be subrogated (equally and
ratably with all other Indebtedness pari passu with the Securities) to the
rights of holders of Senior Debt to receive distributions and payments
applicable to Senior Debt to the extent that distributions and payments
otherwise payable to the Holders of Securities have been applied to the payment
of Senior Debt. A payment or distribution made under this Article to holders
of Senior Debt that otherwise would have been made to Holders of Securities is
not, as between the Company and Holders of Securities, a payment by the Company
on the Securities.
Section 10.9. Relative Rights.
This Article defines the relative rights of Holders of Securities
and the holders of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders of Securities,
the obligation of the Company, which is absolute and unconditional, to
pay principal of and interest on the Securities in accordance with their
terms;
(2) affect the relative rights of Holders of Securities and
creditors of the Company other than their rights in relation to holders
of Senior Debt; or
(3) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders and owners of Senior Debt to receive distributions and
payments otherwise payable to Holders of Securities.
If the Company fails because of this Article to pay principal of
or interest on a Security on the due date, the failure is still a Default or
Event of Default.
Section 10.10. Subordination May Not Be Impaired by Company or
the Subsidiary Guarantors.
No right of any present or future holders of any Senior Debt to
enforce subordination as provided in this Article Ten will at any time in any
way be prejudiced or impaired by any act or failure to act on the part of the
Company or any Subsidiary Guarantor, if any, or by any act or failure to act,
in good faith, by any such holder, or by any noncompliance by the Company or
any Subsidiary Guarantor, if any, with the terms of this Indenture, regardless
of any knowledge thereof that any such holder of Senior Debt may have or
otherwise be charged with. The provisions of this Article Ten are intended to
be for the benefit of, and shall be enforceable directly by, the holders of
Senior Debt.
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Section 10.11. Payment, Distribution or Notice to
Representative.
Whenever a payment or distribution is to be made or a notice
given to holders of Senior Debt, the distribution may be made and the notice
given to their Representative.
Upon any payment or distribution of assets or securities of the
Company referred to in this Article 10, the Trustee and the Holders of
Securities shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction or upon any certificate of such Representative or of
the liquidating trustee or agent or other Person making any payment or
distribution to the Trustee or to the Holders of Securities for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Debt and other Indebtedness of the
Company or any Subsidiary Guarantor, if any, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article 10.
Section 10.12. Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Securities unless the Trustee shall have received at
its Corporate Trust Office at least one Business Day prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Securities to violate this Article, which notice shall
specifically refer to Section 10.3 or 10.4 hereof. Only the Company or a
Representative may give the notice. Nothing in this Article 10 shall impair
the claims of, or payments to, the Trustee under or pursuant to Section 7.7
hereof.
The Trustee in its individual or any other capacity may hold
Senior Debt with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
Section 10.13. Authorization to Effect Subordination.
Each Holder by the Holder's acceptance thereof authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact
for any and all such purposes. If the Trustee does not file a proper proof of
claim or proof of debt in the form required in any proceeding referred to in
Section 6.9 hereof at least 30 days before the expiration of the time to file
such claim, each lender under the Credit Agreement is hereby authorized to file
an appropriate claim for and on behalf of the Holders of the Securities and the
related Subsidiary Guarantees, if any.
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Section 10.14. Amendments.
No amendment may be made to the provisions of or the definitions
of any terms appearing in this Article 10, or to the provisions of Section 6.2
relating to the Designated Senior Debt, that adversely affects the rights of
any holder of Senior Debt then outstanding unless the holders of such Senior
Debt (or any group or Representative authorized to give a consent) consent to
such change.
Section 10.15. No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 10.9 of
this Indenture, the holders of Senior Debt may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders, without
incurring responsibility to the Holders and without impairing or releasing the
subordination provided in this Article Ten or the obligations hereunder of the
Holders to the holders of Senior Debt, do any one or more of the following: (a)
change the manner, place or terms of payment or extend the time of payment of,
or renew or alter, Senior Debt or any instrument evidencing the same or any
agreement under which Senior Debt is outstanding or secured; (b) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Debt; (c) release any Person liable in any manner for
the collection of Senior Debt; and (d) exercise or refrain from exercising any
rights against the Company and each Subsidiary Guarantor, if any, and any other
Person.
Section 10.16. Not To Prevent Events of Default or Limit Right
To Accelerate.
The failure to make a payment pursuant to the Securities by
reason of any provision in this Article 10 shall not be construed as preventing
the occurrence of a Default. Nothing in this Article 10 shall have any effect
on the right of the Holders of the Securities or the Trustee to accelerate the
maturity of the Securities.
Section 10.17. Trust Moneys Not Subordinated.
Notwithstanding anything contained herein to the contrary,
payments from money or the proceeds of U.S. Government Obligations held in
trust under Article 8 by the Trustee for the payment of principal of and
interest on the Securities shall not be subordinated to the prior payment of
any Senior Debt or subject to the restrictions set forth in this Article 10,
and none of the Holders of the Securities shall be obligated to pay over any
such amount to the Company or any holder of Senior Debt of the Company or any
other creditor of the Company.
Section 10.18. "Trustee" to Include Paying Agent.
In case at any time any Paying Agent other than the Trustee shall
have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article 10 shall in such case (unless the context
shall otherwise require) be construed as extending to and including
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<PAGE> 90
such Paying Agent within its meaning as fully and for all intents and purposes
as if such Paying Agent were named in this Article 10 in place of the Trustee.
ARTICLE 11
MISCELLANEOUS
Section 11.1. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA Section 318(c), the imposed duties shall
control. If any provisions of this Indenture modifies or excludes any
provision of the TIA that may be so modified or excluded, the letter provision
shall be deemed to apply to this Indenture as so modified or excluded, as the
case may be.
Section 11.2. Notices.
Any notice or communication by the Company or the Subsidiary
Guarantors, if any, or the Trustee to the others is duly given if in writing
and delivered in Person or mailed by first class mail (registered or certified,
return receipt requested), telecopier or overnight air courier guaranteeing
next day delivery, to the others' address:
If to the Company or any Subsidiary Guarantor, if any:
Energy Corporation of America
4643 South Ulster Street
Suite 1100
Denver, Colorado 80237
Telecopier No.: (303) 694-2763
Attention: John Mork
With a copy to:
Andrews & Kurth LLP
4200 Texas Commerce Tower
Houston, Texas 77002
Telecopier No.: (713) 220-4285
Attention: Thomas P. Mason
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<PAGE> 91
If to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attention: Corporate Trust Administration
The Company or any Subsidiary Guarantor, if any, or the Trustee,
by notice to the others may designate additional or different addresses for
subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if by telecopy; and the
next Business Day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If the Company or any Subsidiary Guarantor, if any, mails a
notice or communication to Holders, it shall mail a copy to the Trustee and
each Agent at the same time.
Section 11.3. Communication by Holders of Securities with Other
Holders of Securities.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the
Securities. The Company, the Subsidiary Guarantors, if any, the Trustee, the
Registrar and anyone else shall have the protection of TIA Section 312(c).
Section 11.4. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Company or any Subsidiary
Guarantor, if any, to the Trustee to take any action under this Indenture, the
Company or such Subsidiary Guarantor, as the case may be, shall furnish to the
Trustee:
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<PAGE> 92
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 11.5 hereof) stating that, in the opinion of the
signers, all conditions precedent and covenants, if any, provided for in
this Indenture relating to the proposed action have been complied with;
and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 11.5 hereof) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been complied
with.
Section 11.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions
of TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable him
or her to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.
Section 11.6. Acts of Holders; Rules by Trustee and Agents.
Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by a
specified percentage in principal amount of the Holders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such specified percentage of Holders in person or by agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee and, where it is hereby expressly required, to the Company.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules
and set reasonable requirements for its functions.
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<PAGE> 93
Section 11.7. No Personal Liability of Directors, Officers,
Employees and Stockholders.
No director, officer, employee, incorporator or stockholder of
the Company or a Subsidiary Guarantor, if any, as such, shall have any
liability for any obligations of the Company or any Subsidiary Guarantor under
the Securities, any Subsidiary Guarantee, if any, or this Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Securities, by accepting a Security, waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Securities. Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of
the Commission that such a waiver is against public policy.
Section 11.8. Governing Law.
THE SUBSTANTIVE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE SECURITIES AND THE SUBSIDIARY GUARANTEES,
IF ANY.
Section 11.9. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture,
loan or debt agreement of the Company or their respective Subsidiaries or of
any other Person. Any such indenture, loan or debt agreement may not be used
to interpret this Indenture and the Subsidiary Guarantees, if any.
Section 11.10. Successors.
All agreements of the Company and each Subsidiary Guarantor, if
any, in this Indenture, the Securities and the Subsidiary Guarantees, if any,
shall bind its respective successors. All agreements of the Trustee in this
Indenture shall bind its successors.
Section 11.11. Severability.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 11.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
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Section 11.13. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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<PAGE> 95
SIGNATURES
Dated as of
May 23, 1997 ENERGY CORPORATION OF AMERICA
By: /s/ JOHN MORK
-------------------------------
Name: John Mork
-------------------------------
Title: CEO
-------------------------------
THE BANK OF NEW YORK
By: /s/ WALTER N. GITLIN
-------------------------------
Name: Walter N. Gitlin
-------------------------------
Title: Vice-President
-------------------------------
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<PAGE> 96
EXHIBIT A
[FORM OF FACE OF INITIAL NOTE]
SERIES A NOTE
[Global Securities Legend]
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 PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER
A-1
<PAGE> 97
THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE
COMPANY, ANY SUBSIDIARY GUARANTOR, IF ANY, OR ANY AFFILIATE OF THE COMPANY OR
ANY SUBSIDIARY GUARANTOR, IF ANY, WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM
PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE
COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER
PURSUANT TO CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND IN EACH CASE, ONLY IF A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON
THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE COMPANY AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF
THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
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_____% Senior Subordinated Notes due 2007
No. $________
CUSIP Number:
ENERGY CORPORATION OF AMERICA
promises to pay to
or registered assigns,
the principal sum of
DOLLARS on __________, 2007.
Interest Payment Dates: ____________ and _________________
Record Dates: ______________________ and _________________
(the rest of this page left blank intentionally)
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<PAGE> 99
ENERGY CORPORATION OF AMERICA
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
This is one of the Securities referred
to in the within-mentioned
Indenture:
THE BANK OF NEW YORK
as Trustee
By
---------------------------------
Authorized Signatory
Dated: _______________, ____
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<PAGE> 100
(Back of Security)
[ ]% Senior Subordinated Notes due 2007
Capitalized terms used herein shall have the meanings assigned to
them in the Indenture referred to below unless otherwise indicated.
1. Interest. Energy Corporation of America, a West Virginia
corporation (the "Company"), promises to pay interest on the principal amount of
this Security at the rate of [ ]% per annum, which interest shall be payable in
cash semiannually in arrears on each ________ and ________, or if any such day
is not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"); provided that the first Interest Payment Date shall be _______.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
2. Method of Payment. On each Interest Payment Date the
Company will pay interest to the Person who is the Holder of record of this
Security as of the close of business on the ________ or ________ immediately
preceding such Interest Payment Date (the "Record Date"), even if this Security
is cancelled after such Record Date and on or before such Interest Payment
Date, except as provided in Section 2.11 of the Indenture with respect to
defaulted interest. Principal, premium, if any, and interest on this Security
will be payable at the office or agency of the Company maintained for such
purpose within the City and State of New York or, in the event the Securities
do not remain in book-entry form, at the option of the Company, payment of
interest may be made by check mailed to the Holder of this Security at its
address set forth in the register of Holders of Securities; provided that all
payments with respect to the Global Securities and definitive Securities having
an aggregate principal amount of $5.0 million or more the Holders of which have
given wire transfer instructions to the Company at least 10 Business Days prior
to the applicable payment date will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
3. Paying Agent and Registrar. Initially, The Bank of New
York, the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company or any Subsidiary Guarantor, if any, or any other of the
Company's Subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Securities under an
Indenture dated as of May [ ], 1997 ("Indenture") between the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust
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<PAGE> 101
Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The
Securities are subject to all such terms, and Holders are referred to the
Indenture and such Act for a statement of such terms. The Securities are
general unsecured obligations of the Company equal in an aggregate principal
amount to $200,000,000 and will mature on [ ], 2007.
The Securities are general unsecured senior subordinated
obligations of the Company limited to $200.0 million aggregate principal amount
(subject to Section 2.7 of the Indenture). This Security is one of the Initial
Notes referred to in the Indenture. The Securities include the Initial Notes
and any Exchange Notes issued in exchange for the Initial Notes pursuant to the
Indenture and the Registration Rights Agreement. The Initial Notes and the
Exchange Notes are treated as a single class of securities under the Indenture.
The Indenture imposes certain limitations on the incurrence of Indebtedness by
the Company and its Restricted Subsidiaries, the payment of dividends and other
distributions on the Capital Stock of the Company and its Restricted
Subsidiaries, the purchase or redemption of Capital Stock of the Company and
Capital Stock of such Restricted Subsidiaries, certain purchases or redemptions
of Subordinated Indebtedness, the sale or transfer of assets and Capital Stock
of Restricted Subsidiaries, the issuance or sale of Capital Stock of Restricted
Subsidiaries, the investments of the Company and its Subsidiaries and
transactions with Affiliates. In addition, the Indenture limits the ability of
the Company and its Restricted Subsidiaries to restrict distributions and
dividends from Restricted Subsidiaries.
5. Optional Redemption.
(a) The Securities are not redeemable at the Company's option
prior to [ ], 2002. From and after [ ], 2002, the Securities
will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on [ ] of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . [ ]%
2003 . . . . . . . . . . . . . . . . . . . . [ ]%
2004 . . . . . . . . . . . . . . . . . . . . [ ]%
2005 and thereafter . . . . . . . . . . . . . . 100.0000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this
Paragraph 5, prior to [ ], 2000 the Company may, at its option, on any
one or more occasions, redeem up to 33 1/3% of the original aggregate principal
amount of the Securities at a redemption price equal to $[ ] of the principal
amount thereof, plus accrued and unpaid interest, if any, thereon to the
redemption date,
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with the net proceeds of public sales of Common Stock of the Company; provided
that at least 66 2/3% of the original aggregate principal amount of the
Securities must remain outstanding immediately after the occurrence of such
redemption; and provided, further, that any such redemption shall occur within
60 days after the date of the closing of the related sale of such Common Stock.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not
be required to make mandatory redemption or sinking fund payments with respect
to the Securities.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, each Holder of
Securities shall have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's
Securities pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest, if any, thereon to the date of
purchase (the "Change of Control Payment"). The right of the Holders of the
Securities to require the Company to repurchase such Securities upon a Change
of Control may not be waived by the Trustee without the approval of the Holders
of the Securities required by Section 9.2 of the Indenture. Within 30 days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Securities pursuant to the procedures
required by the Indenture and described in such notice. The Change of Control
Payment shall be made on a business day not less than 30 days nor more than 60
days after such notice is mailed. The Company and each Subsidiary Guarantor,
if any, will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Securities as a result of a Change of Control.
(b) If the Company or a Restricted Subsidiary consummates any
Asset Sales permitted by the Indenture, when the aggregate amount of Excess
Proceeds exceeds $10.0 million, the Company shall make an offer to all Holders
of the Securities and, to the extent required by the terms of Pari Passu Debt,
to all holders or lenders thereof (an "Asset Sale Offer") to purchase the
maximum principal amount of the Securities and any such Pari Passu Debt to the
extent required by the terms thereof that may be purchased out of the Excess
Proceeds, at an offer price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest thereon to the date of purchase and,
with respect to Pari Passu Debt, any applicable premium specified in the
agreements relating thereto, in accordance with the procedures set forth in
Section 3.9 of the Indenture or the agreements governing the Pari Passu Debt,
as applicable.
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To the extent that the aggregate principal amount of the
Securities and Pari Passu Debt tendered pursuant to an Asset Sale Offer, plus
accrued and unpaid interest thereon to the date of purchase, if applicable,
premium on Pari Passu Debt, is less than the Excess Proceeds, the Company or
any Restricted Subsidiary may use any remaining Excess Proceeds for general
corporate purposes.
If the aggregate principal amount of the Securities surrendered
by Holders thereof and other Pari Passu Debt surrendered by holders or lenders
thereof, collectively, plus accrued and unpaid interest thereon to the date of
purchase, and, if applicable, premium on Pari Passu Debt, exceeds the amount of
Excess Proceeds, the Trustee shall select the Securities and Pari Passu Debt to
be purchased on a pro rata basis, based on the aggregate principal amount
thereof surrendered in such Asset Sale Offer.
Upon completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
8. Notice of Redemption. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder whose Securities are to be redeemed at its registered address.
Securities in denominations larger than $1,000 may be redeemed in part but only
in integral multiples of $1,000, unless all of the Securities held by a Holder
are to be redeemed. On and after the redemption date interest ceases to accrue
on the aggregate principal amount of the Securities called for redemption.
9. Denominations, Transfer, Exchange. The Securities may be
issued initially in the form of one or more fully registered Global Securities.
The Securities may also be issued in registered form without coupons in minimum
denominations of $1,000 and integral multiples of $1,000. The transfer of
Securities may be registered and Securities may be exchanged as provided in the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Security or portion of a Security selected for redemption,
except for the unredeemed portion of any Security being redeemed in part.
Also, it need not exchange or register the transfer of any Security for a
period of 15 days before a selection of Securities to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a
Security may be treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain
exceptions, the Indenture or the Securities may be amended or supplemented with
the consent of the Holders of at
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least a majority in aggregate principal amount of the Securities then
outstanding (including, without limitation, consents obtained in connection
with a purchase of, or the tender offer or exchange offer for, such
Securities), and any existing Default or Event of Default under, or compliance
with any provision of the Indenture or the Securities may be waived with the
consent of the Holders of a majority in principal amount of the then
outstanding Securities. Without the consent of any Holder of a Security, the
Indenture or the Securities may be amended or supplemented to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Securities in
addition to or in place of certificated Securities, to provide for the
assumption of the Company's obligations or any Subsidiary Guarantor's, if any,
obligation to Holders of the Securities in case of a merger or consolidation,
to make any change that would provide any additional rights or benefits to the
Holders of the Securities or that does not adversely affect the legal rights
under the Indenture of any such Holder, to comply with the requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act or to add a Subsidiary Guarantee under the
Indenture.
12. Defaults and Remedies. Events of Default include: (i)
default for 30 consecutive days in the payment when due of interest on the
Securities (whether or not prohibited by the provisions of Article 10 of the
Indenture); (ii) default in payment when due of the principal of or premium, if
any, on the Securities (whether or not prohibited by the provisions of Article
10 of the Indenture); (iii) failure by the Company to comply with the
provisions of Article 5 of the Indenture; (iv) failure by the Company for 30
consecutive days after notice from the Trustee or the Holders of at least 25%
in aggregate principal amount of the Securities then outstanding to comply with
the provisions of Sections 4.3, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13,
4.14, 4.15, 4.17 and 4.18 of the Indenture; (v) failure by the Company for 60
consecutive days after notice from the Trustee or the Holders of at least 25%
in aggregate principal amount of the Securities then outstanding to comply with
any of its other agreements or covenants in, or provisions of, this Security or
in the Indenture; (vi) except as permitted by the Indenture, any Subsidiary
Guarantee, if any, shall be held in any judicial proceeding to be unenforceable
or invalid or shall cease for any reason to be in full force and effect or a
Subsidiary Guarantor, if any, or any Person acting on behalf of such Subsidiary
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; (vii) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any Restricted Subsidiary
whether such Indebtedness or guarantee now exists, or is created after the date
of the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there is then existing a Payment Default or the
maturity of which has been so accelerated, aggregates $10.0 million (or its
equivalent in any other currency) or more; (viii) a final non-appealable
judgment or order or final
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non-appealable judgments or orders are rendered against the Company or any
Restricted Subsidiary that remain unpaid or discharged for a period of 90 days
and that require the payment in money, either individually or in an aggregate
amount, that is more than $10 million (net of applicable insurance coverage
which is acknowledged in writing by the insurer or which has been determined to
be applicable by a final, non-appealable determination by a court of competent
jurisdiction); and (ix) certain events of bankruptcy or insolvency with respect
to the Company or any Restricted Subsidiary. If any Event of Default (other
than an Event of Default described in clause (ix) above) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Securities may declare all the Securities to be due and
payable immediately. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency with respect to
the Company or any Restricted Subsidiary, all outstanding Securities will
become due and payable without further action or notice. Holders of the
Securities may not enforce the Indenture or the Securities except as provided
in the Indenture. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Securities may direct the Trustee in
its exercise of any trust or power. The Trustee may withhold from Holders of
the Securities notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest)
if it determines that withholding notice is in their interest. The Holders of
a majority in aggregate principal amount of the Securities then outstanding by
notice to the Trustee may on behalf of the Holders of all of the Securities
waive any existing Default or Event of Default and its consequences under the
Indenture except a continuing Default or Event of Default in the payment of
interest or premium on, or the principal of, the Securities. The Company is
required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Company is required, within 5 Business days after
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
13. Subordination. The Securities are subordinated to Senior
Debt of the Company. To the extent provided in the Indenture, Senior Debt must
be paid before the Securities may be paid. The Company agrees, and each Holder
by accepting a Security agrees, that the Indebtedness evidenced by the
Securities, including, but not limited to, the payment of principal of,
premium, if any, and interest on the Securities, and any other payment
Obligation of the Company in respect of the Securities is subordinated in right
of payment, to the extent and in the manner provided in the Indenture, to the
prior payment in full in cash of all Senior Debt of the Company (whether
outstanding on the date hereof or hereafter created, incurred, assumed or
guaranteed) and authorizes the Trustee to give effect and appoints the Trustee
as attorney-in-fact for such purpose.
14. Trustee Dealings with Company. The Indenture contains
certain limitations on the rights of the Trustee, should it become a creditor
of the Company, to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any
A-10
<PAGE> 106
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
15. No Recourse Against Others. No director, officer,
employee, incorporator or stockholder of the Company, as such, shall have any
liability for any obligations of the Company under the Securities or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Securities, by accepting a
Security, waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the Securities. Such waiver may not
be effective to waive liabilities under the federal securities laws and it is
the view of the Commission that such a waiver is against public policy.
16. Authentication. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
17. Abbreviations. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act.
18. CUSIP Numbers. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Securities and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
Energy Corporation of America
4643 South Ulster Street
Suite 1100
Denver, Colorado 80237
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<PAGE> 107
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint _________________ agent to transfer this Security on
the books of the Company. The agent may substitute another to act for him.
- --------------------------------------------------------------------------------
Date: Your Signature:
-------------------- ----------------------
Signature Guarantee:(*)
-------------------------------
(Signature must be guaranteed)
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer or exchange of any of the Securities evidenced
by this certificate occurring prior to the date that is three years after the
later of the date of original issuance of such Securities and the last date, if
any, on which such Securities were owned by the Company or any Affiliate of the
Company, the undersigned confirms that such Securities are being:
CHECK ONE BOX BELOW:
1 [ ] acquired for the undersigned's own account, without
transfer (in satisfaction of Section 2.6(a)(ii)(A) or
Section 2.6(d)(i)(A) of the Indenture); or
2 [ ] transferred to the Company; or
3 [ ] transferred pursuant to and in compliance with Rule 144A
under the Securities Act of 1933; or
- --------------------
(*/) Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
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<PAGE> 108
4 [ ] transferred pursuant to an effective registration
statement under the Securities Act; or
5 [ ] transferred pursuant to and in compliance with Regulation
S under the Securities Act of 1933; or
6 [ ] transferred to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act of 1933), that has furnished to the Trustee
a signed letter containing certain representations and
agreements (the form of which letter appears as Exhibit C
to the Indenture); or
7 [ ] transferred pursuant to another available exemption from
the registration requirements of the Securities Act of
1933.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (5), (6) or
(7) is checked, the Trustee or the Company may require, prior to registering
any such transfer of the Securities, in their sole discretion, such legal
opinions, certifications and other information as the Trustee or the Company
may reasonably request to confirm that such transfer is being made pursuant to
an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption provided by
Rule 144 under such Act.
------------------------------
Signature
Signature Guarantee:(*)
- ---------------------------------- ------------------------------
(Signature must be guaranteed) Signature
- --------------------
(*/) Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
A-13
<PAGE> 109
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.9 or 4.11 of the Indenture, check the box below:
Section 4.9 Section 4.11
If you want to elect to have only part of the Security purchased
by the Company pursuant to Section 4.9 or Section 4.11 of the Indenture, state
the principal amount you elect to have purchased: $______________
Date: Your Signature:
-------------- ------------------------------
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee:(*)
----------------
- ----------------------------------
(*/) Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
A-14
<PAGE> 110
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have
been made:
<TABLE>
<CAPTION>
Principal Amount Signature of
Amount of decrease Amount of increase of this Global authorized officer
in Principal in Principal Security following of Trustee or
Date of Amount of this Amount of this such decrease or Securities
Exchange Global Security Global Security increase Custodian
<S> <C> <C> <C> <C>
</TABLE>
A-15
<PAGE> 111
EXHIBIT B
EXHIBIT B
(Form of Face of Exchange Note)
SERIES B NOTE
[Global Securities Legend]
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 PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
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
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
B-1
<PAGE> 112
_____% Senior Subordinated Notes due 2007
No. $__________
CUSIP Number:
ENERGY CORPORATION OF AMERICA
promises to pay to
or registered assigns,
the principal sum of
DOLLARS on __________, 2007.
Interest Payment Dates: ____________ and _________________
Record Dates: ______________________ and _________________
(the rest of this page left blank intentionally)
B-2
<PAGE> 113
ENERGY CORPORATION OF AMERICA
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
This is one of the Securities
referred to in the within-mentioned
Indenture:
THE BANK OF NEW YORK
as Trustee
By
------------------------------------
Authorized Signatory
Dated: ,
--------------- ----
B-3
<PAGE> 114
(Back of Security)
[ ]% Senior Subordinated Notes due 2007
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
1. Interest. Energy Corporation of America, a
Delaware corporation (the "Company"), promises to pay interest on the principal
amount of this Security at the rate of [ ]% per annum, which interest shall be
payable in cash semiannually in arrears on each ________ and ________, or if
any such day is not a Business Day, on the next succeeding Business Day (each
an "Interest Payment Date"); provided that the first Interest Payment Date
shall be ________. Interest on the Securities will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
date of original issuance. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
2. Method of Payment. On each Interest Payment Date the
Company will pay interest to the Person who is the Holder of record of this
Security as of the close of business on the ________ or ________ immediately
preceding such Interest Payment Date (the "Record Date"), even if this Security
is cancelled after such Record Date and on or before such Interest Payment
Date, except as provided in Section 2.11 of the Indenture with respect to
defaulted interest. Principal, premium, if any, and interest on this Security
will be payable at the office or agency of the Company maintained for such
purpose within the City and State of New York or, in the event the Securities
do not remain in book-entry form, at the option of the Company, payment of
interest may be made by check mailed to the Holder of this Security at its
address set forth in the register of Holders of Securities; provided that all
payments with respect to the Global Securities and definitive Securities having
an aggregate principal amount of $5.0 million or more the Holders of which have
given wire transfer instructions to the Company at least 10 Business Days prior
to the applicable payment date will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
3. Paying Agent and Registrar. Initially, The Bank of New
York, the Trustee under the Indenture, will act as Paying Agent and Registrar.
The Company may change any Paying Agent or Registrar without notice to any
Holder. The Company or any Subsidiary Guarantor, if any, or any other of the
Company's Subsidiaries may act in any such capacity.
B-4
<PAGE> 115
4. Indenture. The Company issued the Securities under an
Indenture dated as of May [ ], 1997 ("Indenture") among the Company, the
Subsidiary Guarantors and the Trustee. The terms of the Securities include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections
77aaa-77bbbb). The Securities are subject to all such terms, and Holders are
referred to the Indenture and such Act for a statement of such terms. The
Securities are general unsecured obligations of the Company equal in an
aggregate principal amount to $200,000,000 and will mature on [ ], 2007.
The Securities are general unsecured senior subordinated
obligations of the Company limited to $50.0 million aggregate principal amount
(subject to Section 2.7 of the Indenture). This Security is one of the
Exchange Notes referred to in the Indenture. The Securities include the
Initial Notes and any Exchange Notes issued in exchange for the Initial Notes
pursuant to the Indenture and the Registration Rights Agreement. The Initial
Notes and the Exchange Notes are treated as a single class of securities under
the Indenture. The Indenture imposes certain limitations on the incurrence of
Indebtedness by the Company and its Restricted Subsidiaries, the payment of
dividends and other distributions on the Capital Stock of the Company and its
Restricted Subsidiaries, the purchase or redemption of Capital Stock of the
Company and Capital Stock of such Restricted Subsidiaries, certain purchases or
redemptions of Subordinated Indebtedness, the sale or transfer of assets and
Capital Stock of Restricted Subsidiaries, the issuance or sale of Capital Stock
of Restricted Subsidiaries, the investments of the Company and its Subsidiaries
and transactions with Affiliates. In addition, the Indenture limits the
ability of the Company and its Restricted Subsidiaries to restrict
distributions and dividends from Restricted Subsidiaries.
5. Optional Redemption.
(a) The Securities are not redeemable at the Company's option
prior to [ ], 2002. From and after [ ], 2002, the Securities
will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on [ ] of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002 . . . . . . . . . . . . . . . . . . . . . . [ ]%
2003 . . . . . . . . . . . . . . . . . . . . . . [ ]%
2004 . . . . . . . . . . . . . . . . . . . . . . [ ]%
2005 and thereafter . . . . . . . . . . . . . . 100.0000%
</TABLE>
B-5
<PAGE> 116
(b) Notwithstanding the provisions of clause (a) of this
Paragraph 5, prior to [ ], 2000 the Company may, at its option, on any
one or more occasions, redeem up to 33 1/3% of the original aggregate principal
amount of the Securities at a redemption price equal to $[ ] of the principal
amount thereof, plus accrued and unpaid interest, if any, thereon to the
redemption date, with the net proceeds of public sales of Common Stock of the
Company; provided that at least 66 2/3% of the original aggregate principal
amount of the Securities must remain outstanding immediately after the
occurrence of such redemption; and provided, further, that any such redemption
shall occur within 60 days after the date of the closing of the related sale of
such Common Stock.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Company shall not
be required to make mandatory redemption or sinking fund payments with respect
to the Securities.
7. Repurchase at Option of Holder.
(a) Upon the occurrence of a Change of Control, each Holder of
Securities shall have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's
Securities pursuant to the offer described below (the "Change of Control
Offer") at an offer price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest, if any, thereon to the date of
purchase (the "Change of Control Payment"). The right of the Holders of the
Securities to require the Company to repurchase such Securities upon a Change
of Control may not be waived by the Trustee without the approval of the Holders
of the Securities required by Section 9.2 of the Indenture. Within 30 days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Securities pursuant to the procedures
required by the Indenture and described in such notice. The Change of Control
Payment shall be made on a business day not less than 30 days nor more than 60
days after such notice is mailed. The Company and each Subsidiary Guarantor,
if any, will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Securities as a result of a Change of Control.
(b) If the Company or a Restricted Subsidiary consummates any
Asset Sales permitted by the Indenture, when the aggregate amount of Excess
Proceeds exceeds $10.0 million, the Company shall make an offer to all Holders
of the Securities and, to the extent required by the terms of Pari Passu Debt,
to all holders or lenders thereof (an "Asset Sale Offer") to purchase the
maximum principal amount of the Securities and any such Pari Passu Debt to the
extent required by the terms thereof that may be purchased out of the Excess
Proceeds, at an offer price in cash equal
B-6
<PAGE> 117
to 100% of the principal amount thereof plus accrued and unpaid interest
thereon to the date of purchase and, with respect to Pari Passu Debt, any
applicable premium specified in the agreements relating thereto, in accordance
with the procedures set forth in Section 3.9 of the Indenture or the agreements
governing the Pari Passu Debt, as applicable. To the extent that the aggregate
principal amount of the Securities and Pari Passu Debt tendered pursuant to an
Asset Sale Offer, plus accrued and unpaid interest thereon to the date of
purchase, if applicable, premium on Pari Passu Debt, is less than the Excess
Proceeds, the Company or any Restricted Subsidiary may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
the Securities surrendered by Holders thereof and other Pari Passu Debt
surrendered by holders or lenders thereof, collectively, plus accrued and
unpaid interest thereon to the date of purchase, and, if applicable, premium on
Pari Passu Debt, exceeds the amount of Excess Proceeds, the Trustee shall
select the Securities and Pari Passu Debt to be purchased on a pro rata basis,
based on the aggregate principal amount thereof surrendered in such Asset Sale
Offer. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
8. Notice of Redemption. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
Holder whose Securities are to be redeemed at its registered address.
Securities in denominations larger than $1,000 may be redeemed in part but only
in integral multiples of $1,000, unless all of the Securities held by a Holder
are to be redeemed. On and after the redemption date interest ceases to accrue
on the aggregate principal amount of the Securities called for redemption.
9. Denominations, Transfer, Exchange. The Securities may be
issued initially in the form of one or more fully registered Global Securities.
The Securities may also be issued in registered form without coupons in minimum
denominations of $1,000 and integral multiples of $1,000. The transfer of
Securities may be registered and Securities may be exchanged as provided in the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Security or portion of a Security selected for redemption,
except for the unredeemed portion of any Security being redeemed in part.
Also, it need not exchange or register the transfer of any Security for a
period of 15 days before a selection of Securities to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a
Security may be treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain
exceptions, the Indenture or the Securities may be amended or supplemented with
the consent of the Holders of at least a majority in aggregate principal amount
of the Securities then outstanding (including, without
B-7
<PAGE> 118
limitation, consents obtained in connection with a purchase of, or the tender
offer or exchange offer for, such Securities), and any existing Default or
Event of Default under, or compliance with any provision of the Indenture or
the Securities may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Securities. Without the consent of
any Holder of a Security, the Indenture or the Securities may be amended or
supplemented to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Securities in addition to or in place of certificated
Securities, to provide for the assumption of the Company's obligations or any
Subsidiary Guarantor's, if any, obligation to Holders of the Securities in case
of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Securities or that does not
adversely affect the legal rights under the Indenture of any such Holder, to
comply with the requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act or to add a
Subsidiary Guarantee under the Indenture.
12. Defaults and Remedies. Events of Default include: (i)
default for 30 consecutive days in the payment when due of interest on the
Securities (whether or not prohibited by the provisions of Article 10 of the
Indenture); (ii) default in payment when due of the principal of or premium, if
any, on the Securities (whether or not prohibited by the provisions of Article
10 of the Indenture); (iii) failure by the Company to comply with the
provisions of Article 5 of the Indenture; (iv) failure by the Company for 30
consecutive days after notice from the Trustee or the Holders of at least 25%
in aggregate principal amount of the Securities then outstanding to comply with
the provisions of Sections 4.3, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13,
4.14, 4.15, 4.17 and 4.18 of the Indenture; (v) failure by the Company for 60
consecutive days after notice from the Trustee or the Holders of at least 25%
in aggregate principal amount of the Securities then outstanding to comply with
any of its other agreements or covenants in, or provisions of, this Security or
in the Indenture; (vi) except as permitted by the Indenture, any Subsidiary
Guarantee, if any, shall be held in any judicial proceeding to be unenforceable
or invalid or shall cease for any reason to be in full force and effect or a
Subsidiary Guarantor, if any, or any Person acting on behalf of such Subsidiary
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; (vii) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any Restricted Subsidiary
whether such Indebtedness or guarantee now exists, or is created after the date
of the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there is then existing a Payment Default or the
maturity of which has been so accelerated, aggregates $10.0 million (or its
equivalent in any other currency) or more; (viii) a final non-appealable
judgment or order or final non-appealable judgments or orders are rendered
against the Company or any Restricted Subsidiary
B-8
<PAGE> 119
that remain unpaid or discharged for a period of 90 days and that require the
payment in money, either individually or in an aggregate amount, that is more
than $10 million (net of applicable insurance coverage which is acknowledged in
writing by the insurer or which has been determined to be applicable by a
final, non-appealable determination by a court of competent jurisdiction); and
(ix) certain events of bankruptcy or insolvency with respect to the Company or
any Restricted Subsidiary. If any Event of Default (other than an Event of
Default described in clause (ix) above) occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding
Securities may declare all the Securities to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company or any
Restricted Subsidiary, all outstanding Securities will become due and payable
without further action or notice. Holders of the Securities may not enforce
the Indenture or the Securities except as provided in the Indenture. Subject
to certain limitations, Holders of a majority in principal amount of the then
outstanding Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Securities notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest. The Holders of a majority in
aggregate principal amount of the Securities then outstanding by notice to the
Trustee may on behalf of the Holders of all of the Securities waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest or
premium on, or the principal of, the Securities. The Company is required to
deliver to the Trustee annually a statement regarding compliance with the
Indenture, and the Company is required, within 5 Business days after becoming
aware of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
13. Subordination. The Securities are subordinated to Senior
Debt of the Company. To the extent provided in the Indenture, Senior Debt must
be paid before the Securities may be paid. The Company agrees, and each Holder
by accepting a Security agrees, that the Indebtedness evidenced by the
Securities, including, but not limited to, the payment of principal of,
premium, if any, and interest on the Securities, and any other payment
Obligation of the Company in respect of the Securities is subordinated in right
of payment, to the extent and in the manner provided in the Indenture, to the
prior payment in full in cash of all Senior Debt of the Company (whether
outstanding on the date hereof or hereafter created, incurred, assumed or
guaranteed) and authorizes the Trustee to give effect and appoints the Trustee
as attorney-in-fact for such purpose.
14. Trustee Dealings with Company. The Indenture contains
certain limitations on the rights of the Trustee, should it become a creditor
of the Company, to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any
B-9
<PAGE> 120
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
15. No Recourse Against Others. No director, officer,
employee, incorporator or stockholder of the Company, as such, shall have any
liability for any obligations of the Company under the Securities or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Securities, by accepting a
Security, waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the Securities. Such waiver may not
be effective to waive liabilities under the federal securities laws and it is
the view of the Commission that such a waiver is against public policy.
16. Authentication. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
17. Abbreviations. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act.
18. CUSIP Numbers. Pursuant to a recommendation promulgated
by the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Securities and the Trustee may use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
Energy Corporation of America
4643 South Ulster Street
Suite 1100
Denver, Colorado 80237
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<PAGE> 121
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this Security
on the books of the Company. The agent may substitute another to act
for him.
- --------------------------------------------------------------------------------
Date: Your Signature:
----------------- --------------------
Signature Guarantee:(*)
-------------------------------
(Signature must be guaranteed)
- --------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer or exchange of any of the Securities evidenced
by this certificate occurring prior to the date that is three years after the
later of the date of original issuance of such Securities and the last date, if
any, on which such Securities were owned by the Company or any Affiliate of the
Company, the undersigned confirms that such Securities are being:
CHECK ONE BOX BELOW:
1 [ ] acquired for the undersigned's own account, without
transfer (in satisfaction of Section 2.6(a)(ii)(A) or
Section 2.6(d)(i)(A) of the Indenture); or
2 [ ] transferred to the Company; or
- --------------------
(*/) Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
B-11
<PAGE> 122
3 [ ] transferred pursuant to and in compliance with Rule 144A
under the Securities Act of 1933; or
4 [ ] transferred pursuant to an effective registration
statement under the Securities Act; or
5 [ ] transferred pursuant to and in compliance with Regulation
S under the Securities Act of 1933; or
6 [ ] transferred to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act of 1933), that has furnished to the Trustee
a signed letter containing certain representations and
agreements (the form of which letter appears as Exhibit C
to the Indenture); or
7 [ ] transferred pursuant to another available exemption from
the registration requirements of the Securities Act of
1933.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (5), (6) or
(7) is checked, the Trustee or the Company may require, prior to registering
any such transfer of the Securities, in their sole discretion, such legal
opinions, certifications and other information as the Trustee or the Company
may reasonably request to confirm that such transfer is being made pursuant to
an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption provided by
Rule 144 under such Act.
---------------------------------
Signature
Signature Guarantee:*
- ------------------------------- ---------------------------------
(Signature must be guaranteed) Signature
- ----------------------------------
(*/) Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
B-12
<PAGE> 123
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have
been made:
<TABLE>
<CAPTION>
Principal Amount of Signature of
Amount of decrease in Amount of increase in this Global Security authorized officer of
Date of Principal Amount of Principal Amount of following such Trustee or Securities
Exchange this Global Security this Global Security decrease or increase Custodian
<S> <C> <C> <C> <C>
</TABLE>
B-13
<PAGE> 124
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.9 or 4.11 of the Indenture, check the box below:
[ ] Section 4.9 [ ] Section 4.11
If you want to elect to have only part of the Security purchased
by the Company pursuant to Section 4.9 or Section 4.11 of the Indenture, state
the principal amount you elect to have purchased: $______________
Date: Your Signature:
------------------ ----------------------
(Sign exactly as your name appears on the
face of this Security)
Signature Guarantee:(*)
-------
- ----------------------------------
(*/) Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
B-14
<PAGE> 125
EXHIBIT C
FORM OF
TRANSFEREE LETTER OF REPRESENTATION
Energy Corporation of America
c/o The Bank of New York
101 Barclay Street
New York, New York 10286
Dear Sirs:
This certificate is delivered to request a transfer of $
principal amount of the % Senior Subordinated Notes due __________ (the
"Securities") of Energy Corporation of America (the "Company").
Upon transfer, the Securities would be registered in the name of
the new beneficial owner as follows:
Name:
--------------------------------------
Address:
--------------------------------------
Taxpayer ID Number:
------------------------
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined
in Rules 501(a)(1), (2), (3) and (7) under the Securities Act of 1933, as
amended (the "Securities Act")), purchasing for our own account or for the
account of such an institutional "accredited investor" at least $250,000
principal amount of the Securities, and we are acquiring the Securities not
with a view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act. We have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Securities and invest in or purchase securities
similar to the
C-1
<PAGE> 126
Securities in the normal course of our business. We and any accounts for which
we are acting are each able to bear the economic risk of our or its investment.
2. We understand that the Securities have not been registered
under the Securities Act and, unless so registered, may not be sold except as
permitted in the following sentence. We agree on our own behalf and on behalf
of any investor account for which we are purchasing Securities to offer, sell
or otherwise transfer such Securities prior to the date which is two years
after the later of the date of original issue and the last date on which the
Company of any affiliate of the Company was the owner of such Securities (or
any predecessor thereto) (the "Resale Restriction Termination Date") only (a)
to the Company, (b) pursuant to a registration statement which has been
declared effective under the Securities Act, (c) in a transaction complying
with the requirements of Rule 144A under the Securities Act to a person we
reasonably believe is a qualified institutional buyer under Rule 144A (a "QIP")
that purchases for its own account or for the account of a QIP and to whom
notice is given that the transfer is being made in reliance on Rule 144A, (d)
pursuant to offers and sales that occur outside the United States within the
meaning of Regulation S under the Securities Act, (e) to an institutional
"accredited investor" within the meaning of Rules 501(a)(1), (2), (3) or (7)
under the Securities Act that is purchasing for its own account or for the
account of such an institutional "accredited investor", in each case in a
minimum principal amount of Securities of $250,000, or (f) pursuant to any
other available exemption from the registration requirements of the Securities
Act, subject in each of the foregoing cases to any requirement of law that the
disposition of our property or the property of such investor account or
accounts be at all times within our or their control and in compliance with any
applicable state securities laws. The foregoing restrictions on resales will
not apply subsequent to the Resale Restriction Termination Date, if any resale
or other transfer of the Securities is proposed to be made pursuant to clause
(e) above prior to the Resale Restriction Termination Date, the transferor
shall deliver a letter from the transferee substantially in the form of this
letter to the Company and the Trustee, which shall provide, among other things,
that the transferee is an institutional "accredited investor" within the
meaning of Rules 501(a)(1), (2), (3) or (7) under the Securities Act and that
it is acquiring such Securities for investment purposes and not for
distribution in violation of the Securities Act. Each purchaser acknowledges
that the Company and the Trustee reserve the right prior to the offer, sale or
other transfer prior to the Resale Termination Date of the Securities pursuant
to clause (d), (e) or (f) above to require the delivery of an opinion of
counsel, certifications or other information satisfactory to the Company and
the Trustee.
Transferee:
-------------------
By:
---------------------------
C-2
<PAGE> 127
EXHIBIT D
FORM OF SUPPLEMENTAL INDENTURE TO BE
DELIVERED BY SUBSIDIARY GUARANTORS
SUPPLEMENTAL INDENTURE (this Supplemental Indentures) dated as of
________________, between _____________________ (the "Subsidiary Guarantors"),
a subsidiary of Energy Corporation of America (or its successor), a company
incorporated under the laws of the State of West Virginia (the "Company"), and
The Bank of New York, as trustee under the indenture referred to below (the
"Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of May 23, 1997, providing for
the issuance of an aggregate principal amount at maturity of $200,000,000 of 9-
1/2% Senior Subordinated Notes due 2007 (the "Notes");
WHEREAS, Section 4.14 of the Indenture provides that, under
certain circumstances, the Company is required to cause the Subsidiary
Guarantor to execute and deliver to the Trustee a Subsidiary Guarantee on the
terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Subsidiary Guarantor and the Trustee mutually covenant and agree for the
equal and ratable benefit of the holders of the Notes as follows:
1. CAPITALIZED TERMS.
Capitalized terms used herein without definition shall have the
meanings as signed to them in the Indenture.
D-1
<PAGE> 128
2. INDENTURE PROVISION PURSUANT TO WHICH GUARANTEE IS GIVEN.
This Supplemental Indenture is being executed and delivered
pursuant to Section 4.14 of the Indenture.
3. AGREEMENTS TO GUARANTEE.
The Subsidiary Guarantor hereby agrees as follows:
(a) The Subsidiary Guarantor, jointly and severally with all
other Subsidiary Guarantors, if any, unconditionally guarantees to each Holder
of a Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, regardless of the validity and enforceability of the
Indenture, the Notes and the obligations of the Company under the Indenture and
the Notes, that:
(i) the principal of, premium, and interest on the Notes
shall be promptly paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal of, premium, if
any, and interest on the Notes, to the extent lawful, and all other obligations
of the Company to the Holders or the Trustee thereunder shall be promptly paid
in full, all in accordance with the terms thereof; and
(ii) in case of any extension of time for payment or
renewal of any Notes or any of such other obligations, that the same shall be
promptly paid in full when due in accordance with the terms of the extension or
renewal, whether at maturity, by acceleration or otherwise.
Notwithstanding the foregoing, in the event that this Subsidiary
Guarantee would constitute or result in a violation of any applicable
fraudulent conveyance or similar law of any relevant jurisdiction, the
liability of the Subsidiary Guarantor under this Supplemental Indenture and its
Subsidiary Guarantee shall be limited to such amount as will not, after giving
effect thereto, and to all other liabilities of the Subsidiary Guarantor,
result in such amount constituting a fraudulent transfer or conveyance.
4. SUBORDINATION.
The Subsidiary Guarantor agrees, and each Holder by accepting a
Note agrees, that (a) the obligations of the Subsidiary Guarantor under this
Subsidiary Guarantee are subordinated in right of payment to the prior payment
in full (when due) of all existing and future Guarantor Senior
D-2
<PAGE> 129
Indebtedness of the Subsidiary Guarantor, including without limitation any
guarantee by the Subsidiary Guarantor of the Indebtedness under the Credit
Agreement or of any Senior Debt of the Company or of any Guarantor Senior
Indebtedness of any other Subsidiary Guarantor, to the extent and in the matter
provided in Article 10 of the Indenture (as if the Subsidiary Guarantor were
the Company for purposes of such Article 10 and all defined terms used therein,
and the Guarantor Senior Indebtedness of the Guarantor were Senior Debt), and
this Subsidiary Guarantee is made subject to such provisions (which are hereby
incorporated herein by reference), and (b) such subordination is for the
benefit of and enforceable by the holders of Guarantor Senior Indebtedness of
the Subsidiary Guarantor.
5. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE
(a) To evidence its Subsidiary Guarantee set forth in this
Supplemental Indenture, the Subsidiary Guarantor hereby agrees that a notation
of such Subsidiary Guarantee substantially in the form of Annex A hereto shall
be endorsed by an officer of such Subsidiary Guarantor on each Note
authenticated and delivered by the Trustee after the date hereof.
(b) Notwithstanding the foregoing, the Subsidiary Guarantor
hereby agrees that its Subsidiary Guarantee set forth herein shall remain in
full force and effect notwithstanding any failure to endorse on each Note a
notation of such Subsidiary Guarantee.
(c) If an officer whose signature is on this Supplemental
Indenture or on the Subsidiary Guarantee no longer holds that office at the
time the Trustee authenticates the Note on which a Subsidiary Guarantee is
endorsed, the Subsidiary Guarantee shall be valid nevertheless.
(d) The delivery of the Note by the Trustee, after the
authentication thereof under the Indenture, shall constitute due delivery of
the Subsidiary Guarantee set forth in this Supplemental Indenture on behalf of
the Subsidiary Guarantor.
(e) The Subsidiary Guarantor hereby agrees that its
obligations hereunder shall be unconditional, regardless of the validity,
regularity or enforceability of the Notes or the Indenture, the absence of any
action to enforce the same, any waiver or consent by any Holder of the Notes
with respect to any provisions hereof or thereof, the recovery of any judgement
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor.
D-3
<PAGE> 130
(f) The Subsidiary Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding
first against the Company, protest, notice and all demands whatsoever and
covenants that its Subsidiary Guarantee made pursuant to this Supplemental
Indenture will not be discharged except by complete performance of the
obligations contained in the Notes and the Indenture or pursuant to Section
6(b) of this Supplemental Indenture.
(g) If the Trustee or any Holder has instituted any proceeding
to enforce any right or remedy under this Supplemental Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then, and in every such
case, subject to any determination in such proceeding, the Subsidiary
Guarantor, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Subsidiary Guarantor. the Trustee and the Holders shall
continue as though no such proceeding had been instituted.
(h) The Subsidiary Guarantor hereby waives and will not in any
manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Subsidiary Guarantor as a result of any payment by such Subsidiary
Guarantor under its Subsidiary Guarantee. The Subsidiary Guarantor further
agrees that, as between the Subsidiary Guarantors, on the one hand, and the
Holders and the Trustee, on the other hand:
(i) the maturity of the obligations guaranteed hereby may
be accelerated as provided in Article 6 of the Indenture for the purposes of
the Subsidiary Guarantee made pursuant to this Supplemental Indenture,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby; and
(ii) in the event of any declaration of acceleration of
such obligations as provided in such Article 6, such obligations (whether or
not due and payable) shall forthwith become due and payable by the Subsidiary
Guarantor for the purpose of the Subsidiary Guarantee made pursuant to this
Supplemental Indenture.
(i) The Subsidiary Guarantor shall have the right to seek
contribution from any other non-paying Subsidiary Guarantor, if any, so long as
the exercise of such right does not impair the rights of the Holders under the
Subsidiary Guarantee made pursuant to this Supplemental Indenture.
(j) The Subsidiary Guarantor covenants (to the extent that it
may lawfully do so) that it will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit
D-4
<PAGE> 131
or advantage of, any stay, extension or usury law wherever enacted, now or at
any time hereafter in force, which may affect the covenants or the performance
of the Indenture or this Subsidiary Guarantee; and the Subsidiary Guarantor (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
6. SUBSIDIARY GUARANTOR MAY CONSOLIDATE, ETC. ON CERTAIN TERMS
(a) Except as set forth in Articles 4 and 5 of the Indenture,
nothing contained in the Indenture, this Supplemental Indenture or in the Notes
shall prevent any consolidation or merger of the Subsidiary Guarantor with or
into the Company or any other Subsidiary Guarantor or shall prevent any
transfer, sale or conveyance of the property of the Subsidiary Guarantor as an
entirety or substantially as an entirety, to the Company or any other
Subsidiary Guarantor.
(b) Except as set forth in Article 5 of the Indenture, upon the
sale or disposition of all of the Capital Stock of the Subsidiary Guarantor by
the Company or the Subsidiary of the Company, or upon the consolidation or
merger of the Subsidiary Guarantor with or into any Person, or the sale of all
or substantially all of the assets of the Subsidiary Guarantor (in each case,
other than to an Affiliate of the Company), such Subsidiary Guarantor shall be
deemed automatically and unconditionally released and discharged from all
obligations under this Subsidiary Guarantee without any further action required
on the part of the Trustee or any Holder if no Default shall have occurred and
be continuing; provided, that in the event of an Asset Sale, the Net Proceeds
therefrom are treated in accordance with Section 4.9 of the Indenture. Except
with respect to transactions set forth in the preceding sentence, the Company
and the Subsidiary Guarantor covenant and agree that upon any such
consolidation, merger or transfer of assets, the performance of all covenants
and conditions of this Supplemental Indenture to be performed by such
Subsidiary Guarantor shall be expressly assumed by supplemental indenture
satisfactory in form to the Trustee, by the corporation formed by such
consolidation, or into which the Subsidiary Guarantor shall have merged, or by
the corporation which shall have acquired such property. Upon receipt of an
Officer's Certificate of the Company or the Subsidiary Guarantor, as the case
may be, to the effect that the Company or such Subsidiary Guarantor has
complied with the first sentence of this Section 6(b), the Trustee shall
execute any documents reasonably requested by the Company or the Subsidiary
Guarantor, at the cost of the Company or such Subsidiary Guarantor, as the case
may be, in order to evidence the release of such Subsidiary Guarantor from its
obligations under its Guarantee endorsed on the Notes and under the Indenture
and this Supplemental Indenture.
D-5
<PAGE> 132
7. RELEASES UPON RELEASE OF GUARANTEE OF GUARANTEED INDEBTEDNESS.
Concurrently with the release or discharge of the Subsidiary
Guarantor's guarantee of the payment of [describe indebtedness the guarantee of
which gave rise to the delivery of this Supplemental Indenture] ("Guaranteed
Debt") (other than a release or discharge by or as a result of payment under
such guarantee of Guaranteed Indebtedness), the Subsidiary Guarantor shall be
automatically and unconditionally released and relieved of its obligations
under this Supplemental Indenture and its Subsidiary Guarantee made pursuant to
Section 5 of this Supplemental Indenture. Upon delivery by the Company to the
Trustee of an Officer's Certificate to the effect that such release or
discharge has occurred, the Trustee shall execute any documents reasonably
required in order to evidence the release of the Subsidiary Guarantor from its
obligations under this Supplemental Indenture and its Subsidiary Guarantee made
pursuant hereto; provided such documents shall not affect or impair the rights
of the Trustee and Paying Agent under Section 7.7 of the Indenture.
8. NEW YORK LAW TO GOVERN.
The substantive law of the State of New York shall govern and be
used to construe this Supplemental Indenture.
9. COUNTERPARTS.
The parties may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
10. EFFECT OF HEADINGS.
The Section headings herein are for convenience only and shall
not effect the construction hereof.
D-6
<PAGE> 133
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: ,
-------------------- -------
[SUBSIDIARY GUARANTOR]
By:
----------------------------------
Name:
Title:
Dated: ,
-------------------- -------
as Trustee
By:
----------------------------------
Name:
Title:
D-7
<PAGE> 134
ANNEX A TO SUPPLEMENTAL INDENTURE
FORM OF NOTATION OF SUBSIDIARY GUARANTEE ON NOTE
Each Subsidiary Guarantor (as defined in the Indenture) has jointly and
severally unconditionally guaranteed (a) the due and punctual payment of the
principal of, premium, if any, and interest on the Notes, whether at Stated
Maturity or an Interest Payment Date, by acceleration, call for redemption or
otherwise, (b) the due and punctual payment of interest on the overdue
principal and premium of, and interest, to the extent lawful, on the Notes and
(c) that in case of any extension of time of payment or renewal of any Notes or
any of such other obligations, the same will be promptly paid in full when due
in accordance with the terms of the extension of renewal, whether at stated
maturity, by acceleration or otherwise.
Notwithstanding the foregoing, in the event that the Subsidiary
Guarantee would constitute or result in a violation of any applicable
fraudulent conveyance or similar law of any relevant jurisdiction, the
liability of the Subsidiary Guarantor under its Subsidiary Guarantee shall be
limited to such amount as will not, after giving effect thereto, and to all
other liabilities of the Subsidiary Guarantor, result in such amount
constituting a fraudulent transfer or conveyance.
The Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Note upon which the
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual or facsimile signature of one of its authorized
officers.
Dated: ,
-------------------- -------
[SUBSIDIARY GUARANTOR]
By:
----------------------------------
Name:
Title:
Dated: ,
-------------------- -------
as Trustee
By:
----------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4.4
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 PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE 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 NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
ENERGY CORPORATION OF AMERICA
No. ________ $______________
CUSIP NO.:
9 1/2% Senior Subordinated Note Due 2007, Series A
Energy Corporation of America, a West Virginia corporation, promises to
pay to Cede & Co. or registered assigns, the principal sum of Two Hundred
Million Dollars on May 15, 2007.
Interest Payment Dates: May 15 and November 15.
Record Dates: May 1 and November 1.
Additional provisions of this Note are set forth on the other side of
this Note.
ENERGY CORPORATION OF AMERICA
By:
Dated:_______________
[Seal] -------------------------------------
John Mork
President and Chief Executive Officer
-------------------------------------
Pam Gates
Secretary
<PAGE> 2
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
THE BANK OF NEW YORK,
as Trustee, certifies that this
is one of the Notes referred
to in the Indenture.
By:
--------------------------------
Authorized Signatory
-2-
<PAGE> 3
9 1/2% Senior Subordinated Notes Due 2007, Series A
1. Interest
ENERGY CORPORATION OF AMERICA, a West Virginia corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called "ECA"), promises to pay interest on the
principal amount of this Note at the rate per annum shown above provided,
however, that if a Registration Default (as defined in the Registration Rights
Agreement) occurs, interest will accrue on this security at a rate of 9 1/2%
per annum from and including the date on which any such Registration Default
shall occur but excluding the date on which all Registration Defaults have been
cured.
ECA will pay interest semi-annually on May 15 and November 15 of each
year, commencing November 15, 1997. Interest on the Notes will accrue from the
most recent date to which interest has been paid, or, if no interest has been
paid, from May 23, 1997. Interest will be computed on the basis of a 360-day
year of twelve 30-day months. ECA shall pay interest on overdue principal at
the rate borne by the Notes.
2. Method of Payment
ECA will pay interest on the Notes (except defaulted interest) to the
Persons who are registered Holders of Notes at the close of business on the May
1 and November 1 next preceding the interest payment date even if Notes are
canceled after the record date and on or before the interest payment date.
Holders must surrender Notes to a Paying Agent to collect principal payments.
ECA will pay principal and interest in money of the United States that at the
time of payment is legal tender for payment of public and private debts.
However, ECA may pay principal and interest by check payable in such money. It
may mail an interest check to a Holder's registered address.
3. Paying Agent and Registrar
Initially, The Bank of New York, a national banking association (the
"Trustee"), will act as Paying Agent and Registrar. ECA may appoint and change
any Paying Agent, Registrar or co-registrar without notice. ECA or any of its
domestically incorporated Wholly Owned Subsidiaries may act as Paying Agent,
Registrar or co-registrar.
4. Indenture
ECA issued the Notes under an Indenture dated as of April 7, 1997 (the
"Indenture"), between ECA and the Trustee. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in
effect on the date of the Indenture (the "TIA"). Terms defined in the
Indenture and not defined herein have the meanings ascribed thereto in the
Indenture. The Notes are subject to all such terms, and Holders of Notes are
referred to the Indenture and the TIA for a statement of those terms.
-3-
<PAGE> 4
The Notes are unsecured senior subordinated obligations of ECA limited
to $200,000,000 aggregate principal amount (subject to Section [2.07] of the
Indenture). The Indenture imposes certain limitations on the incurrence of
additional indebtedness by ECA and certain of its subsidiaries, the payment of
dividends on, and the redemption of, capital stock of ECA and certain of its
subsidiaries, the making of Investments, restrictions on distributions from
certain subsidiaries, the use of proceeds from the sale of assets and
subsidiary stock and transactions with affiliates. The Indenture also
restricts the ability of ECA to consolidate or merge with or into, or to
transfer all or substantially all its assets to, another person.
5. Optional Redemption
The Notes will be redeemable, at ECA's option, in whole or in part, at
any time and from time to time on or after May 15, 2002, upon not less than 30
nor more than 60 days' prior notice mailed by first-class mail to each Holder's
registered address, at the following redemption prices (expressed in
percentages of principal amount at maturity), plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on or after April 1 of the years
set forth below:
Redemption
Year Price
----------
2002 . . . . . . . . . . . . . . . . . . . . . . 104.750%
2003 . . . . . . . . . . . . . . . . . . . . . . 103.167%
2004 . . . . . . . . . . . . . . . . . . . . . . 101.583%
2005 . . . . . . . . . . . . . . . . . . . . . . 100.000%
In addition, at any time and from time to time prior to May 15, 2000,
ECA may, at its option, on any one or more occasions, redeem up to 33 1/3% of
the original aggregate principal amount of the Notes with all or a portion of
the net proceeds of public sales of common stock of ECA, at a redemption price
(expressed as a percentage of principal amount) equal to 109.50%, plus accrued
and unpaid interest, if any, to the redemption date; provided, however, that at
least 66 2/3% of the original aggregate principal amount of the Notes remains
outstanding after each such redemption; and provided, further, that such
redemption shall occur within 60 days of the date of the closing of the related
sale of common stock of ECA.
6. Notice of Redemption
Notice of redemption shall be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Notes to be redeemed at
its registered address. Notes in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000. If any Note is to be
redeemed in party only, the notice of redemption that relates to such Note
shall state the portion of the principal amount thereof to be redeemed. A new
Note in principal amount
-4-
<PAGE> 5
equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note. On and after the
redemption date, interest will cease to accrue on the Notes or portions of them
called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Notes will have the right to
cause ECA to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of the Notes of such Holder at a purchase price equal to 101%
of the aggregate principal amount of the Notes to be repurchased plus accrued
and unpaid interest to the date of repurchase as provided in, and subject to
the terms of, the Indenture.
8. Subordination
The Notes are subordinated to Senior Debt. To the extent provided in
the Indenture, Senior Debt must be paid before the Notes may be paid. ECA
agrees, and each Holder of a Note by accepting a Note agrees, to the
subordination provisions contained in the Indenture and authorizes the Trustee
to give effect to such subordination provisions and appoints the Trustee as
attorney-in-fact for such purpose.
9. Denominations, Transfer; Exchange
The Notes are in registered form without coupons in denominations of
$1,000 (or, in the case of Securities sold to institutional "accredited
investors" as described in Rule 501(a) (1), (2), (3) or (7) under the
Securities Act in a transaction intended to be exempt from registration under
the Securities Act, minimum denominations of $500,000) and integral multiples
of $1,000. Holders of Notes may transfer or exchange Notes in accordance with
the Indenture. The Registrar may require a Holder of a Note, among other
things, to furnish appropriate endorsements or transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Note selected for
redemption (except, in the case of a Note to be redeemed in part, the portion
of the Note not to be redeemed) or any Notes for a period of 15 days before a
selection of Notes to be redeemed or 15 days before an interest payment date.
10. Persons Deemed Owners
The registered Holder of this Note may be treated as the sole owner of
such Note for all purposes.
11. Unclaimed Money
Subject to applicable abandoned property law, if money for the payment
of principal or interest remains unclaimed for two years, the Trustee or Paying
Agent shall pay the money back to ECA at its request unless an abandoned
property law designates another Person. After any such payment, Holders
entitled to the money must look only to ECA and not to the Trustee or Paying
Agent for payment.
-5-
<PAGE> 6
12. Discharge and Defeasance
Subject to certain conditions, ECA at any time may terminate some or all
of its obligations under the Notes and the Indenture if ECA deposits with the
Trustee money or U.S. Government Obligations for the payment of principal and
interest on the Notes to redemption or maturity, as the case may be.
13. Amendment; Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Notes may be amended with the written consent of the Holders
of at least a majority in principal amount then outstanding of the Notes; and
(ii) any default or compliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount of the Notes
then outstanding. Subject to certain exceptions set forth in the Indenture,
without the consent of any Holder of a Note, ECA and the Trustee may amend the
Indenture or the Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of ECA's obligations in the case of a
merger or consolidation, or to make any change that would provide any
additional rights or benefits to the Holders of Notes or that does not
adversely affect the rights under the Indenture of any such Holder, or to
comply with requirements of the SEC in connection with the qualification of the
Indenture under the TIA.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest; (ii) default in payment of principal on the Notes at
maturity, upon redemption, upon declaration, upon required repurchase or
otherwise; (iii) failure by ECA to comply with other covenants in the Indenture
or the Notes, in certain cases subject to notice and lapse of time; (iv)
certain accelerations (including failure to pay within any grace period after
final maturity) of other Debt of ECA or any of its Restricted Subsidiaries if
the amount accelerated (or so unpaid) aggregates $10 million or more; (v)
certain events of bankruptcy or insolvency with respect to ECA and its
Restricted Subsidiaries; and (vi) certain judgments or decrees for the payment
of money in excess of $10 million. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the Notes then outstanding may declare the principal of and accrued but unpaid
interest on such Notes to be due and payable immediately. Certain events of
bankruptcy or insolvency are Events of Default which will result in the Notes
being due and payable immediately upon the occurrence of such Events of
Default.
Holders of Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of Notes
notice of any continuing Default (except a Default in payment of principal or
interest) if it determines that withholding such notice is in the interest of
the Holders of Notes.
-6-
<PAGE> 7
15. Trustee Dealings with ECA
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of ECA, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of ECA or the
Trustee shall not have any liability for any obligations of ECA under the Notes
or the Indenture or for any claim based on, in respect of or by reason of such
obligations. By accepting a Note, each Holder of a Note waives and releases
all such liability. The waiver and release are part of the consideration for
the issue of the Notes.
17. Authentication
This Note shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the face of this Note.
18. Abbreviations
Customary abbreviations may be used in the name of a Holder of a Note or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
19. CUSIP Numbers
Pursuant to the recommendation promulgated by the Committee on Uniform
Security Identification Procedures, ECA has caused CUSIP numbers to be printed
on the Notes and has directed the Trustee to use such CUSIP numbers in notices
of redemption as a convenience to Holders of Notes. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
---------------------------------
ECA will furnish to any Holder of a Note upon written request and
without charge to such Holder of a Note a copy of the Indenture which contains
the text of this Note in larger type. Requests may be made to:
Energy Corporation of America
4643 South Ulster Street, Suite 1100
Denver, Colorado 80237
Attention: J. Michael Forbes
-7-
<PAGE> 8
===============================================================================
ASSIGNMENT FORM
To assign this Note, complete the form below:
I or we assign and transfer this Note to:
[Print or type assignee's name, address and zip code]
[Insert assignee's soc. sec. or tax I.D. No.]
and irremovably appoint ______________________ agent to transfer this Note on
the books of ECA. The agent may substitute another to act for him.
===============================================================================
Date: Your Signature:
------------------ --------------------
===============================================================================
Sign exactly as your name appears on the face of this Note.
-8-
<PAGE> 9
OPTION OF HOLDER OF NOTE TO ELECT PURCHASE
If you elect to have this Note purchased by ECA pursuant to Article IV
or Section 5.07 of the Indenture, check the box:
[ ]
If you elect to have only part of this Note purchased by ECA pursuant to
Article IV or Section 5.07 of the Indenture, state the amount:
$______________________
Date: Your Signature:
------------------ ---------------------
(Sign exactly as your name
appears on the face of the
Note)
Signature Guarantee:
-----------------------------------------------------------
(Signature must be guaranteed by a member firm of the New
York Stock Exchange or a commercial bank or trust company)
-9-
<PAGE> 10
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The following increases or decreases in this Global Note have been made:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Amount of Amount of Principal Amount of
decrease in increase in this Global Note
Principal Principal Amount following such Signature of authorized
Date of Amount of this of this Global decrease or signatory of Trustee or Notes
Exchange Global Note Note increase Custodian
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE> 1
Exhibit 4.5
ENERGY CORPORATION OF AMERICA
$200,000,000
9 1/2% Senior Subordinated Notes due 2007
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
May 23, 1997
CHASE SECURITIES INC.
PRUDENTIAL SECURITIES INCORPORATED
c/o Chase Securities Inc.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
Energy Corporation of America, a West Virginia corporation
(the "Company"), proposes to issue and sell to Chase Securities Inc. ("CSI")
and Prudential Securities Incorporated (together with CSI, the "Initial
Purchasers"), upon the terms and subject to the conditions set forth in a
purchase agreement dated May 20, 1997 (the "Purchase Agreement"), $200,000,000
aggregate principal amount of its 9 1/2% Senior Subordinated Notes due 2007
(the "Securities"). Capitalized terms used but not defined herein shall have
the meanings given to such terms in the Purchase Agreement.
As an inducement to the Initial Purchasers to enter into the
Purchase Agreement and in satisfaction of a condition to the obligations of the
Initial Purchasers thereunder, the Company agrees with the Initial Purchasers,
for the benefit of the holders (including the Initial Purchasers) of the
Securities, the Exchange Securities (as defined herein) and the Private
Exchange Securities (as defined herein) (collectively, the "Holders"), as
follows:
1. Registered Exchange Offer. The Company shall (i) prepare
and, not later than 45 days following the date of original issuance of the
Securities (the "Issue Date"), file with the Commission a registration
statement (the "Exchange Offer Registration Statement") on an appropriate form
under the Securities Act with respect to a proposed offer to the Holders of the
Securities (the "Registered Exchange Offer") to issue and deliver to such
Holders, in exchange for the Securities, a like aggregate principal amount of
debt securities of the Company (the "Exchange Securities") and that are
identical in all material respects to the Securities, except for the transfer
restrictions relating to the Securities, (ii) use its reasonable best efforts
to cause the Exchange Offer Registration Statement to become effective under
the Securities Act no later than 150 days after the Issue Date and the
Registered Exchange Offer to be consummated no later than 165 days after the
Issue Date and (iii) keep the Exchange Offer Registration Statement effective
for not less than 30
<PAGE> 2
days (or longer, if required by applicable law) after the date on which notice
of the Registered Exchange Offer is mailed to the Holders (such period being
called the "Exchange Offer Registration Period"). The Exchange Securities will
be issued under the Indenture or an indenture (the "Exchange Securities
Indenture") between the Company and the Trustee or such other bank or trust
company that is reasonably satisfactory to the Initial Purchasers, as trustee
(the "Exchange Securities Trustee"), such indenture to be identical in all
material respects to the Indenture, except for the transfer restrictions
relating to the Securities (as described above).
Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange Offer,
it being the objective of such Registered Exchange Offer to enable each Holder
electing to exchange Securities for Exchange Securities (assuming that such
Holder (a) is not an affiliate of the Company or an Exchanging Dealer (as
defined herein) not complying with the requirements of the next sentence, (b)
acquires the Exchange Securities in the ordinary course of such Holder's
business and (c) has no arrangements or understandings with any person to
participate in the distribution of the Exchange Securities) and to trade such
Exchange Securities from and after their receipt without any limitations or
restrictions under the Securities Act and without material restrictions under
the securities laws of the several states of the United States. The Company,
the Initial Purchasers and each Exchanging Dealer acknowledge that, pursuant to
current interpretations by the Commission's staff of Section 5 of the
Securities Act, each Holder that is a broker-dealer electing to exchange
Securities, acquired for its own account as a result of market-making
activities or other trading activities, for Exchange Securities (an "Exchanging
Dealer"), is required to deliver a prospectus containing substantially the
information set forth in Annex A hereto on the cover, in Annex B hereto in the
"Exchange Offer Procedures" section and the "Purpose of the Exchange Offer"
section and in Annex C hereto in the "Plan of Distribution" section of such
prospectus in connection with a sale of any such Exchange Securities received
by such Exchanging Dealer pursuant to the Registered Exchange Offer.
If, prior to the consummation of the Registered Exchange
Offer, any Holder holds any Securities acquired by it that have, or that are
reasonably likely to be determined to have, the status of an unsold allotment
in an initial distribution, or any Holder is not entitled to participate in the
Registered Exchange Offer, the Company shall, upon the request of any such
Holder, simultaneously with the delivery of the Exchange Securities in the
Registered Exchange Offer, issue and deliver to any such Holder, in exchange
for the Securities held by such Holder (the "Private Exchange"), a like
aggregate principal amount of securities of the Company (the "Private Exchange
Securities") that are identical in all material respects to the Exchange
Securities, except for the transfer restrictions relating to such Private
Exchange Securities. The Private Exchange Securities will be issued under the
same indenture as the Exchange Securities, and the Company shall use its
reasonable best efforts to cause the Private Exchange Securities to bear the
same CUSIP number as the Exchange Securities.
In connection with the Registered Exchange Offer, the Company
shall:
2
<PAGE> 3
(a) mail to each Holder a copy of the prospectus forming
part of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(b) keep the Registered Exchange Offer open for not less
than 30 days (or longer, if required by applicable law) after the date
on which notice of the Registered Exchange Offer is mailed to the
Holders;
(c) utilize the services of a depositary for the
Registered Exchange Offer with an address in the Borough of Manhattan,
The City of New York;
(d) permit Holders to withdraw tendered Securities at any
time prior to the close of business, New York City time, on the last
business day on which the Registered Exchange Offer shall remain open;
and
(e) otherwise comply in all respects with all laws that
are applicable to the Registered Exchange Offer.
As soon as practicable after the close of the Registered
Exchange Offer and any Private Exchange, as the case may be, the Company shall:
(a) accept for exchange all Securities tendered and not
validly withdrawn pursuant to the Registered Exchange Offer and the
Private Exchange;
(b) deliver to the Trustee for cancellation all
Securities so accepted for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee,
as the case may be, promptly to authenticate and deliver to each
Holder, Exchange Securities or Private Exchange Securities, as the
case may be, equal in principal amount to the Securities of such
Holder so accepted for exchange.
The Company shall use its reasonable best efforts to keep the
Exchange Offer Registration Statement effective and to amend and supplement the
prospectus contained therein in order to permit such prospectus to be used by
all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities; provided that (i) in the case where
such prospectus and any amendment or supplement thereto must be delivered by an
Exchanging Dealer, such period shall be the lesser of 180 days and the date on
which all Exchanging Dealers have sold all Exchange Securities held by them and
(ii) the Company shall make such prospectus and any amendment or supplement
thereto available to any broker- dealer for use in connection with any resale
of any Exchange Securities for a period of not less than 90 days after the
consummation of the Registered Exchange Offer.
3
<PAGE> 4
The Indenture or the Exchange Securities Indenture, as the
case may be, shall provide that the Securities, the Exchange Securities and the
Private Exchange Securities shall vote and consent together on all matters as
one class and that none of the Securities, the Exchange Securities or the
Private Exchange Securities will have the right to vote or consent as a
separate class on any matter.
Interest on each Exchange Security and Private Exchange
Security issued pursuant to the Registered Exchange Offer and in the Private
Exchange will accrue from the last interest payment date on which interest was
paid on the Securities surrendered in exchange therefor or, if no interest has
been paid on the Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer
shall be required to represent to the Company that at the time of the
consummation of the Registered Exchange Offer (i) any Exchange Securities
received by such Holder will be acquired in the ordinary course of business,
(ii) such Holder will have no arrangements or understanding with any person to
participate in the distribution of the Securities or the Exchange Securities
within the meaning of the Securities Act, (iii) such Holder is not an affiliate
of the Company or, if it is such an affiliate, such Holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable and (iv) if such Holder is a broker-dealer, that it will
receive Exchange Securities for its own account in exchange for Securities that
were acquired as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such Exchange Securities. Each Holder shall be required to make such other
representations as may be reasonably necessary under applicable Commission
rules, regulations or interpretations to render the use of Form S-4 or another
appropriate form under the Securities Act available and will be required to
agree to comply with their agreements and covenants set forth in this
Agreement.
Notwithstanding any other provisions hereof, the Company will
ensure that (i) any Exchange Offer Registration Statement and any amendment
thereto and any prospectus forming part thereof and any supplement thereto
complies in all material respects with the Securities Act and the rules and
regulations of the Commission thereunder, (ii) any Exchange Offer Registration
Statement and any amendment thereto does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (iii) any prospectus forming part of any Exchange Offer
Registration Statement, and any supplement to such prospectus, does not, as of
the consummation of the Registered Exchange Offer, include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
The Registered Exchange Offer shall not be subject to any
conditions, other than (i) that the Registered Exchange Offer, or the making of
any exchange by a Holder, does not violate applicable law or any applicable
interpretation of the staff of the Commission, (ii) that no action or
proceeding shall have been instituted or threatened in any court or by or
before any governmental agency or body with respect to the Registered Exchange
Offer, (iii) that there shall not have been
4
<PAGE> 5
adopted or enacted any law, statute, rule or regulation, (iv) that there shall
not have been declared by United States federal or New York state authorities a
banking moratorium, (v) that trading on the New York Stock Exchange or
generally in the United States over-the-counter market shall not have been
suspended by order of the Commission or any other governmental authority and
(vi) such other conditions as may be reasonably acceptable to CSI, in each of
clauses (ii) through (v), which, in the Company's judgment, would reasonably be
expected to impair the ability of the Company to proceed with the Registered
Exchange Offer.
2. Shelf Registration. If (i) because of any change in law or
applicable interpretations thereof by the Commission's staff the Company is not
permitted to effect the Registered Exchange Offer as contemplated by Section 1
hereof, or (ii) for any other reason the Registered Exchange Offer is not
consummated within 165 days after the Issue Date, or (iii) any Initial
Purchaser so requests with respect to Securities or Private Exchange Securities
not eligible to be exchanged for Exchange Securities in the Registered Exchange
Offer and held by it following the consummation of the Registered Exchange
Offer, or (iv) any applicable law or interpretations do not permit any Holder
to participate in the Registered Exchange Offer, or (v) any Holder that
participates in the Registered Exchange Offer does not receive freely
transferable Exchange Securities in exchange for tendered Securities, or (vi)
the Company so elects, then the following provisions shall apply:
(a) The Company shall use its reasonable best efforts to
file as promptly as practicable with the Commission, and thereafter shall use
its reasonable best efforts to cause to be declared effective, a shelf
registration statement on an appropriate form under the Securities Act relating
to the offer and sale of the Transfer Restricted Securities by the Holders
thereof from time to time in accordance with the methods of distribution set
forth in such registration statement (hereafter, a "Shelf Registration
Statement" and, together with any Exchange Offer Registration Statement, a
"Registration Statement").
(b) The Company shall use its reasonable best efforts to
keep the Shelf Registration Statement continuously effective in order to permit
the prospectus forming part thereof to be used by Holders of Transfer
Restricted Securities for a period of two years from the Issue Date or such
shorter period that will terminate when all the Transfer Restricted Securities
covered by the Shelf Registration Statement (i) have been sold pursuant thereto
(in any such case, such period being called the "Shelf Registration Period"),
(ii) are distributed to the public pursuant to Rule 144 of the Securities Act
or are saleable pursuant to Rule 144(k) under the Securities Act or (iii) can
be sold pursuant to Rule 144 without any limitations under clauses (c), (e),
(f) and (h) of Rule 144 (or any successor rule thereof); provided, however,
that the Company shall not be obligated to keep the Shelf Registration
Statement effective if (i) the Company determines, in its reasonable judgment,
upon advice of counsel, as authorized by a resolution of its Board of
Directors, that the continued effectiveness and usability of the Shelf
Registration Statement would (x) require the disclosure of material
information, which the Company has a bonafide business reason for preserving
as confidential, or (y) interfere with any financing, acquisition, corporate
reorganization or other material transaction involving the Company or any of
its subsidiaries, provided that the failure to keep the Shelf Registration
Statement effective and usable for offers and sales of Securities, Private
5
<PAGE> 6
Exchange Securities or Exchange Securities for such reasons shall last no
longer than 45 days in any 12-month period, and (ii) the Company promptly
thereafter complies with the requirements of Section 4(j) hereof, if
applicable. Any such period during which the Company is excused from keeping
the Shelf Registration Statement effective and usable for offers and sales of
Securities, Private Exchange Securities or Exchange Securities is referred to
herein as a "Suspension Period." A Suspension Period shall commence on and
include the date that the Company gives notice that the Shelf Registration
Statement is no longer effective or the prospectus included therein is no
longer usable for offers and sales of Securities, Private Exchange Securities
or Exchange Securities as a result of the application of this proviso and shall
end on the earlier to occur of (1) the date on which seller of Securities,
Private Exchange Securities or Exchange Securities covered by the Shelf
Registration Statement either receives the copies of the supplemental or
amended prospectus contemplated by Section 4(j) hereof or is advised in writing
by the Company that use of the prospectus may be resumed and (2) the expiration
of 45 days in any 12-month period during which one or more Suspension Periods
has been in effect. The Company shall be deemed not to have used its
reasonable best efforts to keep the Shelf Registration Statement effective
during the requisite period if it voluntarily takes any action that would
result in Holders of Transfer Restricted Securities covered thereby not being
able to offer and sell such Transfer Restricted Securities during that period,
unless such action is required by applicable law or permitted by the proviso of
the preceding sentence.
(c) Notwithstanding any other provisions hereof, the
Company will ensure that (i) any Shelf Registration Statement and any amendment
thereto and any prospectus forming part thereof and any supplement thereto
complies in all material respects with the Securities Act and the rules and
regulations of the Commission thereunder, (ii) any Shelf Registration Statement
and any amendment thereto (in either case, other than with respect to
information included therein in reliance upon or in conformity with written
information furnished to the Company by or on behalf of any Holder specifically
for use therein (the "Holders' Information")) does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading and (iii) any prospectus forming part of any Shelf
Registration Statement, and any supplement to such prospectus (in either case,
other than with respect to Holders' Information), does not include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
3. Liquidated Damages. (a) The parties hereto agree that the
Holders of Transfer Restricted Securities will suffer damages if the Company
fails to fulfill its obligations under Section 1 or Section 2, as applicable,
and that it would not be feasible to ascertain the extent of such damages.
Accordingly, if (i) the applicable Registration Statement is not filed with the
Commission on or prior to 45 days after the Issue Date, (ii) the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
is not declared effective within 150 days after the Issue Date (or in the case
of a Shelf Registration Statement required to be filed in response to a change
in law or the applicable interpretations of Commission's staff, if later,
within 45 days after publication of the change in law or interpretation), (iii)
the Registered Exchange Offer is not consummated on
6
<PAGE> 7
or prior to 165 days after the Issue Date, or (iv) the Shelf Registration
Statement is filed and declared effective within 150 days after the Issue Date
(or in the case of a Shelf Registration Statement required to be filed in
response to a change in law or the applicable interpretations of Commission's
staff, if later, within 45 days after publication of the change in law or
interpretation) but shall thereafter cease to be effective (at any time that
the Company is obligated to maintain the effectiveness thereof) without being
succeeded within 30 days by an additional Registration Statement filed and
declared effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), the Company will be obligated to pay liquidated
damages to each Holder of Transfer Restricted Securities, during the period of
one or more such Registration Defaults, in an amount equal to $ 0.192 per week
per $1,000 principal amount of Transfer Restricted Securities held by such
Holder until (i) the applicable Registration Statement is filed or declared
effective, (ii) the Exchange Offer is consummated or (iii) the Shelf
Registration Statement again becomes effective, as the case may be provided,
that, if the Exchange Offer Registration Statement is not declared effective on
or prior to the 150th day following the Issue Date and the Company shall
request Holders of Securities to provide the information called for by the
Exchange and Registration Rights Agreement for inclusion in the Shelf
Registration Statement, the Securities owned by Holders who do not deliver such
information to the Company and who do not provide comments on the Shelf
Registration Statement when required pursuant to the Exchange and Registration
Rights Agreement will not be entitled to any such liquidated damages for any
day after the 165th day following the Issue Date. Following the cure of all
Registration Defaults, the accrual of liquidated damages will cease. As used
herein, the term "Transfer Restricted Securities" means (i) each Security until
the date on which such Security has been exchanged for a freely transferable
Exchange Security in the Registered Exchange Offer, (ii) each Security or
Private Exchange Security until the date on which it has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement or (iii) each Security or Private Exchange
Security until the date on which it 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.
Notwithstanding anything to the contrary in this Section 3(a),
the Company shall not be required to pay liquidated damages to a Holder of
Transfer Restricted Securities if such Holder failed to comply with its
obligations to make the representations set forth in the second to last
paragraph of Section 1 or failed to provide the information required to be
provided by it, if any, pursuant to Section 4(n).
(b) The Company shall notify the Trustee and the Paying
Agent under the Indenture immediately upon the happening of each and every
Registration Default. The Company shall pay the liquidated damages due on the
Transfer Restricted Securities by depositing with the Paying Agent (which may
not be the Company for these purposes), in trust, for the benefit of the
Holders thereof, prior to 12:00 a.m., New York City time, on the next interest
payment date specified by the Indenture and the Securities, sums sufficient to
pay the liquidated damages then due. The liquidated damages due shall be
payable on each interest payment date specified by the Indenture and the
Securities to the record holder entitled to receive the interest payment to be
made on such
7
<PAGE> 8
date. Each obligation to pay liquidated damages shall be deemed to accrue from
and including the date of the applicable Registration Default.
(c) The parties hereto agree that the liquidated damages
provided for in this Section 3 constitute a reasonable estimate of and are
intended to constitute the sole damages that will be suffered by Holders of
Transfer Restricted Securities by reason of the failure of (i) the Shelf
Registration Statement or the Exchange Offer Registration Statement to be
filed, (ii) the Shelf Registration Statement to remain effective or (iii) the
Exchange Offer Registration Statement to be declared effective and the
Registered Exchange Offer to be consummated, in each case to the extent
required by this Agreement.
4. Registration Procedures. In connection with any Registration
Statement, the following provisions shall apply:
(a) The Company shall (i) furnish to each Initial
Purchaser, prior to the filing thereof with the Commission, a copy of the
Registration Statement and each amendment thereof and each supplement, if any,
to the prospectus included therein and shall use its reasonable best efforts to
reflect in each such document, when so filed with the Commission, such comments
as any Initial Purchaser may reasonably propose; (ii) include the information
set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange
Offer Procedures" section and the "Purpose of the Exchange Offer" section and
in Annex C hereto in the "Plan of Distribution" section of the prospectus
forming a part of the Exchange Offer Registration Statement, and include the
information set forth in Annex D hereto in the Letter of Transmittal delivered
pursuant to the Registered Exchange Offer; and (iii) if requested by any
Initial Purchaser, include the information required by Items 507 or 508 of
Regulation S-K, as applicable, in the prospectus forming a part of the Exchange
Offer Registration Statement.
(b) The Company shall advise each Initial Purchaser, each
Exchanging Dealer and the Holders (if applicable) and, if requested by any such
person, confirm such advice in writing (which advice pursuant to clauses
(ii)-(v) hereof shall be accompanied by an instruction to suspend the use of
the prospectus until the requisite changes have been made):
(i) when any Registration Statement and any amendment thereto
has been filed with the Commission and when such Registration Statement or any
post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to any Registration Statement or the prospectus included therein or
for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any Registration Statement or the initiation of
any proceedings for that purpose;
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<PAGE> 9
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Securities, the Exchange
Securities or the Private Exchange Securities for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose; and
(v) of the happening of any event that requires the making of
any changes in any Registration Statement or the prospectus included therein in
order that the statements therein are not misleading and do not omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(c) The Company will make every reasonable effort to
obtain the withdrawal at the earliest possible time of any order suspending the
effectiveness of any Registration Statement.
(d) The Company will furnish to each Holder of Transfer
Restricted Securities included within the coverage of any Shelf Registration
Statement, without charge, at least one conformed copy of such Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules and, if any such Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).
(e) The Company will, during the Shelf Registration
Period, promptly deliver to each Holder of Transfer Restricted Securities
included within the coverage of any Shelf Registration Statement, without
charge, as many copies of the prospectus (including each preliminary
prospectus) included in such Shelf Registration Statement and any amendment or
supplement thereto as such Holder may reasonably request; and the Company
consents to the use of such prospectus or any amendment or supplement thereto
by each of the selling Holders of Transfer Restricted Securities in connection
with the offer and sale of the Transfer Restricted Securities covered by such
prospectus or any amendment or supplement thereto.
(f) The Company will furnish to each Initial Purchaser
and each Exchanging Dealer, and to any other Holder who so requests, without
charge, at least one conformed copy of the Exchange Offer Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules and, if any Initial Purchaser or Exchanging Dealer or
any such Holder so requests in writing, all exhibits thereto (including those,
if any, incorporated by reference).
(g) The Company will, during the Exchange Offer
Registration Period or the Shelf Registration Period, as applicable, promptly
deliver to each Initial Purchaser, each Exchanging Dealer and such other
persons that are required to deliver a prospectus following the Registered
Exchange Offer, without charge, as many copies of the final prospectus included
in the Exchange Offer Registration Statement or the Shelf Registration
Statement and any amendment or supplement thereto as such Initial Purchaser,
Exchanging Dealer or other persons may reasonably request; and the Company
consents to the use of such prospectus or any amendment or supplement thereto
by any such Initial Purchaser, Exchanging Dealer or other persons, as
applicable, as aforesaid; provided, however, that (i) the Company shall not be
required to amend or supplement the prospectus contained in the Exchange Offer
Registration Statement as would otherwise be contemplated by the
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<PAGE> 10
sixth paragraph of Section 1, or take any other action as a result of this
Section 4(g), for a period exceeding 180 days after the last date for which
exchanges are accepted pursuant to the Registered Exchange Offer (or such
earlier date referred to in clause (i) of the proviso in the sixth paragraph of
Section 1) and (ii) the Exchanging Dealers or other persons shall not be
authorized by the Company to, and shall not, deliver such Prospectus after such
period in connection with resales or Securities, Private Exchange Securities or
Exchange Securities.
(h) Prior to the effective date of any Registration
Statement, the Company will use its best efforts to register or qualify, or
cooperate with the Holders of Securities, Exchange Securities or Private
Exchange Securities included therein and their respective counsel in connection
with the registration or qualification of, such Securities, Exchange Securities
or Private Exchange Securities for offer and sale under the securities or blue
sky laws of such jurisdictions as any such Holder reasonably requests in
writing and do any and all other acts or things necessary or advisable to
enable the offer and sale in such jurisdictions of the Securities, Exchange
Securities or Private Exchange Securities covered by such Registration
Statement; provided that the Company will not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action which would subject it to general service of process or to taxation
in any such jurisdiction where it is not then so subject.
(i) The Company will cooperate with the Holders of
Securities, Exchange Securities or Private Exchange Securities to facilitate
the timely preparation and delivery of certificates representing Securities,
Exchange Securities or Private Exchange Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as the Holders thereof may request
in writing prior to sales of Securities, Exchange Securities or Private
Exchange Securities pursuant to such Registration Statement.
(j) If any event contemplated by Section 4(b)(ii) through
(v) occurs during the period for which the Company is required to maintain an
effective Registration Statement, the Company will promptly prepare and file
with the Commission a post-effective amendment to the Registration Statement or
a supplement to the related prospectus or file any other required document so
that, as thereafter delivered to purchasers of the Securities, Exchange
Securities or Private Exchange Securities from a Holder, the prospectus will
not include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(k) Not later than the effective date of the applicable
Registration Statement, the Company will provide a CUSIP number for the
Securities, the Exchange Securities and the Private Exchange Securities, as the
case may be, and provide the applicable trustee with printed certificates for
the Securities, the Exchange Securities or the Private Exchange Securities, as
the case may be, in a form eligible for deposit with The Depository Trust
Company.
(l) The Company will comply with all applicable rules and
regulations of the Commission and will make generally available to its security
holders as soon as practicable after the
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<PAGE> 11
effective date of the applicable Registration Statement an earning statement
satisfying the provisions of Section 11(a) of the Securities Act; provided that
in no event shall such earning statement be delivered later than 45 days after
the end of a 12-month period (or 90 days, if such period is a fiscal year)
beginning with the first month of the Company's first fiscal quarter commencing
after the effective date of the applicable Registration Statement, which
statement shall cover such 12-month period.
(m) The Company will cause the Indenture or the Exchange
Securities Indenture, as the case may be, to be qualified under the Trust
Indenture Act as required by applicable law in a timely manner.
(n) The Company may require each Holder of Transfer
Restricted Securities to be registered pursuant to any Shelf Registration
Statement to furnish to the Company such information concerning the Holder and
the distribution of such Transfer Restricted Securities as the Company may from
time to time reasonably require for inclusion in such Shelf Registration
Statement, and the Company may exclude from such registration the Transfer
Restricted Securities of any Holder that fails to furnish such information
within a reasonable time after receiving such request.
(o) In the case of a Shelf Registration Statement, each
Holder of Transfer Restricted Securities to be registered pursuant thereto
agrees by acquisition of such Transfer Restricted Securities that, upon receipt
of any notice from the Company pursuant to Section 4(b)(ii) through (v), such
Holder will discontinue disposition of such Transfer Restricted Securities
until such Holder's receipt of copies of the supplemental or amended prospectus
contemplated by Section 4(j) or until advised in writing (the "Advice") by the
Company that the use of the applicable prospectus may be resumed. If the
Company shall give any notice under Section 4(b)(ii) through (v) during the
period that the Company is required to maintain an effective Registration
Statement (the "Effectiveness Period"), such Effectiveness Period shall be
extended by the number of days during such period from and including the date
of the giving of such notice to and including the date when each seller of
Transfer Restricted Securities covered by such Registration Statement shall
have received (x) the copies of the supplemental or amended prospectus
contemplated by Section 4(j) (if an amended or supplemental prospectus is
required) or (y) the Advice (if no amended or supplemental prospectus is
required).
(p) In the case of a Shelf Registration Statement, the
Company shall enter into such customary agreements (including, if requested, an
underwriting agreement in customary form and scope as is customary for similar
offerings of debt securities with similar credit ratings and otherwise
reasonably satisfactory to the Company) and take all such other action, if any,
as Holders of a majority in aggregate principal amount of the Securities,
Exchange Securities and Private Exchange Securities being sold or the managing
underwriters (if any) shall reasonably request in order to facilitate any
disposition of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Shelf Registration Statement.
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<PAGE> 12
(q) In the case of a Shelf Registration Statement, the
Company shall (i) make reasonably available for inspection by a representative
of, and Special Counsel (as defined below) acting for, Holders of a majority in
aggregate principal amount of the Securities, Exchange Securities and Private
Exchange Securities being sold and any underwriter participating in any
disposition of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Shelf Registration Statement, all relevant financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries and (ii) use its reasonable best efforts to have its officers,
directors, employees, accountants and counsel supply all relevant information
reasonably requested by such representative, Special Counsel or any such
underwriter (an "Inspector") in connection with such Shelf Registration
Statement.
(r) In the case of a Shelf Registration Statement, the
Company shall, if requested by Holders of a majority in aggregate principal
amount of the Securities, Exchange Securities and Private Exchange Securities
being sold, their Special Counsel or the managing underwriters (if any) in
connection with such Shelf Registration Statement, use its reasonable best
efforts to cause (i) its counsel to deliver an opinion relating to the Shelf
Registration Statement and the Securities, Exchange Securities or Private
Exchange Securities, as applicable, in customary form, (ii) its officers to
execute and deliver all customary documents and certificates requested by
Holders of a majority in aggregate principal amount of the Securities, Exchange
Securities and Private Exchange Securities being sold, their Special Counsel or
the managing underwriters (if any) and (iii) its independent public accountants
to provide a comfort letter in customary form, subject to receipt of
appropriate documentation as contemplated, and only if permitted, by Statement
of Auditing Standards No. 72.
5. Registration Expenses. The Company will bear all expenses
incurred in connection with the performance of its obligations under Sections
1, 2, 3 and 4 and the Company will reimburse the Initial Purchasers and the
Holders for the reasonable fees and disbursements of one firm of attorneys (in
addition to any local counsel) chosen by the Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities to be sold pursuant to each Registration Statement (the
"Special Counsel") acting for the Initial Purchasers or Holders in connection
therewith.
6. Indemnification. (a) In the event of a Shelf Registration
Statement or in connection with any prospectus delivery pursuant to an Exchange
Offer Registration Statement by an Initial Purchaser or Exchanging Dealer, as
applicable, the Company shall indemnify and hold harmless each Holder
(including, without limitation, any such Initial Purchaser or Exchanging
Dealer), its affiliates, their respective officers, directors, employees,
representatives and agents, and each person, if any, who controls such Holder
within the meaning of the Securities Act or the Exchange Act (collectively
referred to for purposes of this Section 6 and Section 7 as a Holder) from and
against any loss, claim, damage or liability, joint or several, or any action
in respect thereof (including, without limitation, any loss, claim, damage,
liability or action relating to purchases and sales of Securities, Exchange
Securities or Private Exchange Securities), to which that Holder may become
subject, whether commenced or threatened, under the Securities Act, the
Exchange Act, any other federal or state statutory law or regulation, at common
law or otherwise, insofar as such loss, claim,
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<PAGE> 13
damage, liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained in any such
Registration Statement or any prospectus forming part thereof or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, and shall reimburse each Holder promptly
upon demand for any legal or other expenses reasonably incurred by that Holder
in connection with investigating or defending or preparing to defend against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action as such expenses are incurred notwithstanding the
possibility that payments for such expenses might later be held by
nonappealable judgment to be events for which the Initial Purchasers are not to
be indemnified, in which case such payments shall be promptly refunded;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, an untrue statement or alleged untrue statement in or omission
or alleged omission from any of such documents in reliance upon and in
conformity with any Holders' Information; and provided, further, that with
respect to any such untrue statement in or omission from any related
preliminary prospectus, the indemnity agreement contained in this Section 6(a)
shall not inure to the benefit of any Holder from whom the person asserting any
such loss, claim, damage, liability or action received Securities, Exchange
Securities or Private Exchange Securities to the extent that such loss, claim,
damage, liability or action of or with respect to such Holder results from the
fact that both (A) a copy of the final prospectus was not sent or given to such
person at or prior to the written confirmation of the sale of such Securities,
Exchange Securities or Private Exchange Securities to such person and (B) the
untrue statement in or omission from the related preliminary prospectus was
corrected in the final prospectus unless, in either case, such failure to
deliver the final prospectus was a result of non-compliance by the Company with
Section 4(d), 4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration Statement, each
Holder shall indemnify and hold harmless the Company, its affiliates, their
respective officers, directors, employees, representatives and agents, and each
person, if any, who controls the Company within the meaning of the Securities
Act or the Exchange Act (collectively referred to for purposes of this Section
6(b) and Section 7 as the Company), from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof, to which the
Company may become subject, whether commenced or threatened, under the
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement
or alleged untrue statement of a material fact contained in any such
Registration Statement or any prospectus forming part thereof or in any
amendment or supplement thereto or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with any Holders'
Information furnished to the Company by such Holder, and shall reimburse the
Company for any legal or other expenses reasonably incurred by the Company in
connection with investigating or defending or preparing to
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<PAGE> 14
defend against or appearing as a third party witness in connection with any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that no such Holder shall be liable for any indemnity claims
hereunder in excess of the amount of net proceeds received by such Holder from
the sale of Securities, Exchange Securities or Private Exchange Securities
pursuant to such Shelf Registration Statement.
(c) Promptly after receipt by an indemnified party under
this Section 6 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party pursuant to Section 6(a) or 6(b), notify the
indemnifying party in writing of the claim or the commencement of that action;
provided, however, that the failure to notify the indemnifying party shall not
relieve it from any liability which it may have under this Section 6 except to
the extent that it has been materially prejudiced (through the forfeiture of
substantive rights or defenses) by such failure; and provided, further, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 6. If any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of
its election to assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under this Section 6 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than the reasonable costs of
investigation; provided, however, that an indemnified party shall have the
right to employ its own counsel in any such action, but the fees, expenses and
other charges of such counsel for the indemnified party will be at the expense
of such indemnified party unless (1) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (2)
the indemnified party has reasonably concluded (based upon advice of counsel to
the indemnified party) that there may be legal defenses available to it or
other indemnified parties that are different from or in addition to those
available to the indemnifying party, (3) a conflict or potential conflict
exists (based upon advice of counsel to the indemnified party) between the
indemnified party and the indemnifying party (in which case the indemnifying
party will not have the right to direct the defense of such action on behalf of
the indemnified party) or (4) the indemnifying party has not in fact employed
counsel reasonably satisfactory to the indemnified party to assume the defense
of such action within a reasonable time after receiving notice of the
commencement of the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm of attorneys (in addition to any
local counsel) at any one time for all such indemnified party or parties. Each
indemnified party, as a condition of the indemnity agreements contained in
Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the
indemnifying party in the defense of any such action or claim. No indemnifying
party shall be liable for any settlement of any such action effected without
its written consent (which consent shall not be unreasonably withheld), but if
settled with
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<PAGE> 15
its written consent or if there be a final judgment for the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment. No indemnifying party shall, without the prior written
consent of the indemnified party (which consent shall not be unreasonably
withheld), effect any settlement of any pending or threatened proceeding in
respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such proceeding.
7. Contribution. If the indemnification provided for in Section 6 is
unavailable or insufficient to hold harmless an indemnified party under Section
6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in
respect thereof, (i) in such proportion as shall be appropriate to reflect the
relative benefits received by the Company from the offering and sale of the
Securities, on the one hand, and a Holder with respect to the sale by such
Holder of Securities, Exchange Securities or Private Exchange Securities, on
the other, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and such Holder on the other with
respect to the statements or omissions that resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and a Holder on the other with respect to such offering
and such sale shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Securities (before deducting expenses)
received by or on behalf of the Company as set forth in the table on the cover
of the Offering Memorandum, on the one hand, bear to the total proceeds
received by such Holder with respect to its sale of Securities, Exchange
Securities or Private Exchange Securities, on the other. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to the Company or information supplied by the
Company on the one hand or to any Holders' Information supplied by such Holder
on the other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 7 were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 7 shall be deemed
to include, for purposes of this Section 7, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending or preparing to defend any such action or claim. Notwithstanding
the provisions of this Section 7, an indemnifying party that is a Holder of
Securities, Exchange Securities or Private Exchange Securities shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Securities, Exchange Securities or Private Exchange
Securities sold by such indemnifying party to any purchaser exceeds the amount
of any damages which such indemnifying party has otherwise paid or become
liable to
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<PAGE> 16
pay by reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
8. Rules 144 and 144A. The Company shall use its reasonable best
efforts to file the reports required to be filed by it under the Securities Act
and the Exchange Act in a timely manner and, if at any time the Company is not
required to file such reports, it will, upon the written request of any Holder
of Transfer Restricted Securities, make publicly available other information so
long as necessary to permit sales of such Holder's securities pursuant to Rules
144 and 144A. The Company covenants that it will take such further action as
any Holder of Transfer Restricted Securities may reasonably request, all to the
extent required from time to time to enable such Holder to sell Transfer
Restricted Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rules 144 and 144A (including, without
limitation, the requirements of Rule 144A(d)(4)). Upon the written request of
any Holder of Transfer Restricted Securities, the Company shall deliver to such
Holder a written statement as to whether it has complied with such
requirements. Notwithstanding the foregoing, nothing in this Section 8 shall be
deemed to require the Company to register any of its securities pursuant to the
Exchange Act.
9. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders
of a majority in aggregate principal amount of such Transfer Restricted
Securities included in such offering, subject to the consent of the Company
(which shall not be unreasonably withheld or delayed), and such Holders shall
be responsible for all underwriting commissions and discounts in connection
therewith.
No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's Transfer
Restricted Securities on the basis reasonably provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
10. Miscellaneous. (a) Amendments and Waivers. The provisions of
this Agreement may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of Holders of a majority in aggregate
principal amount of the Securities, the Exchange Securities and the Private
Exchange Securities, taken as a single class. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders whose Securities, Exchange
Securities or Private Exchange Securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of a majority in aggregate
principal amount of the Securities, the
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<PAGE> 17
Exchange Securities and the Private Exchange Securities being sold by such
Holders pursuant to such Registration Statement.
(b) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
first-class mail, telecopier or air courier guaranteeing next-day delivery:
(1) if to a Holder, at the most current address given by
such Holder to the Company in accordance with the provisions of this
Section 10(b), which address initially is, with respect to each
Holder, the address of such Holder maintained by the Registrar under
the Indenture, with a copy in like manner to Chase Securities Inc. and
Prudential Securities Incorporated;
(2) if to an Initial Purchaser, initially at its address set
forth in the Purchase Agreement; and
(3) if to the Company, initially at the address of the
Company set forth in the Purchase Agreement.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; one business
day after being delivered to a next-day air courier; five business days after
being deposited in the mail; and when receipt is acknowledged by the
recipient's telecopier machine, if sent by telecopier.
(c) Successors And Assigns. This Agreement shall be
binding upon the Company and its successors and assigns.
(d) Counterparts. This Agreement may be executed in any
number of counterparts (which may be delivered in original form or by
telecopier) and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Definition of Terms. For purposes of this Agreement,
(a) the term "business day" means any day on which the New York Stock Exchange,
Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth
in Rule 405 under the Securities Act and (c) except where otherwise expressly
provided, the term "affiliate" has the meaning set forth in Rule 405 under the
Securities Act.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
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(h) Remedies. In the event of a breach by the Company or
by any Holder of any of their obligations under this Agreement, each Holder or
the Company, as the case may be, in addition to being entitled to exercise all
rights granted by law, including recovery of damages (other than the recovery
of damages for a breach by the Company of its obligations under Sections 1 or 2
hereof for which liquidated damages have been paid pursuant to Section 3
hereof), will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further agree that, in the
event of any action for specific performance in respect of such breach, it
shall waive the defense that a remedy at law would be adequate.
(i) No Inconsistent Agreements. The Company represents,
warrants and agrees that (i) it has not entered into, shall not, on or after
the date of this Agreement, enter into any agreement that is inconsistent with
the rights granted to the Holders in this Agreement or otherwise conflicts with
the provisions hereof, (ii) it has not previously entered into any agreement
which remains in effect granting any registration rights with respect to any of
its debt securities to any person and (iii) without limiting the generality of
the foregoing, without the written consent of the Holders of a majority in
aggregate principal amount of the then outstanding Transfer Restricted
Securities, it shall not grant to any person the right to request the Company
to register any debt securities of the Company under the Securities Act unless
the rights so granted are not in conflict or inconsistent with the provisions
of this Agreement.
(j) No Piggyback on Registrations. Neither the Company
nor any of its security holders (other than the Holders of Transfer Restricted
Securities in such capacity) shall have the right to include any securities of
the Company in any Shelf Registration or Registered Exchange Offer other than
Transfer Restricted Securities.
(k) Severability. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their reasonable best efforts
to find and employ an alternative means to achieve the same or substantially
the same result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions,
covenants and restrictions without including any of such that may be hereafter
declared invalid, illegal, void or unenforceable.
18
<PAGE> 19
Please confirm that the foregoing correctly sets forth the
agreement among the Company and the Initial Purchasers.
Very truly yours,
ENERGY CORPORATION OF AMERICA
By: /s/ John Mork
-------------------------------
Title: Chief Executive Officer
Accepted:
Chase Securities Inc.
Prudential Securities Incorporated
CHASE SECURITIES INC.
By: /s/ Lawrence S. Landry
----------------------------
Title: Managing Director
By____________________________
Authorized Signatory
19
<PAGE> 20
ANNEX A
Each broker-dealer that receives Exchange Securities for its
own account pursuant to the Registered Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Securities. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Securities received in
exchange for Securities where such Securities were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 90 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
20
<PAGE> 21
ANNEX B
Each broker-dealer that receives Exchange Securities for its
own account in exchange for Securities, where such Securities were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Securities. See "Plan of Distribution."
21
<PAGE> 22
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its
own account pursuant to the Registered Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Securities. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of Exchange
Securities received in exchange for Securities where such Securities were
acquired as a result of market-making activities or other trading activities.
The Company has agreed that, for a period of 90 days after the Expiration Date,
it will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
_______________, 199_, all dealers effecting transactions in the Exchange
Securities may be required to deliver a prospectus./
The Company will not receive any proceeds from any sale of
Exchange Securities by broker-dealers. Exchange Securities received by
broker-dealers for their own account pursuant to the Registered Exchange Offer
may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Securities or a combination of such methods of resale,
at market prices prevailing at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Securities. Any
broker-dealer that resells Exchange Securities that were received by it for its
own account pursuant to the Registered Exchange Offer and any broker or dealer
that participates in a distribution of such Exchange Securities may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Securities and any commission or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Registered Exchange Offer (including the expenses of one
counsel for the Holders of the Securities) other than commissions or
concessions of any broker-dealers and will indemnify the Holders of the
Securities (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
__________________________________
/ In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Registered Exchange Offer
prospectus.
22
<PAGE> 23
ANNEX D
o CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Securities. If the undersigned is a broker-dealer
that will receive Exchange Securities for its own account in exchange for
Securities that were acquired as a result of market-making activities or other
trading activities, it acknowledges that it will deliver a prospectus in
connection with any resale of such Exchange Securities; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
23
<PAGE> 1
[Letterhead of Andrews & Kurth L.L.P.]
Exhibit 5.1
June 9, 1997
Board of Directors
Energy Corporation of America
4643 South Ulster Street, Suite 1100
Denver, Colorado 80237
Ladies and Gentlemen:
We have acted as counsel to Energy Corporation of America, a
West Virginia corporation (the "Company") in connection with the Company's
Registration Statement on Form S-4 (the "Registration Statement") relating to
the registration under the Securities Act of 1933, as amended (the "Securities
Act"), of the offer by the Company to exchange up to $200,000,000 aggregate
principal amount of its 9 1/2% Senior Subordinated Notes Due 2007, Series A
(the "Exchange Notes") for its existing 9 1/2% Senior Subordinated Notes Due
2007 (the "Existing Notes"). The Exchange Notes are proposed to be issued in
accordance with the provisions of the indenture, dated as of May 23, 1997,
between the Company and The Bank of New York, as Trustee (the "Indenture").
In arriving at the opinions expressed below, we have examined
the Registration Statement, the Prospectus contained therein, the Indenture,
which is filed as an exhibit to the Registration Statement, and the originals
or copies certified or otherwise identified to our satisfaction of such other
instruments and other certificates of public officials and officers and
representatives of the Company. In such examination, we have assumed and have
not verified (i) that the signatures on all documents that we have examined are
genuine, (ii) the authenticity of all documents submitted to us as originals,
(iii) the conformity with the authentic originals of all documents submitted to
us as certified, photostatic or faxed copies, and (iv) that all documents in
respect of which forms were filed with the Securities and Exchange Commission
as exhibits to the Registration Statement will conform in all material respects
to the forms thereof that we have examined. In addition, as the basis for the
opinion hereinafter expressed, we have examined such statutes, regulations,
corporate records and documents, certificates of corporate and public officials
and other instruments as we have deemed necessary or advisable for the purposes
of this opinion.
<PAGE> 2
Board of Directors
Energy Corporation of America
June 9, 1997
Based upon the foregoing, having due regard for such legal
considerations as we deem relevant and assuming the due authorization,
execution and delivery of the Exchange Notes by the Company, we are of the
opinion that the Exchange Notes, (a) when exchanged in the manner described in
the Registration Statement, (b) when duly executed, authenticated, issued and
delivered in accordance with the terms of the Indenture, (c) when the Indenture
has been duly qualified under the Trust Indenture Act of 1939, as amended, and
(d) when applicable provisions of "blue sky" laws have been complied with,
will constitute valid and legally binding obligations of the Company, entitled
to the benefits of the Indenture and enforceable against the Company in
accordance with their terms, except to the extent that such enforceability may
be limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors, rights and by general equitable principles (whether
considered in a proceeding in equity or at law).
We are qualified to practice law in the State of Texas and the
State of New York. We express no opinion as to, and for the purposes of the
opinions set forth herein, we have conducted no investigation of, and do not
purport to be experts on, any laws other than the laws of the State of Texas
and the State of New York. We hereby consent to the use of this opinion as an
exhibit to the Registration Statement and to the use of the firm name under the
heading "Legal Matters" in the Registration Statement.
Very truly yours,
2442/1210/2698 /s/ Andrews & Kurth L.L.P.
<PAGE> 1
EXHIBIT 10.1
EASTERN AMERICAN
ENERGY CORPORATION
PROFIT SHARING/INCENTIVE STOCK PLAN
<PAGE> 2
EASTERN AMERICAN
ENERGY CORPORATION
PROFIT SHARING/INCENTIVE STOCK PLAN
Adopted by Board Resolution on June 4, 1987
Adopted by Shareholder Resolution on June 4, 1987
-2-
<PAGE> 3
EASTERN AMERICAN ENERGY CORPORATION
PROFIT SHARING/INCENTIVE STOCK PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY OF PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
THE PLAN IN OPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PART I: PROFIT SHARING PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
A. Purpose and Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
B. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
C. Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
D. Profit Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
E. Employees Eligible to Participate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
F. Quarterly Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
G. Incentive Stock to be Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
H. Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
I. Place of Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
J. Bar of Actions by Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
K. Effective Date of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II: INCENTIVE STOCK PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
A. Purpose and Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
B. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
C. Stock to be Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
D. Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
E. Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
F. Incentive Stock Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
G. Terms and Conditions of Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
H. Exclusive Repurchase Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
I. Non-Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
J. No Obligation to Exercise Option to Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
K. Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
L. Effective Date of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
-3-
<PAGE> 4
SUMMARY OF PROFIT SHARING/INCENTIVE STOCK PLAN
The basic concept of the Eastern American Energy Corporation Profit
Sharing/Incentive Stock Plan is to provide eligible employees with a
regular incentive to use their abilities and energies to the maximum
degree possible, while allowing certain employees to obtain a direct
stake in the Corporation through the purchase of newly created
Incentive Stock. Funding of this Plan by the Corporation is at the
sole discretion of the Board of Directors, and the Board retains the
right to expand, reduce, or eliminate the level of profit sharing or
dividends provided by the Plan.
Part I of the Plan allows all employees, at various percentages, to
share in a set portion of the profits of the Corporation. In
addition, certain employees may receive discretionary awards based on
job performance or other contributions to the Corporation. Part II of
the Plan provides that designated groups of employees may use their
profit sharing or dividends from Part I to purchase newly created
Incentive Stock of the Corporation. Such stock is non-voting and
non-transferable and will be repurchased by the Corporation upon the
employee's termination, retirement or death.
This summary is provided for reference only and the full text of the
Plan which follows, governs the operation of the Plan in all
instances. The terms and conditions of the Profit Sharing/Incentive
Stock Plan may be altered, changed, or amended at any time by the
Board of Directors. The right to profit sharing or Incentive Stock
shall in no way be construed to change the "at-will" nature of, or
extend, a participant's employment with Eastern American. By
participating in this Plan, the employee acknowledges the "at-will"
nature of his employment with Eastern American.
-4-
<PAGE> 5
THE PLAN IN OPERATION
CASH OPERATING PROFIT
IN EXCESS OF % OF ASSETS
(BASE POOL)
1/3 1/3 1/3
STOCKHOLDER PROFIT DEBT
DIVIDEND SHARING RETIREMENT
PROFIT 1/2
SHARING DEFERRED TO
AWARD FOLLOWING
POOL YEAR
PROFIT SHARING AWARD GROUPS
GROUP I EACH INDIVIDUAL IN EACH GROUP
GROUP II WILL RECEIVE A PERCENTAGE
GROUP III BASED ON SALARY PLUS AN IN-
GROUP IV CENTIVE PERCENTAGE BOTH OF
GROUP V WHICH WILL BE DISTRIBUTED IN
GROUP VI THE CURRENT YEAR
-5-
<PAGE> 6
EASTERN AMERICAN ENERGY CORPORATION
Profit Sharing/incentive Stock Plan
Part I: Profit Sharing Plan
A. PURPOSE AND SCOPE.
The purposes of Part I of the Plan are to encourage Directors, management and
employees of the Eastern American Energy Corporation to expand and improve the
profits and prosperity of the Corporation, and to assist the Corporation in
attracting and retaining key personnel through the grant to such employees of
profit sharing and dividends of the Corporation.
B. DEFINITIONS.
Unless otherwise required by the context:
1. "Base Pool" shall mean that fund which the Corporation shall set up
based upon a percentage of the excess cash operating profit of the
Corporation. Out of this Base Pool, the Corporation shall make
distributions of dividends and profit sharing, and shall retire debt
or fund capital acquisitions.
2. "Board" shall mean the Board of Directors of the Corporation.
3. "Cash Operating Profit" shall mean the Corporation's total Cash
Operating Profit (as defined below) less the principal reduction in
the Corporations long-term debt retirement.
4. "Committee" shall mean the Profit Sharing Committee (which shall also
perform the duties of the Incentive Stock Plan Committee under Part II
of this Plan), a three-member committee, which is appointed by the
Board, and which shall serve at the will and pleasure of the Board.
5. "Corporation" shall mean the Eastern American Energy Corporation, a
West Virginia corporation.
6. "Participant" shall mean an employee of the Corporation to whom profit
sharing or dividends is granted under the Plan.
-6-
<PAGE> 7
7. "Plan" shall mean this Eastern American Energy Corporation Profit
Sharing/ Incentive Stock Plan.
8. "Profit Sharing" shall mean those funds distributed to the
Participants of this Plan.
9. "Profit Sharing Award Pool" shall mean one-third of the amount in the
Base Pool, out of which the Corporation shall distribute as Profit
Sharing to the Participants of this Plan.
10. "Total Cash Operating Profit" means the sum of the Corporation's
operating profit or loss as shown on its financial statements less
federal income tax expense plus depreciation, depletion and impairment
allowances.
C. ADMINISTRATION.
The Plan shall be administered by the Committee. Two members of the
three-member Committee shall constitute a quorum for the transaction of
business. The Committee shall be responsible to the Board for the operation of
the Plan, and shall make recommendations to the Board with respect to
participation in the Plan by employees of the Corporation, and with respect to
the extent of that participation. The interpretation and construction of any
provision of the Plan by the Committee shall be final, unless otherwise
determined by the Board. No member of the Board or the Committee shall be
liable for any action or determination made by him in good faith.
D. PROFIT SHARING.
In the discretion of the Board, the Corporation will distribute profit sharing
to eligible employees (as defined in Section E hereof) pursuant to the
following terms and conditions:
1. Based upon a certain percentage (as determined by the Board from year
to year) of the excess cash operating profit of the Corporation, the
Board will set up a Base Pool (or excess cash operating profit pool).
The Base Pool shall be defined as that amount of the cash operating
profit (after any principal reduction and income taxes and net of any
extraordinary items such as sale of assets), which exceeds a
percentage of the net property, plant and equipment assets of the
Corporation. The Base Pool, or the excess cash operating profit pool,
will be distributed with Board approval as follows:
a. One-third to the stockholders as dividends;
b. One-third to the Profit Sharing Award Pool; and
-7-
<PAGE> 8
c. One-third to retire debt or tuna capital asset acquisition.
2. According to the above formula, one-third of the Base Pool will
constitute the Profit Sharing Award Pool. The Profit Sharing Award
Pool will be divided between six (6) employee groups with each groups
receiving a fixed percentage of the Award Pool. The Board or the
Committee shall designate the percentage for each Award Group. Each
employee will receive an ownership in his Award Group as determined by
the following formula:
.5 x employee's salary
------------------------------
Award Group's Aggregate Salary
Since only half of each Award Group will be paid out under the above
formula, the remaining fifty percent (50%) of each of the six (6)
Award Groups will become a discretionary Award Group, from which the
supervisors of the employees of such Award Group, with the approval of
the Committee shall make annual discretionary awards of profit sharing
to employees based on such employees' actual work performance or other
contributions to the Corporation.
The Profit Sharing Award Pool will be paid to the above six groups
over a two-year period as follows:
One-half of the Award Pool, or the amount approved by the Committee,
will be paid to the eligible employees within 120 days of the end of
the fiscal year, and one-half will be deferred to the following year.
The deferred portion of the Award Pool will be summed with one-half of
the following year's Award Pool, if any, and this sum will be paid
within 120 days of the end of the fiscal year and the other one-half
of the current year's Award Pool will be deferred to the following
year. This procedure of deferring one-half of the profit sharing
shall continue from year to year in order that large variances in
income may be avoided.
The Participant must earn out the second year's profit sharing by
working the second year (earning one-twelfth per month for each month
of employment). If the Participant leaves the employ of the
Corporation before earning out the unearned profit sharing, the profit
sharing reverts to the Corporation.
Of the six (6) employee groups, 100% of the senior officers' Award
Group will be allocated by the Board prior to the start of each year,
whereas the other five (5) groups will receive their allocations
according to the formula set out above.
-8-
<PAGE> 9
E. EMPLOYEES ELIGIBLE TO PARTICIPATE.
The following employees will be eligible to participate, it so approved at the
sole discretion of the Committee, in the Profit Sharing part of this Plan:
1. All current employees with two or more years of service as of July 1,
1987; and
2. New employees as approved by the committee who have been with the
Corporation one year or more and whose job description in the sole
judgment of the Committee is such that it can affect the profits of
the Corporation; and
3. Any employee with broken service must wait for a minimum of one year;
and
4. An employee must be employed by the Corporation as of the date of the
Profit Sharing Distribution; and
5. Any employee that is designated by the Committee, said designation
will be for extraordinary service or contributions to the Corporation.
F. QUARTERLY REPORTS.
Quarterly reports will be prepared by the Corporation and made available to the
Participants in the Plan so that they may be informed of their efforts and the
Corporation's progress. In such reports, the Committee may estimate the profit
sharing for a year in question, subject to revision upon yearly audit of the
Corporation's progress.
G. INCENTIVE STOCK TO BE ISSUED.
Of the six (6) employee groups designated by the Committee or the Board, the
upper three (3) groups may use their profit sharing or dividends, all or any
portion of such profit sharing award, to purchase the incentive Stock of the
Corporation pursuant to the terms set out in Part II of this Plan.
H. WITHHOLDING.
There shall be deducted from all payments of profit sharing or dividends
hereunder any taxes required to be withheld by the federal or any state or
local government.
-9-
<PAGE> 10
I. PLACE OF ADMINISTRATION.
The place of administration of this Plan shall be conclusively deemed to be
within the State of West Virginia and the validity, construction,
interpretation, administration and effect of the Plan, and of its rules and
regulations, and the rights of any and all persons having or claiming to have
an interest therein or thereunder, shall be governed by, and determined
exclusively and solely in accordance with, the law of the State of West
Virginia.
J. BAR OF ACTIONS BY PARTICIPANTS.
In no event shall an action in law or in equity lie against the Corporation,
the Board, any other officer or Director of the Corporation, any member of the
Committee, or any other person connected with this Plan, for any act done or
not done in connection therewith or with its administration, or as to any
interpretation, decision or determination hereunder, nor shall any Participant
or former Participant (or person claiming under or through such Participant or
former Participant) have any interest or legal or equitable claim in the Profit
Sharing Award Pool, or any other fund under this Plan, except to the extent
that an award of profit sharing or dividends is actually made by written notice
delivered to the Participant, and then subject to all of the terms and
conditions of this Plan, including, without limitation, all of the provisions
hereof with respect to the earning out of the Profit Sharing Award Pool.
Participation in the Plan shall not be construed or interpreted to extend any
contract of employment a Participant may have with the Corporation.
Furthermore, a Participant's right to profit sharing shall not create any such
employment contract nor in any other way change the "at-will" nature of the
Participant's employment with the Corporation.
Prior to participating in this Plan, each employee will sign an acknowledgment
(in the form of Exhibit "A" attached hereto), stating that his or her
participation in this Plan does not change the "at-will" nature of such
employee's employment with the Corporation or otherwise grant any employment
rights to such employee. The employee will also acknowledge that this Plan may
be altered, amended or terminated at the discretion of the Board.
K. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective from the date that the Plan is approved by the
Board and the vote of the holders of a majority of the outstanding shares of
the Corporation's common stock, voting as one class.
-10-
<PAGE> 11
EASTERN AMERICAN ENERGY CORPORATION
Profit Sharing/incentive Stock Plan
Part II: Incentive Stock Plan
A. PURPOSE AND SCOPE.
The purposes of Part II of the Plan are to encourage stock ownership by
management and certain employees of the Eastern American Energy Corporation, to
provide an incentive for such employees to expand and improve the profits and
prosperity of the Corporation, and to assist the Corporation in attracting and
retaining key personnel through the opportunity to purchase shares of a new
class of stock in the Corporation with the profit sharing or dividends received
by those designated employees under Part I of this Profit Sharing/Incentive
Stock Plan.
B. DEFINITIONS.
Unless otherwise required by the context:
1. "Board" shall mean the Board of Directors of the Corporation.
2. "Committee" shall mean the Incentive Stock Plan Committee, a
three-member committee which is appointed by the Board, and which
shall serve at the will and pleasure of the Board.
3. "Corporation" shall mean the Eastern American Energy Corporation, a
West Virginia corporation.
4. "Incentive Stock Price" shall mean the purchase price for the newly
created Incentive Stock, as determined in Section F below.
5. "Option" shall mean a right to purchase Incentive Stock, granted
pursuant to the Plan.
6. "Participant" shall mean an employee of the Corporation to whom an
option to purchase Incentive Stock is granted under the Plan.
-11-
<PAGE> 12
7. "Plan" shall mean this Eastern American Energy Corporation Profit
Sharing/Incentive Stock Plan.
8. "Incentive Stock" shall mean the newly created class of stock of the
Corporation.
C. STOCK TO BE ISSUED.
Pursuant to the terms of this Plan, no more than 100,000 shares of Incentive
Stock are authorized for issuance; but in no event will the Incentive stock,
upon distribution, constitute more than ten percent (10%) of the total stock
ownership of the Corporation. Incentive Stock is non-voting and
nontransferable, except as provided in Sections H and I below.
The incentive Stock will be eligible for up to ten percent (10%) of the
dividends issued by the Corporation. However, if all of the Incentive Stock,
once issued, does not comprise ten percent (10%) of the total stock ownership
in the Corporation, then the difference between that percent of dividends
issued and ten percent (10%) shall remain in the Corporation and shall not be
given as dividends to the holder of the Incentive Stock.
D. ADMINISTRATION.
The Plan shall be administered by the Committee. Two members of the Committee
shall constitute a quorum for the transaction of business. The Committee shall
be responsible to the Board for the operation of the Plan, and shall make
recommendations to the Board with respect to participation in the Plan by
employees of the Corporation, and with respect to the extent of that
participation. The interpretation and construction of any provision of the
Plan by the Committee shall be final, unless otherwise determined by the Board.
No member of the Board or the Committee shall be liable for any action or
determination made by him in good faith.
E. ELIGIBILITY.
Directors, management or employees as designated by the Committee or the Board
are eligible to use their profit sharing or dividends received under Part I of
this Plan to purchase shares of the Incentive Stock. Of the six classes of
employees designated in Section D of Part I of this Plan, only the top three
groups may participate in the Incentive Stock portion of the Plan. Only those
designated employees are eligible to participate in the Plan; their spouses or
members of their family may not Participate in this Plan.
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<PAGE> 13
Additionally, pursuant to Section D of Part I of this Plan, the Board, upon
recommendation of the Committee, may grant discretionary awards to any employee
of the Corporation based upon their actual work performance or their
contributions to the Corporation. These discretionary awards will be allocated
annually to such employees by the Committee.
F. INCENTIVE STOCK PRICE.
The purchase price for each share of the Incentive Stock shall be set according
to the following formula: six (6) times the average of the past three (3) years
after tax net earnings per share exclusive of sale of assets or other
extraordinary items.
G. TERMS AND CONDITIONS OF PURCHASE.
Eligible Participants may purchase the Incentive Stock with their proceeds of
profit sharing or dividends within thirty (30), days of the distribution of
such profit sharing or dividends. Such Participant cannot purchase the
Incentive Stock with funds other than those received pursuant to the Profit
Sharing portion of this Plan.
When discretionary awards are made under the Profit Sharing portion of this
Plan, the Participant shall have up to thirty (30) days within which to
purchase the Incentive Stock with such profit sharing or dividends.
Any option granted under this Plan may be exercised by the participant by
delivering to the Corporation, at its Charleston, West Virginia office, written
notice of the number of shares with respect to which participant desires to
exercise his option. With this written notice, participant will tender in full
the purchase price of the shares so purchased.
Any option granted hereunder shall terminate within thirty (30) days from the
grant of said option. The date of the distribution of the profit sharing or
dividends shall be deemed to be the date on which the option was granted by the
Corporation to the participant.
H. EXCLUSIVE REPURCHASE RIGHTS.
Upon the termination, retirement, or death of a Participant, the Corporation
will repurchase the shares of Incentive Stock held by the Participant under
this Plan. The repurchase price to be paid by the Corporation to the
Participant, or his designated beneficiary, shall be set at a price under the
formula for determining the Participant's purchase price. That is, the
repurchase once of each share shall be set at the following formula: six (6)
times the
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<PAGE> 14
average of the past three (3) years after tax net earnings per share exclusive
of the sale of assets or other extraordinary items.
The repurchase price of the Incentive Stock shall be fixed at the date of the
Participant's termination, retirement or death. The Corporation, in its sole
discretion, may repurchase the Incentive Stock held by the Participant by
making a lump sum payment to the Participant, or his designated beneficiary; or
the Corporation may make payment to the Participant, or his designated
beneficiary, in equal yearly installments not to exceed five (5) equal yearly
installments, with interest being paid at eight percent (8%) per annum.
I. NON-ASSIGNABILITY.
Options to purchase incentive Stock shall not be transferable other than by
will or by the laws of descent and distribution, and during a Participant's
lifetime shall be exercisable only by such Participant as provided in this
Plan. Once purchased, the Incentive Stock is likewise non-transferable.
J. NO OBLIGATION TO EXERCISE OPTION TO PURCHASE.
The granting of an option to purchase Incentive Stock shall impose no
obligation upon the Participant to exercise such option.
K. AMENDMENT AND TERMINATION.
The Board, by resolution, may terminate, amend, or revise the Plan with respect
to any shares as to which options have not been granted. Neither the Board nor
the Committee may, without the consent of the holder of an option, alter or
impair any option previously granted under the Plan, except as authorized
herein. Termination of the Plan shall not affect any option previously
granted.
The grant of any options to purchase Incentive Stock under this Plan shall not
be construed to create or enlarge any right to employment with the Corporation.
By participating in this Plan, the employee acknowledges the "at-will" nature
of his employment with the Corporation.
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<PAGE> 15
L. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective from the date that the Plan is approved by the
Board and the vote of the holders of a majority of the outstanding shares of
the Corporation's common stock, voting as one class.
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<PAGE> 1
EXHIBIT 10.2
BUY-SELL STOCK OPTION AGREEMENT
THIS BUY-SELL AND STOCK OPTION AGREEMENT is made as of May 19, 1997 by
and between F. H. McCullough, III and Kathy L. McCullough (collectively
"McCullough") and Energy Corporation of America ("ECA").
WHEREAS, McCullough owns, as of the date of this Agreement, 101,925
shares of the common stock of ECA and;
WHEREAS, McCullough and ECA have engaged in lengthy and thorough
discussions and negotiations concerning a possible sale of a portion of the
shares to ECA, as well as negotiations concerning the fair market value of the
shares; and
WHEREAS, in consideration of the Purchase Price to be paid by ECA to
McCullough as set forth below, McCullough and ECA have agreed to do and hereby
agree as follows:
1. Present Transfer of 2,980 of the Shares. McCullough agrees to
transfer, sell and assign, and does hereby transfer, sell and assign to ECA
2,980 shares of the common stock of Energy Corporation of America, a West
Virginia corporation, (the "Initial Shares") on the terms hereinafter set
forth.
2. Option to Purchase. After the transfer of the Initial Shares
to ECA pursuant to paragraph 1 above, McCullough will own 98,945 shares of ECA
common stock. McCullough hereby grants to ECA an option to purchase an
additional 8,940 shares (the "Option Shares") on the following terms:
a. ECA may purchase 2,980 of the Option Shares on
July 1, 1997 and on each July 1 for the next two (2) years for the
Purchase Price of $75.00 per share, payable in
<PAGE> 2
accordance with paragraph 5 below, by providing notice to McCullough
of its desire to purchase such shares. Such notice must be provided
on or before June 1 of each year. Accordingly, McCullough hereby
grants to ECA an exclusive option to purchase the Option Shares during
the period beginning July 1, 1997 and ending July 1, 1999 (the "Option
Period").
b. In the event ECA fails to exercise, in any year, its
option to purchase the Option Shares as provided in subparagraph a
above, ECA shall have the right to purchase such Option Shares on the
next July exercise date during the Option Period by providing
reasonable notice to McCullough and by paying the Purchase Price of
$75.00 per share in accordance with paragraph 5 below.
c. ECA shall have the absolute right, in its sole
discretion, to accelerate all options to purchase under this Agreement
and to purchase all, or any portion of the Option Shares at any time
during the Option Period.
3. Purchase Price. The Purchase Price for the Initial Shares
transferred simultaneously with the execution of this Agreement shall be
Seventy-Five Dollars ($75.00) per share (Two Hundred Twenty-three Thousand Five
Hundred Dollars ($223,500)), which Purchase Price shall be paid by ECA to
McCullough as set forth in paragraph 5 below. The Purchase Price for the
Option Shares shall be Seventy-Five Dollars ($75.00) per share, payable as
provided in paragraph 5.
4. Closing. The closing ("Closing") with respect to the Initial
Shares shall occur on June 10, 1997. McCullough shall deliver fully endorsed
stock certificates to ECA at 4643 South Ulster, Suite 1100, Denver, Colorado.
In the event ECA elects to exercise the option(s) to purchase all or any
portion of the Option Shares pursuant to paragraph 2, delivery of the fully
endorsed stock
-2-
<PAGE> 3
certificates relating to such shares likewise shall take place at 4643 S.
Ulster, Suite 1100, Denver, Colorado 80237.
Payment.
At Closing, ECA will pay to McCullough the Purchase Price of
Seventy-Five Dollars ($75.00) per share (Two Hundred Twenty-Three Thousand Five
Hundred Dollars ($223,500)) for the 2,980 Initial Shares in accordance with
McCullough's instructions.
In the event ECA elects to exercise its option with respect to
the Option Shares which are exercisable on July 1, 1997 (the July 1997 Shares),
ECA shall pay the Purchase Price of Two Hundred Twenty-Three Thousand Five
Hundred Dollars ($223,500) to McCullough for the July 1997 Shares on August 10,
1997. If ECA elects to exercise its option with respect to the July 1997
shares at a subsequent time pursuant to the terms of this Agreement ECA shall
pay to McCullough the Purchase Price with respect to the July 1997 Shares in
full.
In the event ECA elects to exercise the option(s) to purchase
all or any portion of the Option Shares which may be exercised in July 1998 or
July 1999 pursuant to paragraph 2, ECA will pay to McCullough the Purchase
Price in accordance with McCullough's instructions for such shares in four
equal quarterly installments, due July 10, October 10, January 10 and March 10
following the exercise of such option(s). ECA shall have the right, at its
sole discretion, to pay any or all of the quarterly installments prior to the
time the same are due.
6. Representations and Warranties. McCullough represents and
warrants as follows:
a. He is the sole owner of and has the right to sell the
Initial Shares and the Option Shares.
-3-
<PAGE> 4
b. The Initial Shares and the Option Shares are free of
all liens and encumbrances.
c. ECA shall receive good and marketable title to the
Initial Shares free of all encumbrances.
d. In the event ECA elects to exercise the option(s) to
purchase all or any of the Option Shares pursuant to paragraph 2, ECA
shall receive good and marketable title to the Option Shares free of
all encumbrances.
7. Dividends. All dividends, voting rights, and other incidents
of ownership of the 2,980 Initial Shares shall be transferred at Closing. All
dividends declared upon the Option Shares, together with all voting rights and
all other incidents of ownership, shall be retained by McCullough until ECA
shall have exercised its rights to purchase said Option Shares pursuant to the
terms of this Agreement. Upon exercise of each of the options and the transfer
of the Option Shares from McCullough to ECA, all dividends, voting rights, and
other incidents of ownership associated with the shares transferred shall vest
in ECA.
8. Binding Effect; Assignment. This Agreement shall be binding
upon the parties, their heirs, legal representatives, successors and assigns.
ECA may assign its rights under this Agreement without the consent of
McCullough provided, however, that no such assignment shall relieve ECA of its
obligation to pay the Purchase Price as herein provided.
9. Entire Agreement. This agreement supersedes all prior
agreements, written and oral, between the parties relating to the subject
matter of this Agreement. There are no other understandings or agreements
between the parties concerning the subject matter of this Agreement.
-4-
<PAGE> 5
10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have signed this Agreement.
/s/ F. H. McCULLOUGH, III
---------------------------------------
F. H. McCULLOUGH, III
/s/ KATHY L. McCULLOUGH
---------------------------------------
KATHY L. McCULLOUGH
ENERGY CORPORATION OF AMERICA
By: /s/ JOHN MORK
------------------------------------
Its: CEO
-----------------------------------
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<PAGE> 1
EXHIBIT 10.3
BUY-SELL STOCK OPTION AGREEMENT
THIS BUY-SELL AND STOCK OPTION AGREEMENT is made July 8, 1996 by and
between Kenneth W. Brill ("Mr. Brill"), and Energy Corporation of America
("ECA").
WHEREAS, Mr. Brill owns, as of the date of this Agreement, 95,400 shares
of the common stock of ECA and;
WHEREAS, Mr. Brill and ECA have engaged in lengthy and thorough
discussions and negotiations concerning a possible sale of a portion of the
shares to ECA, as well as negotiations concerning the fair market value of the
shares; and
WHEREAS, in consideration of the Purchase Price to be paid by ECA to Mr.
Brill as set forth below, Mr. Brill and ECA have agreed to do and hereby agree
as follows:
1. Present Transfer of 16,000 of the Shares. Mr. Brill agrees to
transfer, sell and assign, and does hereby transfer, sell and assign to ECA
16,000 shares of the common stock of Energy Corporation of America, a West
Virginia corporation, (the "Initial Shares") on the terms hereinafter set
forth. Mr. Brill shall endorse all stock certificates representing the Initial
Shares to ECA simultaneously upon execution of this Agreement.
2. Deposit into Escrow and Option to Purchase. After the transfer
of the Initial Shares to ECA pursuant to paragraph 1 above, Mr. Brill will own
79,400 shares of ECA common stock. Mr. Brill intends to retain 15,400 of those
shares and to grant to ECA an option to purchase the remaining 64,000 shares
(the "Option Shares").
Simultaneously upon execution of this Agreement, Mr. Brill will endorse
the stock certificate(s) representing the Option Shares and deposit the
certificate(s) with an escrow agent mutually selected with ECA (the "Escrow
Agent"). The Escrow Agent shall hold the Option Shares
<PAGE> 2
in escrow during the Option Period (as defined below) and will deliver the
Option Shares to ECA if and when ECA exercises the option(s) granted to it
below. In the event all or any portion of the Option Shares remain in escrow
at the expiration of the Option Period, Escrow Agent shall return all such
remaining Option Shares to Mr. Brill, his heirs or assigns. Accordingly, Mr.
Brill hereby grants to ECA an exclusive option to purchase the Option Shares
during the six (6) year period following the execution of this Agreement (the
"Option Period") as follows:
a. ECA may purchase 16,000 of the Option Shares during each of the
next four (4) years for the Purchase Price of $75.00 per share,
payable in accordance with paragraph 5 below, by providing notice
to Mr. Brill of its desire to purchase such shares. Such notice
must be provided on or before June 1 of each year.
b. In the event ECA fails to exercise, in any year, its option to
purchase the Option Shares as provided in subparagraph a above,
ECA shall have an additional period of two years after July 1,
2000, or until July 1, 2002 in which it may elect to purchase any
of the remaining Option Shares by providing reasonable notice to
Mr. Brill and by paying the Purchase Price of $75.00 per share in
accordance with paragraph 5 below.
c. ECA shall have the absolute right, in its sole discretion, to
accelerate all options to purchase under this Agreement and to
purchase all, or any portion of the Option Shares at any time
during the Option Period.
3. Purchase Price. The Purchase Price for the Initial Shares
transferred simultaneously with the execution of this Agreement shall be
Seventy-Five Dollars ($75.00) per share (One Million
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<PAGE> 3
Two Hundred Thousand Dollars ($1,200,000.00)), which Purchase Price shall be
paid by ECA to Mr. Brill as set forth in paragraph 5 below. The Purchase Price
for the Option Shares shall be Seventy-Five Dollars ($75.00) per share, payable
as provided in paragraph 5.
4. Closing. Delivery of the fully endorsed stock certificates and
payment of the first installment of the Purchase Price for the Initial Shares
shall take place at 4643 South Ulster, Suite 1100, Denver, Colorado 80237
simultaneously with the execution of this Agreement. In the event ECA elects
to exercise the option(s) to purchase all or any portion of the Option Shares
pursuant to paragraph 2, delivery of the fully endorsed stock certificates
relating to such shares likewise shall take place at 4643 S. Ulster, Suite
1100, Denver, Colorado 80237. All payments by ECA due pursuant to this
Agreement, other than the first installment of the Purchase Price for the
Initial Shares, shall be made by delivery of the payment in person to at such
place as may be directed by Mr. Brill.
5. Payment. ECA will pay the Purchase Price of Seventy-Five Dollars
($75.00) per share for the 16,000 Initial Shares (One Million Two Hundred
Thousand Dollars ($1,200,000.00)) in four equal quarterly installments of Three
Hundred Thousand Dollars ($300,000.00) with the first installment to be paid
simultaneously upon execution of this Agreement, the second installment to be
paid on October 1, 1996, the third installment to be paid on January 1, 1997,
and the fourth installment to be paid on March 1, 1997. In the event ECA
elects to exercise the option(s) to purchase all or any portion of the Option
Shares pursuant to paragraph 2, ECA will pay the Purchase Price for such shares
in four equal quarterly installments, due July 1, October 1, January 1 and
March 1 following the exercise of such option(s). ECA shall have the right, at
its sole discretion, to pay any or all of the quarterly installments prior to
the time the same are due.
-3-
<PAGE> 4
6. Representations and Warranties. Mr. Brill represents and
warrants as follows:
a. He is the sole owner of and has the right to sell the Initial
Shares and the Option Shares.
b. The Initial Shares and the Option Shares are free of all liens
and encumbrances.
c. ECA shall receive good and marketable title to the Initial Shares
free of all encumbrances.
d. In the event ECA elects to exercise the option(s) to purchase all
or any of the Option Shares pursuant to paragraph 2, ECA shall
receive good and marketable title to the Option Shares free of
all encumbrances.
7. Dividends. All dividends, voting rights, and other incidents of
ownership of the 16,000 Initial Shares transferred simultaneously upon
execution of this Agreement shall immediately vest in ECA. All dividends
declared upon the Option Shares, together with all voting rights and all other
incidents of ownership, shall be retained by Mr. Brill unless and until ECA
shall exercise its option(s) to purchase all or any of the Option Shares
pursuant to paragraph 2 of this Agreement. Upon exercise of each of the
options and the transfer of the Option Shares, all dividends, voting rights,
and other incidents of ownership associated wit the shares transferred shall
vest in ECA.
8. The 15,400 shares retained by Mr. Brill pursuant to paragraph 2
above (the "Retained Shares") shall remain subject to the prior agreement dated
June 30, 1993 between ECA and Mr. Brill (the "Prior Agreement"). The terms of
the Prior Agreement shall remain in full force and effect only with respect to
the Retained Shares. In addition, the terms of the Prior Agreement are hereby
modified and amended as follows:
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<PAGE> 5
(a) In the event Mr. Brill should die during the term of this Buy-
Sell and Stock Option Agreement, thereby invoking the provisions
of the Prior Agreement, all payments due under the Prior
Agreement shall be automatically postponed until one (1) year
after the final payments have been made under this Buy-Sell and
Stock Option Agreement.
(b) The postponement of payments due under the Prior Agreement shall
not effect a postponement of the valuation of the stock under the
Prior Agreement. The valuation shall be made at the time
specified and according to the formula specified in the Prior
Agreement.
9. Binding Effect; Assignment. This Agreement shall be binding upon
the parties, their heirs, legal representatives, successors and assigns. ECA
may assign its rights under this Agreement without the consent of Mr. Brill
provided, however, that no such assignment shall relieve ECA of its obligation
to pay the Purchase Price as herein provided.
10. Entire Agreement. Except as provided in paragraph 8 above with
respect to the Prior Agreement, this agreement supersedes all prior agreements,
written and oral, between the parties relating to the subject matter of this
Agreement. Further, except for the Escrow Agreement to be executed
simultaneously herewith pursuant to paragraph 2 above, there are no other
understandings or agreements between them concerning the subject matter of this
Agreement. To the extent of any inconsistency between this Buy-Sell and Stock
Option Agreement and the Prior Agreement, the terms of this Buy-Sell and Stock
Option Agreement shall govern.
-5-
<PAGE> 6
11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have signed this Agreement.
/s/ KENNETH W. BRILL
------------------------------
KENNETH W. BRILL
ENERGY CORPORATION OF AMERICA
By /s/ JOHN MORK
----------------------------
Its CEO
---------------------------
-6-
<PAGE> 1
EXHIBIT 10.4
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT made this 21st day of December,
1994 between ENERGY CORPORATION OF AMERICA, a Colorado corporation,
(hereinafter called the "Company"), and DONALD C. SUPCOE (hereinafter called
"Supcoe").
WHEREAS, the Company is the parent company of Eastern American Energy
Corporation, a West Virginia corporation, ("Eastern"), and
WHEREAS, Supcoe is the Vice President - General Counsel of Eastern and a
valuable employee of Eastern and the Company considers it desirable and in its
best interest that Supcoe be given an added incentive to advance the interests
of Eastern and the Company and remain employed by Eastern;
NOW THEREFORE, in consideration of the mutual promises herein contained,
the parties agree as follows:
1. Grant of Option. The Company hereby grants to Supcoe the right,
privilege, and option to purchase 3200 shares of its common stock at $40.00 per
share. Supcoe may elect to exercise the option at the times and for the number
of shares indicated as follows:
a. On and after January 1, 1994, to and including December
31, 1994, 800 shares;
b. On and after January 1, 1995, to and including December
31, 1995, 800 shares;
c. On and after January 1, 1996, to and including December
31, 1996, 800 shares.
<PAGE> 2
d. On and after January 1, 1997, to and including December
31, 1997, 800 shares.
In order to be entitled to exercise the options granted hereunder,
Supcoe must remain in the continuous employ of Eastern during the option
period. If Supcoe's employment with Eastern is terminated for any reason
during the option period, all unexercised options shall become null and void on
the date his employment is terminated.
Failure to exercise the options by December 31 of each year specified
above shall result in the termination of the options granted during that time
period and such options shall become null and void.
2. Method of Exercise. The option shall be exercised by written
notice directed to the Company at its principal place of business accompanied
by check and payment of the option price for the number of shares specified.
3. Limitation Upon Transfer. All rights granted in this Agreement
shall be exercisable only by Supcoe. The option rights granted under this
contract shall not be transferred, assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Upon any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of such option rights contrary
to the provisions in this Agreement, or upon the levy of any attachment or
similar process upon such option rights, such option rights shall immediately
become null and void.
4. Restriction. All shares acquired by Supcoe shall be subject to
the following restrictions.
-2-
<PAGE> 3
a. If Supcoe's employment with Eastern is terminated for any
reason whatsoever within four years from the date of purchase of the
shares, Supcoe agrees to immediately resell to the Company all shares
which are acquired by exercise of the options granted by this Agreement
at the price of $40.00 per share; provided, however, that in the event
Supcoe should die within four years from the date of purchase of the
shares and while still employed by Eastern, his heirs or devisees shall
resell all shares to the Company at the price established in paragraph 5
below.
b. If Supcoe's employment with Eastern is terminated for any
reason whatsoever from and after four years from the date of purchase of
the shares, Supcoe agrees to immediately resell to the Company all
shares which are acquired by exercise of the options granted by this
Agreement at the value of such shares as determined in paragraph 5
below.
c. All share certificates representing shares acquired by the
exercise of the options provided herein shall have endorsed thereon the
following legend:
The shares represented by this certificate are subject to the
requirement that they be resold to Energy Corporation of America
at the value determined pursuant to that certain Incentive Stock
Option Agreement dated December 21, 1994 by and between Energy
Corporation of America and Donald C. Supcoe.
5. Value. For purposes of resale to the Company, from and after
four years from the date of acquisition of the shares, the value of the shares
shall be equal to six (6) times the average per share earnings for the most
recent three (3) fiscal years of the Company. In the absence of financial
statements for the Company, the financial statements of Eastern will be
substituted thereof.
-3-
<PAGE> 4
"Earnings" shall mean the Company's earnings and in the absence thereof
Eastern's earning (net of extraordinary items, Windfall Profits Taxes, and
other similar and/or substituted taxes, and state and local taxes, but before
provisions for federal income taxes) as determined in accordance with generally
accepted accounting principles consistently applied by the Company's regularly
engaged accountants, which determination shall be final and binding upon Supcoe
and the Company.
6. Rights as Shareholder. Supcoe shall not have any rights or
privileges as a shareholder of the Company in the option shares until payment
of the option price and delivery to him of such shares.
7. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of any successor or successors of the Company.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
ENERGY CORPORATION OF AMERICA
By: /s/ JOHN MORK
---------------------------
Its: CEO
--------------------------
/s/ DONALD C. SUPCOE
------------------------------
DONALD C. SUPCOE
-4-
<PAGE> 1
EXHIBIT 10.5
FIRST AMENDMENT TO
INCENTIVE STOCK OPTION AGREEMENT
THIS FIRST AMENDMENT TO INCENTIVE STOCK OPTION AGREEMENT is made this 28th day
of August, 1995 between Energy Corporation of America, a West Virginia
corporation, (hereinafter called the "Company") and DONALD C. SUPCOE
(hereinafter called "SUPCOE").
WHEREAS, the Company and SUPCOE are parties to that certain Incentive Stock
Option Agreement dated December 21, 1994; ("Agreement"); and
WHEREAS, SUPCOE exercised his option to purchase 800 share(s) of common stock
of the Company represented by Certificate No. 42 and consistent with the
Agreement executed a Promissory Note dated December 31, 1994 in the amount of
$32,000 together with a Stock Pledge Agreement dated December 31, 1994 to
secure payment under the Promissory Note; and
WHEREAS, pursuant to a resolution passed at the August 1, 1995 Meeting of the
Board of Director's, the Board authorized and approved a bonus to be paid to
SUPCOE in the form of the cancellation of the indebtedness evidenced by the
Promissory Note and the obligations under the Stock Pledge Agreement; and
WHEREAS, the parties are desirous of amending the Agreement as hereinafter
set forth:
1. The Promissory Note dated December 31, 1994, executed by SUPCOE
in favor of the Company is hereby deemed cancelled and the original of
such Promissory Note shall be redelivered to SUPCOE to evidence such
cancellation.
<PAGE> 2
EXHIBIT 10.5
2. The obligations under the Stock Pledge Agreement dated December
31, 1994 are hereby released and discharged and the Company agrees to
redeliver to SUPCOE the common stock pledged to the Company under the
Stock Pledge Agreement evidenced by Certificate No. 42.
3. Paragraph 4(a) of the Agreement, insofar as it relates to the
common stock represented by Certificate No. 42, is deleted and Paragraph
4(b) should be amended
to read as follows insofar the common stock represented by Certificate
No. 42 is concerned:
4(b) If SUPCOE'S employment with Eastern is terminated for any
reason, SUPCOE agrees to immediately resell to the Company all
the shares of stock represented by Certificate No. 42 at the
value of such shares as determined in paragraph 5 below.
4. The words "from and after four years from the date of acquisition
of the
shares" in Paragraph 5 shall be deleted insofar as the common stock
represented by Certificate No. 42 is concerned.
Except to the extent set forth herein, the terms and conditions of the
Agreement dated December 21, 1994 shall remain in full force and effect.
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed as of the day and year first above written.
ENERGY CORPORATION OF AMERICA
BY: /S/ JOHN MORK
------------------------------------------
JOHN MORK
PRESIDENT & CHIEF EXECUTIVE OFFICER
/S/ DONALD C. SUPCOE
------------------------------------------
DONALD C. SUPCOE
<PAGE> 1
EXHIBIT 10.6
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT made this 19th day of December,
1994 between ENERGY CORPORATION OF AMERICA, a Colorado corporation,
(hereinafter called the "Company"), and RICHARD E. HEFFELFINGER (hereinafter
called "Heffelfinger").
WHEREAS, the Company is the parent company of Eastern American Energy
Corporation, a West Virginia corporation, ("Eastern"), and
WHEREAS, Heffelfinger is the President of Eastern and a valuable
employee of Eastern and the Company considers it desirable and in its best
interest that Heffelfinger be given an added incentive to advance the interests
of Eastern and the Company and remain employed by Eastern;
NOW THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. Grant of Option. The Company hereby grants to Heffelfinger
the right, privilege, and option to purchase 6400 shares of its common stock at
$40.00 per share. Heffelfinger may elect to exercise the option at the times
and for the number of shares indicated as follows:
a. On and after January 1, 1994, to and including
December 31, 1994, 1600 shares;
b. On and after January 1, 1995, to and including
December 31, 1995, 1600 shares;
c. On and after January 1, 1996, to and including
December 31, 1996, 1600 shares.
<PAGE> 2
d. On and after January 1, 1997, to and including
December 31, 1997, 1600 shares.
In order to be entitled to exercise the options granted hereunder,
Heffelfinger must remain in the continuous employ of Eastern during the option
period. If Heffelfinger's employment with Eastern is terminated for any reason
during the option period, all unexercised options shall become null and void on
the date his employment is terminated.
Failure to exercise the options by December 31 of each year specified
above shall result in the termination of the options granted during that time
period and such options shall become null and void.
2. Method of Exercise. The option shall be exercised by written
notice directed to the Company at its principal place of business accompanied
by check and payment of the option price for the number of shares specified.
3. Limitation Upon Transfer. All rights granted in this
Agreement shall be exercisable only by Heffelfinger. The option rights granted
under this contract shall not be transferred, assigned, pledged or hypothecated
in any way (whether by operation of law or otherwise) and shall not be subject
to execution, attachment or similar process. Upon any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of such option rights contrary
to the provisions in this Agreement, or upon the levy of any attachment or
similar process upon such option rights, such option rights shall immediately
become null and void.
4. Restriction. All shares acquired by Heffelfinger shall be
subject to the following restrictions.
-2-
<PAGE> 3
a. If Heffelfinger's employment with Eastern is
terminated for any reason whatsoever within four years from the date
of purchase of the shares, Heffelfinger agrees to immediately resell
to the Company all shares which are acquired by exercise of the
options granted by this Agreement at the price of $40.00 per share;
provided, however, that in the event Heffelfinger should die within
four years from the date of purchase of the shares and while still
employed by Eastern, his heirs or devisees shall resell all shares to
the Company at the price established in paragraph 5 below.
b. If Heffelfinger's employment with Eastern is
terminated for any reason whatsoever from and after four years from
the date of purchase of the shares, Heffelfinger agrees to immediately
resell to the Company all shares which are acquired by exercise of the
options granted by this Agreement at the value of such shares as
determined in paragraph 5 below.
c. All share certificates representing shares acquired
by the exercise of the options provided herein shall have endorsed
thereon the following legend:
The shares represented by this certificate are subject to the
requirement that they be resold to Energy Corporation of
America at the value determined pursuant to that certain
Incentive Stock Option Agreement dated December 19, 1994
by and between Energy Corporation of America and Richard E.
Heffelfinger.
5. Value. For purposes of resale to the Company, from and after
four years from the date of acquisition of the shares, the value of the shares
shall be equal to six (6) times the average per share earnings for the most
recent three (3) fiscal years of the Company. In the absence of financial
statements for the Company, the financial statements of Eastern will be
substituted thereof.
-3-
<PAGE> 4
"Earnings" shall mean the Company's earnings and in the
absence thereof Eastern's earning (net of extraordinary items,
Windfall Profits Taxes, and other similar and/or substituted taxes,
and state and local taxes, but before provisions for federal income
taxes) as determined in accordance with generally accepted accounting
principles consistently applied by the Company's regularly engaged
accountants, which determination shall be final and binding upon
Heffelfinger and the Company.
6. Rights as Shareholder. Heffelfinger shall not have any rights
or privileges as a shareholder of the Company in the option shares until
payment of the option price and delivery to him of such shares.
7. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of any successor or successors of the Company.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
ENERGY CORPORATION OF AMERICA
By: /s/ JOHN MORK
----------------------------------
Its: CEO
---------------------------------
/s/ RICHARD E. HEFFELFINGER
-------------------------------------
RICHARD E. HEFFELFINGER
-4-
<PAGE> 1
EXHIBIT 10.7
FIRST AMENDMENT TO
INCENTIVE STOCK OPTION AGREEMENT
THIS FIRST AMENDMENT TO INCENTIVE STOCK OPTION AGREEMENT is made this 28th day
of August, 1995 between Energy Corporation of America, a West Virginia
corporation, (hereinafter called the "Company") and RICHARD E. HEFFELFINGER
(hereinafter called "HEFFELFINGER").
WHEREAS, the Company and HEFFELFINGER are parties to that certain Incentive
Stock Option Agreement dated December 19, 1994; ("Agreement"); and
WHEREAS, HEFFELFINGER exercised his option to purchase 1600 share(s) of common
stock of the Company represented by Certificate No. 40 and consistent with the
Agreement executed a Promissory Note dated December 31, 1994 in the amount of
$64,000 together with a Stock Pledge Agreement dated December 31, 1994 to
secure payment under the Promissory Note; and
WHEREAS, pursuant to a resolution passed at the August 1, 1995 Meeting of the
Board of Director's, the Board authorized and approved a bonus to be paid to
HEFFELFINGER in the form of the cancellation of the indebtedness evidenced by
the Promissory Note and the obligations under the Stock Pledge Agreement; and
WHEREAS, the parties are desirous of amending the Agreement as hereinafter set
forth:
1. The Promissory Note dated December 31, 1994, executed by HEFFELFINGER in
favor of the Company is hereby deemed cancelled and the original of such
Promissory Note shall be redelivered to HEFFELFINGER to evidence such
cancellation.
<PAGE> 2
2. The obligations under the Stock Pledge Agreement dated December
31, 1994 are hereby released and discharged and the Company agrees to
redeliver to Heffelfinger the common stock pledged to the Company under
the Stock Pledge Agreement evidenced by Certificate No. 40.
3. Paragraph 4(a) of the Agreement, insofar as it relates to the
common stock represented by Certificate No. 40, is deleted and Paragraph
4(b) should be amended to read as follows insofar the common stock
represented by Certificate No. 40 is concerned:
4(b) If HEFFELFINGER'S employment with Eastern is terminated for
any reason, HEFFELFINGER agrees to immediately resell to the
Company all the shares of stock represented by Certificate No. 40
at the value of such shares as determined in paragraph 5 below.
4. The words "from and after four years from the date of acquisition
of the shares" in Paragraph 5 shall be deleted insofar as the common
stock represented by Certificate No. 40 is concerned.
Except to the extent set forth herein, the terms and conditions of the
Agreement dated December 19, 1994 shall remain in full force and effect.
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed as of the day and year first above written.
ENERGY CORPORATION OF AMERICA
BY: /S/ JOHN MORK
------------------------------------------
JOHN MORK
PRESIDENT & CHIEF EXECUTIVE OFFICER
/S/ RICHARD E. HEFFELFINGER
------------------------------------------
RICHARD E. HEFFELFINGER
<PAGE> 1
EXHIBIT 10.8
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
THIS INCENTIVE STOCK OPTION AGREEMENT made this 9th day of December,
1994 between ENERGY CORPORATION OF AMERICA, a Colorado corporation,
(hereinafter called the "Company"), and J. Michael Forbes (hereinafter
called Forbes")
WHEREAS, the Company is the parent company of Eastern American Energy
Corporation, a West Virginia corporation, ("Eastern"), and
WHEREAS, Heffelfinger is the President of Eastern and a valuable
employee of Eastern and the Company considers it desirable and in its best
interest that Heffelfinger be given an added incentive to advance the interests
of Eastern and the Company and remain employed by Eastern;
NOW THEREFORE, in consideration of the mutual promises herein contained,
the parties agree as follows:
1. Grant of Option. The Company hereby grants to Heffelfinger the
right, privilege, and option to purchase 6400 shares of its common stock at
$40.00 per share. Heffelfinger may elect to exercise the option at the times
and for the number of shares indicated as follows:
a. On and after January 1, 1994, to and including December
31, 1994, 800 shares;
b. On and after January 1, 1995, to and including December
31, 1995, 800 shares;
c. On and after January 1, 1996, to and including December
31, 1996, 800 shares.
d. On and after January 1, 1997, to and including December
31, 1997, 800 shares.
<PAGE> 2
In order to be entitled to exercise the options granted hereunder,
Heffelfinger must remain in the continuous employ of Eastern during the option
period. If Forbes' employment with Eastern is terminated for any reason
during the option period, all unexercised options shall become null and void on
the date his employment is terminated.
Failure to exercise the options by December 31 of each year specified
above shall result in the termination of the options granted during that time
period and such options shall become null and void.
2. Method of Exercise. The option shall be exercised by written
------------------
notice directed to the Company at its principal place of business accompanied
by check and payment of the option price for the number of shares specified.
3. Limitation Upon Transfer. All rights granted in this Agreement
------------------------
shall be exercisable only by Forbes. The option rights granted under this
contract shall not be transferred, assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Upon any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of such option rights contrary
to the provisions in this Agreement, or upon the levy of any attachment or
similar process upon such option rights, such option rights shall immediately
become null and void.
4. Restriction. All shares acquired by Heffelfinger shall be
-----------
subject to the following restrictions.
a. If Forbes' employment with Eastern is terminated for any
reason whatsoever within four years from the date of purchase of
the shares, Heffelfinger agrees to immediately resell to the Company all
shares which are acquired by exercise of the options granted by this
-2-
<PAGE> 3
Agreement at the price of $40.00 per share; provided, however, that in
the event Forbes should die within four years from the date of
purchase of the shares and while still employed by Eastern, his heirs or
devisees shall resell all shares to the Company at the price established
in paragraph 5 below.
b. If Forbes' employment with Eastern is terminated
for any reason whatsoever from and after four years from the date of
purchase of the shares, Heffelfinger agrees to immediately resell to the
Company all shares which are acquired by exercise of the options granted
by this Agreement at the value of such shares as determined in paragraph
5 below.
c. All share certificates representing shares acquired by the
exercise of the options provided herein shall have endorsed thereon the
following legend:
The shares represented by this certificate are subject to the
requirement that they be resold to Energy Corporation of America
at the value determined pursuant to that certain Incentive Stock
Option Agreement dated December 9, 1994 by and between
Energy Corporation of America and J. Michael Forbes
5. Value. For purposes of resale to the Company, from and after
four years from the date of acquisition of the shares, the value of the shares
shall be equal to six (6) times the average per share earnings for the most
recent three (3) fiscal years of the Company. In the absence of financial
statements for the Company, the financial statements of Eastern will be
substituted thereof.
"Earnings" shall mean the Company's earnings and in the
absence thereof Eastern's earning (net of extraordinary items, Windfall Profits
Taxes, and other similar and/or substituted taxes, and state and local taxes,
but before provisions for federal income taxes) as determined in accordance
with generally accepted accounting principles consistently applied by the
Company's regularly engaged accountants, which determination shall be final and
binding upon Forbes and the Company.
-3-
<PAGE> 4
6. Rights as Shareholder. Forbes shall not have any rights or
privileges as a shareholder of the Company in the option shares until payment
of the option price and delivery to him of such shares.
7. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of any successor or successors of the Company.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
ENERGY CORPORATION OF AMERICA
By: /s/ JOHN MORK
--------------------------
Its: CEO
-------------------------
/s/ J. MICHAEL FORBES
------------------------------
J. MICHAEL FORBES
-4-
<PAGE> 1
EXHIBIT 10.9
FIRST AMENDMENT TO
INCENTIVE STOCK OPTION AGREEMENT
THIS FIRST AMENDMENT TO INCENTIVE STOCK OPTION AGREEMENT is made this 28th day
of August, 1995 between Energy Corporation of America, a West Virginia
corporation, (hereinafter called the "Company") and J. MICHAEL FORBES
(hereinafter called "FORBES").
WHEREAS, the Company and FORBES are parties to that certain Incentive Stock
Option Agreement dated December 19, 1994; ("Agreement"); and
WHEREAS, FORBES exercised his option to purchase 800 share(s) of common stock
of the Company represented by Certificate No. 41 and consistent with the
Agreement executed a Promissory Note dated December 31, 1994 in the amount of
$32,000 together with a Stock Pledge Agreement dated December 31, 1994 to
secure payment under the Promissory Note; and
WHEREAS, pursuant to a resolution passed at the August 1, 1995 Meeting of the
Board of Director's, the Board authorized and approved a bonus to be paid to
FORBES in the form of the cancellation of the indebtedness evidenced by the
Promissory Note and the obligations under the Stock Pledge Agreement; and
WHEREAS, the parties are desirous of amending the Agreement as hereinafter set
forth:
1. The Promissory Note dated December 31, 1994, executed by FORBES
in favor of the Company is hereby deemed cancelled and the original of
such Promissory Note shall be redelivered to FORBES to evidence such
cancellation.
<PAGE> 2
2. The obligations under the Stock Pledge Agreement dated December
31, 1994 are hereby released and discharged and the Company agrees to
redeliver to FORBES the common stock pledged to the Company under the
Stock Pledge Agreement evidenced by Certificate No. 41.
3. Paragraph 4(a) of the Agreement, insofar as it relates to the
common stock represented by Certificate No. 41, is deleted and Paragraph
4(b) should be amended to read as follows insofar the common stock
represented by Certificate No. 41 is concerned:
4(b) If FORBES' employment with Eastern is terminated for any
reason, FORBES agrees to immediately resell to the Company all
the shares of stock represented by Certificate No. 41 at the
value of such shares as determined in paragraph 5 below.
4. The words "from and after four years from the date of acquisition
of the shares" in Paragraph 5 shall be deleted insofar as the common
stock represented by Certificate No. 41 is concerned.
Except to the extent set forth herein, the terms and conditions of the
Agreement dated December 19, 1994 shall remain in full force and effect.
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed as of the day and year first above written.
ENERGY CORPORATION OF AMERICA
BY: /S/ JOHN MORK
------------------------------------------
JOHN MORK
PRESIDENT & CHIEF EXECUTIVE OFFICER
/S/ J. MICHAEL FORBES
------------------------------------------
J. MICHAEL FORBES
<PAGE> 1
EXHIBIT 10.10
GAS PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into this 29th day of
August, 1995, but to be effective as of the 1st day of November, 1995, by and
between EASTERN AMERICAN ENERGY CORPORATION and EASTERN PIPELINE CORPORATION,
West Virginia corporation, collectively known and hereinafter referred to as
Eastern or Seller, with its principal address at 501 56th Street, Charleston,
West Virginia 25304, and HOPE GAS, INC., a West Virginia corporation,
hereinafter referred to as Buyer, whose address is P.O. Box 2868, Clarksburg,
West Virginia 26302-1868.
WHEREAS, Seller desires to sell and deliver natural gas to
Buyer and Buyer desires to purchase such gas upon and subject to the terms of
this Agreement.
NOW, THEREFORE, WITNESSETH, in consideration of the mutual
covenants and promises set forth below, and intending to be bound by them,
Seller and Buyer covenant and agree:
ARTICLE I
SALE AND PURCHASE OBLIGATIONS
1.01 Seller agrees to a firm commitment to deliver on demand
to Buyer 5,300 dekatherms (dt) of gas per day at the Points of Delivery
described in Article III. Seller warrants delivery of 5,300 dt per day and the
parties agree that fulfillment of this delivery obligation is essential.
ARTICLE II
TERM
2.01 This Agreement shall become effective upon the date
written above and shall continue in force until October 31, 1998.
ARTICLE III
DELIVERY POINTS
3.01 The delivery points (Delivery Point(s)) for natural gas
delivered hereunder shall be at interconnections between the facilities of
Buyer and Seller at or near the facilities of AFG Industries (AFG), Eagle
Convex Glass Company (Eagle), UCAR Carbon Company, Inc. (UCAR) and the Rolland
Interconnect (Rolland), and any other interconnections between the facilities
of Buyer and Seller which may be added by mutual written agreement of the
parties from time to time.
<PAGE> 2
ARTICLE IV
GAS DELIVERED AND TAKEN
4.01 So long as this agreement remains in full force and
effect, Seller covenants that it will dedicate the capacity at the Delivery
Points to the performance of this Agreement and will maintain deliverability of
5,300 dt per day at the Delivery Points.
4.02 Subject to the provisions of Paragraph 4.03, Buyer
agrees to maximize deliveries from the Eastern Pipeline up to 5,300 dt per day.
4.03 Should a material change occur in Buyer's ability to take
gas due to reasons such as pipeline capacity restrictions or plant closings,
then to that extent Buyer's obligation to purchase and Seller's obligation to
sell gas hereunder will be adjusted.
a) Notice shall be provided by Buyer to Seller within
thirty (30) days of any such material change.
b) Adjustment to the volumetric purchase and delivery
obligations under paragraphs 1.01 and 4.01 shall be
effective the date of the notice of material change,
provided, however, that any adjustment to the Monthly
Demand payment under paragraph 6.01 will be effective
the April 1 first following Buyer's notice to Seller.
c) For purposes of this paragraph, it is not a material
change to the extent AFG, UCAR, or Eagle reduce gas
deliveries through the Delivery Points and instead
receive natural gas deliveries through pipeline
facilities owned or operated by someone other than
Seller or their affiliates.
ARTICLE V
METER SITE AND FACILITIES
5.01 Gas sold by Seller to Buyer shall be measured at
meter(s) owned, installed, maintained, and read by Buyer. Seller shall provide
Buyer with the necessary rights-of-way and related surface grants for such site
and any pipeline that may be constructed by Buyer to take said natural gas.
-2-
<PAGE> 3
ARTICLE VI
PRICE
6.01 For deliveries of 5,300 dt per day to the Delivery Points,
the price paid for having gas available and selling it to Buyer will be
comprised of:
a) A monthly demand charge (Monthly Demand) of
fifty-one thousand five hundred eighty-nine
dollars ($51,589) per month.
b) A commodity price (Commodity Price):
i) for the period commencing as of
November 1, 1995 and extending through
October 31, 1996 of price of $2.20 per
dt.
ii) for the period commencing as of
November 1, 1996 and extending through
October 31, 1997 of price of $2.10 per
dt.
iii) for the period commencing as of
November 1, 1997 and extending through
October 31, 1998 of price of $2.00 per
dt.
6 .02 For each dekatherm of gas delivered to and accepted by
Buyer, in excess of 5,300 dt, the price shall be equal to the sum of (i) a
demand charge assessed at CNG Transmission Corporation's then applicable 100%
base load firm transportation (FT) rate plus applicable fuel retention, and
(ii) a commodity price equal to price set each month at Inside FERC's Gas
Market Report, "Price of Spot Gas Delivered to Pipelines" for deliveries of
Appalachian production into CNG Transmission Corporation's (CNGT's) dry
transmission system, provided however, that such resultant commodity price
shall not be less than the commodity price set forth in paragraph 6.01(b)
above.
In the event Inside FERC's Gas Market Report ceases to be
published, then the parties will immediately negotiate in good faith to agree
upon a substitute publication or posting. If the parties, after good faith
efforts, fail to agree upon a substitute posting or publication within thirty
(30) days of said cessation, then the price to be paid for such production
after that date shall be equal to the monthly spot gas price for deliveries of
Appalachian production into the dry transmission system of CNGT as published in
the Gas Price Index section of The Natural Gas Intelligence.
6.03 If, on any day during the term of this Agreement,
Seller fails to deliver Buyer's nominated purchase level (up to a maximum of
5,300 dt) , a penalty shall apply and Buyer shall be entitled to a credit on
amounts due Seller or to a refund. For each dekatherm by which deliveries fall
short of the nominated quantity, the penalty shall be equal to:
-3-
<PAGE> 4
a) The sum of the Demand Charge (converted to a
dekatherm basis) previously paid on the
nominated volumes not delivered; and
b) An additional sum of $.32 per dt.
6.04 The penalty provisions of Paragraph 6.03 shall not
apply to the extent that Seller has available at least 5,300 dt per day at the
Delivery Points and Buyer does not accept deliveries up to that level.
6.05 The penalty provision of Article 6.03 shall not apply
when Seller fails to deliver the nominated quantities (up to 5,300 dt per day)
if Buyer does not incur overrun charges from CNGT or other suppliers, and
Seller provides make up volumes to offset fully the shortfall by the end of the
month following the month in which the shortfall occurred. The make up volumes
delivered during any subsequent month shall be priced at the Commodity Price
set forth in Paragraph 6.01 hereof.
ARTICLE VII
GAS QUALITY
7.01 The gas delivered by Seller to Buyer hereunder at the
point or points of delivery specified shall not contain an amount of water
vapor exceeding seven (7) pounds per million cubic feet of gas, or an amount of
water vapor exceeding the quantity that is required for saturation of the gas
at the flowing temperature and pressure of the gas as described in Article
VIII, whichever is lesser; provided however, that such gas shall not contain
any water in the liquid state.
7.02 Seller shall deliver the natural gas to Buyer free from
air, sulphur in any form or compound, carbon dioxide (no greater than 3 mole
%), total inerts (no greater than 5 mole %), and other deleterious substances
which may in Buyer's opinion adversely affect its marketability as a fuel or
use for other purposes, or be injurious to equipment, transmission lines, and
machinery.
7.03 Notwithstanding any other provision of this Agreement,
if the gas delivered fails to meet the quality specifications set forth herein,
then Buyer may elect to continue to receive such gas or refuse to take all or
any portion of such gas until Seller brings the gas into conformity with such
specifications.
ARTICLE VIII
MEASUREMENT AND HEATING VALUES
8.01 The volume of natural gas delivered to Buyer shall be
determined as follows:
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<PAGE> 5
(a) The unit of volume for the purpose of measurement shall be one cubic
foot of gas at a pressure base of 14.73 pounds per square inch absolute
and a temperature base of 60 Fahrenheit.
(b) In determining the quantity of natural gas delivered to Buyer, factors
such as those for pressure, temperature, and deviation from the laws of
ideal gases shall be applied. If a displacement or turbine meter is
used, these factors shall be applied in accordance with the gas laws as
more fully described in the recommendations of the Gas Measurement
Committee of the American Gas Association (AGA) in their publication,
AGA Gas Measurement Manual; and if an orifice meter is used, the
measurement of said gas shall be in accordance with AGA Report No. 3,
as amended or superseded from time to time.
(c) The average absolute atmospheric pressure shall be assumed to be 14.73
pounds per square inch, irrespective of actual elevation or location of
the meter or variations in actual atmospheric pressure.
(d) In the absence of a recording thermometer, an assumed flowing
temperature of 60 Fahrenheit shall be used in computing said
quantities of gas; but if the temperature of the natural gas passing
through the meter is determined for any day by the use of a recording
thermometer, then the arithmetic average of the temperature recorded
for such day shall be used.
(e) The specific gravity of the natural gas shall be determined by the use
of an Edwards balance or other approved instrument at the commencement
of the delivery of natural gas and as often thereafter as deemed
necessary.
(f) The deviation of the natural gas from the laws for ideal gases shall be
determined in accordance with the Manual for Determination for
Super-Compressibility Factors for Natural Gas, an American Gas
Association publication completed December 1962, as superseded or
revised.
8.02 The total heating value per cubic foot of natural gas
delivered hereunder shall not be less than 1,000 British thermal units (Btu)
per cubic foot calculated on a saturated basis at 14.73 pounds per square inch
absolute at 60 Fahrenheit. Such heating value per cubic foot of the natural
gas delivered hereunder shall be determined at various intervals of time as may
be designated by Buyer or Seller, but not required more often than once each
year, by tests made by taking samples of such gas at the delivery point or
points specified herein and by testing such samples in accordance with accepted
chromatographic analysis techniques, or methods specified in AGA Gas
Measurement Committee Report No. 5, as amended or superseded from time to time,
or by other accepted methods. Seller and Buyer shall have the right to witness
any and all such tests.
-5-
<PAGE> 6
8.03 In the event the meter used for measuring the natural gas
delivered to Buyer hereunder is out of service or is determined by Buyer or
Seller to be registering inaccurately for any period of time during which times
delivery of gas is continued by Seller to Buyer, then the quantity of natural
gas delivered during such a period shall be estimated (i) by using the data
recorded by any check-measuring equipment, if installed and accurately
registering, or if not installed or registering accurately, (ii) by correcting
the error if the percentage of error is ascertainable by calibration, test, or
mathematical calculation, or if neither such method is feasible, (iii) by
estimating the quantity or quality delivered, based upon deliveries under
similar conditions during a period when the equipment was registering
accurately. If the meter on test shall prove to be accurate within plus or
minus two percent (2%), the cost of testing and repairing same shall be borne
by the Seller, but if the meter on test proves be in error by more than plus or
minus two percent (2%), then the cost of testing and repairing same shall be
borne by Buyer.
ARTICLE IX
POSSESSION
9.01 Seller shall be deemed to be in possession and control of the
natural gas sold by it hereunder until it shall have been delivered to Buyer at
the Delivery Points(s), after which delivery, as between Buyer and Seller,
Buyer shall be deemed to be in control and possession thereof. Buyer shall
have no responsibility with respect to any natural gas sold to it hereunder
until it is delivered at the Delivery Point(s), and no responsibility therefor
because of anything which may be done or may occur with respect to said natural
gas before delivery to Buyer at the Delivery Point(s). Seller shall have no
responsibility because of anything which may be done or may occur with respect
to said natural gas after its delivery to Buyer at such Delivery Point(s).
ARTICLE X
WARRANTY, INDEMNIFICATION, WITHHOLDING
10.01 Seller warrants generally the title to the natural gas sold and
delivered hereunder to Buyer and that at the time of delivery the natural gas
is or will be free and clear of all liens, encumbrances, and claims whatsoever
and free of any claim, rightful or otherwise, of any third person. Seller
further warrants that at the time of delivery Seller will have good right and
title to sell the natural gas to Buyer, and that Seller will indemnify Buyer
and save it totally harmless from all suits, claims, actions, debts, levies,
damages, costs, losses, and expenses of any kind or nature asserted by anyone
whatsoever to said natural gas, including but not limited to claims, suits,
actions, and demands which may arise due to non-payment of landowner royalties,
overriding royalties, or rentals thereof or therefrom.
10.02 In the event of any adverse claim to or against the proceeds
of this Agreement or any natural gas purchased hereunder, or any part thereof,
is made by any person, Buyer may withhold payment hereunder with respect to the
volumes to which an adverse claim has been made,
-6-
<PAGE> 7
without liability for payment of interest on the amounts withheld, or may
refuse to accept delivery of such natural gas until the dispute is settled by
agreement between Seller and such adverse claimant or by the final decree of a
court of competent jurisdiction. If litigation results from any such adverse
claim, Buyer may pay any money withheld by it hereunder into court without
further liability therefor, or may interplead all claimants, including Seller.
Seller will reimburse Buyer for costs incurred, including attorney's fees, as a
result of litigation.
ARTICLE XI
STATEMENTS AND PAYMENT
11.01 Monthly Demand payments will be billed by Seller on the fifth
(5th) day of each month and payment will be due from Buyer on the fifteenth
(15th) day of that month.
11.02 Commodity Price payments will be billed by Seller on the fifth
(5th) day of the month following the month in which delivery takes place and
payment will be due from Buyer on the fifteenth (15th) day of that month.
11.03 If presentation of a bill to Buyer is delayed after the fifth
(5th) day of the month, then the time of payment shall be extended accordingly,
unless Buyer is responsible for such delay.
11.04 All payments to be made to Seller hereunder shall be wired to:
Harris Trust and Saving Bank
Chicago, Illinois
ABA #071 000288
Account #2459683
Account Name: Eastern American Energy Corporation
11.05 In the event an error is discovered in the amount billed in
any statement rendered to Buyer, such error shall be adjusted within thirty
(30) days of the determination thereof; provided that claim therefore shall
have been made within sixty (60) days from the date of discovery of such error,
but in any event within twenty-four (24) months from the date such statement is
rendered.
-7-
<PAGE> 8
ARTICLE XII
SELLER'S AGENT
12.01 Seller hereby appoints as its agent:
Name: Eastern Pipeline Corporation
Address: 501 56th Street
Charleston, West Virginia 25304
Attn: F.H. McCullough III
to whom all statements shall be mailed. Said agent is authorized to give the
necessary receipts to Buyer and to make adjustments and settlements under this
Agreement, and Buyer shall have no obligation nor responsibility for the
application of the purchase money paid to said agent. In the event said agent
shall resign or be discharged or shall otherwise be unable or unwilling so to
act, Buyer may withhold further payment hereunder, without liability for
payment of interest, until such time as Seller shall designate a new agent for
payment.
ARTICLE XIII
COMMUNICATIONS
13.01 Unless otherwise instructed in writing, all communications
except those referred to in Article XII hereof shall be sent to the parties at
the following addresses:
Seller: Eastern Pipeline Corporation
501 56th Street
Charleston, WV 26304
Attn: F. H. McCullough, III
Buyer: Hope Gas, Inc.
P.O. Box 2868
Clarksburg, WV 26302-2868
Attn: Manager, Gas Supply
ARTICLE XIV
GENERAL PROVISIONS
14.01 Labor. Seller covenants and agrees to comply with all the
requirements of the Fair Labor Standards Act of 1938 and the Civil Rights Act
of 1964, as amended, with respect to all natural gas produced or sold and
delivered under the terms of this Agreement to the extent that said Acts as now
or hereafter amended are applicable to Seller and Seller's employees.
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<PAGE> 9
14.02 Force Majeure. Neither party to this Agreement shall be
liable for any damage or loss that may be occasioned by any failure, depletion,
shortage, or interruption in the production of natural gas delivered hereunder,
or any decline in natural pressure to the extent the same is due to force
majeure as defined herein. In the event either party is rendered unable wholly
or in part, by force majeure to carry out its obligations under this Agreement,
other than to demand payment of amounts due hereunder, then the obligations of
such party, so far as they are affected by such force majeure, shall be
suspended during the continuance of any inability so caused. However, the
party claiming the existence of force majeure shall use all reasonable efforts
to remedy any situation which may interfere with the performance of its
obligations hereunder. The term "force majeure" as used herein, and as applied
to either party hereto, shall mean acts of the law, acts of God, strikes,
lockouts or other labor disturbances, acts of the public enemy, war, blockades,
insurrections, riots, epidemics, fires, floods, washouts, arrests and
restraints of rules and people, civil disturbances, explosions, breakage,
malfunctions, or accidents to machinery or lines of pipe, partial or entire
failure of wells, interruption of transportation by third parties, or any other
cause, whether of the kind herein enumerated or otherwise, not reasonably
within the control of the party claiming suspension. It is understood that
settlement of strikes, lockouts, or labor disturbances shall be entirely within
the discretion of the party having the difficulty and that the above
requirement that any force majeure shall be remedied with all reasonable
dispatch shall not require the settlement of strikes, lockouts, or labor
disturbances by acceding to the demands of the opposing party when such course
is inadvisable in the discretion or judgment of the party having the
difficulty. Notwithstanding the above, Buyer's inability to take gas made
available at the Delivery Points shall not alleviate Buyer's Monthly Demand
payments as set forth in Article VI.
14.03 Tax. In the event any tax is now or hereafter imposed on
natural gas or the production, severance, taking, transfer, gathering,
transportation, sale, delivery, or use thereof, or upon the business or
privilege of producing, severing, taking, transferring, gathering,
transporting, selling, delivering, or using natural gas, or if such tax is
imposed in any other manner so as to constitute directly or indirectly a charge
upon the gas delivered to Buyer hereunder, then the amount of such tax shall be
borne by Seller so far as it affects or relates to or is apportionable to the
gas delivered to Buyer hereunder. In the event Buyer is required to pay such
tax, the amount thereof may be deducted from the payments accruing to Seller
under this Agreement. The terms of this Article shall apply only to taxes
applicable to Seller's operations prior to the delivery of gas to Buyer at the
Delivery Point(s).
14.04 Persons Bound. All of the terms, covenants, conditions, and
obligations of this Agreement shall extend to and be binding upon the parties
hereto and their heirs, successors and assigns. Any sale or assignment by
Seller of its interest in the natural gas delivered hereunder or its interest
in this Agreement or its interest in any property, real or personal, required
for or dedicated to the performance of this Agreement, shall be made expressly
subject to the rights of Buyer hereunder and with provision that the assignee
or purchaser shall assume and covenant to perform all of the Seller's
obligations hereunder. Seller will give notice in writing to Buyer of any sale
or assignment or other disposition of its interest hereunder and will furnish
to Buyer copies of any relevant documents evidencing transfer or assignment of
Seller's interest. Until notice and relevant
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<PAGE> 10
documents have been given and furnished to Buyer, Buyer may withhold all
payments that may become due hereunder, without interest.
14.05 Terms and Governing Law. The terms and provisions of this
Agreement shall be governed and interpreted by the laws of the State of West
Virginia, and are subject to the limitations of orders of courts and the
orders, rules and regulations of all regulatory bodies having jurisdiction.
14.06 Captions. The captions of the articles of this Agreement are
inserted for the purpose of convenient reference and are not intended to be a
part of this Agreement nor considered in any interpretation of the same.
14.07 Severability. If any part, term or provision of this
Agreement is held by any court to be illegal or in conflict with any law of the
state of West Virginia, the validity of the remaining portions or provisions
shall not be affected, and the rights and obligations of the parties shall be
construed and in force as if the Agreement did not contain the particular part,
term, or provision held to be invalid.
14.08 Entire Agreement. This Agreement constitutes the entire
agreement between Seller and Buyer with respect to the subject matter hereof
and shall, on the Effective Date, supersede and replace the existing Gas
Purchase Agreement dated April 1, 1994 between the parties hereto.
Notwithstanding the foregoing, Buyer and Seller reserve any positions which
each has adopted and asserted, or may adopt or assert in that certain
proceeding in front of the Public Service Commission of West Virginia
identified as Case No. 94-0229-GT-C. This Agreement may only be amended or
modified by written instrument signed by duly authorized representatives of
Seller and of Buyer.
IN WITNESS WHEREOF, Seller and Buyer have duly executed this Agreement
as of the day and year first above written.
EASTERN AMERICAN ENERGY CORPORATION
By:
--------------------------------
Its:
-------------------------------
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<PAGE> 11
EASTERN PIPELINE CORPORATION
By:
--------------------------------
Its:
-------------------------------
HOPE GAS, INC.
By:
--------------------------------
Its:
-------------------------------
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<PAGE> 1
EXHIBIT 10.11
GAS SALE AND PURCHASE AGREEMENT
between
EASTERN AMERICAN ENERGY CORPORATION
"SELLER"
and
SENECA POWER PARTNERS, L.P.
"BUYER"
DATE: March 27, 1991
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Article I Definitions . . . . . . . . . . . . . . . . . . . 2
Article II Volumes . . . . . . . . . . . . . . . . . . . . . 3
Article III Price . . . . . . . . . . . . . . . . . . . . . . 4
Article IV Billing and Payment . . . . . . . . . . . . . . . 5
Article V Point of Delivery . . . . . . . . . . . . . . . . 7
Article VI Term . . . . . . . . . . . . . . . . . . . . . . . 7
Article VII Taxes . . . . . . . . . . . . . . . . . . . . . . 8
Article VIII Measurement . . . . . . . . . . . . . . . . . . . 8
Article IX Quality . . . . . . . . . . . . . . . . . . . . . 9
Article X Possession of Gas and Warranty of Title . . . . . 10
Article XI Remedies . . . . . . . . . . . . . . . . . . . . . 11
Article XII Force Majeure . . . . . . . . . . . . . . . . . . 11
Article XIII Arbitration . . . . . . . . . . . . . . . . . . . 13
Article XIV Successors and Assigns . . . . . . . . . . . . . . 13
Article XV Waiver of Default . . . . . . . . . . . . . . . . 14
Article XVI Rules and Regulations . . . . . . . . . . . . . . 14
Article XVII Governing Laws . . . . . . . . . . . . . . . . . . 14
Article XVIII Complete Agreement . . . . . . . . . . . . . . . 15
Article XIX Headings . . . . . . . . . . . . . . . . . . . . . 15
Article XX Notices . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
GAS SALE AND PURCHASE AGREEMENT
THIS AGREEMENT, made and entered into this 27th day of March, 1991, by
and between EASTERN AMERICAN ENERGY CORPORATION, a West Virginia corporation,
with its principal office located in Charleston, West Virginia, (hereinafter
referred to as "Seller"), and SENECA POWER PARTNERS, L.P., a Delaware Limited
Partnership, of which Seneca Power Corporation, a Delaware corporation, is the
General Partner, with its principal office located in New York, New York,
(hereinafter referred to as "Buyer").
WHEREAS, Seller is a marketer of natural gas in the States of West
Virginia and Pennsylvania and has available to it through contracts with
producers and other marketers natural gas in volumes adequate to meet the
contract demands of Buyer, hereinafter specified, for Buyer's daily and annual
requirements; and
WHEREAS, Buyer operates certain facilities in the county of Genese,
State of New York, ( "Batavia Project") which facilities use natural gas as a
basic energy source; and
WHEREAS, Seller is willing to sell and Buyer desires to purchase natural
gas to meet the daily and annual requirements specified in this agreement
("Agreement").
NOW, THEREFORE, in consideration of the covenants and agreements herein
set forth, Seller and Buyer agree as follows, to-wit:
ARTICLE I. DEFINITIONS
1.1 The term "day" shall mean a period of twenty-four (24)
consecutive hours, ending at 8:00 a.m., Batavia, New York Time.
1.2 The term "Mcf" shall mean one-thousand (1,000) cubic feet of gas.
<PAGE> 4
1.3 The term "Btu" shall mean one (1) British thermal unit.
1.4 The term "MBtu" shall mean one (1) thousand Btu.
1.5 The term "MMBtu"" shall mean one (1) million Btu.
1.6 The term "PSIG" shall mean per square inch gauge.
1.7 The term "Contract Annual Volume" shall mean 4,380,000 MMBtu.
1.8 The term "Contract Year" shall mean a period of one (1) year
commencing on the effective date, as specified herein, and each succeeding one
(1) year period thereafter.
1.9 The term "Maximum Daily Volumes" shall mean 12,900 MMBtu per day,
which shall be the greatest volume of gas which Seller shall, during the term
of this Agreement, be obligated to deliver to Buyer and which Buyer shall at
the time be entitled to receive from Seller during any one day.
1.10 The term "Minimum Daily Volume" shall mean a volume of gas equal
to 10,300 MMBtu which Seller shall be obligated to deliver to Buyer during any
one day during the term of this Agreement.
1.11 The term "Maximum Annual Volume" shall mean 4,750,000 MMBtu.
1.12 The term "Minimum Annual Volume" shall mean 3,850,000 MMBtu.
1.13 The term "Point(s) of Delivery" shall have the meaning as defined
in Article V hereof.
ARTICLE II. VOLUMES
Subject to the Maximum Daily Volume and the Minimum Daily Volume, the
Seller agrees to deliver to the Buyer and the Buyer agrees to purchase at the
Point(s) of Delivery specified in
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<PAGE> 5
Article V herein such quantities of gas as Buyer shall nominate in writing to
the Seller each month for use at the Batavia Project. Such nomination shall be
made on or before the fifteenth (15th) day of the month preceding the month in
which deliveries of the nominated quantities are to be made; provided, however,
that in no event shall such nomination be greater than the Maximum Daily Volume
multiplied by the number of calendar days in such calendar month or less than
the Minimum Daily Volume multiplied by the number of days in such calendar
month. In addition, the Buyer agrees that the aggregate total of such
nominations shall not be greater than the Contract Annual Volume during any
Contract Year, but in no event shall the aggregate total of volumes actually
delivered be greater than the Maximum Annual volume or less than the Minimum
Annual Volume.
ARTICLE III. PRICE
3.1 Commencing with the initial date of deliveries hereunder, Buyer
shall pay to Seller a price of $2.38 per MMBtu. Except as modified below, the
price for the gas delivered hereunder shall increase on an annual basis by five
percent (5%) on the anniversary date of the initial deliveries hereunder.
3.2 Notwithstanding the forgoing provisions of Paragraph 3.1 above,
if Buyer does not commence the acceptance of the Minimum Daily Volumes by
August 1, 1992, the initial price to be paid by Buyer to Seller shall be
adjusted by a five percent (5%) annual computation prorated on a monthly basis.
3.3 On the seventh (7th) anniversary of the first date of deliveries
hereunder, Seller may, at its sole option, request of Buyer a renegotiation of
the price to be paid by the Buyer hereunder. In renegotiating the price, the
parties shall take into consideration the market value of the gas to
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<PAGE> 6
Buyer at the Batavia Project. Provided, however, that the renegotiated price
shall not exceed a price level which would:
(a) Cause the Loan Coverage Ratio to be less than 1.25 for the
Batavia Project, as established on a Pro Forma basis as calculated by
Buyer and reasonably accepted by Seller; or
(b) Exceed the product of the initial Contract price of $2.38
per MMBtu multiplied by a fraction, the numerator being the average of
the fifty-two (52) week spot market price in the Appalachian Basin
immediately preceding the renegotiation request and the denominator
being the average of the fifty-two (52) week spot market price in the
Appalachian Basin immediately preceding July 1, 1989. For purposes of
this Paragraph, the spot market price shall be determined by reference
to the table, "Gas Price Report" ($/MMBTU) - "Delivered to Pipeline"
under "Appalachia - Spot" as published each week in Natural Gas Week.
If such publication ceases, or the publication ceases to report a price
under the above described table and heading, then Buyer and Seller shall
agree upon an alternate and comparable publication and index.
If the price is renegotiated in accordance with this Paragraph, the
renegotiated price shall escalate at a rate of five percent (5%) per year
during the remainder of the Contract term on the anniversary of the
renegotiation request.
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<PAGE> 7
ARTICLE IV. BILLING AND PAYMENT
4.1 Seller shall render bills, on or about the fifth (5th) day of
each month, for all gas delivered hereunder during the preceding month. Buyer
shall pay Seller at its payment address or at any other address designated by
Seller, within twenty (20) days of the receipt of the bills for the gas
delivered hereunder during the preceding month.
4.2 Should Buyer f ail to pay all of the amount of a bill as provided
herein when due, interest on the unpaid portion shall accrue at a rate equal to
the lesser of the then current prime interest rate plus 2% as charged by The
Chase Manhattan Bank, N.A. to its most favored customers or the maximum legal
rate, from the date when payment is due until the same is paid. If Buyer f
ails to pay any portion of a bill when the same is due, Seller, in addition to
any other remedy it may have, may suspend further delivery of gas until the
amount is paid provided, however, that if Buyer in good faith shall dispute the
amount of any bill or part thereof and shall pay to Seller all undisputed
amounts and, at any time thereafter upon thirty (30) days demand therefor by
Seller, shall furnish Seller a good and satisfactory surety bond in an amount
and with a surety satisfactory to Seller, guaranteeing payment to Seller of the
disputed amount remaining due (after a final determination is reached by
agreement, or through arbitration), then Seller shall not be entitled to
suspend further delivery of gas on the disputes because of which deliveries
were suspended unless default shall be made by Buyer or the surety on the bond.
4.3 If it shall be found that at any time or times Buyer has been
overcharged or undercharged in any manner whatsoever and Buyer shall have
actually paid the bills containing the overcharge or undercharge, then within
thirty (30) days after the final determination thereof, Seller shall re fund
the amount of any overcharge without interest and Buyer shall pay the amount of
any
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<PAGE> 8
undercharge without interest. In the event an error is discovered in the
amount billed in any invoice or statement rendered by Seller, the error shall
be adjusted within thirty (30) days of the determination thereof, provided that
claim therefor shall have been made within thirty (30) days from the date of
discovery of the error, and in any event within twelve (12) months from the
date of the invoice or statement. If the parties are unable to agree on the
adjustment of any claimed error, any resort by either of the parties to legal
or equitable remedies must be commenced within fifteen (15) months after the
accrual of any claimed cause of action or shall thereafter be forever barred.
ARTICLE V. POINT OF DELIVERY
The Point(s) of Delivery shall be the various points (as acceptable to
CNG Transmission Corporation), as may be changed from time to time, at which
Seller's gathering facilities are connected to the pipeline facilities of CNG
Transmission Corporation for ultimate delivery to Buyer. Title to and
ownership of the gas delivery hereunder will pass to and vest in Buyer at the
inlet side of the various meters at the Point(s) of Delivery.
ARTICLE VI. TERM
This Agreement shall be effective from the date of this Agreement and
deliveries of natural gas shall commence with the chart change made on the date
of first deliveries to the Batavia Project, and shall terminate with the chart
change made the date which is fifteen (15) Contract Years after the date of the
first deliveries, unless modified or extended as hereinafter provided.
Notwithstanding, anything to the contrary herein, this Agreement shall be null
and void at the option of Seller if (i) the financing for the Batavia Project
is not obtained by Buyer on or before June 30,
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<PAGE> 9
1991 or (ii) natural gas deliveries of the minimum Daily Volumes do not
commence by March 1, 1993.
ARTICLE VII. TAXES
Seller agrees to pay, or cause to be paid, all State severance or
production taxes and other federal, state or local government assessments
lawfully levied and imposed upon Seller with respect to the gas delivered
hereunder prior to its delivery to Buyer. Any taxes imposed by any federal,
state, or local government in respect to the gas delivered to the Buyer on
account of the receipt or usage thereof or otherwise, after the Point(s) of
Delivery shall be paid by Buyer.
ARTICLE VIII. MEASUREMENT
The gas to be sold hereunder shall be delivered through the facilities
of CNG Transmission Corporation ("CNG") to the Point(s) of Delivery and Buyer
shall cause CNG or its duly appointed agents, to read the meter, furnish, place
and remove any and all recording gauge charts, calculate the deliveries and
perform any other service pertaining to the routine operation of the meter.
Either party shall be entitled to request that CNG, or its duly appointed
agents, furnish a competent inspector to make an inspection of the measuring
device or devices. The cost of making any special tests on any devices shall
be borne by the requesting party. A representative of each party may be
present at any such inspection. For any tests or inspection, any resultant
aggregate error exceeding two percent (2%) of computed delivery shall be
adjusted, insofar as exact knowledge of such errors or contributing causes is
obtainable. Such adjustments shall be made for a period not to exceed thirty
(30) days previous to the date of the challenge by the requesting party. Upon
written request
-7-
<PAGE> 10
from Seller, copies of available meter charts shall be forwarded to it for
inspection, copying and reproduction, subject to their return within ten (10)
days after receipt. Buyer shall keep and shall cause CNG to keep any such
copies on file for one (1) year after date of the deliveries charged thereon,
during which time they will be open for inspection by authorized parties at any
and all reasonable times.
ARTICLE IX. QUALITY
The quality and heating value of the gas to be delivered hereunder will
conform to the quality specifications set forth in the General Terms and
Conditions of CNG's FERC Gas Tariff, effective as of the date hereof as such
specifications may be changed from time to time. Any quality and heating value
standards of CNG's contracts are hereby expressly incorporated herein by
reference as if completely set out, and shall be applicable to and binding upon
Seller and upon all natural gas sold by Seller to Buyer. Notwithstanding the
above, heating value in BTUs for all gas delivered hereunder shall not be less
than one thousand (1,000) BTUs per standard cubic foot.
ARTICLE X. POSSESSION OF-GAS AND WARRANTY OF TITLE
10.1 Seller shall be deemed to be in control and possession of the gas
hereunder until it shall have been physically delivered to Buyer at the
Point(s) of Delivery, after which Buyer shall be deemed to be the owner and in
control and possession thereof.
10.2 Buyer shall have no responsibility with respect to any gas
hereunder until it is physically delivered to Buyer, or on account of anything
which may be done, happen or arise with respect to said gas before such
delivery; and Seller shall have no responsibility with respect to said
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<PAGE> 11
gas after such delivery to Buyer, or on account of anything which may be done,
happen, or arise with respect to said gas after such delivery.
10.3 Seller agrees that it will, and it hereby does, warrant that it
will, at the time of physical delivery, have good right and title to sell said
gas as aforesaid, free and clear of all liens and encumbrances; and, that it
will indemnify Buyer and save it harmless from all suits, actions, debts,
accounts, damages, Costs, losses and expenses arising from or out of adverse
claims of any or all persons to said gas.
ARTICLE XI. REMEDIES
In the event that Seller fails to deliver any quantity of gas that it is
required to deliver under this Agreement, Buyer will use commercially
reasonable efforts to purchase for delivery a quantity of gas equal to the
quantity of gas which Seller failed to deliver at fair market prices on a spot
basis. Seller shall pay Buyer on a monthly basis an amount equal to the
excess, if any, of the cost of such replacement gas plus all incremental
transportation costs incurred by Buyer in connection with purchasing such
replacement gas over the amount which Buyer would have been obligated to pay
Seller in accordance with this Agreement if Seller had performed its
obligations hereunder. Upon payment of the aforesaid amount, said sums will
constitute liquidated damages for Seller's failure to perform its obligations
hereunder and shall be Buyer's sole remedy for Seller's failure to so perform.
-9-
<PAGE> 12
ARTICLE XII. FORCE MAJEURE
Neither Seller nor Buyer shall be liable in damages to the other for any
act, omission or circumstance occasioned by or in consequence of any acts of
God, strikes, lockouts, acts of the public enemy, war, blockades,
insurrections, riots, epidemics, landslides, lightning, earthquakes, fires,
storms, floods, washouts, [deletion] arrests and restraints of rulers and
peoples, civil disturbances, explosions, breakage or accident to machinery or
lines of pipe, lack of pipeline capacity (specifically excluding therefrom
Seller's own gathering and/or transmission facilities), the binding order of
any court or governmental authority which has been resisted in good faith by
all reasonable legal means, and any other cause, whether of the kind herein
enumerated or otherwise, not reasonably within the control of the party
claiming suspension and which by the exercise of due diligence such party is
unable to prevent or overcome. Notwithstanding the above, economic duress or
hardship shall not constitute an event of Force Majeure. Failure to prevent or
settle any strike or strikes shall not be considered to be a matter within the
control of the party claiming suspension.
Such causes or contingencies affecting the performance hereunder by
either Seller or Buyer, however, shall not relieve it of liability in the event
of its concurring negligence or in the event of the failure to use due
diligence to remedy the situation and to remove the cause in the adequate
manner and with all reasonable dispatch, nor shall such causes or contingencies
affecting such performance relieve either party from its other obligations
under this Agreement, even should it cause this Agreement to be extended beyond
the termination date.
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<PAGE> 13
ARTICLE XIII. ARBITRATION
13.1 Any dispute or controversy arising out of or relating to this
Agreement shall be determined and settled by arbitration in the City of
Pittsburgh, Pennsylvania, in accordance with the then Prevailing Commercial
Arbitration Rules of the American Arbitration Association. The award rendered
by the arbitrators shall be final and binding in respect of both matters of law
and fact. The expenses of the arbitration shall be borne by the parties to the
arbitration, provided that each party shall pay for and bear the cost of its
own expert witnesses and legal counsel.
ARTICLE XIV. SUCCESSORS AND ASSIGNS
Any company which shall succeed by purchase, merger or consolidation of
the properties substantially as an entirety, of Seller or of Buyer, as the case
may be, shall be entitled to the rights and shall be required by the
transferring party to assume the obligations of its predecessors in title under
this Agreement; and upon such succession, the transferring party shall be free
and discharged of all obligations under this Agreement and the successor
substituted as the sole and primary obligor. Otherwise, then as set out
herein, neither party shall assign this Agreement or any of its rights
thereunder unless it first shall have obtained the consent thereto in writing
of the other party. Such consent shall not be unreasonably withheld.
ARTICLE XV. WAIVER OF DEFAULT
No waiver by either party of any one or more defaults by the other in
the performance of any provision of this Agreement shall operate or be
construed as a waiver of any future default or defaults, whether of a like or
of a different character.
-11-
<PAGE> 14
ARTICLE XVI. RULES AND REGULATIONS
This Agreement is subject to valid laws, orders and regulations of duly
constituted authorities having jurisdiction. If any valid future laws, orders,
rules or regulations of duly constituted authorities having jurisdiction have
the effect of altering or amending the provisions of this Agreement, the
parties shall continue the performance of this Agreement as so altered or
amended; provided, however, that such alterations or amendments shall not alter
or change the consideration paid by Buyer to Seller, the term of this
Agreement, or the volumes of gas to be delivered hereunder.
ARTICLE XVII. GOVERNING LAW
All questions concerning the validity or the meaning of this Agreement
or relating to the rights and obligations of the parties with respect to
performance under this Agreement shall be construed and resolved under the laws
of the State of Delaware, except to the extent specifically required by federal
laws.
ARTICLE XVIII. COMPLETE AGREEMENT
This document contains the entire agreement between the parties and
supersedes all prior or contradictory discussions or negotiations,
representations or agreements relating to the subject matter of this Agreement.
No changes to this Agreement shall be made or be binding on either party unless
made in writing and signed by each party to this Agreement.
-12-
<PAGE> 15
ARTICLE XIX. HEADINGS
The captions or headings preceding the various parts Of this Agreement
are inserted solely for the convenience of the parties hereto and shall not be
considered or given effect in construing this Agreement, or in connection with
the intent, rights, duties or liabilities of the parties.
ARTICLE XX. NOTICES
Any notice, either contemplated or required by this Agreement, may be
given either by registered letter addressed to the following:
SELLER: Eastern American Energy Corporation
501 56th Street
Charleston, West Virginia 25304
Attn: Thomas J. Polites
BUYER: Seneca Power Partners, L.P.
135 East 57th Street, 23rd Floor
New York, New York 10022
Attn: Batavia Project Manager
by depositing such registered letter, postage paid, in the United States Post
Office or by telegram, telex or TWX directed to such party at such address -
Any notice sent to Buyer will also be sent to Lender at the address set forth
above. The foregoing addresses may be changed by written notice.
-13-
<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SELLER:
EASTERN AMERICAN ENERGY CORPORATION
Attest:
By:
- ------------------------------- ---------------------------------
Secretary
Its:
--------------------------------
BUYER:
SENECA POWER PARTNERS, L.P.
Attest:
Attest:
By:
- ------------------------------- ---------------------------------
Secretary Seneca Power Corporation
Its: General Partner
--------------------------------
Signature page to that Gas Sale and Purchase Agreement by and between EASTERN
AMERICAN ENERGY CORPORATION, "SELLER", and SENECA POWER PARTNERS, L.P.,
"BUYER", dated this 2nd day of April, 1991.
-14-
<PAGE> 1
EXHIBIT 10.12
GAS PURCHASE CONTRACT
THIS CONTRACT, entered into effective as of this 13th day of
September, 1995, between EASTERN AMERICAN ENERGY CORPORATION, a West Virginia
Corporation, EASTERN MARKETING CORPORATION, a West Virginia corporation,
herein collectively called "Seller," and MOUNTAINEER GAS COMPANY, a West
Virginia corporation, herein called "Buyer."
WITNESSETH:
WHEREAS, Seller desires to sell natural gas on a firm basis to Buyer
under the terms and conditions of this Contract; and
WHEREAS, Buyer desires to purchase natural gas from Seller under the
terms and conditions of this Contract; and
WHEREAS, Buyer has entered or will enter into a firm transportation
agreement with one or more interstate pipeline companies for the transportation
of gas from the Delivery Point(s) to Buyer's facilities;
NOW THEREFORE, in consideration of the mutual promises and agreements
made herein, Buyer and Seller agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Contract, the following terms shall have the
prescribed meaning unless otherwise expressly provided:
<PAGE> 2
1.1. "Day" shall mean a period of twenty-four consecutive hours,
beginning at 8:00 a.m. E.S.T., at the Delivery Point.
1.2. "Month" shall mean the period beginning at 8:00 a.m. E.S.T., at
the Delivery Point, on the first Day of the calendar Month and shall end at the
aforesaid time on the first Day of the next succeeding calendar Month.
1.3. "Daily Contract Demand Volume" shall mean 28,000 MMBtu per Day.
1.4. "Transporter" shall mean Columbia Gas Transmission Corporation.
1.5. "Delivery Point(s)"shall mean the point(s) of interconnection
with Transporter as specified in Appendix A, whether designated as Primary
Delivery Point(s) or Secondary Delivery Point(s), where Primary Delivery
Point(s) shall mean the preferred point(s) of delivery agreed to by Buyer and
Seller and Secondary Delivery Point(s) shall mean alternate point(s) of
delivery which must be agreed to by Buyer and Seller prior to use.
1.6. "MMBtu" shall mean one million (1,000,000) British Thermal
Units.
1.7. "Contract Year" shall mean a period of twelve (12) consecutive
Months with the first Contract Year beginning November 1, 1995 and ending
October 31, 1996.
1.8. "Btu" or "British Thermal Unit" shall mean the amount of heat
required to raise the temperature of one pound avoirdupois of pure water from
58.5 degrees Fahrenheit to 59.5 degrees Fahrenheit at a constant pressure of
14.73 psia.
1.9. "Gas" or "gas" shall mean natural gas or any mixture of
hydrocarbons or of hydrocarbons and noncombustible gases in a gaseous state,
consisting predominately of methane.
1.10. Monthly Peak Index Charge. During the months of November
through March shall mean the price reported in Inside F.E.R.C. Gas Market
Report published for the first of each month
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delivered into Columbia Gas Transmission Corporation under the table entitled,
"Prices of Spot Gas Delivered to Pipelines" for the area identified as
Appalachia under the column "Index," plus $.10 per MMBTU. For the months of
April through October it shall mean 102% of the monthly posting in Inside
F.E.R.C. as referenced above. For any Month on which gas is delivered and the
Monthly Peak Index Charge is effective and Inside F.E.R.C. first of the month
price is not published, the price applicable shall be the average of the prices
as published on the last previous publication date. If at any time Inside
F.E.R.C. is no longer published, or if the specific posting referenced in
Inside F.E.R.C. is no longer published, then the parties will select a new
publication and/or referenced price that reflects the spot market value of gas
delivered pursuant to this Contract. The first of the month Gas Daily Price
last used hereunder shall be used pending the parties' selection of a
substitute posting or publication. If the parties are unable after good faith
negotiations to agree on a substitute publication or posting within thirty (30)
Days, then either party may initiate arbitration pursuant to Article IX. The
amount paid hereunder shall be adjusted retroactively to reflect such
substitute selection, and refunds or surcharges, together with interest
calculated in accordance with Article VIII, shall be paid by the party
determined to owe the refund or surcharge.
1.11. Daily Peak Index Charge. During the months of November through
March shall mean the average of the high and low posting under the heading
"Appalachia" for Columbia as reported in Gas Daily, "Daily Price Survey" on
any day during any month, plus $.10 per MMBTU. For the months of April through
October it shall mean 102% of the daily average of the high and low posting in
Gas Daily as referenced above. For any Day on which gas is delivered and the
Daily Peak Index Charge is effective and Gas Daily is not published, the price
applicable shall be the average of the prices as published on the last previous
publication date. If at any time Gas Daily is no longer
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<PAGE> 4
published, or if the specific posting referenced in Gas Daily is no longer
published, then the parties will select a new publication and/or referenced
price that reflects the spot market value of gas delivered pursuant to this
Contract. The Gas Daily Price last used hereunder shall be used pending the
parties' selection of a substitute posting or publication. If the parties are
unable after good faith negotiations to agree on a substitute publication or
posting within thirty (30) Days, then either party may initiate arbitration
pursuant to Article IX. The amount paid hereunder shall be adjusted
retroactively to reflect such substitute selection, and refunds or surcharges,
together with interest calculated in accordance with Article VIII, shall be
paid by the party determined to owe the refund or surcharge.
1.12. "Annual Contract Volume" shall mean 10,250,000 MMBtu per year.
1.13. "Fixed Price Charge" shall mean $2.20 per MMBtu in the first
Contract Year, $2.10 per MMBtu in the second Contract Year and $2.00 per MMBtu
for the third Contract Year.
ARTICLE II
SALE AND PURCHASE OBLIGATION
2.1. Unless performance is excused due to the occurrence of events
of Force Majeure as described in Article XI hereof, Seller shall make available
for delivery to Buyer on each Day at the Delivery Point(s), the volume
nominated by Buyer pursuant to Section 2.2 hereof up to twice the Daily
Contract Demand Volume.
2.2. Gas shall be purchased and sold hereunder in accordance with
the following nomination procedure. At least two Days prior to the date firm
transportation nominations are due under Transporter's FERC Gas Tariff for
deliveries commencing on the first Day of a Month, Buyer shall provide Seller
with a daily nomination, expressed in MMBtu per Day, which shall not exceed
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twice the Daily Contract Demand Volume. If Buyer falls to notify Seller of the
nominated volume on or before the above stated date in this Section, Buyer's
nomination shall be deemed to be zero (0) MMBtu. Buyer shall have the right to
adjust its nomination any number of times during any Month: provided, however,
that such nomination adjustments shall be subject to any applicable price
adjustment(s) required by Article VII herein. Buyer shall give Seller notice
of any such changes in nomination at least one Day prior to Transporter's
applicable nomination deadline. Buyer shall not be required to purchase any
minimum quantity of gas in any given Month, provided Buyer gives Seller notice
of Buyer's nomination as required by this Section.
2.3. Non-Performance by Seller. Except for non-performance excused
by events of Force Majeure or Buyer's failure to take the nominated quantities
of gas which Seller made available for delivery, if on any Day Buyer did not
receive its nominated quantity due to Seller's failure to perform in accordance
with this Article II, Buyer and Seller agree that Buyer shall sustain damages
in an amount that will be difficult or impossible to ascertain; therefore,
Seller shall pay Buyer liquidated damages as identified below. Seller shall
pay to Buyer as liquidated damages the replacement costs in an amount equal to
the positive difference, if any, between (i) the weighted average price per
MMBtu of replacement gas quantities obtained by Buyer as a direct result of
Seller's non-performance less (ii) the effective Fixed Price Charge per MMBtu
that would have been applicable to such gas hereunder, multiplied by the
Deficient Volumes, plus any incremental increase in transportation costs;
provided however, in the event Buyer is unable to replace the Deficient Volumes
despite the use of due diligence, Seller shall pay to Buyer as liquidated
damages, an amount equal to the product of the Deficient Volumes multiplied by
the maximum penalty amount set forth in Section 19 of the tariff of Transporter
(or a successor tariff provision) applicable to takes
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in excess of a customer's Effective Daily Quantity or Total Firm Entitlements,
whichever penalty is higher. Additionally, in accordance with Section 7.2
hereof, Buyer shall be entitled to a reduction in the Gas Demand Charge for the
Deficient Volumes.
2.4. Non-Performance by Buyer. Except for non-performance excused
by events of Force Majeure or Seller's failure to make appropriate quantities
of gas available, if on any Day Buyer fails to take any portion of the
nominated quantity, Buyer and Seller agree that Seller shall sustain damages in
an amount that will be difficult or impossible to ascertain; therefore, Buyer
shall pay Seller liquidated damages, if any, pursuant to the formula stated
below. If the Gas Daily Price on the Days when the failure to purchase
occurred is lower than the then effective the Fixed Price Charge under this
Contract, Buyer shall pay Seller the difference between the prices multiplied
by the Deficient Volumes.
ARTICLE III
SUPPLY WARRANTY
3.1. Seller represents that throughout the term of this Contract
(subject only to Article XI), that it will have and warrants that it will
maintain a quantity of Gas uncommitted to other purchasers and capable of being
delivered to Transporter for the account of Buyer at the Delivery Point(s) that
would satisfy Seller's obligations under Article II. In the event Seller is
unable to satisfy fully all of its obligations to Buyer and to other parties to
whom Seller is contractually obligated on a firm basis to sell gas at the
Delivery Points, Seller will deliver its supplies of gas available at the
Delivery Points among all firm customers, including Buyer in a prorated manner,
based upon each customer's proportionate share of nominated firm volumes and
subject to the conditions of Transporter's tariff, prior to making
interruptible or non-firm sales of gas to any other buyer that Seller could
deliver to
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the Transporter for the account of Buyer. Additionally, if Seller has
interruptible or non-firm gas available for delivery at other points on the
pipeline system of Transporter or on the pipeline system of Tennessee Gas
Pipeline Company, Seller will make such gas available for delivery to Buyer and
Seller's other firm customers. Upon request by Buyer, Seller shall provide a
written explanation to Buyer of the reasons why non-delivery occurred and a
statement detailing the location of all curtailments and Seller's efforts to
avoid non-delivery to Buyer.
3.2. The parties recognize and agree that Buyer is specifically and
materially relying upon the representations and warranties of Seller provided
for herein in making its gas supply and transportation decisions during the
term of this Agreement. Included in such decision may be the release of firm
pipeline capacity which would otherwise be necessary to meet the needs of
Buyer's customers. Therefore the parties agree, that to the extent Buyer is
able to receive benefits from capacity release, they shall be shared as
follows: Seller will receive the first 50% of the 100% load factor equivalent
rate, and thereafter the parties will share the benefits equally. The maximum
amount of capacity release eligible under this provision shall be the Daily
Contract Demand Volume, as set out in Section 1.3.
3.3. Seller's annual supply obligation in Contract Year two and
three shall, at its option, be no greater than the volumes taken by Buyer in
the preceding year. Further, should amounts be taken by Buyer in excess of the
Annual Contract Volume set out in Section 1.12, the parties agree to negotiate
in good faith a price for such purchases.
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ARTICLE IV
DELIVERY POINTS
4.1. Seller shall deliver gas to Buyer, for the account of Buyer, at
the Primary Delivery Point(s) specified in Appendix A hereto. If needed,
Seller shall enter into firm transportation agreements which allow for the
delivery of gas to Buyer at the Primary Delivery Point(s). Seller may, from
time to time, with Buyer's prior consent, deliver gas to Buyer at a Secondary
Delivery Point(s) specified in Appendix A. In such case(s), Buyer agrees to
make its best efforts to accept delivery of the gas at the Secondary Delivery
Point(s) requested by Seller, but Buyer is under no obligation to do so. In
the event Buyer incurs additional or reduced transportation costs as a result
of Seller's delivery of gas at the Delivery Point(s) designated as the
Secondary Delivery Point(s), then the amount due Seller hereunder shall be
reduced by the amount of said additional costs or increased by the amount of
said reduced costs. The Secondary Delivery Point(s) so specified may be
amended from time to time by mutual agreement of the parties.
4.2. In the event that deliveries are curtailed in whole or part by
Buyer's Transporter, then Secondary Delivery Point(s) or other additional
Delivery Point(s) may be (but need not be) substituted upon mutual agreement of
both parties to allow deliveries hereunder.
ARTICLE V
QUALITY, PRESSURE AND MEASUREMENT
5.1. All gas shall be of pipeline quality and shall meet the quality
specifications of Transporter.
5.2. The unit volume of measurement hereunder shall be one (1) cubic
foot of gas at standard temperature and pressure conditions specified by
Transporter. Heating values shall be
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<PAGE> 9
expressed in Btu per cubic foot and may be determined by calorimeter,
calculation from compositional analysis or other acceptable procedures used by
Transporter.
5.3. All tests and measurements of the gas to be delivered hereunder
will be done by the Transporter and the standards of measurements and tests
shall be those as specified in Transporter's tariff.
ARTICLE VI
TERM OF CONTRACT
6.1. This Contract shall become effective upon execution and shall
continue in force and effect for a term of three (3) years commencing November
1, 1995.
ARTICLE VII
PRICE
7.1. Price Components. The price for gas service under this
Contract shall consist of a "Gas Demand Charge," a "Fixed Price Charge" and
"Daily Peak Index Charge" and "Monthly Peak Index Charge."
7.2. Gas Demand Charge. The "Gas Demand Charge" shall be a monthly
charge equal to the product of the Daily Contract Demand Volume, the number of
Days in the applicable Month, and $.08 per MMBtu. The failure of Buyer to
purchase any quantity of gas hereunder shall not reduce the Gas Demand Charge,
unless such failure is due to Seller's non-performance as defined in Section
2.3, in which case Buyer will be entitled to a credit calculated by multiplying
$.08 per MMBtu by the nominated volume up to the Daily Contract Demand Volume
which Seller failed to deliver.
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<PAGE> 10
7.3. Fixed Price Charge, Daily Peak Index Charge and Monthly Peak
Index Charge. With respect to each MMBTU of gas nominated by Buyer and
delivered by Seller pursuant to Buyer's initial monthly nomination, up to the
Daily Contract Demand Volume, the price shall be the Fixed Price Charge as set
out in Section 1.13. If Buyer's initial monthly nomination is in excess of the
Daily Contract Demand Volume during any month, the price for the excess over
the Daily Contract Demand Volume shall be equal to the Monthly Peak Index
Charge, provided however that the resultant Monthly Peak Index Charge shall not
be less than the applicable Fixed Price Charge in any Contract Year until such
time as Buyer has accepted deliveries of the Annual Contract Volume.
Additionally, if during any month, Buyer requires gas in excess of the initial
monthly nomination, the price for the excess over such initial monthly
nomination shall be equal to the Daily Peak Index Charge, provided however that
the resultant Daily Peak Index Charge shall not be less than the applicable
Fixed Price Charge in any Contract Year until such time as Buyer has accepted
deliveries of the Annual Contract Volume.
7.4. The parties recognize that this transaction represents an
affiliated transaction and pursuant to W. Va. Code Section 24-2-12, approval
is needed from the Public Service Commission of West Virginia. It is the
intent of the parties to file for approval soon after the execution of this
agreement.
ARTICLE VIII
BILLING AND PAYMENT
8.1. On or before the tenth (10th) Day following the Month of
deliveries of gas hereunder, Seller shall deliver to Buyer a statement for the
preceding Month, properly identified as to the delivery location, showing the
total volume of gas delivered and the amount due. If the actual volume
delivered is not available by the contractual billing date, billing will be
prepared based on
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nominations; provided however, to the extent Seller has failed to supply
volumes nominated by Buyer under this Contract, Buyer shall not be billed for
such underdelivered quantities and Buyer shall never be obligated to pay Seller
for such undelivered quantities. The estimated volume will then be corrected
to the actual volume on the following Month's billing or as soon thereafter as
actual delivery meter information is available.
8.2. Buyer shall pay Seller the stated amount by check to the
address specified in writing by Seller on or before the twentieth (20th) Day of
each calendar Month, or ten (10) Days from the date such statement is received,
whichever is later. Should Buyer fail to pay all of the undisputed amount of
any statement in any such amount as due, Seller shall be entitled to collect
the amount of such statement together with interest at a rate equal to the
lesser of one percent (1%) above the current prime rate of Citibank, N.A., or
its successor, or the maximum lawful applicable rate of interest. Such
interest shall accrue on non-paid amounts, including non-paid interest
compounded daily, beginning on the payment due date and shall terminate when
such statement is paid. Buyer shall have the right to withhold or deduct any
disputed amounts from the payment provided for herein; provided, that Buyer
shall timely pay all undisputed portions of any statement and that interest as
described above shall be paid on any amounts ultimately determined to be due
Seller beginning on the original payment due date.
8.3. Seller and Buyer, or their respective representatives, shall
have the right, at any and all reasonable times, to examine the books and
records of the other to the extent necessary to verify the accuracy of any
statement, charge, computation, or demand made under this Contract.
8.4. Every notice, request, statement or bill provided for in this
Contract shall be in writing and directed to the party to whom given, made or
delivered at such party's address as set
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forth in Section 14.2 and as such address may be changed from time to time with
written notice to the other party.
ARTICLE IX
ARBITRATION
9.1. In case any dispute or controversy arises between the parties
under this Contract, the matter will be settled by arbitration. Upon written
demand of either party, Buyer shall appoint one arbitrator and Seller shall
appoint one arbitrator, and the two parties shall appoint or select a third
arbitrator. All of such arbitrators shall be qualified by education, knowledge
and experience to resolve this dispute or controversy.
9.2. If either party fails to appoint an arbitrator within ten (10)
Days after a request for such an appointment is made by the other party in
writing, or if the two parties fail, within ten (10) Days after the appointment
of the second, to agree on a third arbitrator, the arbitrator or arbitrators
necessary to complete a board of three arbitrators will be appointed upon
application to the American Arbitration Association who will select the
arbitrator or arbitrators to complete the board of three.
9.3. The question or questions to be decided by the arbitrators will
be submitted in writing by the party requesting arbitration. The jurisdiction
of the arbitrators will be limited to the question or questions so stated.
9.4. The decision or award of any two arbitrators shall be
conclusive and binding upon the parties and shall be made within thirty (30)
Days after the appointment of the third arbitrator. The enforcement of the
decision or award may be entered in any court having jurisdiction over the
parties. Each party shall pay the expenses of the arbitrator selected by or
for it and its counsel, witnesses and employees, and all its other arbitration
costs. The cost of the third arbitration shall
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be equally divided between the parties. The rules and procedures of the
American Arbitration Association shall be binding upon any arbitration
proceeding.
ARTICLE X
POSSESSION, TITLE, LIABILITY AND WARRANTY
10.1. Seller shall be deemed to be in control and possession of the
gas to be delivered hereunder, and shall be fully responsible for and shall
indemnify Buyer, its successors and assigns against any damages or injury
resulting from the operation of facilities used to deliver gas to the Delivery
Points, appurtenances and properties or the possession and handling of such gas
until the same is delivered to Buyer at the Delivery Points. Buyer shall be
deemed to be in control and possession of the gas delivered hereunder, and
shall be fully responsible for and shall indemnify Seller, its successors and
assigns against any and all damages or injury resulting from the operation of
facilities used to receive gas at the Delivery Points, appurtenances, and
properties or the possession and handling of such gas after same is delivered
to Buyer at the Delivery Points.
10.2. Seller warrants that it shall have good title to all gas
delivered to the Delivery Point for the account of Buyer, free and clear of all
liens, encumbrances and claims whatsoever. Subject to Section 10.3, Seller
shall indemnify Buyer and hold Buyer harmless from any and all losses, expenses
and costs, including reasonable attorneys fees, arising from or out of adverse
claims of any persons concerning the title to said gas or arising out of any
royalties, taxes, license fees or charges relating to such gas, which arise or
are incurred before the gas is delivered to Buyer.
10.3. It is understood that the natural gas purchased and sold
hereunder will be transported pursuant to the FERC approved tariffs of
Transporter(s). These tariffs may provide for scheduling penalties, imbalance
penalties or other similar penalties for the over or under delivery or receipt
of
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natural gas. In the event penalties are imposed on either party by
Transporter(s) the parties agree to use their best efforts to determine the
validity and the cause of such penalty. Seller shall be responsible for
payment of penalties charged by Buyer's or Seller's Transporter(s) as a result
of Seller's action or inaction, including but not limited to those charged as a
result of deliveries of less than or in excess of the quantities Seller agrees
with Buyer to deliver or cause to be delivered at the Delivery Points. Buyer
shall be responsible for payment of penalties charged by Buyer's or Seller's
Transporter(s) as a result of Buyer's action or inaction, including but not
limited to those charged as a result of receipts by Buyer of less than or in
excess of the quantities Seller agrees with Buyer to deliver at the Delivery
Points.
10.4. Seller and Buyer shall notify the other party as soon as
practicable after being informed by Transporter(s) that a penalty condition
exists. Seller and Buyer shall work together in good faith to eliminate
penalty conditions as soon as practicable.
ARTICLE XI
FORCE MAJEURE
11.1. In the event either party shall experience Force Majeure and is
thereby rendered unable, wholly or in part, to carry out its obligations under
this Contract (other than the obligation to make payments then or thereafter
due) it is agreed that such party's obligations so affected shall be excused
from the inception of, and during the continuance of, any inability so caused,
provided that such party claiming Force Majeure gives notice to the other party
and of the full particulars of such event as soon as practicable after the
occurrence thereof. As used herein the term "Force Majeure" shall mean any
cause that is beyond the reasonable control of the party affected through the
exercise of due diligence, including acts of God, lightning, earthquakes and
storms, explosions,
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well blowouts, cratering, acts of government including, but not limited to,
laws, orders, rules, judgments, judicial actions, regulations and acts of
arrest or restraint; acts or threats of industrial disorder including, but not
limited to, strikes, lock-outs and picketing; inability to obtain necessary
certificates, authorizations or materials upon terms which are acceptable in
the judgment of the party requiring same. Any party claiming Force Majeure
hereunder shall, in good faith, take all measures reasonably required to
relieve itself of the cause of the Force Majeure and shall promptly notify the
other party when such cause or causes are removed. The term Force Majeure
shall not include the inability of Seller to secure gas supplies to meet its
obligation herein which is not caused by, or the result of, any of the above
expressly enumerated causes or events. In addition, the term Force Majeure
shall not include interruptions in transportation on any Transporter necessary
to effect the receipt or delivery of gas under this Contract, unless the party
asserting Force Majeure has reserved firm transportation for the transportation
of such gas.
ARTICLE XII
LAWS AND REGULATORY BODIES
12.1. This Contract, and the rights and obligations of the parties
hereunder, are subject to all applicable present and future laws, rules,
regulations and orders of any regulatory or legislative body or other duly
constituted authority having jurisdiction over Seller or Buyer. If any valid
future law, order, rule or regulation of any such duly constituted authority
having jurisdiction has the effect of altering or amending the provisions of
this Contract, either party may terminate this Contract effective as of any
date, including, but not limited to, the Day before the date on which such
regulatory authority attempted to assert jurisdiction, by giving the other
party written notice thereof.
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12.2. Any final and non-appealable governmental action that precludes
the continuing performance by either party of its obligations under this
Contract for the remainder of the term herein provided, shall terminate this
Contract as of the effective date of such governmental action.
ARTICLE XIII
ASSIGNMENT
13.1. All of the rights and duties herein contained shall inure to
the benefit of and be binding upon the successors and assigns of the parties
hereof. No assignment or transfer by either party hereunder shall be made
without the prior written consent of the other party. Such consent shall not
be unreasonably withheld. Nothing herein contained shall prohibit either party
from pledging or mortgaging its rights hereunder as security for its
indebtedness.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1. The headings of the Articles used throughout this Contract are
inserted for reference purposes only and are not to be considered or taken into
account in construing the terms or provisions of any Article, or to be deemed
in any way to qualify, modify or explain the effect of any such provision or
terms.
14.2. Every notice, statement or bill provided for in this Contract
shall be in writing directed to the party to whom given, made or delivered at
such party's address as follows:
Seller: Eastern Marketing Corporation
501 56th Street - Suite 112
Charleston, WV 25304-2393
Attention: F.H. McCullough, III
Telephone: (304) 926-3100
Facsimile: (304) 926-8264
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Buyer: Mountaineer Gas Company
414 Summers Street
Charleston, WV 25301
Attention: Karen M. Macon
Telephone: (304) 347-0554
Facsimile: (304) 345-1569
Either party may change its address from time to time by giving written notice
of such change to the other party.
14.3. This Contract shall be construed pursuant to the laws of the
State of West Virginia, disregarding, however, any applicable conflict of laws
provision that would require the application of the laws of some other State.
14.4. All waivers shall be in writing and a waiver by either party of
any one or more defaults by the other hereunder shall not operate as a waiver
of any future default or defaults, whether of a like or of a different
character.
14.5. This Contract shall only be amended by an instrument in writing
executed by both parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Contract as
of the Day and year written.
SELLER:
Attest: EASTERN AMERICAN ENERGY CORPORATION
By
- ---------------------------- --------------------------------
Date
------------------------------
SELLER:
Attest: EASTERN MARKETING COMPANY
By
- ---------------------------- --------------------------------
Date
------------------------------
Attest: BUYER:
MOUNTAINEER GAS COMPANY
By
- ---------------------------- --------------------------------
Date
------------------------------
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<PAGE> 1
EXHIBIT 10.13
GAS PURCHASE CONTRACT
THIS GAS PURCHASE CONTRACT (this "Agreement"), effective January 1,
1993 (the "Effective Date"), is by and between Eastern American Energy
Corporation, a West Virginia corporation ("Seller"), and Eastern Marketing
Corporation, a West Virginia corporation ("Buyer"). Seller and Buyer are
referred to herein separately as a "Party" and collectively as the "Parties."
RECITALS
A. Seller will have available for sale from time to time Seller's
Gas (as hereinafter defined).
B. Buyer desires to purchase from Seller, and Seller desires to
sell to Buyer, such gas upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the Parties agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
Certain terms, not otherwise defined herein, shall have the following
meanings assigned to them:
"Btu Tax" means any federal Tax enacted after the Effective Date as
part of legislation adopting a broad-based federal tax on fossil fuels and
other energy sources.
"Day" means a period beginning at 7:00 a.m. Eastern Time on a calendar
day and ending at 7:00 a.m. Eastern Time on the next calendar day.
<PAGE> 2
"Delivery Points" means those points at the outlet flange of the first
sales or transportation meter immediately downstream of the wellhead of each
Seller's Well.
"Fixed Price" means the amount (expressed in dollars per Mcf) set
forth in Schedule 1 for any Quarterly Period in the Primary Term; provided,
however, if during any Quarterly Period during the Primary Term in which the
Btu Tax is in effect, the amounts paid to Eastern American Energy Corporation
(expressed in dollars per Mcf) under, or in respect, of the Seneca Contract for
such Quarterly Period reflect an increase from the amounts otherwise payable
under the Seneca Contract due solely to the imposition of the Btu Tax, the
Fixed Price shall be adjusted upward (on an Mcf basis) by the amount of the
increase under the Seneca Contract.
"Floor Price" means the amount (expressed in dollars per Mcf) set
forth in Schedule 2 for any Quarterly Period in the Primary Term.
"Force Majeure Event" has the meaning assigned to that term in Section
12.2.
"Gas" means natural gas, excluding condensate, butane, and other
liquid and liquefiable components that are actually removed from the Gas stream
by separation, processing, or other means.
"Gas Proceeds" means, for any Quarterly Period, an amount equal to the
product of the Purchase Price for such Quarterly Period multiplied by the total
quantity of Seller's Gas (in Mcf's) delivered and purchased in such Quarterly
Period.
"Gross-Up Amount" means, for any Quarterly Period during the Primary
Term in which the Btu Tax is in effect, that additional amount which when added
to the Gas Proceeds for such Quarterly Period will result in a payment to
Seller for such Quarterly Period that provides the Seller
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with the amount that Seller would have received as Gas Proceeds (if determined
solely by reference to the Floor Price) for such Quarterly Period if the Btu
Tax had not been in effect.
"Henry Hub Average Monthly Spot Price" means, for any Month, the
arithmetic average of the following twelve (12) prices: (i) the final
settlement prices (expressed in dollars per MMBtu), as reported in The Wall
Street Journal, for Henry Hub Gas Futures Contracts that expired in each of the
five (5) Months prior to such Month; (ii) the final settlement price (expressed
in dollars per MMBtu), as reported in The Wall Street Journal, for Henry Hub
Gas Futures Contracts that expire in such Month; and (iii) the closing
settlement prices (expressed in dollars per MMBtu) determined as of the
contract settlement date for such Month, as reported in The Wall Street
Journal, for Henry Hub Gas Futures Contracts that expire in each of the
following six (6) Months. If The Wall Street Journal ceases to be published or
becomes unavailable for any reason or if any such index ceases to be published
therein, such other publications or indices selected by the Parties providing
comparable Monthly price quotations will be substituted therefor.
"Henry Hub Average Quarterly Spot Price" means, for any Quarterly
Period, the arithmetic average of the Henry Hub Average Monthly Spot Price for
each Month in such Quarterly Period.
"Henry Hub Gas Futures Contracts" means gas futures contracts for
natural gas delivered to the gas pipeline hub near Henry, Louisiana which are
traded on the New York Mercantile Exchange.
"Index Price" means, for any Quarterly Period, an amount (expressed in
dollars per Mcf) equal to (i) for any Quarterly Period ending on or before the
end of the Primary Term, the sum of (a) sixty-six and two-thirds percent (66
2/3%) of the Fixed Price for such Quarterly Period and (b) thirty-three and
one-third percent (33 1/3%) of the Variable Price for such Quarterly Period,
and (ii) for any Quarterly Period ending after the end of the Primary Term, the
Variable Price.
-3-
<PAGE> 4
"Investment Grade" means a currently effective rating by Standard &
Poor's Corporation or its successors of BBB- (or subsequent equivalent rating)
or higher, and a currently effective rating by Moody's Investor Service, Inc.
or its successors of Baa3 (or subsequent equivalent rating) or higher, or if
either rating is not available, an equivalent rating from a nationally
recognized securities rating agency or agencies, as the case may be, reasonably
selected by Buyer in good faith.
"Mcf" means one thousand (1000) cubic feet of Gas.
"MMBtu" means one million (1,000,000) British thermal units.
"Month" means a period beginning at 7:00 a.m. Eastern Time on the
first Day of a calendar month and ending at 7:00 a.m. Eastern Time on the first
Day of the next succeeding calendar month.
"Primary Term" means the period from the Effective Date through 7:00
a.m. Eastern Time January 1, 2000.
"Prime Interest Rate" means the lesser of (i) the rate of interest per
annum publicly announced from time to time by The Chase Manhattan Bank, New
York, New York, as its "prime rate" in effect at its principal office in New
York City (each change in the Prime Rate to be effective on the date such
change is publicly announced), with the understanding that such bank's "prime
rate" may be one of several base rates, may serve as a basis upon which
effective rates are from time to time calculated for loans making reference
thereto, and may not be the lowest of such bank's base rates, or (ii) the
maximum rate of interest permitted under applicable law.
"Purchase Price" means the price to be paid by Buyer to Seller for
Seller's Gas purchased hereunder as determined under Section 7.2.
"Quarterly Period" means each calendar quarter during the term of this
Agreement, with each calendar quarter being deemed to have begun at 7:00 a.m.
Eastern Time on the first day of such
-4-
<PAGE> 5
calendar quarter and to have ended at 7:00 a.m. Eastern Time on the first day
of the next calendar quarter, except for (i) the first Quarterly Period, which
shall be deemed to have begun at 7:00 Eastern Time on the Effective Date and to
have ended at 7:00 a.m. Eastern Time April 1, 1998, and (ii) the final
Quarterly Period, which shall be deemed to have begun at 7:00 a.m. Eastern Time
on the first day of the calendar quarter in which this Agreement terminates and
to have ended at 7:00 a.m. Eastern Time on the date this Agreement terminates.
"Receiving Pipeline" means the pipeline company or companies whose
facilities are immediately downstream of the Delivery Points and who transport
Seller's Gas purchased by Buyer hereunder.
"Royalty Conveyances" means that certain Term NPI Conveyance dated of
even date herewith from Seller to Bank of Montreal Trust Company and Wilmington
Trust Company and that certain Royalty NPI Conveyance dated of even date
herewith from Seller to Bank of Montreal Trust Company and Wilmington Trust
Company.
"Seller's Gas" means a quantity of Gas equal to the Trust Gas under
the Royalty Conveyances.
"Seller's Wells" means wells producing or capable of producing
Seller's Gas.
"Seneca Contract" means the Gas Sale and Purchase Agreement dated as
of March 27, 1991 by and between Seller and Seneca Power Partners, L.P., a
Delaware limited partnership.
"Tax," as used herein, has the meaning set forth in the Royalty
Conveyances.
"Variable Price" means, for any Quarterly Period, an amount (expressed
in dollars per Mcf) equal to one hundred ten percent (110%) of the sum of (i)
the Henry Hub Average Quarterly Spot
-5-
<PAGE> 6
Price (expressed in dollars per MMBtu) for such Quarterly Period plus (ii)
thirty cents ($0.30) per MMBtu.
"Year" means a period beginning at 7:00 a.m. Eastern Time on January 1
of a calendar year and ending at 7:00 a.m. Eastern Time on January 1 of the
next calendar year.
ARTICLE 2
GOVERNMENTAL AUTHORIZATIONS
Buyer has obtained all governmental authorizations as may be necessary
to enable it to perform or cause to be performed its obligations under this
Agreement.
ARTICLE 3
DEDICATION OF SELLER'S GAS
Seller hereby commits and dedicates to the performance of this
Agreement, and covenants to deliver and sell, or cause to be delivered and
sold, Seller's Gas, subject to the terms of this Agreement.
ARTICLE 4
QUANTITY
Subject to the terms and conditions herein, Buyer shall purchase and
take from Seller in each Month all of Seller's Gas available at the Delivery
Points.
ARTICLE 5
DELIVERY POINTS
5.1 Delivery Points. Seller's Gas shall be delivered to and
purchased at the Delivery Points.
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<PAGE> 7
5.2 Passage of Title and Risk of Loss. Title and risk of loss to
Seller's Gas shall pass to and vest in Buyer at the Delivery Points.
ARTICLE 6
TERM OF AGREEMENT
This Agreement shall commence and be effective on the Effective Date
and shall terminate upon termination of the Eastern American Natural Gas Trust.
ARTICLE 7
PRICE
7.1 Purchase Price. Subject to the other provisions hereof, Buyer
shall pay to Seller the Purchase Price for each Mcf of Seller's Gas purchased
hereunder in each Quarterly Period.
7.2 Determination of Purchase Price. The Purchase Price shall be
determined as follows:
(a) Primary Term. For each Quarterly Period ending on or before
the end of the Primary Term, the Purchase Price shall be equal to the greater
of (i) the Floor Price for such Quarterly Period and (ii) the Index Price for
such Quarterly Period.
(b) Secondary Term. For each Quarterly Period ending after the
end of the Primary Term, the Purchase Price shall be equal to the Index Price.
7.3 Gross-Up Amount. For any Quarterly Period during the Primary
Term in which the Btu Tax is in effect, Buyer shall pay to Seller the higher of
(i) the Floor Price for such Quarterly Period plus the Gross-Up Amount, and
(ii) the Index Price for such Quarterly Period.
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<PAGE> 8
ARTICLE 8
QUALITY, DELIVERY PRESSURE, AND MEASUREMENT
8.1 Specifications. Seller's Gas shall conform to the quality
specifications set forth in the applicable tariff or other operating rules,
policies, or procedures of the Receiving Pipeline at the Delivery Point.
8.2 Delivery Pressure. Seller's Gas shall be delivered by Seller
to the Delivery Points for the account of Buyer at pressures sufficient to
effect delivery into the Receiving Pipeline's facilities at the Delivery Point.
8.3 Measurement. The measurement of and tests for quality of
Seller's ____________________ delivered hereunder shall be governed by the
applicable tariff or other operating ____________________, policies, or
procedures of the Receiving Pipeline at the Delivery Point.
8.4 Transportation. Seller shall be responsible for all
arrangements necessary to deliver Seller's Gas to the Delivery Points and Buyer
shall be responsible for all arrangements necessary to receive and transport
Seller's Gas at Delivery Points.
ARTICLE 9
BILLING AND PAYMENT
9.1 Statements and Payments. On or before the tenth (10th) Day of
the ____________________ Month following the end of each Quarterly Period,
Buyer shall (i) render to ____________________ a statement showing the total
quantity of Seller's Gas delivered and purchased ____________________ the prior
Quarterly Period (in Mcf's), the Purchase Price for the prior
____________________ Period, the Gas Proceeds for the prior Quarterly Period,
and, if applicable, ____________________ Gross-Up Amount for the prior
Quarterly Period,
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<PAGE> 9
and (ii) make payment for such ____________________ by wire transfer to
Seller's account at such bank or banks as Seller may ____________________ time
to time request.
9.2 Estimated Quantity of Seller's Gas. For purposes of rendering
the ____________________ and making payment for Seller's Gas in accordance with
Section 9.1 above, ____________________ shall provide Buyer with a good faith,
reasonable estimate of the quantity of ____________________ Gas delivered to
and purchased by Buyer in the second and third months of ____________________
prior Quarterly Period (in Mcf's). Buyer shall use such estimate to calculate
____________________ for Seller's Gas hereunder. Buyer shall adjust the
quantity of Seller's Gas, ____________________ or downward as the case may be,
in the next Quarterly Period to reflect the ____________________ between the
estimated quantity and the actual quantity of Seller's Gas delivered and
purchased by Buyer in the Quarterly Period for which such estimate was made.
9.3 Overdue Payments. Any payment not made within five (5) Days
of the date set forth in Section 9.1 (other than payments attributable to the
difference between estimated and actual quantities of Seller's Gas under
Section 9.2) shall accrue interest at a rate equal to the Prime Interest Rate.
9.4 Books and Records. Seller shall have the right at reasonable
hours to examine the books, records, and charts of Buyer to the extent
necessary to verify the accuracy of any statement, payment, calculation, or
determination made pursuant to this Agreement, including any Gross-Up Amount or
Fixed Price adjustment. If any examination shall reveal, or if Seller shall
otherwise discover, any error in such statements, payments, calculations, or
determinations, then proper adjustment and correction thereof shall be made as
promptly as practicable thereafter.
-9-
<PAGE> 10
ARTICLE 10
GOVERNMENTAL REGULATIONS
This Agreement shall be subject to all valid applicable state,
federal, and local laws, rules and regulations; provided, that, either Party
shall be entitled to regard all laws, rules, and regulations issued by any
federal or state regulatory body as valid and may act in accordance therewith
until such time as the same may be held invalid by final judgment in a court of
competent jurisdiction. Nothing herein shall preclude Buyer or Seller or both
from contesting the validity of any such laws, rules, or regulations.
ARTICLE 11
ASSIGNMENTS
11.1 Restrictions on Assignment. Except as permitted by Section
11.2, neither Party may assign or delegate any of its rights or obligations
under this Agreement without the prior or contemporaneous written consent of
the other Party.
11.2 Permitted Assignment by Buyer. Buyer may, without the consent
of Seller, assign its rights under this Agreement to a third party ("Assignee")
upon satisfaction of the following conditions:
(i) Assignee shall have executed and delivered to Seller
a written instrument executed by an authorized officer of Assignee
whereby Assignee expressly and unconditionally assumes and agrees to
be bound by all of the obligations of Buyer under this Agreement;
(ii) Assignee shall have executed and delivered to Seller
a written instrument executed by an authorized officer of Assignee
certifying that (a) the unsecured long-term
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<PAGE> 11
debt of Assignee is at the time of the delivery of such certificate
rated Investment Grade; or (b) Assignee is a subsidiary of a parent
company ("Parent") and the unsecured long-term debt of such Parent is
at the time of delivery of such certificate rated Investment Grade;
and
(iii) If Assignee is a subsidiary as described in clause
(ii)(b) above, Parent shall have executed and delivered to Seller a
written instrument whereby Parent unconditionally guarantees or agrees
to perform or cause to be performed all of the obligations of Assignee
under this Agreement.
Upon satisfaction of the foregoing conditions, the assignment by Buyer
of its rights under this Agreement shall be effective to fully release and
discharge Buyer from any and all obligations under this Agreement.
11.3 Ineffective Assignments. Except as permitted by Section 11.2,
any purported assignment or delegation (legal or beneficial) of rights or
obligations under this Agreement by either Party without the prior or
contemporaneous written consent of the other Party shall be void and
ineffective.
11.4 Inurement. Subject to the foregoing provisions, this
Agreement binds and inures to the benefit of the Parties and their respective
successors and assigns.
ARTICLE 12
FORCE MAJEURE
12.1 Non-Performance. Neither Party shall be responsible for any
loss or damage to the other Party resulting from any delay in performing or
failure to perform any obligation under this Agreement (other than Buyer's
obligation to make payments for Seller's Gas purchased under this Agreement) to
the extent such failure or delay is caused by a Force Majeure Event.
-11-
<PAGE> 12
12.2 Force Majeure Event. "Force Majeure Event" means any of the
following:
(a) act of God, fire, lightning, landslide, earthquake, storm,
hurricane, hurricane warning, flood, high water, washout, tidal wave, or
explosion;
(b) strike, lockout, or other similar industrial disturbance, act
of the public enemy, war, military operation, blockade, insurrection, riot,
epidemic, arrest or restraint of government or people, or national emergency;
(c) the inability of the affected Party to acquire, or the delay
on the part of the affected Party in acquiring materials, supplies, machinery,
equipment, servitudes, right-of-way grants, easements, permits, or licenses, or
approvals or authorizations by regulatory bodies needed to enable such Party to
perform hereunder;
(d) any breakage of or accident to machinery, equipment, or lines
of pipe, the repair, maintenance, improvement, replacement, alteration to a
plant or line of pipe or related facility, or test of machinery, equipment or
line of pipe, the freezing of a line of pipe;
(e) act, order, or requisition of any governmental agency or
acting governmental authority, or the affected Party's compliance therewith, or
any governmental proration, regulation, or priority; or
(f) any other cause, whether similar or dissimilar to the causes
enumerated in (a) through (e) above, not reasonably within the control of the
affected Party.
12.3 Force Majeure Notice. The affected Party will give the other
Party a Notice of the Force Majeure Event as soon as reasonably practicable
after the occurrence of the Force Majeure Event. Such Notice will include full
particulars of the Force Majeure Event.
-12-
<PAGE> 13
12.4 Remedy of a Force Majeure Event. The affected Party will use
its reasonable efforts to remedy each Force Majeure Event and resume full
performance under this Agreement as soon as reasonably practicable, except that
the settlement of strikes, lockouts, or other labor disputes shall be entirely
within the discretion of the affected Party.
ARTICLE 13
NOTICE
13.1 Definition. "Notice" means any notice, advice, invoice,
demand, or other communication required or permitted by this Agreement.
13.2 Written Notice. Except as otherwise provided by this
Agreement, each Notice shall be in writing.
13.3 Methods of Giving Notice. Notice may be given by any
reasonable means, including telecopier, hand delivery, overnight courier, and
United States mail.
13.4 Charges. All Notices shall be properly addressed to the
recipient, with all postage and other charges being paid by the Party giving
Notice.
13.5 Effective Date. Notice shall be effective when actually
received by the Party being notified.
13.6 Addresses. The addresses of the Parties for purposes of
Notice are:
If to Seller:
Eastern American Energy Corporation
501 56th Street
Charleston, West Virginia 25304
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<PAGE> 14
If to Buyer:
Eastern Marketing Corporation
501 56th Street
Charleston, West Virginia 25304
13.7 Change of Address. Either Party may change its address to
another address within the continental United States by giving ten (10) days'
Notice to the other Party.
ARTICLE 14
ARBITRATION
14.1 Binding Arbitration. If there is a dispute or disagreement
now existing or hereafter arising among the Parties hereto with respect to any
matter hereunder (a "Dispute"), upon the written notice of either Party hereto
to the other Party, such Dispute shall be resolved by binding arbitration in
accordance with the terms hereof. Any Party may, by summary proceedings, bring
an action in court to compel arbitration of any Dispute.
14.2 Governing Rules. Any arbitration shall be administered by the
American Arbitration Association (the "AAA") in accordance with the terms of
the Commercial Arbitration Rules of the AAA, and, to the maximum extent
applicable, the Federal Arbitration Act. Judgment on any award rendered by an
arbitrator may be entered in any court having jurisdiction.
14.3 Arbitrators. Any arbitration shall be conducted before one
arbitrator. The arbitrator shall be a practicing attorney licensed to practice
in the State of West Virginia or Pennsylvania who is knowledgeable in the
subject matter of the Dispute selected by agreement between the Parties hereto.
If the Parties cannot agree on an arbitrator within 30 days after the request
for an arbitration, then any Party may request the AAA to select an arbitrator.
The arbitrator may engage engineers,
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<PAGE> 15
accountants or other consultants that the arbitrator deems necessary to render
a conclusion in the arbitration proceeding.
14.4 Conduct of Arbitration. To the maximum extent practicable, an
arbitration proceeding hereunder shall be concluded within sixty (60) days of
the filing of the Dispute with the AAA. Arbitration proceedings shall be
conducted in Charleston, West Virginia. Arbitrators shall be empowered to
impose sanctions and to take such other actions as the arbitrators deem
necessary to the same extent a judge could impose sanctions or take such other
actions pursuant to the Federal Rules of Civil Procedure and applicable law.
At the conclusion of any arbitration proceeding, the arbitrator shall make
specific written findings of fact and conclusions of law. The arbitrator shall
have the power to award recovery of all costs and fees to the prevailing Party.
Each Party agrees to keep all Disputes and arbitration proceedings strictly
confidential except for disclosure of information required by applicable law.
14.5 Costs of Arbitration. All fees of the arbitrator and any
engineer, accountant or other consultant engaged by the arbitrator, shall be
paid by the Parties to the arbitration proceeding equally unless otherwise
awarded by the arbitrator.
ARTICLE 15
OTHER PROVISIONS
15.1 Applicable Law. The transactions contemplated by this
Agreement bear a reasonable relationship to, and shall be construed and
enforced under, the laws of the state of West Virginia.
15.2 Integrated Agreement. This Agreement is the full, final,
complete, and exclusive expression of the agreements of the Parties with
respect to the matters covered by this Agreement.
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<PAGE> 16
15.3 No Amendment. Buyer and Seller may not alter, vary, amend,
revise, terminate, or otherwise change any of the provisions of this Agreement
without the prior consent of the other Party.
15.4 Construction of Agreement. In construing this Agreement, the
following principles shall be followed:
(a) no consideration shall be given to the captions of
the articles, sections, subsections, or clauses, which are inserted
for convenience in locating the provisions of this Agreement and not
as an aid in its construction;
(b) no consideration shall be given to the fact or
presumption that one Party had a greater or lesser hand in drafting
this Agreement;
(c) the word "includes" and its syntactical variants mean
"includes, but is not limited to" and corresponding syntactical
variant expressions;
(d) a defined term has its defined meaning throughout
this Agreement, regardless of whether it appears before or after the
place in this Agreement where it is defined;
(e) the plural shall be deemed to include the singular,
and vice versa; and
(f) each schedule to this Agreement is a part of this
Agreement, but if there is any conflict or inconsistency between the
main body of this Agreement and any schedule, the provisions of the
main body of this Agreement shall prevail.
15.5 No Waiver. Failure of either Party to require performance of
any provision of this Agreement shall not affect either Party's right to
require full performance thereof at any time thereafter, and the waiver by
either Party of a breach of any provision hereof shall not constitute a waiver
of a similar breach in the future or of any other breach or nullify the
effectiveness of such provision.
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<PAGE> 17
15.6 Savings Clause. If any provision of this Agreement is, for
any reason and to any extent, construed to be invalid or unenforceable, the
remaining provisions contained herein shall be valid and fully enforceable in
all respects.
15.7 Effect of Third Party Rights. In the event that the
quantities of Seller's Gas delivered pursuant to this Agreement are reduced by
reason of a prior commitment of such gas to any third party, Buyer shall
nonetheless be obligated to pay to Seller an amount equal to the difference
Seller receives hereunder for gas delivered and the amount Seller would have
received hereunder but for the commitment of such gas to a third party, reduced
by amounts that are otherwise received by Seller in respect of such gas
committed to such third party. Buyer expressly acknowledges the existence of
prior commitments to third parties with respect to certain of Seller's Gas and
agrees to take any such gas subject to the rights of such third parties.
15.8 Counterpart Execution. This Agreement may be executed in
multiple counterparts. Each counterpart shall be deemed to be an original, and
all counterparts together shall be deemed to be one and the same agreement.
-17-
<PAGE> 18
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement
effective as of the Effective Date.
ATTEST: Seller:
[SEAL]
EASTERN AMERICAN ENERGY
CORPORATION
By: By:
----------------------------------- ---------------------------------
Name: Name:
--------------------------------- -------------------------------
Title: Title:
-------------------------------- ------------------------------
Buyer:
ATTEST:
[SEAL] EASTERN MARKETING
CORPORATION
By: By:
----------------------------------- ---------------------------------
Name: Name:
--------------------------------- -------------------------------
Title: Title:
-------------------------------- ------------------------------
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<PAGE> 19
Schedule 1
FIXED PRICE SCHEDULE
<TABLE>
<CAPTION>
EACH QUARTERLY
PERIOD IN THE
FOLLOWING YEARS FIXED PRICE ($/Mcf)
--------------- -------------------
<S> <C>
1993 $2.66
1994 $2.79
1995 $2.93
1996 $3.08
1997 $3.23
1998 $3.39
1999 $3.56
</TABLE>
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<PAGE> 20
Schedule 2
FLOOR PRICE SCHEDULE
<TABLE>
<CAPTION>
EACH QUARTERLY
PERIOD IN THE
FOLLOWING YEARS FLOOR PRICE ($/Mcf)
--------------- -------------------
<S> <C>
1993 $2.16
1994 $2.31
1995 $2.35
1996 $2.36
1997 $2.57
1998 $2.84
1999 $3.09
</TABLE>
-21-
<PAGE> 1
EXHIBIT 10.14
SERVICE AGREEMENT NO. 37994
CONTROL No. 1993-10-02 - 1413
FTS1 SERVICE AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of NOVEMBER, 1993, by and
between:
COLUMBIA GULF TRANSMISSION COMPANY
("TRANSPORTER")
AND
MOUNTAINEER GAS CO
("SHIPPER")
WITNESSETH: That in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
Section 1. Service to be Rendered. Transporter shall perform and Shipper shall
receive the service in accordance with the provisions of the effective FTS1
Rate Schedule and applicable General Terms and Conditions of Transporter's FERC
Gas Tariff, First Revised Volume No. 1 (Tariff), on file with the Federal
Energy Regulatory Commission (Commission), as the same may be amended or
superseded in accordance with the rules and regulations of the Commission
herein contained. The maximum obligations of Transporter to deliver gas
hereunder to or for Shipper, the designation of the points of delivery at which
Transporter shall deliver or cause gas to be delivered to or for Shipper, and
the points of receipt at which the Shipper shall deliver or cause gas to be
delivered, are specified in Appendix A, as the same may be amended from time to
time by agreement between Shipper and Transporter, or in accordance with the
rules and regulations of the Commission. Service hereunder shall be provided
subject to the provisions of Part 284. 222 of Subpart G of the Commission's
regulations. Shipper warrants that service hereunder is being provided on
behalf of AN INTERSTATE PIPELINE COMPANY, COLUMBIA GAS TRANSMISSION.
Section 2. Term. Service under this Agreement shall commence as of NOVEMBER 0 1
, 1993 , and shall continue in full force and effect until OCTOBER 31, 2004,
and from YEAR-to-YEAR thereafter unless terminated by either party upon 6
MONTHS' written notice to the other prior to the end of the initial term
granted or any anniversary date thereafter. Shipper and Transporter agree to
avail themselves of the Commission's pre-granted abandonment authority upon
termination of this Agreement, subject to any right of first refusal Shipper
may have under the Commission's regulations and Transporter's Tariff.
Section 3. Rates. Shipper shall pay the charges and furnish Retainage as
described in the above-referenced Rate Schedule, unless otherwise agreed to by
the parties in writing and specified as an amendment to this Service Agreement
Section 4. Notices. Notices to Transporter under this Agreement shall be
addressed to it at Post Office Box 683, Houston, Texas 77001, Attention:
Director, Planning, Transportation and Exchange and notices to Shipper shall be
addressed to it at:
MOUNTAINEER GAS CO
414 SUMMERS STREET
CHARLESTON, WV 25301
ATTN: PAM RUCKMAN;
<PAGE> 2
FTS1 SERVICE AGREEMENT (Cont'd)
until changed by either party by written notice.
Section 5. Superseded Agreements. This Service Agreement supersedes and
cancels, as of the effective date hereof, the following Service Agreements:
FTS1 34563
MOUNTAINEER GAS CO
By: /s/ Richard Grant
-----------------------------
Name: Richard Grant
-----------------------------
Title: President
-----------------------------
Date: 6/2/94
-----------------------------
COLUMBIA GULF TRANSMISSION COMPANY
By: /s/ S.M. Warnick
-----------------------------
Name: S.M. Warnick
-----------------------------
Title: Vice President
-----------------------------
Date: 6-27-94
-----------------------------
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<PAGE> 3
Revision No.
Control No. 1993-10-02 - 1413
Appendix A to Service Agreement No. 37994
Under Rate Schedule FTS1
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) MOUNTAINEER GAS CO
Transportation Demand 231,893 Dth/day
Primary Receipt Points
<TABLE>
<CAPTION>
Measuring Measuring Maximum Daily
Point No. Point Name Quantity (Dth/Day)
- ------------------------------------------------------------------------------
<S> <C> <C>
2700010 CGT-RAYNE 30,810
</TABLE>
-3-
<PAGE> 4
Revision No.
Control No. 1993-10-02 - 1413
Appendix A to Service Agreement No. 37994
Under Rate Schedule FTS1
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) MOUNTAINEER GAS CO
Primary Delivery Points
<TABLE>
Measuring Measuring Maximum Daily
Point No. Point Name Quantity (Dth/Day)
- ------------------------------------------------------------------------------
<S> <C> <C>
801 TCO-LEACH 30,810
</TABLE>
-4-
<PAGE> 5
Revision No.
Control No. 1993-10-02 - 1413
Appendix A to Service Agreement No. 37994
Under Rate Schedule FTS1
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) MOUNTAINEER GAS CO
The Master List of Interconnects (MLI) as defined in Section 1 of the General
Terms and Conditions is incorporated herein by reference for purposes of
listing valid secondary interruptible receipt points and delivery points.
CANCELLATION OF PREVIOUS APPENDIX A
Service changes pursuant to this Appendix A shall become effective as of
NOVEMBER 01, 1993. This Appendix A shall cancel and supersede the previous
Appendix A effective as of N/A, to the Service Agreement referenced above. With
the exception of this Appendix A, all other terms and conditions of said
Service Agreement shall remain in full force and effect.
MOUNTAINEER GAS CO
By: /s/ Richard Grant
-----------------------------
Name: Richard Grant
-----------------------------
Title: President
-----------------------------
Date: 6/2/94
-----------------------------
COLUMBIA GULF TRANSMISSION COMPANY
By: /s/ S.M. Warnick
-----------------------------
Name: S.M. Warnick
-----------------------------
Title: Vice President
-----------------------------
Date: 6-27-94
-----------------------------
-5-
<PAGE> 6
Revision No.
Control No. 1993-10-02 - 1413
Appendix A to Service Agreement No. 37994
Under Rate Schedule FTS1
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) MOUNTAINEER GAS CO
Transportation Demand 104,953 Dth/day
Primary Receipt Points
<TABLE>
<CAPTION>
Measuring Measuring Maximum Daily
Point No. Point Name Quantity (Dth/Day)
- ------------------------------------------------------------------------------
<S> <C> <C>
2700010 CGT-RAYNE 104,953
</TABLE>
-6-
<PAGE> 7
Revision No.
Control No. 1993-10-02 - 1413
Appendix A to Service Agreement No. 37994
Under Rate Schedule FTS1
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) MOUNTAINEER GAS CO
Primary Delivery Points
<TABLE>
<CAPTION>
Measuring Measuring Maximum Daily
Point No. Point Name Quantity (Dth/Day)
- -------------------------------------------------------------------------------
<S> <C> <C>
801 TCO-LEACH 104,953
</TABLE>
-7-
<PAGE> 8
Revision No.
Control No. 1993-10-02 - 1413
Appendix A to Service Agreement No. 37994
Under Rate Schedule FTS1
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) MOUNTAINEER GAS CO
The Master List of Interconnects (MLI) as defined in Section 1 of the General
Terms and Conditions is incorporated herein by reference for purposes of
listing valid secondary interruptible receipt points and delivery points.
CANCELLATION OF PREVIOUS APPENDIX A
Service changes pursuant to this Appendix A shall become effective as of
NOVEMBER 01, 1993. This Appendix A shall cancel and supersede the previous
Appendix A effective as of N/A, to the Service Agreement referenced above. With
the exception of this Appendix A, all other terms and conditions of said
Service Agreement shall remain in full force and effect.
MOUNTAINEER GAS CO
By: /s/ Richard Grant
---------------------------
Name: Richard Grant
---------------------------
Title: President
---------------------------
Date: 6/2/94
---------------------------
COLUMBIA GULF TRANSMISSION COMPANY
By: /s/ S.M. Warnick
---------------------------
Name: S.M. Warnick
---------------------------
Title: Vice President
---------------------------
Date: 9-6-94
---------------------------
-8-
<PAGE> 9
Revision No.
Control No. 1993-10-02 - 1413
Appendix A to Service Agreement No. 37994
Under Rate Schedule FTS1
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) MOUNTAINEER GAS CO
Superseded Agreements: FTS1 37888
-9-
<PAGE> 1
EXHIBIT 10.15
SERVICE AGREEMENT NO. 42794
CONTROL NO. 1994-07-11 - 0016
FTS2 SERVICE AGREEMENT
THIS AGREEMENT, made and entered into this 01 day of NOVEMBER ,
1994 , by and between:
COLUMBIA GULF TRANSMISSION COMPANY
("TRANSPORTER")
AND
MOUNTAINEER GAS CO
("SHIPPER")
WITNESSETH: That in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Section 1. Service to be Rendered. Transporter shall perform and Shipper
shall receive the service in accordance with the provisions of the effective
FTS2 Rate Schedule and applicable General Terms and Conditions of Transporter's
FERC Gas Tariff, First Revised Volume No. 1 (Tariff), on file with the Federal
Energy Regulatory Commission (Commission), as the same may be amended or
superseded in accordance with the rules and regulations of the Commission
herein contained. The maximum obligations of Transporter to deliver gas
hereunder to or for Shipper, the designation of the points of delivery at which
Transporter shall deliver or cause gas to be delivered to or for Shipper, and
the points of receipt at which the Shipper shall deliver or cause gas to be
delivered. are specified in Appendix A, as the same may be amended from time to
time by agreement between Shipper and Transporter, or in accordance with the
rules and regulations of the Commission. Service hereunder shall be provided
subject to the provisions of Part 284.102 of Subpart B of the Commission's
regulations. Shipper warrants that service hereunder is being provided on
behalf of A LOCAL DISTRIBUTION COMPANY, MOUNTAINEER GAS CO.
Section 2. Term. Service under this Agreement shall commence as of NOVEMBER
01, 1994, and shall continue in full force and effect until OCTOBER 31, 2004,
and from YEAR-to-YEAR thereafter unless terminated by either party upon 6
MONTHS' written notice to the other prior to the end of the initial term
granted or any anniversary date thereafter. Shipper and Transporter agree to
avail themselves of the Commission's pre-granted abandonment authority upon
termination of this Agreement subject to any right of first refusal Shipper may
have under the Commission's regulations and Transporter's Tariff.
Section 3. Rates. Shipper shall pay the charges and furnish Retainage as
described in the above-referenced Rate Schedule, unless otherwise agreed to by
the parties in writing and specified as an amendment to this Service Agreement.
Section 4. Notices. Notices to Transporter under this Agreement shall be
addressed to it at Post Office Box 683, Houston, Texas 77001, Attention:
Director, Planning, Transportation and Exchange and notices to Shipper shall be
addressed to it at:
MOUNTAINEER GAS CO
414 SUMMERS STREET
CHARLESTON, WV 25301
ATTN: KAREN MACON;
<PAGE> 2
SERVICE AGREEMENT NO. 42794
CONTROL NO. 1994-07-11 - 0016
until changed by either party by written notice.
Section 5. Superseded Agreements. This Service Agreement supersedes and
cancels, as of the effective date hereof, the following Service Agreements:
FTS2 39186
MOUNTAINEER GAS CO
By: /s/ Richard L. Grant
--------------------------------
Title: President
----------------------------
COLUMBIA GULF TRANSMISSION COMPANY
By: /s/ Paul H. Pieri
--------------------------------
Title: Vice President
-----------------------------
-2-
<PAGE> 3
Revision No.
Control No. 1994-07-11 -0016
Appendix A to Service Agreement No. 42794
Under Rate Schedule FTS2
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) MOUNTAINEER GAS CO
Transportation Demand 76,491 Dth/day
Primary Receipt Points
<TABLE>
<CAPTION>
Measuring Measuring Maximum Daily
Point No. Point Name Quantity (Dth/Day)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
4029 NGPL-ERATH (BYPASS) 6,170
4073 EXXON-CHALKLEY 4,983
426 NGPL-PECAN LAKE 11,878
433 CGT-EGAN A 4,484
434 TENNESSEE-EGAN B 4,983
481 SEA ROBIN-ERATH 19,592
519 TEXACO-HENRY HUB 9,254
595 VGS-VENICE PLANT 5,181
596 EXXON-GRAND IS 4,983
706 SANTA FE-LAKE ARTHUR 997
708 SANTE FE-LAKE ARTHUR 997
709 JOB-LAKE ARTHUR 997
712 SANTA FE-LAKE ARTHUR 1,992
</TABLE>
-3-
<PAGE> 4
Revision No.
Control No. 1994-07-11 -0016
Appendix A to Service Agreement No. 42794
Under Rate Schedule FTS2
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) MOUNTAINEER GAS CO
Primary Delivery Points
<TABLE>
<CAPTION>
Measuring Measuring Maximum Daily
Point No. Point Name Quantity (Dth/Day)
<S> <C> <C>
- --------------------------------------------------------------------------------------------
2700010 CGT-RAYNE 78,491
</TABLE>
-4-
<PAGE> 5
Revision No.
Control No. 1994-07-11 -0016
Appendix A to Service Agreement No. 42794
Under Rate Schedule FTS2
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) MOUNTAINEER GAS CO
The Master List of Interconnects (MLI) as defined in Section 1 of the General
Terms and Conditions is incorporated herein by reference for purposes of
listing valid secondary interruptible receipt points and delivery points.
CANCELLATION OF PREVIOUS APPENDIX A
Service changes pursuant to this Appendix A shall become effective as of
NOVEMBER 01, 1994. This Appendix A shall cancel and supersede the previous
Appendix A effective as of N/A , to the
Service Agreement referenced above. With the exception of this Appendix A, all
other terms and conditions of said Service Agreement shall remain in full force
and effect.
MOUNTAINEER GAS CO
By: /s/ Richard L. Grant
-----------------------------
Name: Richard L. Grant
---------------------------
Title: President
--------------------------
Date: 8-30-94
---------------------------
COLUMBIA GULF TRANSMISSION COMPANY
By: /s/ Paul H. Pieri
-----------------------------
Name: Paul H. Pieri
---------------------------
Title: Vice President
--------------------------
Date: 8-10-94
---------------------------
-5-
<PAGE> 1
EXHIBIT 10.16
Service Agreement No. 38087
Control No. 930905-0034
SST SERVICE AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of November, 1993,
by and between COLUMBIA GAS TRANSMISSION CORPORATION ("Seller") and MOUNTAINEER
GAS COMPANY ("Buyer").
WITNESSETH: That in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Section 1. Service to be Rendered. Seller shall perform and Buyer
shall receive service in accordance with the provisions of the effective SST
Rate Schedule and applicable General Terms and Conditions of Seller's FERC Gas
Tariff, Second Revised Volume No. 1 (Tariff), on file with the Federal Energy
Regulatory Commission (Commission), as the same may be amended or superseded in
accordance with the rules and regulations of the Commission. The maximum
obligation of Seller to deliver gas hereunder to or for Buyer, the designation
of the points of delivery at which Seller shall deliver or cause gas to be
delivered to or for Buyer, and the points of receipt at which Buyer shall
deliver or cause gas to be delivered, are specified in Appendix A, as the same
may be amended from time to time by agreement between Buyer and Seller, or in
accordance with the rules and regulations of the Commission. Service hereunder
shall be provided subject to the provisions of Part 284.223 of Subpart G of the
Commission's regulations. Buyer warrants that service hereunder is being
provided on behalf of Buyer.
Section 2. Term. Service under this Agreement shall commence as of
November 1, 1993, and shall continue in full force and effect until October 31,
2004, and from year-to-year thereafter unless terminated by either party upon
six (6) months' written notice to the other prior to the end of the initial
term granted or any anniversary date thereafter. Pre-granted abandonment shall
apply upon termination of this Agreement, subject to any right of first refusal
Buyer may have under the Commission's regulations and Seller's Tariff.
Section 3. Rates. Buyer shall pay Seller the charges and furnish
Retainage as described in the above-referenced Rate Schedule, unless otherwise
agreed to by the parties in writing and specified as an amendment to this
Service Agreement.
Section 4. Notices. Notices to Seller under this Agreement shall be
addressed to it at Post Office Box 1273, Charleston, West Virginia 25325-1273,
Attention: Director, Transportation and
<PAGE> 2
Exchange and notices to Buyer shall be addressed to it at P. 0. Box 3152,
Charleston, WV 25332- 3152, Attention: Karen M. Macon, until changed by either
party by written notice.
Section 5. Prior Service Agreements. This Agreement is being entered
into by the parties hereto pursuant to the Commission's Order No. 636 and its
orders dated July 14, 1993 and September 29, 1993, with respect to Seller's
Order No. 636 compliance filing and relates to the following existing Service
Agreements:
FSS Service Agreement No. 34628, effective November 1, 1989, as it may
have been amended, providing for storage and transportation service
under the FSS Rate Schedule.
CDS Service Agreement No. 36057, effective November 1, 1989, as it may
have been amended, providing for a bundled sales, transportation and
storage service under the CDS Rate Schedule.
WS Service Agreement No. 36058, effective November 1, 1989, as it may
have been amended, providing for a bundled storage and delivery
service under the WS Rate Schedule.
The terms of Service Agreement No. 38087 shall become effective as of the
effective date hereof, however, the parties agree that neither the execution
nor the performance of Service Agreement 38087 shall prejudice any recoupment
or other rights that Buyer may have under or with respect to the
above-referenced Service Agreements.
MOUNTAINEER GAS COMPANY COLUMBIA GAS TRANSMISSION
CORPORATION
By /s/ Michael S. Fletcher By /s/ S.M. Warnick
------------------------------- ----------------------------
Title Senior Vice President- Title Senior Vice President
------------------------------- ----------------------------
Chief Financial Officer
-------------------------------
<PAGE> 3
Revision No.
Control No. 1993-09-05 - 0034
Appendix A to Service Agreement No. 38087
Under Rate Schedule SST
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
October through March Transportation Demand 231,893 Dth/day
April through September Transportation Demand 115,946 Dth/day
Primary Receipt Points
<TABLE>
Scheduling Scheduling Maximum Daily
Point No. Point Name Quantity (Dth/Day)
- ------------------------------------------------------------------------------
<S> <C> <C>
STOW STORAGE WITHDRAWALS 231,893
</TABLE>
<PAGE> 1
EXHIBIT 10.17
SERVICE AGREEMENT NO. 38137
CONTROL NO. 1993-10-02 - 0622
FTS SERVICE AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of NOVEMBER, 1993, by and
between:
COLUMBIA GAS TRANSMISSION CORPORATION
("SELLER")
AND
MOUNTAINEER GAS CO
("BUYER")
WITNESSETH: That in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
Section 1. Service to be Rendered. Seller shall perform and Buyer shall receive
service in accordance with the provisions of the effective FTS Rate Schedule
and applicable General Terms and Conditions of Seller's FERC Gas Tariff, Second
Revised Volume No. 1 (Tariff), on file with the Federal Energy Regulatory
Commission (Commission), as the same may be amended or superseded in accordance
with the rules and regulations of the Commission. The maximum obligation of
Seller to deliver gas hereunder to or for Buyer, the designation of the points
of delivery at which Seller shall deliver or cause gas to be delivered to or
for Buyer, and the points of receipt at which Buyer shall deliver or cause gas
to be delivered, are specified in Appendix A, as the same may be amended from
time to time by agreement between Buyer and Seller, or in accordance with the
rules and regulations of the Commission. Service hereunder shall be provided
subject to the provisions of Part 284. 102 of Subpart B of the Commission's
regulations. Buyer warrants that service hereunder is being provided on behalf
of A LOCAL DISTRIBUTION COMPANY, MOUNTAINEER GAS CO.
Section 2. Term. Service under this Agreement shall commence as of NOVEMBER 0
1, 1993, and shall continue in full force and effect until OCTOBER 31, 1995,
and from YEAR-to-YEAR thereafter unless terminated by either party upon 6
MONTHS' written notice to the other prior to the end of the initial term
granted or any anniversary date thereafter. Pre-granted abandonment shall apply
upon termination of the Agreement subject to any right of first refusal Buyer
may have under the Commission's regulations and Seller's Tariff.
Section 3. Rates. Buyer shall pay Seller the charges and furnish Retainage as
described in the above-referenced Rate Schedule, unless otherwise agreed to by
the parties in writing and specified as an amendment to this Service
Agreement.
Section 4. Notices. Notices to Seller under this Agreement shall be addressed
to it at Post Office Box 1273, Charleston, West Virginia 25325-1273, Attention:
Director, Transportation and Exchange and notices to Buyer shall be addressed
to it at:
MOUNTAINEER GAS CO
414 SUMMERS ST.
CHARLESTON, WV 25301
ATTN: PAM RUCKMAN;
until changed by either party by written notice.
<PAGE> 2
FTS SERVICE AGREEMENT
Section 5. Superseded Agreements. This Service Agreement supersedes and
cancels, as of the effective date hereof, the following Service Agreements: FTS
37068
MOUNTAINEER GAS CO
By /s/ Richard Grant
------------------------------
Title President
------------------------------
COLUMBIA GAS TRANSMISSION CORPORATION
By /s/ S.M. Warnick
------------------------------
Title Vice President
------------------------------
-2-
<PAGE> 3
Revision No.
Control No. 1993-10-21 - 0622
Appendix A to Service Agreement No. 38137
Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
Transportation Demand 3,500 Dth/day
Primary Receipt Points
<TABLE>
<CAPTION>
F
O
O
T
N
O
Scheduling Scheduling Measuring T Measuring Maximum Daily
Point No. Point Name Point No. E Point Name Quantity (Dth/Day)
- --------------- ----------------------- --------------- ---- ------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
1001 Direct Appalachian 6299251 3,500
</TABLE>
- --------
1 The Alexander Aggregation Area was added to this agreement effective
12-01-93 by Revision #1. This revision was executed and returned to
Columbia by Mountaineer on 12-02-93.
-3-
<PAGE> 4
Revision No.
Control No. 1993-10-21 - 0622
Appendix A to Service Agreement No. 38137
Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
The Master List of Interconnects (MLI) as defined in Section 1 of the General
Terms and Conditions of Seller's Tariff is incorporated herein by reference for
the purposes of listing valid secondary interruptible receipt points and
delivery points.
Service charges pursuant to this Appendix A shall become effective as of
NOVEMBER 01, 1993. This Appendix A shall cancel and supersede the previous
Appendix A effective as of N/A, to the Service Agreement referenced above. With
the exception of this Appendix A, all other terms and conditions of said
Service Agreement shall remain in full force and effect.
MOUNTAINEER GAS CO
By /s/ Richard Grant
----------------------------------
Its President
----------------------------------
Date 2/14/94
----------------------------------
COLUMBIA GAS TRANSMISSION CORPORATION
By /s/ S.M. Warnick
----------------------------------
Its Vice President
----------------------------------
Date 2/14/94
----------------------------------
-4-
<PAGE> 5
Appendix A to Service Agreement No. 38137
Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
Primary Delivery Points
<TABLE>
<CAPTION>
F
O
O
T
N
O Maximum Daily
Scheduling Scheduling Measuring T Measuring Delivery Obligation
Point No. Point Name Point No. E Point Name (Dth/Day)
- --------------- --------------------------------- -------------- ----- --------------------------- -------------------------
<S> <C> <C> <C> <C>
833572 S RIVER ENERGY-MOORE 833572 MOOREFIELD GATE 3,500
</TABLE>
-5-
<PAGE> 6
Revision No. 1
Control No. 1993-10-21 - 0000
Appendix A to Service Agreement No. 38137
Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
Transportation Demand 3,500 Dth/day
Primary Receipt Points
<TABLE>
<CAPTION>
F
O
O
T
N
O
Scheduling Scheduling Measuring T Measuring Maximum Daily
Point No. Point Name Point No. E Point Name Quantity (Dth/Day)
- --------------- --------------------------- -------------- ---- ---------------------- ------------------------
<S> <C> <C> <C> <C> <C>
A04 ALEXANDER AGG PT A04 3,500
</TABLE>
<PAGE> 7
Revision No. 1
Control No. 1993-10-21 - 0000
Appendix A to Service Agreement No. 38137
Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
Primary Delivery Points
<TABLE>
<CAPTION>
F
O
O
T
N
O
Scheduling Scheduling Measuring T Measuring Maximum Daily
Point No. Point Name Point No. E Point Name Quantity (Dth/Day)
- --------------- --------------------------------- -------------- ----- ------------------------------------------------
<S> <C> <C> <C> <C>
833572 S RIVER ENERGY-MOORE 833572 MOOREFIELD GATE 3,500
</TABLE>
<PAGE> 8
Revision No. 1
Control No. 1993-10-21 - 0000
Appendix A to Service Agreement No. 38137
Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
The Master List of Interconnects (MLI) as defined in Section 1 of the General
Terms and Conditions of Seller's Tariff is incorporated herein by reference for
the purposes of listing valid secondary interruptible receipt points and
delivery points.
Service charges pursuant to this Appendix A shall become effective as of
DECEMBER 01, 1993. This Appendix A shall cancel and supersede the previous
Appendix A effective as of N/A, to the Service Agreement referenced above. With
the exception of this Appendix A, all other terms and conditions of said
Service Agreement shall remain in full force and effect.
MOUNTAINEER GAS CO
By /s/ Richard Grant
-----------------------------------------
Its President
-----------------------------------------
Date 11/29/93
-----------------------------------------
COLUMBIA GAS TRANSMISSION CORPORATION
By [illegible]
-----------------------------------------
Its Vice President
-----------------------------------------
Date 12/08/93
-----------------------------------------
<PAGE> 1
EXHIBIT 10.18
Agreement No. 38137
SUPPLEMENT No. 1
TO
TRANSPORTATION SERVICE AGREEMENT
WHEREAS, on November 1, 1993, Columbia Gas Transmission Corporation
(Seller), and Mountaineer Gas Company (Buyer) entered into an agreement,
designated Agreement No. 38137 (Service Agreement), by which Seller agreed to
transport natural gas for Buyer under the terms of Seller's FTS Rate Schedule;
and
WHEREAS, Section 1 of the Service Agreement states that such service
is to be provided subject to the provisions of Part 284.102 of Subpart (B) of
the Regulations of the Federal Energy Regulatory Commission (Commission); and
WHEREAS, it is the intent of the parties to amend this transportation
service under the provisions of Part 284.102 of Subpart (B) of the Commission's
Regulations.
NOW, THEREFORE, in consideration of the mutual covenants contained in
the Service Agreement, the parties hereby agree to amend the last two sentences
of Section 1. of the Service Agreement to read:
Service hereunder shall be provided subject to the provisions of Part
284.223 of Subpart G of the Commission's regulations. Buyer warrants
that service hereunder is being provided on behalf of Buyer.
The Service Agreement remains unchanged in all other aspects.
The parties hereto have accordingly and duly executed this Amendment this 6th
day of May, 1994.
COLUMBIA GAS TRANSMISSION
CORPORATION
By:/s/ S.M. Warnick
------------------------------
Its: Vice President
-----------------------------
MOUNTAINEER GAS COMPANY
By:/s/ Richard Grant
------------------------------
Its:President
-----------------------------
<PAGE> 1
EXHIBIT 10.19
Agreement No. 38077
Control No. 930905-0032
FSS SERVICE AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of November, 1993, by
and between COLUMBIA GAS TRANSMISSION CORPORATION ("Seller") and MOUNTAINEER
GAS COMPANY ("Buyer").
WITNESSETH: That in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Section 1. Service to be Rendered. Seller shall perform and Buyer
shall receive the service in accordance with the provisions of the effective
FSS Rate Schedule and applicable General Terms and Conditions of Seller's FERC
Gas Tariff, Second Revised Volume No. 1 (Tariff), on file with the Federal
Energy Regulatory Commission (Commission), as the same may be amended or
superseded in accordance with the rules and regulations of the Commission.
Seller shall store quantities of gas for Buyer up to but not exceeding Buyer's
Storage Contract Quantity as specified in Appendix A, as the same may be
amended from time to time by agreement between Buyer and Seller, or in
accordance with the rules and regulations of the Commission. Service hereunder
shall be provided subject to the provisions of Part 284.223 of Subpart G of the
Commission's regulations. Buyer warrants that service hereunder is being
provided on behalf of Buyer
Section 2. Term. Service under this Agreement shall commence as of
November 1, 1993 and shall continue in full force and effect until October 31,
2004 and from year to year thereafter unless terminated by either party upon
six months written notice to the other party prior to the end of the initial
term granted or any anniversary date thereafter. Pre-granted abandonment shall
apply upon termination of this Agreement, subject to any right of first refusal
Buyer may have under the Commission's regulations and Seller's Tariff.
Section 3. Rates. Buyer shall pay the charges and furnish the
Retainage percentage set forth in the above-referenced Rate Schedule and
specified in Seller's currently effective Tariff, unless otherwise agreed to by
the parties in writing and specified as an amendment to this Service Agreement.
Section 4. Notices. Notices to Seller under this Agreement shall be
addressed to it at Post Office Box 1273, Charleston, West Virginia 25325-1273,
Attention: Director, Transportation and Exchange, and notices to Buyer shall
be addressed to it at 414 Summers St., Charleston, West Virginia 25301,
Attention: Karen M. Macon, until changed by either party by written notice.
<PAGE> 2
EXHIBIT 10.19
Agreement No. 38077
Control No. 930905-0032
Section 5. Prior Service Agreements. This Agreement is being entered
into by the parties hereto pursuant to the Commission's Order No. 636 and its
orders dated July 14, 1993 and September 29, 1993, with respect to Seller's
Order No. 636 compliance filing and relates to the following existing Service
Agreements:
FSS Service Agreement No. 34628, effective November 1, 1989, as it may
have been amended, providing for storage and transportation service
under the FSS Rate Schedule.
CDS Service Agreement No. 36057, effective November 1 , 1989, as it may
have been amended, providing for a bundled sales, transportation and
storage service under the COS Rate Schedule.
WS Service Agreement No. 36058, effective November 1, 1989, as it may
have been amended, providing for a bundled storage and delivery service
under the WS Rate Schedule.
The terms of Service Agreement No. 38077 shall become effective as of the
effective date hereof, however, the parties agree that neither the execution
nor the performance of Service Agreement No. 38077 shall prejudice any
recoupment or other rights that Buyer may have under or with respect to the
above-referenced Service Agreements.
MOUNTAINEER GAS COMPANY COLUMBIA GAS TRANSMISSION
CORPORATION
By /s/ Richard Grant By /s/ S.M. Warnick
------------------------------- --------------------------
Title President Title Vice President
------------------------------ -------------------------
-2-
<PAGE> 3
Revision No.
Control No. 1993-09-05 - 0032
Appendix A to Service Agreement No. 38077
Under Rate Schedule FSS
Between(Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and(Buyer)MOUNTAINEER GAS CO
Storage Contract Quantity 11,761,703 Dth
Maximum Daily Storage Quantity 231,893 Dth per day
CANCELLATION OF PREVIOUS APPENDIX A
Service changes pursuant to this Appendix A shall become effective as of
NOVEMBER 0 1 , 1993. This Appendix A shall cancel and supersede the previous
Appendix A effective as of N/A , to the Service Agreement referenced above.
With the exception of this Appendix A, all other terms and conditions of said
Service Agreement shall remain in full force and effect.
MOUNTAINEER GAS CO
By /s/ Richard Grant
-------------------------------------
Its President
-------------------------------------
Date 2/14/94
---------------------------------------
COLUMBIA GAS TRANSMISSION CORPORATION
By /s/ S.M. Warnick
-------------------------------------
Its Vice President
-------------------------------------
Date 2/14/94
---------------------------------------
-3-
<PAGE> 1
EXHIBIT 10.20
Service Agreement No. 39272
Control No. 930905-0274
NTS SERVICE AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of November, 1993, by
and between COLUMBIA GAS TRANSMISSION CORPORATION ("Seller") and MOUNTAINEER
GAS COMPANY ("Buyer").
WITNESSETH: That in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Section 1. Service to be Rendered. Seller shall perform and Buyer
shall receive service in accordance with the provisions of the effective NTS
Rate Schedule and applicable General Terms and Conditions of Seller's FERC Gas
Tariff, Second Revised Volume No. I (Tariff), on file with the Federal Energy
Regulatory Commission (Commission), as the same may be amended or superseded in
accordance with the rules and regulations of the Commission. The maximum
obligation of Seller to deliver gas hereunder to or for Buyer, the designation
of the points of delivery at which Seller shall deliver or cause gas to be
delivered to or for Buyer, and the points of receipt at which Buyer shall
deliver or cause gas to be delivered, are specified in Appendix A, as the same
may be amended from time to time by agreement between Buyer and Seller, or in
accordance with the rules and regulations of the Commission. Service hereunder
shall be provided subject to the provisions of Part 284.102 of Subpart B of the
Commission's regulations. Buyer warrants that service hereunder is being
provided on behalf of MOUNTAINEER GAS COMPANY, a local distribution company.
Section 2. Term. Service under this Agreement shall commence as of
November 1, 1993, and shall continue in full force and effect until October 31,
2004, and from year-to-year thereafter unless terminated by either party upon
six (6) months' written notice to the other prior to the end of the initial
term granted or any anniversary date thereafter. Pre-granted abandonment shall
apply upon termination of this Agreement, subject to any right of first refusal
Buyer may have under the Commission's regulations and Seller's Tariff.
Section 3. Rates. Buyer shall pay Seller the charges and furnish
Retainage as described in the above-referenced Rate Schedule, unless otherwise
agreed to by the parties in writing and specified as an amendment to this
Service Agreement.
Section 4. Notices. Notices to Seller under this Agreement shall be
addressed to it at Post Office Box 1273, Charleston, West Virginia 25325-1273,
Attention: Director, Transportation and Exchange and notices to Buyer shall be
addressed to it at 414 Summers Street, Charleston, West Virginia 25301,
Attention: Karen M. Macon, until changed by either party by written notice.
<PAGE> 2
Section 5. Prior Service Agreements. This Agreement is being entered
into by the parties hereto pursuant to the Commission's Order No. 636 and its
orders dated July 14, 1993 and September 29, 1993, with respect to Seller's
Order No. 636 compliance filing and relates to the following existing Service
Agreements:
FTS Service Agreement No. 34550, effective November 1, 1989, as it may
have been amended, providing for transportation service under the FTS
Rate Schedule.
COS Service Agreement No. 36057, effective November 1, 1989, as it may
have been amended, providing for a bundled sales, transportation and
storage service under the COS Rate Schedule.
The terms of Service Agreement No. 39272 shall become effective as of the
effective date hereof, however, the parties agree that neither the execution
nor the performance of Service Agreement 39272 shall prejudice any recoupment
or other rights that Buyer may have under or with respect to the above-
referenced Service Agreements.
Section 6. Conversion. Buyer may convert all or a portion of its
service under the NTS Rate Schedule to an equivalent level of Transportation
Demand under Seller's FTS Rate Schedule by providing at least twelve month's
written notice (Notice Period) of Buyer's intent to convert; provided that the
conversion shall be effective concurrently with the effective date of revised
rates pursuant to Seller's first general rate filing under Section 4(e) of the
Natural Gas Act following the Notice Period. If the effective date of Seller's
general rate filing under Section 4(e) of the Natural Gas Act is within the
Notice Period, Seller shall attempt to make Buyer's conversion effective
concurrently with the effective date of revised rates for such rate filing;
provided Seller, in its discretion, determines that it has had sufficient
notice hereunder to make any modifications or revisions to such rate filing to
accommodate the conversion prior to such rate filing. The converted FTS
service agreement shall contain the same receipt and delivery points, MDDOs (or
applicable portion) and delivery pressure requirement (if applicable) as those
in effect under the NTS service agreement on the date of termination. This
conversion option shall expire on and any notice by Buyer hereunder must be
submitted to Seller by October 31, 1995.
MOUNTAINEER GAS COMPANY COLUMBIA GAS TRANSMISSION
CORPORATION
By /s/ Richard Grant By /s/ S.M. Warnick
--------------------------------------- --------------------------
Title President Title Vice President
-------------------------------------- -------------------------
-2-
<PAGE> 3
Revision No.
Control No. 1993-09-05-0274
Appendix A to Service Agreement No. 39272
Under Rate Schedule NTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
Transportation Demand 40,000 Dth/day
Primary Receipt Points
<TABLE>
<CAPTION>
Maximum Daily
Scheduling Scheduling Measuring FOOT Measuring Quantity
Point No. Point Name Point No. NOTE Point Name (Dth/Day)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
801 TCO-LEACH 801 40,000
</TABLE>
-3-
<PAGE> 4
Revision No.
Control No. 1993-09-05-0274
Appendix A to Service Agreement No. 39272
Under Rate Schedule NTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
Primary Delivery Points
<TABLE>
<CAPTION>
Scheduling Scheduling Measuring FOOT Measuring Maximum Daily
Point No. Point Name Point No. NOTE Point Name Quantity (Dth/Day)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
27 MOUNTAINEER OP-03 27 40,000
28 MOUNTAINEER OP-10 28 392
29 MOUNTAINEER OP-08 29 40,000
</TABLE>
-4-
<PAGE> 5
Revision No.
Control No. 1993-09-05 -0274
Appendix A to Service Agreement No. 39272
Under Rate Schedule NTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
The Master List of Interconnects (MLI) as defined in Section 1 of the General
Terms and Conditions of Seller's Tariff is incorporated herein by reference for
the purposes of listing valid secondary interruptible receipt points and
delivery points.
Service charges pursuant to this Appendix A shall become effective as of
NOVEMBER 01, 1993. This Appendix A shall cancel and supersede the previous
Appendix A effective as of N/A, to the Service Agreement referenced above.
With the exception of this Appendix A, all other terms and conditions of said
Service Agreement shall remain in full force and effect.
MOUNTAINEER GAS CO
By /s/ Richard Grant
-------------------------------------
Its President
-------------------------------------
Date 8/29/94
-------------------------------------
COLUMBIA GAS TRANSMISSION CORPORATION
By /s/ S.M. Warnick
-------------------------------------
Its Vice President
-------------------------------------
Date 9/6/94
-------------------------------------
-5-
<PAGE> 1
EXHIBIT 10.21
SERVICE AGREEMENT NO. 40251
CONTROL NO. 1993-10-14 - 0050
SIT SERVICE AGREEMENT
THIS AGREEMENT, made and entered into this 13th day of December, 1993, by and
between:
COLUMBIA GAS TRANSMISSION CORPORATION
("SELLER")
AND
MOUNTAINEER GAS CO
("BUYER")
WITNESSETH: That in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Section 1. Service to be Rendered. Seller shall perform and Buyer shall
receive the service in accordance with the provisions of the effective SIT Rate
Schedule and applicable General Terms and Conditions of Seller's FERC Gas
Tariff, Second Revised Volume No. I (Tariff), on file with the Federal Energy
Regulatory Commission (Commission), as the same may be amended or superseded in
accordance with the rules and regulations of the Commission. Seller shall
store quantities of gas for Buyer up to but not exceeding Buyer's Maximum
Balance Quantity as specified in Appendix A, as the same may be amended from
time to time by agreement between Buyer and Seller, or in accordance with the
rules and regulations of the Commission. Service hereunder shall be provided
subject to the provisions of Part 284.223 of Subpart G of the
Commission's regulations. Buyer warrants that service hereunder is being
provided on behalf of BUYER.
Section 2. Term. Service under this Agreement shall commence as of December
14, 1993, and shall continue in full force and effect from month-to-month
thereafter unless terminated by either party upon thirty (30) days written
notice to the other prior to the end of the initial term granted or any
anniversary date thereafter. Pre-granted abandonment shall apply upon
termination of this Service Agreement subject to any right of first refusal
Buyer may have under the Commission's regulations and Seller's Tariff.
Section 3. Rates. Buyer shall pay the charges and furnish the Retainage
percentage set forth in the above-referenced Rate Schedule and specified in
Seller's currently effective Tariff, unless otherwise agreed to by the parties
in writing and specified as an amendment to this Service Agreement
Section 4. Notices. Notices to Seller under this Agreement shall be addressed
to it at Post Office Box 1273, Charleston, West Virginia 25325-1273, Attention:
Director, Transportation and Exchange and notices to Buyer shall be addressed
to it at:
MOUNTAINEER GAS CO
414 SUMMERS ST.
CHARLESTON, WV 25301
ATTN: PAM RUCKMAN;
until changed by either party by written notice.
<PAGE> 2
SERVICE AGREEMENT NO. 40251
CONTROL NO. 1993-10-14 - 0050
SIT SERVICE AGREEMENT
Section 5. Superseded Agreements. This Service Agreement supersedes and
cancels, as of the effective date hereof, the following Service Agreements:
N/A.
MOUNTAINEER GAS CO
By: /s/ Michael S. Fletcher
----------------------------------
Title: Senior Vice President-CFO
-------------------------------
COLUMBIA GAS TRANSMISSION CORPORATION
By: /s/ Robert D. Stuart
----------------------------------
Title: Manager- T&E Implementation
-------------------------------
-2-
<PAGE> 3
Revision No.
Control No. 1993-10-14 - 0050
Appendix A to Service Agreement No. 40251
Under Rate Schedule SIT
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
Maximum Balance Quantity 125,000 Dth
CANCELLATION OF PREVIOUS APPENDIX A
Service changes pursuant to this Appendix A shall become effective as of
NOVEMBER 0 1 , 1993. This Appendix A shall cancel and supersede the previous
Appendix A effective N/A to the Service Agreement referenced
above. With the exception of this Appendix A, all other terms and conditions
of said Service Agreement shall remain in full force and effect.
MOUNTAINEER GAS CO
By /s/ Michael S. Fletcher
------------------------------------
Its Senior Vice President-CFO
-----------------------------------
Date December 9, 1993
----------------------------------
COLUMBIA GAS TRANSMISSION CORPORATION
By /s/ Robert D. Stuart
------------------------------------
Robert D. Stuart
Its Manager - T&E Implementation
-----------------------------------
Date December 13, 1993
----------------------------------
COLUMBIA GAS TRANSMISSION CORPORATION
MOUNTAINEER GAS CO
-3-
<PAGE> 4
Control No. 1993-10-14 - 0050
Service Agreements Subject to SIT Balancing:
<TABLE>
<CAPTION>
Rate Schedule Agreement No. Shipper
<S> <C> <C>
FTS 38113 MGC
FTS 38137 MGC
ITS 37507 MGC
</TABLE>
-4-
<PAGE> 1
EXHIBIT 10.22
Service Agreement No. 38113
Control No. 930905-0031
FTS SERVICE AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of November, 1993,
by and between COLUMBIA GAS TRANSMISSION CORPORATION ("Seller") and MOUNTAINEER
GAS COMPANY (if Buyer").
WITNESSETH: That in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Section 1. Service to be Rendered. Seller shall perform and Buyer
shall receive service in accordance with the provisions of the effective FTS
Rate Schedule and applicable General Terms and Conditions of Seller's FERC Gas
Tariff, Second Revised Volume No. 1 (Tariff), on file with the Federal Energy
Regulatory Commission (Commission), as the same may be amended or superseded in
accordance with the rules and regulations of the Commission. The maximum
obligation of Seller to deliver gas hereunder to or for Buyer, the designation
of the points of delivery at which Seller shall deliver or cause gas to be
delivered to or for Buyer, and the points of receipt at which Buyer shall
deliver or cause gas to be delivered, are specified in Appendix A, as the same
may be amended from time to time by agreement between Buyer and Seller, or in
accordance with the rules and regulations of the Commission. Service hereunder
shall be provided subject to the provisions of Part 284.102 of Subpart B of the
Commission's regulations. Buyer warrants that service hereunder is being
provided on behalf of MOUNTAINEER GAS COMPANY, a local distribution company.
Section 2. Term. Service under this Agreement shall commence as of
November 1, 1993, and shall continue in full force and effect until October 31,
2004, and from year-to-year thereafter unless terminated by either party upon
six (6) months' written notice to the other prior to the end of the initial
term granted or any anniversary date thereafter. Pre-granted abandonment shall
apply upon termination of this Agreement, subject to any right of first refusal
Buyer may have under the Commission's regulations and Seller's Tariff.
Section 3. Rates. Buyer shall pay Seller the charges and furnish
Retainage as described in the above- referenced Rate Schedule, unless otherwise
agreed to by the parties in writing and specified as an amendment to this
Service Agreement.
Section 4. Notices. Notices to Seller under this Agreement shall be
addressed to it at Post Office Box 1273, Charleston, West Virginia 25325-1273,
Attention: Director, Transportation and
<PAGE> 2
FTS SERVICE AGREEMENT (Cont'd)
Exchange and notices to Buyer shall be addressed to it at 414 Summers St.,
Charleston, WV 25301, Attention: Karen M. Macon, until changed by either
party by written notice.
Section 5. Prior Service Agreements. This Agreement is being entered
into by the parties hereto pursuant to the Commission's Order No. 636 and its
orders dated July 14, 1993 and September 29, 1993, with respect to Seller's
Order No. 636 compliance filing and relates to the following existing Service
Agreements:
FTS Service Agreement No. 34550, effective November 1, 1989, as it may
have been amended, providing for transportation service under the FTS
Rate Schedule.
CDS Service Agreement No. 36057, effective November 1, 1989, as it may
have been amended, providing for a bundled sales, transportation and
storage service under the CDS Rate Schedule.
The terms of Service Agreement No. 38113 shall become effective as of the
effective date hereof, however, the parties agree that neither the execution
nor the performance of Service Agreement 38113 shall prejudice any recoupment
or other rights that Buyer may have under or with respect to the
above-referenced Service Agreements.
MOUNTAINEER GAS COMPANY COLUMBIA GAS TRANSMISSION
CORPORATION
By /s/ Richard Grant By /s/ S.M. Warnick
-------------------------------- ------------------------------------
Title President Title Vice President
------------------------------- --------------------------------
<PAGE> 3
Revision No.
Control No. 1993-09-05 - 0031
Appendix A to Service Agreement No.
38113 Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
Transportation Demand 71,107 Dth/day
Primary Receipt Points
<TABLE>
<CAPTION>
Scheduling Scheduling Measuring Measuring Maximum Daily
Point No. Point Name Point No. Point Name Quantity (Dth/Day)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
A02 FLAT TOP AGGREG PT A02 3,671
B9 BROAD RUN B9 4,731
801 TCO-LEACH 801 62,705
</TABLE>
<PAGE> 4
Revision No.
Control No. 1993-09-05 - 0031
Appendix A to Service Agreement No.
38113 Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
Primary Delivery Points
<TABLE>
<CAPTION>
Scheduling Scheduling Measuring Measuring Maximum Daily
Point No. Point Name Point No. Point Name Quantity (Dth/Day)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
27 MOUNTAINEER OP-03 27 71,107
28 MOUNTAINEER OP-10 28 392
29 MOUNTAINEER OP-08 29 71,107
</TABLE>
<PAGE> 5
Revision No.
Control No. 1993-09-05 - 0031
Appendix A to Service Agreement No.
38113 Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
GFNT / ALL GAS SHALL BE DELIVERED AT EXISTING POINTS OF INTERCONNECTION
WITHIN THE MDDO'S IN SELLER'S CURRENTLY EFFECTIVE SST SERVICE
AGREEMENT WITH BUYER, WHICH FOR SUCH POINTS SET FORTH ARE INCORPORATED
HEREIN BY REFERENCE.
<PAGE> 6
Revision No.
Control No. 1993-09-05 - 0031
Appendix A to Service Agreement No.
38113 Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
The Master List of Interconnects (MLI) as defined in Section 1 of the General
Terms and Conditions of Seller's Tariff is incorporated herein by reference for
the purposes of listing valid secondary interruptible receipt points and
delivery points.
Service charges pursuant to this Appendix A shall become effective as of
NOVEMBER 01, 1993. This Appendix A shall cancel and supersede the previous
Appendix A effective as of N/A , to the Service
Agreement referenced above. With the exception of this Appendix A, all other
terms and conditions of said Service Agreement shall remain in full force and
effect.
MOUNTAINEER GAS CO
By /s/ Richard Grant
----------------------------------------
Its President
--------------------------------------
Date 2/14/94
---------------------------------------
COLUMBIA GAS TRANSMISSION CORPORATION
By /s/ S.M. Warnick
--------------------------------------
Its Vice President
--------------------------------------
Date 2/14/94
---------------------------------------
<PAGE> 1
EXHIBIT 10.23
Agreement No. 38113
SUPPLEMENT NO. 1
TO
TRANSPORTATION SERVICE AGREEMENT
WHEREAS, on November 1, 1993, Columbia Gas Transmission Corporation
(Seller), and Mountaineer Gas Company (Buyer) entered into an agreement,
designated Agreement No. 38113 (Service Agreement), by which Seller agreed to
transport natural gas for Buyer under the terms of Seller's FTS Rate Schedule;
and
WHEREAS, Section 1 of the Service Agreement states that such service
is to be provided subject to the provisions of Part 284.102 of Subpart (B) of
the Regulations of the Federal Energy Regulatory Commission (Commission); and
WHEREAS, it is the intent of the parties to amend this transportation
service under the provisions of Part 284.102 of Subpart (B) of the Commission's
Regulations.
NOW, THEREFORE, in consideration of the mutual covenants contained in
the Service Agreement, the parties hereby agree to amend the last two sentences
of Section 1. of the Service Agreement to read:
Service hereunder shall be provided subject to the provisions of Part
284.223 of Subpart G of the Commission's regulations. Buyer warrants
that service hereunder is being provided on behalf of Buyer.
The Service Agreement remains unchanged in all other aspects.
The parties hereto have accordingly and duly executed this Amendment
this 6th day of May, 1994.
COLUMBIA GAS TRANSMISSION CORPORATION
By: /s/ Robert Stuart
-----------------------------------------
Its: Manager
----------------------------------------
MOUNTAINEER GAS COMPANY
By: /s/ Richard Grant
-----------------------------------------
Its: President
----------------------------------------
<PAGE> 2
Revision No. 1
Control No. 1995-06-07 - 0004
Appendix A to Service Agreement No.
38113 Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
Transportation Demand 71,107 Dth/day
Primary Receipt Points
<TABLE>
<CAPTION>
Scheduling Scheduling Measuring Measuring Maximum Daily
Point No. Point Name Point No. Point Name Quantity (Dth/Day)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
G3 BRADLEY G3 01 8,402
801 TCO-LEACH 801 62,705
</TABLE>
<PAGE> 3
Revision No. 1
Control No. 1995-06-07 - 0004
Appendix A to Service Agreement No.
38113 Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
Primary Delivery Points
<TABLE>
<CAPTION>
Maximum Daily
Scheduling Scheduling Measuring Measuring Delivery Obligation
Point No. Point Name Point No. Point Name (Dth/Day)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
27 MOUNTAINEER OP-03 27 71,107
28 MOUNTAINEER OP-10 28 392
29 MOUNTAINEER OP-08 29 71,107
</TABLE>
<PAGE> 4
Revision No. 1
Control No. 1995-06-07 - 0004
Appendix A to Service Agreement No.
38113 Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
FN01 / THE BRADLEY METER WILL BE INTERRUPTED DURING INSTALLATION OF A 20"
MAINLINE VALVE NEARBY ON LINE KA. INSTALLATION IS EXPECTED TO TAKE
TWO WEEKS SOMETIME IN AUGUST OR SEPTEMBER. IF FERC APPROVAL IS
RECEIVED IN TIME, THE CURRENT PLAN IS TO BEGIN THE INTERRUPTION ON
AUGUST 15.
GFNT / ALL GAS SHALL BE DELIVERED AT EXISTING POINTS OF INTERCONNECTION
WITHIN THE MDDO'S IN SELLER'S CURRENTLY EFFECTIVE SST SERVICE
AGREEMENT WITH BUYER, WHICH FOR SUCH POINTS SET FORTH ARE INCORPORATED
HEREIN BY REFERENCE.
<PAGE> 5
Revision No. 1
Control No. 1995-06-07 - 0004
Appendix A to Service Agreement No.
38113 Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
The Master List of Interconnects (MLI) as defined in Section 1 of the General
Terms and Conditions of Seller's Tariff is incorporated herein by reference for
the purposes of listing valid secondary interruptible receipt points and
delivery points.
Service charges pursuant to this Appendix A shall become effective as of AUGUST
01, 1995. This Appendix A shall cancel and supersede the previous Appendix A
effective as of NOVEMBER 01, 1993, to the Service Agreement referenced above.
With the exception of this Appendix A, all other terms and conditions of said
Service Agreement shall remain in full force and effect.
MOUNTAINEER GAS CO
By: /s/ Richard L. Grant
----------------------------------------
Name: Richard L. Grant
--------------------------------------
Title: President
------------------------------------
Date July 24, 1995
------------------------------------
COLUMBIA GAS TRANSMISSION CORPORATION
By: /s/ Barry J. Lowrey
------------------------------------
Name: Barry J. Lowrey
------------------------------------
Title: Manager--Agreements Administration
------------------------------------
Date: July 27, 1995
------------------------------------
<PAGE> 6
Revision No. 2
Control No. 1995-10-11 - 0018
Appendix A to Service Agreement No.
38113 Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
Transportation Demand 71,107 Dth/day
Primary Receipt Points
<TABLE>
<CAPTION>
F
O
O
T
N
O
Scheduling Scheduling Measuring T Measuring Maximum Daily
Point No. Point Name Point No. E Point Name Quantity (Dth/Day)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
A02 FLAT TOP AGGREG PT A02 3,671
B9 BROAD RUN B9 4,731
801 TCO-LEACH 801 62,705
</TABLE>
<PAGE> 7
Revision No. 2
Control No. 1995-10-11 - 0018
Appendix A to Service Agreement No.
38113 Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
Primary Delivery Points
<TABLE>
<CAPTION>
F
O
O
T
N
O Maximum Daily
Scheduling Scheduling Measuring T Measuring Delivery Obligation
Point No. Point Name Point No. E Point Name (Dth/Day)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
27 MOUNTAINEER OP-03 27 71,107
28 MOUNTAINEER OP-10 28 392
29 MOUNTAINEER OP-08 29 71,107
</TABLE>
<PAGE> 8
Revision No. 2
Control No. 1995-10-11 - 0018
Appendix A to Service Agreement No.
38113 Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
GFNT / ALL GAS SHALL BE DELIVERED AT EXISTING POINTS OF INTERCONNECTION
WITHIN THE MDDO'S IN SELLER'S CURRENTLY EFFECTIVE SST SERVICE
AGREEMENT WITH BUYER, WHICH FOR SUCH POINTS SET FORTH ARE INCORPORATED
HEREIN BY REFERENCE.
<PAGE> 9
Revision No. 2
Control No. 1995-10-11 - 0018
Appendix A to Service Agreement No.
38113 Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) MOUNTAINEER GAS CO
The Master List of Interconnects (MLI) as defined in Section 1 of the General
Terms and Conditions of Seller's Tariff is incorporated herein by reference for
the purposes of listing valid secondary interruptible receipt points and
delivery points.
Service charges pursuant to this Appendix A shall become effective as of
DECEMBER 01, 1995. This Appendix A shall cancel and supersede the previous
Appendix A effective as of DECEMBER 01, 1995, to the Service Agreement
referenced above. With the exception of this Appendix A, all other terms and
conditions of said Service Agreement shall remain in full force and effect.
MOUNTAINEER GAS CO
By: /s/ Richard L. Grant
-------------------------------
Name: Richard L. Grant
-----------------------------
Title: President
----------------------------
Date: December 15, 1995
-----------------------------
COLUMBIA GAS TRANSMISSION CORPORATION
By: /s/ Barry J. Lowrey
-------------------------------
Name: Barry J. Lowrey
-----------------------------
Title: Manager--Agreements
Administration
----------------------------
Date: December 29, 1995
-----------------------------
<PAGE> 1
EXHIBIT 10.24
SERVICE PACKAGE NO. 8396
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
THIS AGREEMENT is made and entered into as of the 1st day of October, 1994, by
and between TENNESSEE GAS PIPELINE COMPANY, a Delaware Corporation, hereinafter
referred to as "Transporter" and MOUNTAINEER GAS CO, a WEST VIRGINIA
Corporation, hereinafter referred to as "Shipper." Transporter and Shipper
shall collectively be referred to herein as the "Parties." This agreement
replaces Gas Transportation Agreement No. 5458, dated December 1, 1993 and the
parties hereto agree that this Agreement shall be deemed a novation of the
earlier Agreement.
ARTICLE I
DEFINITIONS
1.1 TRANSPORTATION QUANTITY (TQ) - shall mean the maximum daily quantity
of gas which Transporter agrees to receive and transport on a firm
basis, subject to Article II herein, for the account of Shipper
hereunder on each day during each year during the term hereof, which
shall be 4,825 dekatherms. Any limitations of the quantities to be
received from each Point of Receipt and/or delivered to each Point of
Delivery shall be as specified on Exhibit "A" attached hereto.
1.2 EQUIVALENT QUANTITY - shall be as defined in Article I of the General
Terms and Conditions of Transporter's FERC Gas Tariff.
ARTICLE II
TRANSPORTATION
Transportation Service - Transporter agrees to accept and receive daily on a
firm basis, at the Point(s) of Receipt from Shipper or for Shipper's account
such quantity of gas as Shipper makes available up to the Transportation
Quantity, and to deliver to or for the account of Shipper to the Point(s) of
Delivery an Equivalent Quantity of gas.
ARTICLE III
POINT(S) OF RECEIPT AND DELIVERY
The Primary Point(s) of Receipt and Delivery shall be those points specified on
Exhibit "A" attached hereto.
ARTICLE IV
All facilities are in place to render the service provided for in this
Agreement.
ARTICLE V
QUALITY SPECIFICATIONS AND STANDARDS FOR MEASUREMENT
For all gas received, transported and delivered hereunder the Parties agree to
the Quality Specifications and Standards for Measurement as specified in the
General Terms and Conditions of Transporter's FERC Gas Tariff Volume No. 1.
<PAGE> 2
SERVICE PACKAGE NO. 8396
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
To the extent that no new measurement facilities are installed to provide
service hereunder, measurement operations will continue in the manner in which
they have previously been handled. In the event that such facilities are not
operated by Transporter or a downstream pipeline, then responsibility for
operations shall be deemed to be Shipper's.
ARTICLE VI
RATES AND CHARGES FOR GAS TRANSPORTATION
6.1 TRANSPORTATION RATES - Commencing upon the effective date hereof, the
rates, charges, and surcharges to be paid by Shipper to Transporter
for the transportation service provided herein shall be in accordance
with Transporter's Rate Schedule FT-A and the General Terms and
Conditions of Transporter's FERC Gas Tariff.
6.2 INCIDENTAL CHARGES - Shipper agrees to reimburse Transporter for any
filing or similar fees paid to FERC, which have not been previously
paid for by Shipper, which Transporter incurs in rendering service
hereunder.
6.3 CHANGES IN RATES AND CHARGES - Shipper agrees that Transporter shall
have the unilateral right to file with the appropriate regulatory
authority and make effective changes in (a) the rates and charges
applicable to service pursuant to Transporter's Rate Schedule FT-A,
(b) the rate schedule(s) pursuant to which service hereunder is
rendered, or (c) any provision of the General Terms and Conditions
applicable to those rate schedules. Transporter agrees that Shipper
may protest or contest the aforementioned filings, or may seek
authorization from duly constituted regulatory authorities for such
adjustment of Transporter's existing FERC Gas Tariff as may be found
necessary to assure Transporter just and reasonable rates.
ARTICLE VII
BILLINGS AND PAYMENTS
Transporter shall bill and Shipper shall pay all rates and charges in
accordance with Articles V and VI, respectively, of the General Terms and
Conditions of Transporter's FERC Gas Tariff.
ARTICLE VIII
GENERAL TERMS AND CONDITIONS
This Agreement shall be subject to the effective provisions of Transporter's
Rate Schedule FT-A and to the General Terms and Conditions incorporated
therein, as the same may be changed or superseded from time to time in
accordance with the rules and regulations of the FERC.
ARTICLE IX
REGULATION
9.1 This Agreement shall be subject to all applicable and lawful
governmental statutes, orders, rules and regulations and is contingent
upon the receipt and continuation of all necessary regulatory
approvals or
-2-
<PAGE> 3
SERVICE PACKAGE NO. 8396
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
authorizations upon terms acceptable to Transporter. This Agreement
shall be void and of no force and effect if any necessary regulatory
approval is not so obtained or continued. All Parties hereto shall
cooperate to obtain or continue all necessary approvals or
authorizations, but no Party shall be liable to any other Party for
failure to obtain or continue such approvals or authorizations.
9.2 The transportation service described herein shall be provided subject
to Subpart G, Part 284, of the FERC Regulations.
ARTICLE X
RESPONSIBILITY DURING TRANSPORTATION
Except as herein specified, the responsibility for gas during transportation
shall be as stated in the General Terms and Conditions of Transporter's FERC
Gas Tariff Volume No. 1.
ARTICLE XI
WARRANTIES
11.1 In addition to the warranties set forth in Article IX of the General
Terms and Conditions of Transporter's FERC Gas Tariff, Shipper
warrants the following:
(a) Shipper warrants that all upstream and downstream
transportation arrangements are in place, or will be in place
as of the requested effective date of service, and that it has
advised the upstream and downstream transporters of the
receipt and delivery points under this Agreement and any
quantity limitations for each point as specified on Exhibit
"A" attached hereto. Shipper agrees to indemnify and hold
Transporter harmless for refusal to transport gas hereunder in
the event any upstream or downstream transporter fails to
receive or deliver gas as contemplated by this Agreement.
(b) Shipper agrees to indemnify and hold Transporter harmless from
all suits, actions, debts, accounts, damages, costs, losses
and expenses (including reasonable attorneys fees) arising
from or out of breach of any warranty by Shipper herein.
11.2 Transporter shall not be obligated to provide or continue service
hereunder in the event of any breach of warranty.
ARTICLE XII
TERM
12.1 This Agreement shall be effective as of the 1st day of October, 1994,
and shall remain in force and effect until the 31st day of October,
2000, ("Primary Term") and on an Automatic Rollover basis thereafter
unless terminated by either Party upon at least thirty (30) days prior
written notice to the other Party; provided, however, that if the
Primary Term is one year or more, then unless Shipper elects to give
upon one year or more prior written notice to Transporter to request a
lesser extension term of this Agreement, the Agreement
-3-
<PAGE> 4
SERVICE PACKAGE NO. 8396
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
shall automatically extend upon the expiration of the Primary Term for
a term of five years and shall automatically extend for successive
five year terms thereafter unless Shipper provides notice described
above in advance of the expiration of a succeeding term; provided
further, if the FERC or other governmental body having jurisdiction
over the service rendered pursuant to this Agreement authorizes
abandonment of such service, this Agreement shall terminate on the
abandonment date permitted by the FERC or such other governmental
body.
12.2 Any portions of this Agreement necessary to resolve or cashout
imbalances under this Agreement as required by the General Terms and
Conditions of Transporter's FERC Gas Tariff Volume No. 1, shall
survive the other parts of this Agreement until such time as such
balancing has been accomplished; provided, however, that Transporter
notifies Shipper of such imbalance no later than twelve months after
the termination of this Agreement.
12.3 This Agreement will terminate automatically upon written notice from
Transporter in the event Shipper fails to pay all of the amount of any
bill for service rendered by Transporter hereunder in accord with the
terms and conditions of Article VI of the General Terms and Conditions
of Transporter's FERC Tariff.
ARTICLE XIII
NOTICE
Except as otherwise provided in the General Terms and Conditions applicable to
this Agreement, any notice under this Agreement shall be in writing and mailed
to the post office address of the Party intended to receive the same, as
follows:
TRANSPORTER: TENNESSEE GAS PIPELINE COMPANY
P.O. Box 2511
Houston, Texas 77252-2511
Attention: Transportation Marketing
SHIPPER:
NOTICES: MOUNTAINEER GAS CO
P.O. BOX 3152
CHARLESTON, WV 25332
Attention: CAROLYN MORRIS
BILLING: MOUNTAINEER GAS CO
414 SUMMERS STREET
CHARLESTON, WV 25301
Attention: CAROLYN MORRIS
or to such other address as either Party shall designate by formal written
notice to the other.
-4-
<PAGE> 5
SERVICE PACKAGE NO. 8396
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
ARTICLE XIV
ASSIGNMENTS
14.1 Either Party may assign or pledge this Agreement and all rights and
obligations hereunder under the provisions of any mortgage, deed of
trust, indenture, or other instrument which it has executed or may
execute hereafter as security for indebtedness. Either Party may,
without relieving itself of its obligation under this Agreement assign
any of its rights hereunder to a company with which it is affiliated.
Otherwise, Shipper shall not assign this Agreement or any of its
rights hereunder, except in accord with Article III, Section 11 of the
General Terms and Conditions of Transporter's FERC Gas Tariff.
14.2 Any person which shall succeed by purchase, merger, or consolidation
to the properties, substantially as an entirety, of either Party
hereto shall be entitled to the rights and shall be subject to the
obligations of its predecessor in interest under this Agreement.
ARTICLE XV
MISCELLANEOUS
15.1 The interpretation and performance of this Agreement shall be in
accordance with and controlled by the laws of the State of Texas,
without regard to the doctrines governing choice of law.
15.2 If any provisions of this Agreement is declared null and void, or
voidable, by a court of competent jurisdiction, then that provision
will be considered severable at either Party's option; and if the
severability option is exercised, the remaining provisions of the
Agreement shall remain in full force and effect.
15.3 Unless otherwise expressly provided in this Agreement or Transporter's
Gas Tariff, no modification of or supplement to the terms and
provisions stated in this agreement shall be or become effective until
Shipper has submitted a request for change through the TENN-SPEE(R) 2
System and Shipper has been notified through TENN- SPEED 2 of
Transporter's agreement to such change.
15.4 Exhibit "A" attached hereto is incorporated herein by reference and
made a part hereof for all purposes.
-5-
<PAGE> 6
SERVICE PACKAGE NO. 8396
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed as of the date first hereinabove written.
TENNESSEE GAS PIPELINE COMPANY
BY: [illegible]
-----------------------------------
Agent and Attorney-in-Fact
MOUNTAINEER GAS CO
BY: /s/ Richard L. Grant
-----------------------------------
Richard L. Grant
TITLE: President
--------------------------------
DATE: March 25, 1996
---------------------------------
-6-
<PAGE> 7
SERVICE PACKAGE NO. 8396
AMENDMENT NO. 0
GAS TRANSPORTATION AGREEMENT
(For Use Under FT-A Rate Schedule)
EXHIBIT "A"
AMENDMENT #0 TO GAS TRANSPORTATION AGREEMENT
DATED October 1, 1994
BETWEEN
TENNESSEE GAS PIPELINE COMPANY
AND
MOUNTAINEER GAS CO
MOUNTAINEER GAS CO
EFFECTIVE DATE OF AMENDMENT: October 1, 1994
RATE SCHEDULE: FT-A
SERVICE PACKAGE: 8396
SERVICE PACKAGE TQ: 4,825 Dth
<TABLE>
<CAPTION>
INTERCONNECT PARTY BILLABLE-
METER METER NAME NAME COUNTY ST ZONE R/D LEG METER-TQ TQ
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
010008 UNION - WARDNER COASTAL UNION PACIFIC NUECES TX 00 R 100 223 223
PLT DEH FUELS INC
011034 COLUMBIA GULF-EGAN DEHYD COLUMBIA GULF ACADIA LA 01 R 800 2,573 2,573
EXCH TRANSMISSION CO
011777 LOUISIANA-ELOT BAY LOUISIANA ST BERNARD LA 01 R 500 2,029 2,029
TRANSPORT INTRASTATE GAS
CORP
Total Receipt TQ: 4,825 4,825
020001 COLUMBIA-UF BR RUN COBB COLUMBIA GAS KANAWHA WV 03 D 087 4,825 4,825
W VA TRANSMISSION
CORP
</TABLE>
NUMBER OF RECEIPT POINTS AFFECTED: 3
NUMBER OF DELIVERY POINTS AFFECTED: 1
Note: Exhibit "A" is a reflection of the contract and all amendments as of the
amendment effective date.
-7-
<PAGE> 1
Exhibit 10.25
TENNESSEE GAS PIPELINE Tenneco Building
A Tenneco Company P. 0. Box 2511
Houston, Texas 77252-2511
(713) 757-2131
December 9, 1994
JIM SNYDER
MOUNTAINEER GAS Co
P.O. BOX 3152
CHARLESTON, WV 25332
RE: Amendment No. 1 to
Gas Transportation Agreement
Dated October 1st, 1994
Service Package No. 8396
Dear Jim:
TENNESSEE GAS PIPELINE COMPANY and MOUNTAINEER GAS CO, agree to amend the
Agreement effective October 10th, 1994, to change the Primary Meters and the
associated Meter Quantities as reflected in the Attached Revised Exhibit A-1.
Except as amended herein, all terms and provisions of the Agreement shall
remain in full force and effect as written.
If the foregoing is in accordance with your understanding of the Agreement,
please so indicate by signing and returning to my attention both originals of
this letter. Upon Tennessee's execution, an original will be forwarded to you
for your files.
Should you have any questions, please do not hesitate to contact me at (713)
757-3720.
Best regards,
TENNESSEE GAS PIPELINE COMPANY
/s/ Greg Jallans
Greg Jallans, Account Manager
Central Region
ACCEPTED AND AGREED TO
This 5th Day of May, 95
MOUNTAINEER GAS CO
By: /s/ Richard L. Grant
---------------------------------------
Title: Agent and Attorney in Fact
ACCEPTED AND AGREED TO
This 28th Day of June, 1995
TENNESSEE GAS PIPELINE COMPANY
By: [illegible]
---------------------------------------
Director, Transportation Services
Central Region
-8-
<PAGE> 2
GAS TRANSPORTATION AGREEMENT
EXHIBIT "A-1"
SHOWING REQUESTED CHANGES
AMENDMENT #1 TO GAS TRANSPORTATION AGREEMENT
DATED October 1, 1994
BETWEEN
TENNESSEE GAS PIPELINE COMPANY
AND
MOUNTAINEER GAS CO
MOUNTAINEER GAS CO
EFFECTIVE DATE OF AMENDMENT: October 10, 1994
RATE SCHEDULE: FT-A
SERVICE PACKAGE: 8396
SERVICE PACKAGE TQ: 4,825 Dth
<TABLE>
<CAPTION>
INTERCONNECT BILLABLE-
METER METER NAME PARTY NAME COUNTY ST ZONE R/D LEG METER-TQ TQ
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
010008 UNION - WARDNER COASTAL UNION PACIFIC FUELS NUECES TX 00 R 100 -223 -223
PLT DEH INC
011034 COLUMBIA GULF-EGAN DEHYD COLUMBIA GULF ACADIA LA 01 R 800 -2,573 -2,573
EXCH TRANSMISSION CO
011750 S MARSH IS BLK 243c MOBIL NATURAL GAS OFFSHORE- OL 01 R 500 1,371 1,371
INC FEDERA
012125 HALLWOOD - HALLWOOD PETROLEUM LAFAYETTE LA 01 R 800 1,425 1,425
FRED AKERS #1 INC
Total Receipt TQ: 0 0
Total Delivery TQ: 0 0
</TABLE>
NUMBER OF RECEIPT POINTS AFFECTED: 4
NUMBER OF DELIVERY POINTS AFFECTED: 1
-9-
<PAGE> 1
EXHIBIT 12.1
EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
9me 9me
1992 1993 1994 1995 1996 1996 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before taxes 3,589 5,954 (882) 3,895 11,094 24,487 17,195
Interest Expense 12,876 9,168 7,501 8,744 23,182 18,164 17,005
--------------------------------------------------------------
16,465 15,122 6,619 12,639 34,276 43,651 34,200
Fixed Charges:
Interest Expense 12,876 9,168 7,501 8,744 23,182 18,164 17,005
Capitalized Expense 195 229 408 642 630 473 270
--------------------------------------------------------------
Total Fixed Charges 13,071 9,397 7,909 9,386 12,812 18,637 17,275
Earnings to Fixed Charges 1.26 1.61 0.84 1.35 1.44 2.34 1.98
==============================================================
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF ENERGY CORPORATION OF AMERICA
Eastern American Energy Corporation
Eastern Marketing Corporation
Eastern Pipeline Corporation
Eastern Systems Corporation
Eastern Capital Corporation
Eastern Exploration Corporation
Mountaineer Gas Company
Mountaineer Gas Services
Westech Energy Corporation
Westech Energy New Zealand Limited
Westside Acquisition Corporation
Allegheny & Western Energy Corporation
Natural Gas Transportation Company
Gas Access Systems, Inc.
Petro Services, Inc.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
We consent to the use in this Registration Statement of Energy Corporation of
America on Form S-4 of our reports dated April 21, 1997, appearing in the
Prospectus, which is part of this Registration Statement, and to the references
to us under the headings "Summary Financial Information", "Selected
Consolidated Financial Information", "Change of Accountants" and "Experts" in
such Prospectus.
Our audit of the consolidated financial statements of Energy Corporation of
America referred to in our aforementioned report also included the financial
statement schedules of Energy Corporation of America, listed in Item 21. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial stats of Energy Corporation of America taken
as a whole, present fairly in all material respects the information set forth
therein.
Denver, Colorado
June 9, 1997
<PAGE> 1
EXHIBIT 25.1
THIS CONFORMED PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS
TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
-----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
-----------------------
ENERGY CORPORATION OF AMERICA
(Exact name of obligor as specified in its charter)
West Virginia 841235822
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
4643 South Ulster Street, Suite 1100
Denver, Colorado 80237
(Address of principal executive offices) (Zip code)
----------------------
9 1/2% Senior Subordinated Notes due 2007,
Series A (Title of the indenture
securities)
================================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE
TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(D).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
-2-
<PAGE> 3
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
- 3 -
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 3rd day of June, 1997.
THE BANK OF NEW YORK
By: /s/ WALTER GITLIN
--------------------------
Name: WALTER GITLIN
Title: VICE PRESIDENT
-4-
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business December 31,
1996, published in accordance with a call
made by the Federal Reserve Bank of this District pursuant to the provisions of
the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin . . . . . . . . . . . . . . . . . . . . $ 6,024,605
Interest-bearing balances . . . . . . . . . . . . . . . . 808,821
Securities:
Held-to-maturity securities . . . . . . . . . . . . . . . 1,071,747
Available-for-sale securities . . . . . . . . . . . . . . 3,105,207
Federal funds sold in domestic offices
of the bank: . . . . . . . . . . . . . . . . . . . . . . . . 4,250,941
Loans and lease financing
receivables:
Loans and leases, net of unearned
income . . . . . . . . . . . . . . . . . . . . . . . . . 31,962,915
LESS: Allowance for loan and
lease losses . . . . . . . . . . . . . . . . . . . . . . 635,084
LESS: Allocated transfer risk
reserve . . . . . . . . . . . . . . . . . . . . . . . . . 429
Loans and leases, net of unearned
income, allowance, and reserve . . . . . . . . . . . . 31,327,402
Assets held in trading accounts . . . . . . . . . . . . . . 1,539,612
Premises and fixed assets (including
capitalized leases) . . . . . . . . . . . . . . . . . . . 692,317
Other real estate owned . . . . . . . . . . . . . . . . . . 22,123
Investments in unconsolidated
subsidiaries and associated
companies . . . . . . . . . . . . . . . . . . . . . . . . 213,512
Customers' liability to this bank on
acceptances outstanding . . . . . . . . . . . . . . . . . 985,297
Intangible assets . . . . . . . . . . . . . . . . . . . . . 590,973
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 1,487,903
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $52,120,460
-----------
LIABILITIES
Deposits:
In domestic offices . . . . . . . . . . . . . . . . . . . $25,929,642
Noninterest-bearing . . . . . . . . . . . . . . . . . . . 11,245,050
Interest-bearing . . . . . . . . . . . . . . . . . . . . . 14,684,592
In foreign offices, Edge and
Agreement subsidiaries, and IBFs . . . . . . . . . . . . . 12,852,809
Noninterest-bearing . . . . . . . . . . . . . . . . . . . 552,203
Interest-bearing . . . . . . . . . . . . . . . . . . . . 12,300,606
Federal funds purchased and securities
sold under agreements to repurchase
in domestic offices of the
bank and of its Edge and Agreement
subsidiaries, and in IBFs:
Federal funds purchased . . . . . . . . . . . . . . . . . 1,360,877
Securities sold under agreements
to repurchase . . . . . . . . . . . . . . . . . . . . . . . 226,158
Demand notes issued to the U.S.
Treasury . . . . . . . . . . . . . . . . . . . . . . . . . 204,987
Trading liabilities . . . . . . . . . . . . . . . . . . . . 1,437,445
Other borrowed money:
With original maturity of one year
or less . . . . . . . . . . . . . . . . . . . . . . . . 2,312,556
With original maturity of more than
one year . . . . . . . . . . . . . . . . . . . . . . . . 20,766
Bank's liability on acceptances exe-
cuted and outstanding . . . . . . . . . . . . . . . . . . 1,014,717
Subordinated notes and debentures . . . . . . . . . . . . . 1,014,400
Other liabilities . . . . . . . . . . . . . . . . . . . . . 1,721,291
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 48,095,648
-----------
EQUITY CAPITAL
Common stock . . . . . . . . . . . . . . . . . . . . . . . . 942,284
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . 731,319
Undivided profits and capital
reserves . . . . . . . . . . . . . . . . . . . . . . . . . 2,354,095
Net unrealized holding gains
(losses) on available-for-sale
securities . . . . . . . . . . . . . . . . . . . . . . . . 7,030
Cumulative foreign currency transla-
tion adjustments . . . . . . . . . . . . . . . . . . . . . ( 9,916)
-----------
Total equity capital . . . . . . . . . . . . . . . . . . . . 4,024,812
-----------
Total liabilities and equity
capital . . . . . . . . . . . . . . . . . . . . . . . $52,120,460
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot
Thomas A. Renyi Directors
Alan R. Griffith
____________________________________
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27.1
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS ON PAGES F-3 TO F-8 OF
THE COMPANY'S MARCH 31, 1997 AUDITOR'S REPORT TO THE BOARD OF DIRECTORS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 14,331
<SECURITIES> 0
<RECEIVABLES> 75,370
<ALLOWANCES> (1,368)
<INVENTORY> 6,464
<CURRENT-ASSETS> 96,370
<PP&E> 404,918
<DEPRECIATION> (86,072)
<TOTAL-ASSETS> 454,446
<CURRENT-LIABILITIES> 111,954
<BONDS> 231,808
0
0
<COMMON> 714
<OTHER-SE> 47,191
<TOTAL-LIABILITY-AND-EQUITY> 454,446
<SALES> 305,153
<TOTAL-REVENUES> 313,910
<CGS> 198,618
<TOTAL-COSTS> 279,371
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,153
<INTEREST-EXPENSE> 17,005
<INCOME-PRETAX> 17,534
<INCOME-TAX> 4,960
<INCOME-CONTINUING> 12,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,235
<EPS-PRIMARY> 17.67
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
ENERGY CORPORATION OF AMERICA
FORM OF LETTER OF TRANSMITTAL
FOR TENDER OF ALL OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE PROSPECTUS DATED JUNE , 1997
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS
THE EXCHANGE OFFER IS EXTENDED.
TO: THE BANK OF NEW YORK (THE "EXCHANGE AGENT")
By Mail or Hand Delivery: By Facsimile Transmission:
The Bank of New York (for Eligible Institutions only)
101 Barclay Street-7A The Bank of New York
New York, New York 10286 (212) 571-3080
Attention: Walter Gitlin Attention: Walter Gitlin
For Information or Confirmation by Telephone:
(212) 815-3687
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OR TRANSMISSION TO A
FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID
DELIVERY. THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES, IS
AT THE RISK OF THE HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. THE INSTRUCTIONS
ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges that he or she has received the
Prospectus, dated June , 1997 (the "Prospectus") of Energy Corporation
of America, a West Virginia Corporation (the "Company") and this Letter of
Transmittal and the instructions hereto (the "Letter of Transmittal"), which
together constitute the Company's offer (the "Exchange Offer") to exchange
$1,000 principal amount of its 9 1/2% Senior Subordinated Notes due 2007,
Series A (the "Exchange Notes") that have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to a Registration
Statement of which the Prospectus is a part, for each $1,000 principal amount
of its outstanding 9 1/2% Senior Subordinated Notes due 2007, (the "Old
Notes"), of which $200,000,000 aggregate principal amount is outstanding, upon
the terms and subject to the conditions set forth in the Prospectus. The term
"Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1997, unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the term shall mean the latest date and time to which the
Exchange Offer is extended by the Company. Capitalized terms used but not
defined herein have the meaning given to them in the Prospectus.
<PAGE> 2
This Letter of Transmittal is to be used either if (i) certificates
representing Old Notes are to be physically delivered to the Exchange Agent
herewith by Holders, (ii) tender of Old Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at The Depository Trust
Company ("DTC"), pursuant to the procedures set forth in "The Exchange
Offer--Procedures for Tendering" in the Prospectus by any financial institution
that is a participant in DTC and whose name appears on a security position
listing as the owner of Old Notes or (iii) tender of Old Notes is to be made
according to the guaranteed delivery procedures set forth in the Prospectus
under "The Exchange Offer--Guaranteed Delivery Procedures." Delivery of this
Letter of Transmittal and any other required documents must be made to the
Exchange Agent. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO
THE EXCHANGE AGENT.
The term "Holder" as used herein means any person in whose name Old
Notes are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered holder.
All Holders of Old Notes who wish to tender their Old Notes must,
prior to the Expiration Date: (1) complete, sign, and deliver this Letter of
Transmittal, or a facsimile thereof, to the Exchange Agent, in person or to the
address set forth above; and (2) tender (and not withdraw) his or her Old Notes
or, if a tender of Old Notes is to be made by book-entry transfer to the
account maintained by the Exchange Agent at DTC, confirm such book-entry
transfer (a "Book- Entry Confirmation"), in each case in accordance with the
procedures for tendering described in the Instructions to this Letter of
Transmittal. Holders of Old Notes whose certificates are not immediately
available, or who are unable to deliver their certificates or Book-Entry
Confirmation and all other documents required by this Letter of Transmittal to
be delivered to the Exchange Agent on or prior to the Expiration Date, must
tender their Old Notes according to the guaranteed delivery procedures set
forth under the caption "The Exchange Offer -- Guaranteed Delivery Procedures"
in the Prospectus. (See Instruction 2.)
Upon the terms and subject to the conditions of the Exchange Offer,
the acceptance for exchange of the Old Notes validly tendered and not withdrawn
and the issuance of the Exchange Notes will be made promptly following the
Expiration Date. For the purposes of the Exchange Offer, the Company shall be
deemed to have accepted for exchange validly tendered Old Notes when, as and if
the Company has given written notice thereof to the Exchange Agent.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must
complete this Letter of Transmittal in its entirety.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW. THE INSTRUCTIONS INCLUDED IN THIS
LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE
OR FOR ADDITIONAL COPIES OF THE PROSPECTUS, THIS LETTER OF TRANSMITTAL AND THE
NOTICE OF GUARANTEED DELIVERY MAY BE DIRECTED TO THE EXCHANGE AGENT. SEE
INSTRUCTION 12 HEREIN.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR OLD
NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY AND COMPLY WITH
ALL OF ITS TERMS.
-2-
<PAGE> 3
List below the Old Notes to which this Letter of Transmittal relates.
If the space provided below is inadequate, the Certificate Numbers and
Principal Amounts should be listed on a separate signed schedule, attached
hereto. The minimum permitted tender is $1,000 in principal amount of 9 1/2%
Senior Subordinated Notes due 2007. All other tenders must be in integral
multiples of $1,000.
DESCRIPTION OF 9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
BOX I
<TABLE>
<CAPTION>
=================================================================================================================
Name(s) and Address(es) of Registered Holder(s) *
(Please fill in, if blank)
<S> <C> <C>
(A) (B)
Aggregate Principal
Amount Tendered
Certificate Number(s)* (if less than all)**
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
Total Principal Amount
of Old Notes Tendered
=================================================================================================================
</TABLE>
- ------------------
* Need not be completed by book-entry holders.
** Need not be completed by Holders who wish to tender with respect to all
Old Notes listed.
-3-
<PAGE> 4
BOX II
================================================================================
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
SPECIAL REGISTRATION INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered, or Exchange Notes issued in exchange for Old Notes accepted for
exchange, are to be issued in the name of someone other than the undersigned.
Issue certificate(s) to:
Name
--------------------------------------------------------------------------
(PLEASE PRINT)
--------------------------------------------------------------------------
(PLEASE PRINT)
Address
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
- --------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
================================================================================
BOX III
================================================================================
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered, or Exchange Notes issued in exchange for Old Notes accepted for
exchange, are to be delivered to someone other than the undersigned.
Deliver certificate(s) to:
Name
--------------------------------------------------------------------------
(PLEASE PRINT)
--------------------------------------------------------------------------
(PLEASE PRINT)
Address
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
- --------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
================================================================================
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER
WITH THE CERTIFICATE(S) FOR OLD NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER
OF SUCH OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS) OR, IF GUARANTEED DELIVERY
PROCEDURES ARE TO BE COMPLIED WITH, A NOTICE OF GUARANTEED DELIVERY, MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
[ ] CHECK HERE IF OLD NOTES ARE BEING DELIVERED BY DTC TO AN ACCOUNT
MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution [ ] The Depository
------------------- Trust Company
Account Number
------------------------------------------------------
Transaction Code Number
----------------------------------------------
Holders whose Old Notes are not immediately available or who cannot
deliver their Old Notes and all other documents required hereby to the Exchange
Agent on or prior to the Expiration Date may tender their Old Notes according
to the guaranteed delivery procedures set forth in the Prospectus under the
caption "The Exchange Offer--Guaranteed Delivery Procedures." (See Instruction
2.)
-4-
<PAGE> 5
[ ] CHECK HERE IF OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of tendering Holder(s)
---------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-------------------
Name of Institution which Guaranteed Delivery
------------------------
Transaction Code Number
----------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
----------------------------------------------------------------
Address:
-------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undesigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Old Notes that were acquired
as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the
undersigned hereby tenders to Energy Corporation of America (the "Company") the
principal amount of Old Notes indicated above.
Subject to and effective upon the acceptance for exchange of the
principal amount of Old Notes tendered hereby in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the order
of, the Company all right, title and interest in and to the Old Notes tendered
hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company and as Trustee and
Registrar under the Indenture for the Old Notes and the Exchange Notes) with
respect to the tendered Old Notes with full power of substitution (such power
of attorney being deemed an irrevocable power coupled with an interest),
subject only to the right of withdrawal described in the Prospectus, to (i)
deliver certificates for such Old Notes to the Company or transfer ownership of
such Old Notes on the account books maintained by DTC, together, in either such
case, with all accompanying evidences of transfer and authenticity to, or upon
the order of, the Company and (ii) present such Old Notes for transfer on the
books of the Company and receive all benefits and otherwise exercise all rights
of beneficial ownership of such Old Notes, all in accordance with the terms of
the Exchange Offer.
The undersigned acknowledges that the Exchange Offer is being made in
reliance upon interpretative advice given by the staff of the Securities and
Exchange Commission to third parties in connection with transactions similar to
the Exchange Offer, so that the Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Old Notes
-5-
<PAGE> 6
may be offered for resale, resold and otherwise transferred by holders thereof
(other than a broker-dealer who purchased such Old Notes directly from the
Company for resale pursuant to Rule 144A or any other available exemption under
the Securities Act or a person that is an "affiliate" of the Company or any
Guarantor within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement with any
person to participate in the distribution of such Exchange Notes.
The undersigned agrees that acceptance of any tendered Old Notes by
the Company and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Company of its obligations under the
Registration Rights Agreement, (as defined in the Prospectus) and that, upon
the issuance of the Exchange Notes, the Company will have no further
obligations or liabilities thereunder (except in certain limited
circumstances).
The undersigned represents and warrants that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the person receiving Exchange Notes (which shall be the
undersigned unless otherwise indicated in the box entitled "Special Delivery
Instructions" above) (the "Recipient"), (ii) neither the undersigned nor the
Recipient (if different) is engaged in, intends to engage in or has any
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes, and (iii) neither the undersigned nor the Recipient (if
different) is an "affiliate" of the Company or any Guarantor as defined in Rule
405 under the Securities Act. If the undersigned is not a broker-dealer, the
undersigned further represents that it is not engaged in, and does not intend
to engage in, a distribution of the Exchange Notes. If the undersigned is a
broker- dealer, the undersigned further (x) represents that it acquired Old
Notes for the undersigned's own account as a result of market-making activities
or other trading activities, (y) represents that it has not entered into any
arrangement or understanding with the Company or any "affiliate" of the Company
(within the meaning of Rule 405 under the Securities Act) to distribute the
Exchange Notes to be received in the Exchange Offer and (z) acknowledges that
it will deliver a prospectus meeting the requirements of the Securities Act
(for which purposes delivery of the Prospectus, as the same may be hereafter
supplemented or amended, shall be sufficient) in connection with any resale of
Exchange Notes received in the Exchange Offer. Such a broker-dealer will not
be deemed, solely by reason of such acknowledgment and prospectus delivery, to
admit that it is an "underwriter" within the meaning of the Securities Act.
The undersigned understands and agrees that the Company reserves the
right not to accept tendered Old Notes from any tendering holder if the Company
determines, in its sole and absolute discretion, that such acceptance could
result in a violation of applicable securities laws.
The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, exchange, assign and transfer the Old
Notes tendered hereby and to acquire Exchange Notes issuable upon the exchange
of such tendered Old Notes, and that, when the same are accepted for exchange,
the Company will acquire good and unencumbered title thereto, free and clear of
all liens, restrictions, charges and encumbrances and not subject to any
adverse claim. The undersigned also warrants that it will, upon request,
execute and deliver any additional documents deemed to be necessary or
desirable by the Exchange Agent or the Company in order to complete the
exchange, assignment and transfer of tendered Old Notes or transfer of
ownership of such Old Notes on the account books maintained by a book- entry
transfer facility.
The undersigned understands and acknowledges that the Company reserves
the right in its sole discretion to purchase or make offers for any Old Notes
that remain outstanding subsequent to the Expiration Date or, as set forth in
the Prospectus under the caption "The Exchange Offer--Procedures for
Tendering," to terminate the Exchange Offer and, to the extent permitted by
applicable law, purchase Old Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
The undersigned understands that the Company may accept the
undersigned's tender by delivering written notice of acceptance to the Exchange
Agent, at which time the undersigned's right to withdraw such tender will
terminate. For purposes of the Exchange Offer, the Company shall be deemed to
have accepted validly tendered
-6-
<PAGE> 7
Old Notes when, as and if the Company has given oral (which shall be confirmed
in writing) or written notice thereof to the Exchange Agent.
The undersigned understands that the first interest payment following
the Expiration Date will include unpaid interest on the Old Notes accrued
through the date of issuance of the Exchange Notes.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
The undersigned acknowledges that the Exchange Offer is subject to the
more detailed terms set forth in the Prospectus and, in case of any conflict
between the terms of the Prospectus and this Letter of Transmittal, the
Prospectus shall prevail.
If any tendered Old Notes are not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any such unaccepted Old
Notes will be returned (except as noted below with respect to tenders through
DTC), at the Company's cost and expense, to the undersigned at the address
shown below or at a different address as may be indicated herein under "Special
Delivery Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns. This tender may be withdrawn only in
accordance with the procedures set forth in this Letter of Transmittal.
By acceptance of the Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer hereby acknowledges and agrees
that upon the receipt of notice by the Company of the happening of any event
which makes any statement in the Prospectus untrue in any material respect or
which requires the making of any changes in the Prospectus in order to make the
statements therein not misleading (which notice the Company agrees to deliver
promptly to such broker-dealer), such broker-dealer will suspend use of the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended
or supplemented prospectus to such broker-dealer.
Unless otherwise indicated under "Special Registration Instructions,"
please issue the certificates representing the Exchange Notes issued in
exchange for the Old Notes accepted for exchange and return any certificates
for Old Notes not tendered or not exchanged, in the name(s) of the undersigned
(or, in either such event in the case of Old Notes tendered by DTC, by credit
to the account at DTC). Similarly, unless otherwise indicated under "Special
Delivery Instructions," please send the certificates representing the Exchange
Notes issued in exchange for the Old Notes accepted for exchange and any
certificates for Old Notes not tendered or not exchanged (and accompanying
documents, as appropriate) to the undersigned at the address shown below the
undersigned's signature(s), unless, in either event, tender is being made
through DTC. In the event that both "Special Registration Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates
representing the Exchange Notes issued in exchange for the Old Notes accepted
for exchange in the name(s) of, and return any certificates for Old Notes not
tendered or not exchanged to, the person(s) so indicated. The undersigned
understands that the Company has no obligations pursuant to the "Special
Registration Instructions" or "Special Delivery Instructions" to transfer any
Old Notes from the name of the registered Holder(s) thereof if the Company does
not accept for exchange any of the Old Notes so tendered.
Holders who wish to tender the Old Notes and (i) whose Old Notes are
not immediately available or (ii) who cannot deliver their Old Notes, this
Letter of Transmittal or any other documents required hereby to the Exchange
Agent prior to the Expiration Date, may tender their Old Notes according to the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 1
regarding the completion of the Letter of Transmittal.
-7-
<PAGE> 8
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
AND WHETHER OR NOT TENDER IS TO BE MADE
PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES
This Letter of Transmittal must be signed by the registered holder(s)
as their name(s) appear on the Old Notes or, if tendered by a participant in
DTC, exactly as such participant's name appears on a security listing as the
owner of Old Notes, or by person(s) authorized to become registered holder(s)
by a properly completed bond power from the registered holder(s), a copy of
which must be transmitted with this Letter of Transmittal. If Old Notes to
which this Letter of Transmittal relate are held of record by two or more joint
holders, then all such holders must sign this Letter of Transmittal. If
signature is by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, then such person must (i) set forth his or her full
title below and (ii) unless waived by the Company, submit evidence satisfactory
to the Company of such person's authority so to act. (See Instruction 4.)
X
---------------------------------------- ------------------------------
Date
X
---------------------------------------- ------------------------------
Date
Signature(s) of Holder(s) or
Authorized Signatory
Name(s): Address:
--------------------------- ------------------------------
--------------------------- ------------------------------
(Please Print) (including Zip Code)
Capacity: Area Code and Telephone Number:
-------------------------- --------
Social Security No.:
---------------
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
-8-
<PAGE> 9
BOX IV
================================================================================
SIGNATURE GUARANTEE (SEE INSTRUCTION 1)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
- --------------------------------------------------------------------------------
(Name of Eligible Institution Guaranteeing Signatures)
- --------------------------------------------------------------------------------
(Address (including zip code) and Telephone Number (including area code)
of Firm)
- --------------------------------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Printed Name)
- --------------------------------------------------------------------------------
(Title)
Date:
--------------------
================================================================================
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Guarantee of Signatures. Signatures on this Letter of
Transmittal need not be guaranteed if (a) this Letter of Transmittal is signed
by the registered holder(s) of the Old Notes tendered herewith and such
holder(s) have not completed the box set forth herein entitled "Special
Registration Instructions" or the box entitled "Special Delivery Instructions"
or (b) such Old Notes are tendered for the account of an Eligible Institution.
(See Instruction 6.) Otherwise, all signatures on this Letter of Transmittal
or a notice of withdrawal, as the case may be, must be guaranteed by a member
firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States (an "Eligible
Institution"). All signatures on bond powers and endorsements on certificates
must also be guaranteed by an Eligible Institution.
2. Delivery of this Letter of Transmittal and Old Notes.
Certificates for all physically delivered Old Notes or confirmation of any
book-entry transfer to the Exchange Agent at DTC of Old Notes tendered by
book-entry transfer, as well as, in each case (including cases where tender is
affected by book-entry transfer), a properly completed and duly executed copy
of this Letter of Transmittal or facsimile hereof and any other documents
required by this Letter of Transmittal must be received by the Exchange Agent
at its address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date.
The method of delivery of the tendered Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the Holder and the delivery will be deemed made only when
actually received by the Exchange Agent. If Old Notes are sent by mail,
registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to ensure timely
delivery. No Letter of Transmittal or Old Notes should be sent to the Company.
The Exchange Agent will make a request to establish an account with
respect to the Old Notes at the Depositary for purposes of the Exchange Offer
within two business days after receipt of this Prospectus, and any financial
institution
-9-
<PAGE> 10
that is a participant in the Depositary may make book-entry delivery of Old
Notes by causing the Depositary to transfer such Old Notes into the Exchange
Agent's account at the Depositary in accordance with the Depositary's
procedures for transfer. However, although delivery of Old Notes may be
effected through book-entry transfer at the Depositary, the Letter of
Transmittal, with any required signature guarantees or an Agent's Message (as
defined below) in connection with a book-entry transfer and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at the address specified on the cover page of the Letter of Transmittal
on or prior to the Expiration Date or the guaranteed delivery procedures
described below must be complied with.
A Holder may tender Old Notes that are held through the Depositary by
transmitting its acceptance through the Depositary's Automatic Tender Offer
Program, for which the transaction will be eligible, and the Depositary will
then edit and verify the acceptance and send an Agent's Message to the Exchange
Agent for its acceptance. The term "Agent's Message" means a message
transmitted by the Depositary to, and received by, the Exchange Agent and
forming part of the Book-Entry Confirmation, which states that the Depositary
has received an express acknowledgment from each participant in the Depositary
tendering the Old Notes and that such participant has received the Letter of
Transmittal and agrees to be bound by the terms of the Letter of Transmittal
and the Company may enforce such agreement against such participant.
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available, or (ii) who cannot deliver their Old Notes, this
Letter of Transmittal or any other documents required hereby to the Exchange
Agent prior to the Expiration Date or comply with book-entry transfer
procedures on a timely basis must tender their Old Notes according to the
guaranteed delivery procedures set forth in the Prospectus. See "Exchange
Offer --Guaranteed Delivery Procedures." Pursuant to such procedure: (i) such
tender must be made by or through an Eligible Institution; (ii) prior to the
Expiration Date, the Exchange Agent must have received from the Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, overnight courier, mail or hand delivery)
setting forth the name and address of the Holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the Expiration
Date, this Letter of Transmittal (or facsimile hereof) together with the
certificate(s) representing the Old Notes and any other required documents will
be deposited by the Eligible Institution with the Exchange Agent; and (iii)
such properly completed and executed Letter of Transmittal (or facsimile
hereof), as well as all other documents required by this Letter of Transmittal
and the certificate(s) representing all tendered Old Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC), must be received by the Exchange Agent within
three New York Stock Exchange trading days after the Expiration Date, all in
the manner provided in the Prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedures." Any Holder who wishes to tender his
Old Notes pursuant to the guaranteed delivery procedures described above must
ensure that the Exchange Agent receives the Notice of Guaranteed Delivery prior
to 5:00 p.m., New York City time, on the Expiration Date. Upon request to the
Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who
wish to tender their Old Notes according to the guaranteed delivery procedures
set forth above.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes, and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. All tendering holders, by execution
of this Letter of Transmittal (or facsimile thereof), shall waive any right to
receive notice of the acceptance of the Old Notes for exchange. The Company
reserves the absolute right to reject any and all Old Notes not properly
tendered or any Old Notes the Company's acceptance of which would, in the
opinion of counsel for the Company, be unlawful. The Company also reserves the
right to waive any irregularities or conditions of tender as to particular Old
Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in this Letter of Transmittal) shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within
such time as the Company shall determine. Neither the Company, the Exchange
Agent nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Old Notes, nor shall any
of them incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured to the Company's satisfaction or waived. Any
Old Notes received by the Exchange Agent that are not properly
-10-
<PAGE> 11
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Holders pursuant
to the Company's determination, unless otherwise provided in this Letter of
Transmittal as soon as practicable following the Expiration Date. The Exchange
Agent has no fiduciary duties to the Holders with respect to the Exchange Offer
and is acting solely on the basis of directions of the Company.
3. Inadequate Space. If the space provided is inadequate, the
certificate numbers and/or the number of Old Notes should be listed on a
separate signed schedule attached hereto.
4. Tender by Holder. Only a Holder of Old Notes may tender such
Old Notes in the Exchange Offer. Any beneficial owner of Old Notes who is not
the registered Holder and who wishes to tender should arrange with such
registered holder to execute and deliver this Letter of Transmittal on such
beneficial owner's behalf or must, prior to completing and executing this
Letter of Transmittal and delivering his Old Notes, either make appropriate
arrangements to register ownership of the Old Notes in such beneficial owner's
name or obtain a properly completed bond power from the registered holder or
properly endorsed certificates representing such Old Notes.
5. Partial Tenders; Withdrawals. Tenders of Old Notes will be
accepted only in integral multiples of $1,000. If less than the entire
principal amount of any Old Notes is tendered, the tendering Holder should fill
in the principal amount tendered in the third column of the box entitled
"Description of 9 1/2% Senior Subordinated Notes due 2007" above. The entire
principal amount of any Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated. If the entire
principal amount of all Old Notes is not tendered, then Old Notes for the
principal amount of Old Notes not tendered and a certificate or certificates
representing Exchange Notes issued in exchange for any Old Notes accepted will
be sent to the Holder at his or her registered address, unless a different
address is provided in the "Special Delivery Instructions" box above on this
Letter of Transmittal or unless tender is made through DTC, promptly after the
Old Notes are accepted for exchange.
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date. To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes, or, in
the case of Old Notes transferred by book-entry transfer the name and number of
the account at DTC to be credited), (iii) be signed by the Depositor in the
same manner as the original signature on the Letter of Transmittal by which
such Old Notes were tendered (including any required signature guarantees) or
be accompanied by documents of transfer sufficient to have the Registrar with
respect to the Old Notes register the transfer of such Old Notes into the name
of the person withdrawing the tender and (iv) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer and
no Exchange Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes which have been tendered but
which are not accepted for exchange by the Company will be returned to the
Holder thereof without cost to such Holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described in the Prospectus under "The Exchange Offer--Procedures for
Tendering" at any time prior to the Expiration Date.
6. Signatures on the Letter of Transmittal; Bond Powers and
Endorsements. If this Letter of Transmittal (or facsimile hereof) is signed by
the registered holder(s) of the Old Notes tendered hereby, the signature must
correspond with the name(s) as written on the face of the Old Note without
alteration, enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
-11-
<PAGE> 12
If a number of Old Notes registered in different names are tendered,
it will be necessary to complete, sign and submit as many copies of this Letter
of Transmittal as there are different registrations of Old Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders (which term, for the Purposes described herein,
shall include a book-entry transfer facility whose name appears on a security
listing as the owner of the Old Notes) of Old Notes tendered and the
certificate or certificates for Exchange Notes issued in exchange therefor is
to be issued (or any untendered principal amount of Old Notes to be reissued)
to the registered Holder, then such Holder need not and should not endorse any
tendered Old Notes, nor provide a separate bond power. In any other case, such
Holder must either properly endorse the Old Notes tendered or transmit a
properly completed separate bond power with this Letter of Transmittal with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a
person other than the registered Holder or Holders of any Old Notes listed,
such Old Notes must be endorsed or accompanied by appropriate bond powers in
each case signed as the name of the registered Holder or Holders appears on the
Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes
or bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by
this Instruction 6 must be guaranteed by an Eligible Institution.
7. Special Registration and Delivery Instructions. Tendering
Holders should indicate, in the applicable box or boxes, the name and address
to which Exchange Notes or substitute Old Notes for principal amounts not
tendered or not accepted for exchange are to be issued or sent, if different
from the name and address of the person signing this Letter of Transmittal. In
the case of issuance in a different name, the taxpayer identification or social
security number of the person named must also be indicated.
8. Backup Federal Income Tax Withholding and Substitute Form W-9.
Under the federal income tax laws, payments that may be made by the Company on
account of Exchange Notes issued pursuant to the Exchange Offer may be subject
to backup withholding at the rate of 31%. In order to avoid such backup
withholding, each tendering holder should complete and sign the Substitute Form
W-9 included in this Letter of Transmittal and either (a) provide the correct
taxpayer identification number ("TIN") and certify, under penalties of perjury,
that the TIN provided is correct and that (i) the holder has not been notified
by the Internal Revenue Service (the "IRS") that the holder is subject to
backup withholding as a result of failure to report all interest or dividends
or (ii) the IRS has notified the holder that the holder is no longer subject to
backup withholding; or (b) provide an adequate basis for exemption. If the
tendering holder has not been issued a TIN and has applied for one, or intends
to apply for one in the near future, such holder should write "Applied For" in
the space provided for the TIN in Part I of the Substitute Form W-9, sign and
date the Substitute Form W-9 and sign the Certificate of Payee Awaiting
Taxpayer Identification Number. If "Applied For" is written in Part I, the
Company (or the Paying Agent under the Indenture governing the Exchange Notes)
shall retain 31% of payments made to the tendering holder during the sixty-day
period following the date of the Substitute Form W-9. If the Holder furnishes
the Exchange Agent or the Company with its TIN within sixty days after the date
of the Substitute Form W-9, the Company (or the Paying Agent) shall remit such
amounts retained during the sixty-day period to the Holder and no further
amounts shall be retained or withheld from payments made to the Holder
thereafter. If, however, the Holder has not provided the Exchange Agent or the
Company with its TIN within such sixty-day period, the Company (or the Paying
Agent) shall remit such previously retained amounts to the IRS as backup
withholding. In general, if a Holder is an individual, the TIN is the Social
Security number of such individual. If the Exchange Agent or the Company are
not provided with the correct TIN, the Holder may be subject to a $50 penalty
imposed by the Internal Revenue Service. Certain Holders (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. In order for a foreign
individual to qualify as an exempt recipient, such Holder
-12-
<PAGE> 13
must submit a statement (generally, IRS Form W-8), signed under penalties of
perjury, attesting to that individual's exempt status. Such statements can be
obtained from the Exchange Agent. For further information concerning backup
withholding and instructions for completing the Substitute Form W-9 (including
how to obtain a taxpayer identification number if you do not have one and how
to complete the Substitute Form W-9 if Old Notes are registered in more than
one name), consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
Old Notes to be deemed invalidly tendered, but may require the Company (or the
Paying Agent) to withhold 31% of the amount of any payments made on account of
the Exchange Notes. Backup withholding is not an additional federal income
tax. Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the IRS.
9. Transfer Taxes. The Company will pay all transfer taxes, if
any, applicable to the exchange of Old Notes pursuant to the Exchange Offer.
If, however, certificates representing Exchange Notes or Old Notes for
principal amounts not tendered or accepted for exchange are to be delivered to,
or are to be registered in the name of, any person other than the registered
holder of the Old Notes tendered hereby, or if tendered Old Notes are
registered in the name of a person other than the person signing this Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or on any other
persons) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with this Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering Holder. See the Prospectus under "The Exchange
Offer--Solicitation of Tenders; Fees and Expenses."
Except as provided in this Instruction 9, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
10. Waiver of Conditions. The Company reserves the right, in
their sole discretion, to amend, waive or modify specified conditions in the
Exchange Offer in the case of any Old Notes tendered.
11. Mutilated, Lost, Stolen or Destroyed Old Notes. Any tendering
Holder whose Old Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated herein for further
instructions.
12. Requests for Assistance or Additional Copies. Requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at the address specified
in the Prospectus. Holder may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
-13-
<PAGE> 14
(DO NOT WRITE IN SPACE BELOW)
<TABLE>
<CAPTION>
CERTIFICATE SURRENDERED OLD NOTES TENDERED OLD NOTES ACCEPTED
<S> <C> <C>
------------------------- ------------------------- -------------------------
------------------------- ------------------------- -------------------------
Date Received Accepted by Checked by
-------------------- ------------- --------------
Delivery Prepared by Checked by Date
------------- -------------- --------------------
</TABLE>
IMPORTANT TAX INFORMATION
Under federal income tax laws, a Holder whose tendered Old Notes are
accepted for payment is required to provide the Exchange Agent (as payer) with
such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a
basis for exemption from backup withholding. If such Holder is an individual,
the TIN is his social security number. If the Exchange Agent is not provided
with the correct TIN, a $50 penalty may be imposed by the Internal Revenue
Service, and payments made pursuant to the Exchange Offer may be subject to
backup withholding.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Exchange Agent a properly completed Internal Revenue Service Form W-8,
signed under penalties of perjury, attesting to that Holder's exempt status. A
Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
If backup withholding applies, the Exchange Agent is required to
withhold 20% of any payments made to the Holder or other payee. Backup
withholding is not an additional federal income tax. Rather, the federal
income tax liability of persons subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made with respect to the
Exchange Offer, the Holder is required to provide the Exchange Agent with
either: (i) the Holder's correct TIN by completing the form below, certifying
that the TIN provided on Substitute Form W-9 is correct (or that such Holder is
awaiting a TIN) and that (A) the Holder has been notified by the Internal
Revenue Service that the Holder is subject to backup withholding as a result of
failure to report all interest or dividends or (B) the Internal Revenue Service
has notified the Holder that the Holder is no longer subject to backup
withholding or (ii) an adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g.,
social security number or employer identification number) of the registered
Holder of the Old Notes. If the Old Notes are held in more than one name or
are held not in the name of the actual owner, consult the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
-14-
<PAGE> 15
CERTIFICATION OF PAYEE AWAITING TAXPAYER INDEMNIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payer, 31% of all payments made
to me on account of the Exchange Notes shall be retained until I provide a
Taxpayer Identification Number to the payer and that, if I do not provide my
Taxpayer Identification Number within sixty days, such retained amounts shall
be remitted to the Internal Revenue Service as backup withholding and 31% of
all reportable payments made to me thereafter will be withheld and remitted to
the Internal Revenue Service until I provide a Taxpayer Identification Number.
SIGNATURE DATE
---------------------------------------- ----------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31 % OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE
EXCHANGE NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
-15-
<PAGE> 16
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYER'S NAME: ENERGY CORPORATION OF AMERICA
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 - TAXPAYER IDENTIFICATION NUMBER SOCIAL SECURITY NUMBER
(TIN)
FORM W-9
--------------------------------------------------
ENTER YOUR TIN IN THE APPROPRIATE BOX. OR
DEPARTMENT OF THE FOR INDIVIDUALS, THIS IS YOUR SOCIAL
TREASURY INTERNAL REVENUE SECURITY NUMBER (SSN). FOR SOLE EMPLOYEE IDENTIFICATION NUMBER
SERVICE PROPRIETORS, SEE THE INSTRUCTIONS IN THE
ENCLOSED GUIDELINES. FOR OTHER ENTITIES,
--------------------------------------------------
REQUEST FOR TAXPAYER IT IS YOUR EMPLOYER IDENTIFICATION NUMBER
IDENTIFICATION NUMBER (EIN). IF YOU DO NOT HAVE A NUMBER, SEE
AND CERTIFICATION HOW TO GET A TIN IN THE ENCLOSED
GUIDELINES.
NOTE: IF THE ACCOUNT IS IN MORE THAN ONE
NAME, SEE THE CHART ON PAGE 2 OF THE
ENCLOSED GUIDELINES ON WHOSE NUMBER TO
ENTER.
-------------------------------------------------------------------------------------------------
PART II - FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
(See Part II instructions in the enclosed Guidelines.)
- ------------------------------------------------------------------------------------------------------------------------------------
PART III - CERTIFICATION - UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be
issued to me), and
(2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup
withholding.
Signature Date , 1997
---------------------------------------------------------------- -------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION INSTRUCTIONS.-You must cross out item 2 above if you have
been notified by the IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return. For real
estate transactions, item 2 does not apply. For mortgage interest paid, the
acquisition or abandonment of secured property, cancellation of debt,
contributions to an individual retirement arrangement (IRA), and generally
payments other than interest and dividends, you are not required to sign the
Certification, but you must provide your correct TIN.
-16-
<PAGE> 1
EXHIBIT 99.2
FORM OF NOTICE OF GUARANTEED DELIVERY
FOR 9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
OF ENERGY CORPORATION OF AMERICA
As set forth in the Prospectus dated June , 1997 (the
"Prospectus") of Energy Corporation of America (the "Company") and in the
Letter of Transmittal (the "Letter of Transmittal"), this form or a form
substantially equivalent to this form must be used to accept the Exchange Offer
(as defined below) if the certificates for the outstanding 9 1/2% Senior
Subordinated Notes due 2007 (the "Old Notes") of the Company and all other
documents required by the Letter of Transmittal cannot be delivered to the
Exchange Agent by the expiration of the Exchange Offer or compliance with book-
entry transfer procedures cannot be effected on a timely basis. Such form may
be delivered by hand or transmitted by facsimile transmission, telex or mail to
the Exchange Agent no later than the Expiration Date, and must include a
signature guarantee by an Eligible Institution as set forth below. Capitalized
terms used herein but not defined herein have the meanings ascribed thereto in
the Prospectus.
TO:
The Bank of New York (the "Exchange Agent")
By Mail or Hand Delivery: By Facsimile Transmission:
The Bank of New York (for Eligible Institutions only)
101 Barclay Street-7A The Bank of New York
New York, New York 10286 (212) 571-3080
Attention: Walter Gitlin Attention: Walter Gitlin
For Information or Confirmation by Telephone:
(212) 815-3687
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY. THE METHOD OF DELIVERY OF ALL DOCUMENTS,
INCLUDING CERTIFICATES, IS AT THE RISK OF THE HOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. THE INSTRUCTIONS ACCOMPANYING THE LETTER OF TRANSMITTAL SHOULD BE
READ CAREFULLY BEFORE THIS NOTICE OF GUARANTEED DELIVERY IS COMPLETED.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution under the instruction thereto, such
signatures must appear in the applicable space provided on the Letter of
Transmittal for Guarantee of Signature(s).
<PAGE> 2
Ladies and Gentlemen:
The undersigned acknowledges receipt of the Prospectus and the related
Letter of Transmittal which describes the Company's offer (the "Exchange
Offer") to exchange $1,000 in principal amount of a new series of 9 1/2% Senior
Subordinated Notes due 2007, Series A (the "Exchange Notes") for each $1,000 in
principal amount of the Old Notes.
The undersigned hereby tenders to the Company the aggregate principal
amount of Old Notes set forth below on the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal pursuant to the guaranteed
delivery procedure set forth in the "The Exchange Offer--Guaranteed Delivery
Procedures" section in the Prospectus and the accompanying Letter of
Transmittal.
The undersigned understands that no withdrawal of a tender of Old Notes
may be made on or after the Expiration Date. The undersigned understands that
for a withdrawal of a tender of Old Notes to be effective, a written notice of
withdrawal that complies with the requirements of the Exchange Offer must be
timely received by the Exchange Agent at one of its addresses specified on the
cover of this Notice of Guaranteed Delivery prior to the Expiration Date.
The undersigned understands that the exchange of Old Notes for Exchange
Notes pursuant to the Exchange Offer will be made only after timely receipt by
the Exchange Agent of (i) such Old Notes (or Book-Entry Confirmation of the
transfer of such Old Notes into the Exchange Agent's account at The Depository
Trust Company (the "Depositary" or "DTC")) and (ii) a Letter of Transmittal (or
facsimile thereof) with respect to such Old Notes, properly completed and duly
executed, with any required signature guarantees, this Notice of Guaranteed
Delivery and any other documents required by the Letter of Transmittal or a
properly transmitted Agent's Message. The term "Agent's Message" means a
message transmitted by the Depositary to, and received by, the Exchange Agent
and forming part of the confirmation of a book-entry transfer, which states
that the Depositary has received an express acknowledgment from each
participant in the Depositary tendering the Old Notes and that such participant
has received the Letter of Transmittal and agrees to be bound by the terms of
the Letter of Transmittal and the Company may enforce such agreement against
such participant.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and every obligation of the undersigned under
this Notice of Guaranteed Delivery shall be binding upon the heirs, executors,
administrators, trustees in bankruptcy, personal and legal representatives,
successors and assigns of the undersigned.
-2-
<PAGE> 3
PLEASE SIGN AND COMPLETE
<TABLE>
<S> <C>
Signature(s) of Registered Owner(s) or Authorized Name(s) of Registered Holder(s)
Signatory:
--------------------------------------- ---------------------------------------------------
- --------------------------------------------------- ---------------------------------------------------
- --------------------------------------------------- ---------------------------------------------------
Principal Amount of Old Notes Tendered: Address:
-----------------------------------------
- --------------------------------------------------- ---------------------------------------------------
Certificate No(s) of Old Notes (if available): Area Code and Telephone No.:
---------------------
If Old Notes will be delivered by book-entry
- ---------------------------------------------------
transfer at The Depository Trust Company, insert
- ---------------------------------------------------
- ---------------------------------------------------
Date:
--------------------------------------------
Depository Account No.:
--------------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the registered Holder(s)
of Old Notes exactly as its (their) name(s) appear on certificates for Old
Notes or on a security position listing as the owner of Old Notes, or by
person(s) authorized to become registered Holder(s) by endorsements and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person must
provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
------------------------------------------------------------------
------------------------------------------------------------------
Capacity:
------------------------------------------------------------------
Address(es):
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
DO NOT SEND OLD NOTES WITH THIS FORM. OLD NOTES SHOULD BE SENT TO THE EXCHANGE
AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL.
-3-
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or a correspondent in the
United States, or otherwise an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended,
hereby (a) represents that each holder of Old Notes on whose behalf this tender
is being made "own(s)" the Old Notes covered hereby within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (b) represents that such tender of Old Notes complies with Rule 14e-4 of
the Exchange Act and (c) guarantees that, within three New York Stock Exchange
trading days from the expiration date of the Exchange Offer, a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof),
together with certificates representing the Old Notes covered hereby in proper
form for transfer (or confirmation of the book-entry transfer of such Old Notes
into the Exchange Agent's account at The Depository Trust Company, pursuant to
the procedure for book-entry transfer set forth in the Prospectus) and required
documents will be deposited by the undersigned with the Exchange Agent.
The undersigned acknowledges that it must deliver the Letter of
Transmittal and Old Notes tendered hereby to the Exchange Agent within the time
period set forth above and that failure to do so could result in financial loss
to the undersigned.
<TABLE>
<S> <C>
Name of Firm:
------------------------------------ ---------------------------------------------------
Authorized Signature
Address:
-----------------------------------------
- ---------------------------------------------------
Area Code and Telephone No.: Name:
--------------------- --------------------------------------------
Title:
-------------------------------------------
Date:
--------------------------------------------
</TABLE>
-4-
