SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1999.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO_______.
Commission file number 333-29001-01
ENERGY CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
WEST VIRGINIA 84-1235822
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification Number)
4643 SOUTH ULSTER STREET, SUITE 1100
DENVER, COLORADO 80237
(Address of principal executive offices and zip code)
(303) 694-2667
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of the Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of common stock held by non-affiliates of the
registrant: Class of Voting Stock and Number of Shares Held by Non-affiliates
at September 1, 1999 was 95,477 Shares. Market Value Held by Non-affiliates:
Unavailable.
The number of shares of the registrant's common stock, par value $1.00 per
share, outstanding at September 1, 1999 was 645,964 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
2
<PAGE>
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA
TABLE OF CONTENTS
Page
<S> <C> <C>
Part I
Item 1. Business 4
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 16
Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters 16
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition 16
Item 8. Financial Statements and Supplementary Data
Independent Auditor's Report 25
Consolidated Balance Sheets 26
Consolidated Statements of Operations 28
Consolidated Statements of Stockholders Equity 29
Consolidated Statements of Cash Flows 30
Notes to Consolidated Financial Statements 31
Supplemental Information on Oil and Gas Producing Activities (Unaudited) 51
Schedules 56
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 60
Part III
Item 10. Directors and Officers of Registrant 61
Item 11. Executive Compensation 64
Item 12. Security Ownership of Certain Beneficial Owners and Management 64
Item 13. Certain Relationships and Related Transactions 66
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 69
Part V
Signatures 72
</TABLE>
All defined terms under Rule 4-10 (a) of Regulation S-X shall have their
statutorily prescribed meanings when used in this report. Quantities of natural
gas are expressed in this report in terms of thousand cubic feet (Mcf), million
cubic feet (Mmcf) or billion cubic feet (Bcf). Oil is quantified in terms of
barrels (Bbls), thousand barrels (Mbbls) or million barrels (Mmbbls). Oil is
compared to natural gas in terms of cubic feet of gas equivalent (Mcfe), million
of cubic feet equivalent (Mmcfe) or billion cubic feet equivalent (Bcfe). One
barrel of oil is the energy equivalent of six Mcf of natural gas. A dekatherm
(dth) is equal to one million British Thermal Units (Btu). A Btu is the amount
of heat required to raise the temperature of one pound of water one degree
Fahrenheit. With respect to information relating to the Company's working
interest in wells or acreage, "net" oil and gas wells or acreage is determined
by multiplying gross wells or acreage by the Company's working interest therein.
Unless otherwise specified, all references to wells and acres are gross.
3
<PAGE>
PART I
------
ITEM 1. BUSINESS
------- ---------
GENERAL
- -------
Energy Corporation of America (the "Company") 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, primarily in the Appalachian Basin. The Company was formed
in June 1993 through an exchange of shares with the common stockholders of
Eastern American Energy Corporation ("Eastern American"). For the fiscal year
ended June 30, 1999, the Company had total revenues of $286.0 million and EBITDA
(earnings before interest, taxes, depreciation and amortization) of $28.5
million.
The Company conducts business through its principal wholly owned
subsidiaries, Mountaineer Gas Company ("Mountaineer"), Eastern American, Westech
Energy Corporation ("Westech") and Westech Energy New Zealand Limited ("WENZL").
Mountaineer owns and operates the largest natural gas distribution utility in
West Virginia. Eastern American is one of the largest oil and gas operators in
the Appalachian Basin, including exploration, development and production, and is
engaged in the transportation and marketing of natural gas. Westech is involved
in oil and gas exploration and development in the Rocky Mountain region. WENZL
is involved in oil and gas exploration and development in New Zealand.
The principal offices of the Company are located at 4643 South Ulster
Street, Suite 1100, Denver, Colorado 80237, and the telephone number is (303)
694-2667.
As used herein the "Company" refers to the Company alone or together with
one or more of its subsidiaries.
SEGMENT INFORMATION
- --------------------
The Company's principal businesses constitute three operating segments.
For financial information on these segments, see Note 19 to the Consolidated
Financial Statements.
NATURAL GAS DISTRIBUTION UTILITY
- -----------------------------------
Mountaineer owns the largest natural gas distribution system in West
Virginia, consisting of approximately 3,900 miles of natural gas distribution
pipelines. Mountaineer provides natural gas sales and transportation services
to approximately 201,000 residential, commercial, industrial and wholesale
customers in 45 of the 55 counties in West Virginia, including the cities of
Charleston, Beckley, Huntington and Wheeling. During fiscal 1999, Mountaineer
sold or transported 57 Bcf of gas.
Mountaineer continues to pursue expansion of its customer base and to this
end acquired substantially all of the West Virginia assets of Shenandoah Gas
Company effective July 1, 1999 at a cost of approximately $12.6 million. The
acquired assets consist of natural gas distribution facilities and related
equipment, including approximately 3,600 customers, located in the eastern
panhandle of West Virginia.
4
<PAGE>
COMPARATIVE GAS SALES AND TRANSPORTATION DATA
- --------------------------------------------------
The table below sets forth certain information with respect to the
operating revenue and related gas volumes of the utility for the years ended
June 30:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Gas distribution revenue:
Residential 69.55% 69.90% 68.40%
Commercial 23.44% 23.40% 25.20%
Transportation 6.49% 6.30% 5.50%
Industrial and other 0.52% 0.40% 0.90%
--------- --------- ---------
Total 100.00% 100.00% 100.00%
========= ========= =========
Gas distribution volumes:
Residential 28.30% 26.40% 28.20%
Commercial 10.30% 9.40% 11.20%
Transportation 61.30% 64.10% 60.10%
Industrial and other 0.10% 0.10% 0.50%
--------- --------- ---------
Total 100.00% 100.00% 100.00%
========= ========= =========
Average use per customer (Mcf):
Residential 88 90 99
Commercial 312 339 432
Transportation 37,024 28,021 19,653
Industrial and other 24 6,803 27,458
Average revenue per customer:
Residential $ 603 $ 599 $ 653
Commercial $ 1,978 $ 2,121 $ 2,636
Transportation $ 10,918 $ 6,908 $ 4,931
Industrial and other $ 1,754 $ 25,399 $121,377
Average revenue per Mcf:
Residential $ 6.85 $ 6.66 $ 6.60
Commercial $ 6.34 $ 6.26 $ 6.10
Transportation $ 0.29 $ 0.25 $ 0.25
Industrial and other $ 4.27 $ 3.73 $ 4.42
Weighted average sales rate (per Mcf) $ 6.71 $ 6.54 $ 6.43
Average gas cost per Mcf sold $ 3.35 $ 3.81 $ 3.96
Weighted average Degree Days (1) 4,832 4,941 5,275
Miles of distribution pipes 3,951 3,926 3,897
Number of customers 201,526 201,465 200,203
___________________________
<FN>
(1) Degree Days measure the amount by which the average of the high
and low temperature on a given day is below 65 degrees Fahrenheit.
</TABLE>
5
<PAGE>
- ------
GAS SUPPLY
- -----------
On September 30, 1998, Mountaineer entered into a Natural Gas Supply
Management Agreement (the "Supply Agreement") with Coral Energy Resources, L.P.
("Coral") an affiliate of Shell Oil Company, pursuant to which Coral became the
principal gas supplier for Mountaineer for a three-year period commencing as of
November 1, 1998. The term of this Supply Agreement coincides with the
three-year Rate Moratorium as discussed below.
The Supply Agreement with Coral provides that Coral will be responsible for
supplying 100% of Mountaineer's annual gas requirements for the three-year term,
less 2.7 Bcf of local production. The gas is supplied by Coral at a fixed price
per dth at the city gate up to approximately 24.4 Bcf annually. Any volumes in
excess of 24.4 Bcf on an annual basis are priced at the lesser of a specified
index or a previously agreed upon maximum cost. As a result of the Supply
Agreement Mountaineer will purchase approximately 90% of its natural gas supply
from Coral. The remaining 10% of the gas supply will be purchased from local
producers, including Company owned production. Because of the Coral Supply
Agreement, during fiscal 1999, natural gas sold by Mountaineer that came from
Company operated production declined from 43% to 23%.
Prior to the Supply Agreement, Mountaineer purchased its gas supply
pursuant to a balanced portfolio of intermediate term (one to five years) and
short term (less than one year) contractual arrangements from various sources,
including supplies from the Gulf Coast and Appalachian regions of the United
States. 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 Mountaineer's purchases for the
years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
Volume % of Volume % of Volume % of
Mmcf Total Mmcf Total Mmcf Total
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Company operated production 5,651 23% 10,972 43% 11,365 39%
Coral Energy Resources, L.P. 13,508 55%
Idaho Power 1,172 5%
Conoco, Inc. 1,114 5%
Engage Energy, L.P. 3,581 15% 2,555 9%
Noble Gas Marketing 2,297 9% 2,787 10%
Equitable Resources 1,639 6% 2,258 8%
Texaco Natural Gas 1,579 6% 2,346 8%
Valero Gas Marketing 1,555 6%
</TABLE>
The following table sets forth certain information relating to
Mountaineer's gas supply purchases for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Interstate suppliers 75% 55% 56%
Company operated production 23% 43% 39%
Other Appalachian Basin producers 2% 2% 5%
----- ----- -----
Total 100% 100% 100%
===== ===== =====
</TABLE>
6
<PAGE>
TRANSPORTATION AND STORAGE CAPACITY
- --------------------------------------
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
Mountaineer's local distribution facilities in West Virginia. Approximately 83%
of the gas purchased by Mountaineer in the Appalachian region is transported by
Columbia Gas, with the balance transported by Tennessee Gas or directly
delivered into Mountaineer's gas utility distribution system.
To ensure continuous, uninterrupted service to its customers, Mountaineer
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 to
no-notice service and storage with such contracts expiring on various dates
ranging from October 31, 2000 through October 31, 2004. Under the terms of the
Supply Agreement, Coral has assumed the management and the financial obligations
of virtually all of Mountaineer's total firm transportation and storage
entitlements. The combination of this Supply Agreement and the Rate Moratorium,
discussed below, substantially reduces Mountaineer's exposure to gas cost
fluctuations.
Gas sales and/or transportation contracts with interruption provisions have
been used for load management by Mountaineer, and the gas industry as a whole,
for many years. Under such contracts, the 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.
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.
REGULATION AND RATES
- ----------------------
Mountaineer is regulated by the Public Service Commission of West Virginia
("WVPSC"). Under traditional rate making in West Virginia, Mountaineer is
prohibited from increasing its base rate unless it obtains the approval of the
WVPSC. In general, the WVPSC reviews any requested 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 by the
WVPSC 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.
7
<PAGE>
Any change to the rate that Mountaineer charges its customers for natural
gas costs must be approved by the WVPSC. In order to obtain approval of changes
to gas purchase costs, Mountaineer 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 Mountaineer'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 Mountaineer 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
Mountaineer'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.
Prior to October 1995, Mountaineer was subject to traditional regulatory
rate making in West Virginia as that procedure is described above. However,
following a proposal by Mountaineer, the WVPSC issued an order implementing a
three-year rate moratorium effective November 1995. The moratorium provided rate
certainty to Mountaineer's customers by fixing the price of gas for three years.
By entering into the moratorium, Mountaineer assumed the risks and benefits of
fixed utility rates, its gas purchasing activities, ancillary business
activities and achieving operational efficiencies.
In January 1998, Mountaineer filed with the WVPSC for an increase in its
base rates, effective upon expiration of the moratorium period on October 31,
1998. In July 1998, Mountaineer agreed to a Joint Stipulation and Agreement for
Settlement with various parties including the staff of the WVPSC and the
Consumer Advocate Division regarding Mountaineer's rate filing. Under the terms
of the agreement, Mountaineer was granted an increase in its rates, which
assuming certain weather conditions, would generate additional annual revenues
of approximately $9.4 million. The agreement provides for a three year rate
moratorium period from November 1, 1998 to October 31, 2001. The terms and
conditions of the agreement are similar to those under which Mountaineer
operated under the earlier moratorium period. Mountaineer is also required to
make minimum capital expenditures of $9.0 million per year in its utility
operations during the moratorium period. In addition, as a result of the
Shenandoah Gas Company acquisition, Mountaineer is required to spend, at a
minimum, an additional $1.5 million in capital expenditures over a three year
period, ending October 31, 2001.
COMPETITION
- -----------
Competition in the residential and commercial sales market from alternative
energy sources is minimal in West Virginia. Such competition comes primarily
from sources such as electricity, propane, and to a lesser degree, oil, coal and
wood. However, natural gas continues to be the preferred fuel for West Virginia
homes and businesses. Based on 1990 census data, approximately 51% of the
occupied housing units in the state utilized natural gas for home heating, 25%
utilized electricity, with fuel oil, coal and wood comprising the balance.
Mountaineer's demand from commercial and industrial customers is dependent
on local business conditions and competition from alternate sources of energy.
Demand from residential customers likewise is subject to competition from
alternate energy sources. Mountaineer is also subject to competition from
interstate and intrastate pipeline companies, natural gas marketers, producers
and other utilities that 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.
8
<PAGE>
Mountaineer began offering gas transportation service to its industrial
customers in 1984. The availability of both firm and interruptible
transportation service, which enables industrial end users to purchase lower
cost gas supplies directly from producers and/or natural gas marketers 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 Federal Energy Regulatory Commission Order Nos. 436,
500 and 636, has served to increase the ability of large gas end users to bypass
Mountaineer in obtaining gas supply and transportation services. Although no
bypass by customers has occurred to date, Mountaineer generally realizes lower
transportation revenues from large industrial and commercial end users due to
the possibility of such a bypass. In addition, Mountaineer has negotiated
reduced rates for certain end users to: (1) provide economic relief to aid the
end user in remaining an ongoing concern; and (2) add an incentive to end users
to add incremental load.
SEASONALITY
- -----------
More than 95% of Mountaineer's residential and commercial customers use
natural gas for heating purposes. Accordingly, a significant portion of
Mountaineer's utility gas volumes are attributable to sales during the heating
season, with highest sales volumes occurring in December, January and February.
In fiscal 1999, gas sales from October through March accounted for approximately
78.1% of utility gas sales. Weather patterns experienced in the markets served
by Mountaineer significantly impact the demand for natural gas sales,
particularly during the peak heating season and, as a result, will have a
significant impact on Mountaineer's financial performance, liquidity and capital
resources.
GAS AND OIL EXPLORATION AND PRODUCTION
- -------------------------------------------
The Company's proved net gas and oil reserves are estimated as of June 30,
1999 at 166 Bcf and 962 Mbbls, respectively. For the fiscal year ended June 30,
1999, the Company's net gas production was approximately 8.8 Bcf and net oil
production was approximately 133.1 Mbbls, for a total of 9.6 net Bcfe. Revenues
from the sale of oil and gas production accounted for 7.6% of the Company's
consolidated revenues for 1999.
REGIONAL OPERATIONS
- --------------------
APPALACHIAN BASIN. The Company holds interests in 4,783 gross (2,825 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
June 30, 1999 at 161 Bcfe, of which approximately 97% was gas reserves and 3%
was oil reserves. For the fiscal year ended June 30, 1999, the Company's gas
production from its Appalachian Basin properties was approximately 8.8 net Bcf.
In the Appalachian Basin, the Company has interests in approximately 570,980
gross acres (433,550 net) of producing properties and an additional 112,890
gross acres (76,270 net) of undeveloped properties located primarily in West
Virginia, Pennsylvania and Ohio. During fiscal 1999, the Company drilled 26
successful gross wells (19 net) and added 3.8 net Bcfe in reserves.
ROCKY MOUNTAINS. Westech owns developed and undeveloped leasehold
----------------
interests in approximately 455,000 gross acres (327,000 net) located in the
Rocky Mountain area. The Company has identified and is currently focusing on
five exploratory plays which are located in the Blanding Basin, Utah; Powder
River Basin (Minnelusa-Muddy), Wyoming; Williston Basin, North Dakota; Wind
River Basin, Wyoming and the Danforth area, Colorado. Commencing in June 1999,
the Company entered into a 10 well exploratory drilling program in the Powder
River Basin. Currently, six wells have been drilled, with one successful well.
9
<PAGE>
INTERNATIONAL. WENZL currently operates four offshore permits and two
-------------
onshore permits on the East Coast of the North Island of New Zealand, totaling
7,237,000 gross acres (3,618,500 net). Onshore, a total of six exploratory and
four appraisal wells have been drilled. Currently, additional well testing is
being performed to confirm the threshold deliverability requirements for
commercialization. Offshore a 212 square mile 3-D survey has been acquired to
define drillable prospects. WENZL has also been awarded three new onshore
permits in the producing Taranaki Basin of the North Island of New Zealand
totaling 20,000 gross and net acres. WENZL's obligations under these permits
require a 10 square mile 3-D survey, which is planned during fiscal 2000.
Westech is negotiating an agreement to acquire a 35% working interest in the
Cooper Basin, Queensland, Australia. Two wells are planned during fiscal 2000.
OIL AND GAS RESERVES
- -----------------------
The following information relating to estimated reserve quantities, reserve
values and discounted future net revenues is derived from, and qualified in its
entirety by reference to, the more complete reserve and revenue information and
assumptions included in the Company's Supplemental Oil and Gas Disclosures at
Item 8. The Company's estimates of proved reserve quantities of its properties
have been subject to review by Ryder Scott Company, independent petroleum
engineers. There are numerous uncertainties inherent in estimating quantities
of proved reserves and projecting future rates of production and timing of
development expenditures. The following reserve information represents
estimates only and should not be construed as being exact. Future reserve
values are based on year-end prices except in those instances where the sale of
gas and oil is covered by contract terms providing for determinable escalation.
Operating costs, production and ad valorem taxes and future development costs
are based on current costs with no escalations.
The following table sets forth the Company's estimated proved and proved
developed reserves and the related estimated future value, as of June 30:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net proved:
Gas (Mmcf) 166,268 169,460 160,331
Oil (Mbbls) 962 1,330 1,233
Total (Mmcfe) 172,040 177,440 167,729
Net proved developed:
Gas (Mmcf) 144,643 138,935 141,116
Oil (Mbbls) 717 733 748
Total (Mmcfe) 148,945 143,333 145,604
Estimated future net cash flows
before income taxes (in thousands) $280,636 $286,846 $301,245
Present Value of estimated future net cash
flows before income taxes (in thousands) (1) $117,227 $113,898 $128,440
_______________
<FN>
(1) Discounted using an annual discount rate of 10%.
</TABLE>
10
<PAGE>
The following table sets forth the Company's estimated proved reserves and
the related estimated future value by region, as of June 30, 1999:
<TABLE>
<CAPTION>
Present Value
--------------------- Natural Gas
Amount Oil & NGLs Natural Gas Equivalent
Region (thousands) % (Mbbls) (Mmcf) (Mmcfe)
- ------------------ ------------ ------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Appalachian Basin $ 110,245 94.04% 750 156,405 160,905
Rocky Mountains 1,312 1.12% 212 227 1,499
New Zealand 5,670 4.84% 9,636 9,636
- ------------------ ------------ ------- ----------- ------------ -----------
Total $ 117,227 100.00% 962 166,268 172,040
============ ======= =========== ============ ===========
</TABLE>
PRODUCING WELLS
- ----------------
The following table sets forth certain information relating to productive
wells at June 30, 1999. Wells are classified as oil or gas according to their
predominant production stream.
<TABLE>
<CAPTION>
Gross Wells Net Wells
----------------- -----------------
Oil Gas Total Oil Gas Total
--- ----- ----- --- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Appalachian Basin 13 4,770 4,783 4 2,821 2,825
Rocky Mountains 8 4 12 3 1 4
--- ----- ----- --- ----- -----
Total 21 4,774 4,795 7 2,822 2,829
=== ===== ===== === ===== =====
</TABLE>
ACREAGE
- -------
The following table sets forth the developed and undeveloped gross and net
acreage held at June 30, 1999 (in thousands).
<TABLE>
<CAPTION>
Developed Acreage Undeveloped Acreage
---------------- --------------------
Gross Net Gross Net
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Appalachian Basin 570,979 433,549 112,887 76,266
Rocky Mountains 560 168 454,440 326,832
New Zealand - - 7,237,000 3,618,500
------- ------- --------- ---------
Total 571,539 433,717 7,804,327 4,021,598
======= ======= ========= =========
</TABLE>
11
<PAGE>
PRODUCTION
- ----------
The following table sets forth certain production data and average sales
prices attributable to the Company's properties for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Production Data:
Oil (Mbbls) 133 127 447
Natural gas (Mmcf) 8,840 8,525 9,106
Natural gas equivalent (Mmcfe) 9,638 9,287 11,788
Average Sales Price:
Oil per Bbl $10.76 $14.30 $ 18.13
Natural gas per Mcf $ 2.30 $ 2.61 $ 2.39
</TABLE>
DRILLING ACTIVITIES
- --------------------
The Company's gas and oil exploratory and developmental drilling activities
are as follows for the years ended June 30. The number of wells drilled refers
to the number of wells commenced at any time during the respective fiscal year.
A well is considered productive if it justifies the installation of permanent
equipment for the production of gas or oil.
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------- ----------
Gross Net Gross Net Gross Net
---------- ---- ----- ---- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Development:
Productive
Appalachian 21.0 16.6 27.0 21.6 18.0 9.1
Other 3.0 0.4 5.0 0.9 - -
---------- ---- ----- ---- ----- ---
Total 24.0 17.0 32.0 22.5 18.0 9.1
========== ==== ===== ==== ===== ===
Nonproductive
Appalachian 2.0 1.6 3.0 1.8 - -
Other 3.0 1.3 1.0 0.2 - -
---------- ---- ----- ---- ----- ---
Total 5.0 2.9 4.0 2.0 - -
========== ==== ===== ==== ===== ===
Exploratory:
Productive
Appalachian 5.0 2.4 - - - -
Other 1.0 0.2 4.0 0.9 1.0 0.7
---------- ---- ----- ---- ----- ---
Total 6.0 2.7 4.0 0.9 1.0 0.7
========== ==== ===== ==== ===== ===
Nonproductive
Appalachian 2.0 0.9 - - - -
Other 9.0 4.1 10.0 3.4 8.0 3.7
---------- ---- ----- ---- ----- ---
Total 11.0 5.0 10.0 3.4 8.0 3.7
========== ==== ===== ==== ===== ===
</TABLE>
12
<PAGE>
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 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.
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, gathering, marketing,
transportation and storage of oil and gas. These regulations, among other
things, can 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, restricts the types, quantities and
concentration of various substances that can be released into the environment in
connection with 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.
GAS AGGREGATION AND MARKETING
- ---------------------------------
The Company, primarily through the wholly owned subsidiary of Eastern
American, Eastern Marketing Corporation ("Eastern Marketing"), aggregates
natural gas through the purchase of 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 from smaller Appalachian Producers that are not large
enough to have marketing departments, 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 in the Northeast, 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 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. The demand for long term
contracts has decreased substantially and no new long term contracts were
entered into in fiscal year 1999. Volumes that became available from expired
long term contracts were sold under intermediate and short term contracts.
13
<PAGE>
The Company owns and operates approximately 2,100 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, 1999,
the Company aggregated and sold an average of 95.7 Mmcf of gas per day, of which
39.7 Mmcf per day represented sales of gas produced from wells operated by the
Company. This represents a decrease compared to fiscal year 1998, during which
the Company aggregated and sold an average of 129.5 Mmcf of gas per day.
GAS SALES AND PURCHASE CONTRACTS
- -------------------------------------
The termination of one long term and one intermediate term sales contract
resulted in the 33.8 Mmcf per day decrease in sales in fiscal year 1999. The
sale of gas on a contract basis to the Company's natural gas distribution
utility expired on October 31, 1998 (23.8 Mmcf per day). The Company elected
not to renew the contract, allowing both parties to seek more economical sales
and purchases of natural gas from independent third parties.
The Company satisfied its obligations under all gas sales contracts in
fiscal year 1999 through gas production attributable to its own interests in oil
and gas properties and through production attributable to third party interests
in oil and gas properties (14.5 Bcf in fiscal 1999), and from natural gas
aggregated by the Company pursuant to its aggregation and marketing activities
from third parties (20.5 Bcf in fiscal 1999).
Eastern American has a gas sales contract with Hope Gas, Inc. ("Hope"), a
subsidiary of Consolidated Natural Gas, which requires Eastern American to sell
up to 4,000 but not less than 1,500 Mmbtu per day during the winter months of
November through March to Hope through December 31, 2001. Pricing under the
contract requires Hope to pay Eastern American a ten cent premium above the
posted Appalachian Index.
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. In connection with the Royalty Trust, Eastern Marketing entered
into a gas purchase contract to purchase all gas production attributable to the
Royalty Trust until termination of the Royalty Trust in May 2013. The purchase
price under this gas purchase contract through December 1999 is 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 floor
price. The floor price was $2.84 per Mcf in calendar year 1998 and is $3.09 per
Mcf in calendar year 1999. The fixed price component was $3.39 in calendar year
1998 and is $3.56 in calendar year 1999. The variable price is equal to the
future contract price 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 this gas purchase
contract will be determined solely by reference to the variable price component
without regard for any minimum purchase price. Eastern American is a party to a
standby performance agreement with the Royalty Trust to support the obligations
of Eastern Marketing under this gas purchase contract.
14
<PAGE>
MARKET POSITION
- -----------------
During fiscal 1999, Eastern Marketing purchased call options on 5,000 Mmbtu
of natural gas per day for the period March 1999 through October 1999. The
options were purchased for approximately $0.4 million, or $0.31 per Mmbtu. The
options provided the Company with the right to purchase up to 5,000 Mmbtu per
day during the option period at a price of $2.25 per Mmbtu.
MARKETING FOCUS CHANGE
- -------------------------
At the close of the 1999 fiscal year, it was determined that Eastern
Marketing would no longer enter into contracts to purchase independent producers
gas as this business was becoming less economical to maintain each year. The
strong competition among various marketing companies for this business is
causing margins to "shrink" each year, and in the Company's opinion, this type
of business is rapidly losing its economic validity. Third party contract
business is labor intensive, requiring a sales staff and related accounting
services. It is the intention of Eastern Marketing to sell this portion of its
business, provided an acceptable offer can be achieved, or to operate the
existing contracts until they expire. Most of the effected contracts expire
within a one year period. With this new marketing focus, Eastern Marketing
should be better poised to concentrate its efforts on marketing Eastern
American's natural gas.
REGULATIONS AFFECTING MARKETING AND TRANSPORTATION
- ------------------------------------------------------
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 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.
EMPLOYEES
- ---------
As of June 30, 1999, the Company had approximately 760 full-time employees.
Approximately 290 employees are covered by six separate collective bargaining
agreements. None of these agreements will expire during the next fiscal year.
Management believes that its relationship with its employees is good.
ITEM 2. PROPERTIES
------- ----------
See Item 1. Business, for information concerning the general location and
characteristics of the important physical properties and assets of the Company
and information regarding production, reserves, development and interests in oil
and gas producing properties of the Company.
ITEM 3. LEGAL PROCEEDINGS
------- -----------------
The Company is involved in various legal actions and claims arising in the
ordinary course of business. While the outcome of these lawsuits against the
Company cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on the Company's operations or
financial position.
15
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------- ---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1999.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
------- ----------------------------------------
AND RELATED STOCKHOLDER MATTERS
-------------------------------
The Company's common stock is not traded in a public market. As of
September 1, 1999, the Company had 25 holders of record of its common stock.
The Company declared dividends in fiscal years 1999, 1998 and 1997 of
$644,505, $1,131,000 and $1,007,000, respectively.
ITEM 6. SELECTED FINANCIAL DATA
------- -----------------------
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- -------- -------- --------
(Dollars in Thousands, except per share items)
<S> <C> <C> <C> <C> <C>
Operating revenue $285,603 $364,336 $373,961 $375,794 $145,494
Income (loss) from continuing operations (14,887) 3,014 2,018 7,820 1,185
Income (loss) from continuing operations
Per common share, basic (22.12) 4.53 2.93 11.16 1.68
Per common share, assuming dilution (22.12) 4.53 2.93 11.15 1.68
Total assets 436,942 439,945 434,757 461,504 471,497
Long term debt 280,021 261,507 260,089 254,647 267,647
Dividends declared per common share $ 0.95 $ 1.70 $ 1.50 $ 2.10 $ 0.65
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
------- --------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
The following should be read in conjunction with the Company's Financial
Statements and notes (including the segment information) at Item 8 and the
Selected Financial Data at Item 6.
This discussion and analysis of financial condition and results of
operations, and other sections of this Form 10-K, contain forward-looking
statements that are based on management's beliefs, assumptions, current
expectations, estimates and projections about the oil and gas industry, the
economy and about the Company itself. Words such as "anticipates," believes,"
"estimates," "expects," "forecasts," "intends," "is likely," "plans,"
"predicts," "projects," variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions that are difficult to predict with regard to timing, extent,
likelihood and degree of occurrence. Therefore, actual results and outcomes may
materially differ from what may be expressed or forecasted in such
forward-looking statements. Furthermore, the Company undertakes no obligation
to update, amend or clarify forward-looking statements, whether as a result of
new information, future events or otherwise.
16
<PAGE>
Important factors that could cause actual results to differ materially from
the forward-looking statements include, but are not limited to, weather
conditions, changes in production volumes, worldwide demand and commodity prices
for petroleum natural resources, the timing and extent of the Company's success
in discovering, acquiring, developing and producing oil and natural gas
reserves, risks incident to the drilling and operation of oil and natural gas
wells, future production and development costs, the effect of existing and
future laws, governmental regulations and the political and economic climate of
the United States and New Zealand, the effect of hedging activities, and
conditions in the capital markets.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
The Company recorded a net loss of $14.9 million for the year ended June
30, 1999 compared to net income of $3.0 million for the same period in 1998. The
decrease in income of $17.9 million is attributed to a $78.7 million decrease in
revenue, which was partially offset by a $60.7 million decrease in operating
expenses, an $11.1 million increase in impairment and exploratory costs, a $3.9
million increase in other income and a $7.2 million increase in income tax
benefits.
OPERATING MARGINS. Operating Margins (defined as revenue less operating
------------------
costs, taxes other than income taxes, and direct general and administrative
expense) for the Company's operating subsidiaries totaled $49.4 million for the
current year compared to $33.9 million for the prior period. The Company's
Utility Operating Margin (defined as total revenue less utility gas purchased,
utility operations and maintenance expense, taxes other than income taxes and
direct general and administrative expense) totaled $32.6 million for the current
period versus $20.8 million for the prior year. The Company's Oil and Gas
Operating Margin (defined as oil and gas sales and well operations and service
revenues less field operating expenses, taxes other than income, and direct
general and administrative) totaled $12.3 million versus $15.4 million for the
prior year. The Company's Marketing and Pipeline Operating Margin (defined as
gas marketing and pipeline sales less gas marketing pipeline cost of sales)
totaled $4.5 million for the current period versus a loss of $2.3 million for
the prior period.
REVENUES. Total revenues decreased $78.7 million or 21.6% during the
--------
periods. The decrease was due to a 32.4% decrease in gas marketing and pipeline
sales, a 12.0% decrease in oil and gas sales, and a 95.6% decrease in other
operating revenue. Utility gas sales and transportation and well and service
operating revenue remained relatively constant between the periods.
Revenues from gas marketing and pipeline sales decreased $46.6 million from
$144.1 million during the period ended June 30, 1998 to $97.5 million in the
period ended June 30, 1999. The decrease in revenue is primarily attributable
to a 12% decrease in the average unit price from $2.63 to $2.32 and a 27%
decline in marketed volumes from 50.7 million dth at June 30, 1998 to 37.2
million dth at June 30, 1999. The decrease in volumes is primarily a result of
the termination of two contracts that accounted for 9.5 Bcfe and reduced volumes
associated with trading activities. See other operating revenue, discussed
below.
Revenues from oil and gas sales decreased $3.0 million from $24.7 million
for the period ended June 30, 1998 to $21.7 million for the period ended June
30, 1999. The decrease in revenue is primarily attributable to a 29.6% decrease
in the average oil sales price from $15.30 to $10.76 per Bbl and an 8.59%
decrease in the average gas sales price from $2.52 to $2.30 per Mcf between June
30, 1998 and June 30, 1999. The price decline was partially offset by production
increasing 6.21% for oil and 1.23% for gas.
17
<PAGE>
Other operating revenues decreased $30.8 million from $32.2 million to $1.4
million between the periods. This was primarily because 1998 included revenue
from the termination of a long-term gas delivery contract. See Note 17 to the
Consolidated Financial Statements for discussion.
COSTS AND EXPENSES. The Company's costs and expenses decreased $60.7
--------------------
million or 18.9% during this period primarily as the result of a 13.3% decline
in the cost of utility gas purchased, a 36.5% decrease in gas marketing and
pipeline costs, which was partially offset by a 7.6% increase in general and
administrative expenses, a 10.0% increase in depreciation, depletion and
amortization and a 134.7% increase in impairment and exploratory costs. Field
and lease operating expenses, utility operations and maintenance costs and taxes
other than income remained relatively constant between the periods.
The $11.3 million decline in the cost of utility gas purchased was
primarily the result of the nonrecurring effect of the initial implementation of
Mountaineer's gas supply management agreement with a third party, which was
effective November 1, 1998.
The $53.4 million decrease in gas marketing and pipeline costs is primarily
the result of a 27% decline in purchased gas volumes from 51.1 Bcfe to 37.6 Bcfe
from June 30, 1998 and June 30, 1999. Contributing to the decline in costs was
a 15% decrease in the average price paid for gas purchased, from $2.67 per Mmbtu
to $2.26 per Mmbtu between the respective periods. Additionally, approximately
$2.4 million of purchased gas costs was charged against a reserve for losses on
future gas purchases, which was primarily related to the contract settlement.
See Note 17 to the Consolidated Financial Statements for discussion.
General and administrative expense increased $1.8 million as a result of
higher labor and benefit costs at the utility and increased overhead at the
corporate level.
Depreciation, depletion and amortization costs increased $2.0 million
primarily due to additions to the utility gas plant in service and corporate
fixed assets.
Impairment and exploratory expenses increased $11.1 million primarily due
to the current year cost of drilling exploratory dry holes of $5.9 million in
New Zealand and $1.6 million domestically. In addition, approximately $2.2
million of leasehold and well in progress costs were written off late in fiscal
1999.
INTEREST EXPENSE. Interest expense remained relatively constant between
-----------------
the periods.
OTHER (INCOME) EXPENSE. Other income increased $3.9 million primarily due
-----------------------
to the recognition of gains on the sale of property during fiscal 1999, compared
to losses in the prior year. Also, during fiscal 1998 a reserve of $1.1 million
was established against a note receivable.
PROVISION FOR INCOME TAXES. The provision for income taxes changed $7.2
-----------------------------
million primarily because of the current year loss.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
- --------------------------------------------------------------------------------
The Company recorded net income and income before extraordinary loss of
$3.0 million for the year ended June 30, 1998 compared to a net loss of $5.8
million and income before extraordinary loss of $2.0 million for the same period
in 1997. The increase in income before extraordinary loss of $1.0 million is
attributed to the contract settlement under which the company received
approximately $30 million (net) in cash and related partnership distributions as
described in Note 17 to the Consolidated Financial Statements. The increase
resulting from the contract settlement was partially offset by a $15 million
decrease in operating income resulting generally from the effects of a warmer
heating season resulting in a $1.3 million reduction in operating income, lower
oil and gas sales, and lower gas marketing and pipeline margins resulting in a
$12.5 million reduction in operating income and increased corporate expenses of
$1.0 million. Additionally, interest expense increased $2.5 million and gain on
sales of assets and other income and expenses decreased $11.7 million between
the two periods.
18
<PAGE>
OPERATING MARGINS. Total Operating Margins for the Company's operating
------------------
subsidiaries totaled $33.9 million for 1998 compared to $50.6 million for 1997.
The Company's Utility Operating Margin decreased from $22.3 for 1997 to $20.8
million for 1998. The Company's Oil and Gas Operating Margin decreased from
$18.9 million for 1997 to $15.4 million for 1998. The Company's Marketing and
Pipeline Operating Margin decreased from $9.3 million for the prior year to a
loss of $2.3 million for the current year.
REVENUES. Total revenues decreased $9.6 million or 2.6% during the
--------
periods. The decrease was due to a 9.7% decrease in utility gas sales and
transportation, an 10.1% decrease in gas marketing and pipeline sales and a
25.9% decrease in oil and gas sales, which were partially offset by a $31.9
million increase in other operating revenue. See Note 17 to the Consolidated
Financial Statements for discussion.
Revenues from utility gas sales and transportation decreased $16.9 million
or 9.7% from $173.5 million during the year ended June 30, 1997 to $156.6
million for the same period ended June 30, 1998. The decrease is primarily due
to approximately 3.0 million Mcf less in volumes of gas sold as a result of a
6.3% decrease in the weighted average number of Degree Days in the current
period, partially offset by a 3.2% increase in transportation revenue due to
increased usage by commercial and industrial customers.
Revenues from gas marketing and pipeline sales decreased $16.2 million from
$160.3 million during the period ended June 30, 1997 to $144.1 million in the
period ended June 30, 1998. The decrease in revenue is primarily attributable
to a 3.7% decrease in the average unit price and a 7.5% decline in marketed
volumes from 56.0 million dth at June 30, 1997 to 51.8 million dth at June 30,
1998. The decrease in volumes is a result of a change in pipeline sales and
transportation components, discontinued pipeline sales to a customer, and
reduced volumes associated with trading activities.
Revenues from oil and gas sales decreased $8.6 million from $33.3 million
for the period ended June 30, 1997 to $24.7 million for the period ended June
30, 1998. The decrease in revenue is primarily attributable to a 22.9% decline
in units sold from 12.4 Bcfe at June 30, 1997 to 9.3 Bcfe and a 3.9% decrease in
the average unit sales price from $2.69 to $2.58 per Mcfe for the respective
periods. The 22.9% decline in units sold between June 30, 1997 and 1998 was
primarily as a result of the sale of the Company's limited partnership interests
in Westside Operating Partnership LP ("WOPLP"), which accounted for 2.7 Bcfe and
96.8% of the total decline in units sold. The sale of WOPLP occurred in March
1997.
Other operating revenues increased $31.9 million between the periods
primarily as a result of an agreement to terminate an existing long-term gas
delivery contract. See Note 17 to the Consolidated Financial Statements for
discussion.
COSTS AND EXPENSES. The Company's costs and expenses decreased $25.0
--------------------
million or 7.0% during this period primarily as the result of a 15.5% decline in
the cost of utility gas purchased, a 3.0% decrease in gas marketing and pipeline
costs, a 29.5% decline in the field and lease operating expenses and an 18.4%
decline in impairment and exploratory expenses.
19
<PAGE>
The $15.6 million decline in the cost of utility gas purchased was the
result of a decrease in purchased gas volumes of 3.7 Bcf and a decrease in the
average commodity price of natural gas of approximately $0.15 per Mcf purchased
and a $1.9 million decrease in demand charges resulting primarily from a rate
settlement with Columbia Gas Transmission Corporation during fiscal year 1997.
The $4.6 million decrease in gas marketing and pipeline costs is the result
of a 3.9 million dth decline in volumes marketed offset by a $0.09 increase in
the average unit cost of gas sold during fiscal year 1997.
The $4.1 million decline in field and lease operating expense was primarily
the result of the reduction in operating costs of $3.5 million associated with
the sale of the limited partnership interests previously discussed.
Utility operations and maintenance costs increased 3.8% as a result of
increased outside services ($0.3 million) and increased labor costs ($0.3
million)
General and administrative expense increased 3.0% as a result of the
inclusion of the selling expenses of Mapcom Systems, Inc. ($1.3 million)
acquired by Mountaineer in November 1997 partially offset by generally lower
expenses for outside services.
Taxes other than income decreased 7.5% generally as a result of lower
revenues.
Impairment and exploratory expenses decreased $1.9 million primarily due to
non-recurring write-offs of exploratory properties in fiscal 1997 resulting from
decreased domestic exploratory activities and unsuccessful exploratory drilling.
Depreciation of pipelines, other property and equipment increased $1.7
million or 16.8% as a result of higher depreciation related to an increase in
property in service and the effective depreciation rate.
Depletion and depreciation of oil and gas properties decreased $0.7
million. The decrease related to the sale of the WOPLP properties in fiscal year
1997 which accounted for 2.7 Bcfe of production partially offset by a 17.0%
increase in depletion and depreciation rates.
INTEREST EXPENSE. Interest expense increased 10.5% from $23.9 million to
-----------------
$26.4 million in the current year. The increase was due to the additional
average long-term debt outstanding during the periods resulting from the
issuance of the Senior Subordinated Notes and higher interest rates during the
fiscal year ended June 30, 1998.
OTHER (INCOME) EXPENSE. Other income decreased $9.5 million primarily due
-----------------------
to the sale of WOPLP, which occurred in March 1997 resulting in a gain of $7.8
million compared to a loss of $1.2 million on the disposal of certain oil and
gas properties during the year ended June 30, 1998.
PROVISION FOR INCOME TAXES. The provision for income taxes excluding the
----------------------------
tax benefit for the extraordinary loss was relatively unchanged between the
years.
EXTRAORDINARY LOSS. The extraordinary loss of $7.9 million (net of a $4.2
- --------------------
million tax benefit) recorded during the fiscal year ended June 30, 1997 was due
to the early extinguishment of debt. In May 1997, the Company issued $200
million Senior Subordinated Notes using the proceeds therefrom to repay debt at
Eastern Systems Corporation ("ESC") and Eastern American of $35 million and $136
million, respectively.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
Despite improved Operating Margins (as defined above) from the Company's
operating subsidiaries, $49.4 million for the current period versus $33.9
million for the prior period, the Company's financial condition declined during
the current period. The Company's consolidated working capital and funds
available from unused short-term credit facilities and revolving credit
facilities declined from $105.7 million at June 30,1997 to $89.5 million at June
30, 1998 and $37.3 million at June 30, 1999.
Historically, the Company's growth has been accomplished through direct
investment in utility operations ($11.4 million 1999, $15.8 million 1998, $9.9
million 1997) and exploration and development drilling activities ($25.3 million
1999, $20.6 million 1998, $18.0 million 1997). These investments were primarily
financed through a combination of cash provided from operations and through
short and long-term debt financing consisting of $6.2 million cash provided by
operating activities and $22.0 million in proceeds from debt facilities for the
current period, $6.6 million (excluding $30.1 million from a non-recurring
transaction) and $4.5 million respectively for the prior period and $11.4
million and $22.4 million for the period ending June 30, 1997.
In general, the investment return on the Company's capital expenditures for
its utility subsidiary has enabled management of the utility to increase its
Operating Margins and cash provided (used) from operations from $22.3 million
and $(5.1) million in 1997, to $20.8 million and $25.2 million in 1998 to $32.6
million and $28.7 million in 1999, respectively. However, returns on the
Company's investments in its oil and gas operating subsidiaries has fallen below
expectations of management during the same three year period. Operating Margins
and cash provided (used) in operations for the Company's oil and gas operating
subsidiaries totaled $18.9 million and $14.2 million for 1997, $15.4 million and
$6.3 million for 1998, and $12.3 million and $0.4 million in 1999, respectively.
As a result of the lower than expected returns on the Company's investments in
its oil and gas operating subsidiaries, the Company's primary sources of
liquidity (cash provided by operating activities and short and long-term debt)
has been adversely impacted.
In addition to, and primarily as a result of the foregoing, the Company was
in violation of certain covenants of its Revolving Debt Agreement at June 30,
1999 relating to (1) Tangible Net Worth, (2) Current Ratio, and (3) Minimum
Interest Coverage Ratio. The Company's lenders have not accelerated the debt.
However, as a result of the non-monetary violations described above, the Company
was prohibited from drawing down additional borrowings under the Revolving Debt
Agreement. Moreover, if the debt had been accelerated, the Company would have
been required to repay the $25 million drawn under the Revolving Debt Agreement.
Furthermore, an acceleration of the debt under the Revolving Debt Agreement
would have also triggered a cross-default provision of the Company's $200
million Senior Subordinated Notes. Under this circumstance, the Company would
have considered various alternatives, including seeking new and or additional
credit facilities, the sale of certain assets, or other options, to acquire such
funds or restructure its debt.
21
<PAGE>
Since June 30, 1999, the Company and its lenders have agreed to amend the
Revolving Debt Agreement to include (1) a reduction of the credit availability
under the Revolving Debt Agreement from $50 million to $22 million, (2) a waiver
of the non-monetary violations as described above, and (3) certain amendments to
the Revolving Debt Agreement which would restructure certain financial covenants
as follows (a) Tangible Net Worth, as defined in the Amendment, will not be less
than $20 million plus fifty percent (50%) of Consolidated Net Income earned
during the period from June 30, 1997, after adding back approximately $19
million, (b) Current Ratio, as defined in the Amendment, requirement from 1 to 1
to 0.6 to 1 through December 30, 1999 and 1 to 1 thereafter, such current ratio
calculation shall be calculated without including any payments of principal on
the Notes or Subordinated Notes which might be required to be repaid within one
year from the time of the calculation, and (c) Interest Coverage ratio, as
defined in the Amendment, reduced from a minimum of 1.5 to 1 to 1.15 to 1 for
the next four quarters and 1.5 to 1 thereafter, except that Adjusted EBITDA, as
defined in the Amendment, and as utilized in the numerator within such
calculation shall have an amount of $19 million added thereto and such
adjustment shall be effective for the calculation during the fiscal quarters
ended September 30, 1999, December 31, 1999, March 31, 2000, and June 30, 2000.
As part of the foregoing waivers and amendments, the Company has agreed to
(1) make an immediate principal reduction payment of $3 million, (2) make four
consecutive quarterly principal payments of $750,000, (3) set the interest rate
on borrowed amounts at LIBOR plus 300 basis points, (4) pay certain fees
totaling $335,000, and (5) permit subsequent redeterminations of the Borrowing
Base as defined under the Revolving Debt Agreement, to be determined, at the
discretion of the lenders, more than once during a fiscal year.
Mountaineer plans to issue approximately $40 million in unsecured,
long-term notes during the fourth quarter of calendar 1999. The proceeds from
this issuance will be used to reduce short-term borrowings ($16.8 million at
June 30, 1999) and for general corporate uses of the utility. While this
financing will significantly improve the consolidated current ratio,
restrictions limit dividend and other payments to the Company from Mountaineer.
Currently, Mountaineer has $67 million of unsecured revolving bank lines of
credit, under which approximately $16.8 million (see above discussion) was drawn
at June 30, 1999. Under Mountaineer's debt covenants, which restrict cash
outflow, $7.3 million of dividends are available to the Company.
The Company believes that its existing capital resources and expected
fiscal year 2000 results of operation will be sufficient for the Company to
remain in compliance with the requirements of the amended Revolving Debt
Agreement, and its Senior Subordinated Note Agreement, and to fund
non-discretionary capital expenditures. However, although the Company expects
that Operating Margins and cash provided from operations will improve, the
Company can give no assurances that such improvements will be realized or that
certain violations of the amended Revolving Debt Agreement and Senior
Subordinated Note Agreement will not occur, since the future profitability, debt
service capability and levels of capital resource as well as capital
availability will depend to a great extent on future weather patterns, oil and
gas prices, and future exploration and development drilling success. In the
event that Operating Margins and cash provided from operations do not meet
expectations of management or if additional debt covenant or debt service
violations occur, the Company may elect to increase debt levels, restructure
debt agreements, sell certain assets or operating subsidiaries, defer certain
discretionary capital spending (including oil and gas exploration and
development drilling activities), consolidate certain field operations, or take
other actions to mitigate liquidity short-falls and remedy any foreseeable or
potential debt covenant issues, although no assurances can be given that such
actions will be successful.
YEAR 2000 COMPLIANCE. The year 2000 issue arose because many computer
----------------------
systems and software applications as well as embedded computer chips currently
in use were constructed using an abbreviated date field that eliminates the
first two digits of the year. On January 1, 2000, these systems, applications
and embedded computer chips may incorrectly recognize the date as January 1,
1900. Accordingly, many computer systems and software applications, as well as
embedded chips, may incorrectly process financial or operating information or
fail to process such information completely. The company recognized this
problem and is addressing its potential effects on its computer systems,
software applications and operating assets.
The Company began its Year 2000 compliance efforts in 1996 and has
substantially completed its assessment of its key business information systems
to determine what issues, if any, exist regarding these systems' compliance with
Year 2000 issues and is taking the necessary steps to ensure its systems will be
compliant by the year 2000.
22
<PAGE>
These steps include the purchase and implementation of an integrated
application software package, that together with the associated hardware and
external consulting resources, is expected to cost approximately $7.1 million.
In addition, the Company is presently in the process of modifying existing
operating and application systems that are not Year 2000 compliant and
anticipates that it will be successful in completing such modifications before
the calendar year ended 1999. With the exception of the new application package
discussed above, the Company anticipates that it can complete the necessary
modifications to its information systems to ensure Year 2000 compliance
utilizing internal resources.
The costs associated with modification of existing information systems are
expected to consist primarily of personnel expense for staff dedicated to the
effort. The Company's policy is to expense these costs as incurred. The
Company also may invest in new or upgraded technology, which has definable value
lasting beyond 2000. In these instances, such as the implementation of the
integrated software application discussed above, the Company anticipates
capitalizing and depreciating such costs over their estimated useful life.
In addition to reviewing its own computer operating and application
systems, the Company has initiated communications with its significant suppliers
and vendors to determine the extent to which these parties have addressed Year
2000 issues. To the extent such vendors cannot provide reasonable assurances to
the Company of their readiness to handle Year 2000 issues, contingency plans
will be developed. There is no assurance that such parties can complete the
necessary modifications and conversions in a timely manner. To the extent such
modifications and conversions are not completed on a timely basis and issues
outside of the companies control arise, the Year 2000 issue could have an
adverse impact on the operations of the Company.
The costs associated with addressing Year 2000 issues and the date on which
the Company believes it will complete the necessary modifications are based upon
management's best estimates. There can be no guarantee that these estimates
will be achieved and actual results could differ from those anticipated.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
-------- ----------------------------------------
ABOUT MARKET RISK
-----------------
INTEREST RATE RISK
- ---------------------
Interest rate risk is attributable to the Company's debt. The Company
utilizes United States dollar denominated borrowings to fund working capital and
investment needs. There is inherent rollover risk for borrowings as they mature
and are renewed at current market rates. The extent of this risk is not
predictable because of the variability of future interest rates and the
Company's future financing needs. If interest rates changed by 1%, it would have
an impact of approximately $0.4 million. The Company has not attempted to hedge
the interest rate risk associated with its floating rate debt of which $41.8
million was outstanding at year end. The Company has fixed interest rate debt of
$261.7 million, representing 86.2% of the total debt.
23
<PAGE>
COMMODITY RISK
- ----------------
The Company's operations, as described in detail at Item 1 Business,
consists primarily of exploring for, producing, aggregating and distributing
natural gas and oil. The Company attempts to mitigate its commodity price risk
by entering into a mix of short, medium and long-term supply contracts.
Contracts to deliver gas at pre-established prices mitigate the risk to the
Company of falling prices but at the same time limit the Company's ability to
benefit from the effects of rising prices. The Company occasionally uses
derivative instruments to hedge its commodity price risk. Notwithstanding the
above, the Company's future cash flows from gas and oil production are exposed
to significant volatility as commodity prices change.
The Company periodically enters into hedging activities on a portion of its
projected natural gas production through a variety of financial and physical
arrangements intended to support natural gas prices at targeted levels and to
manage its exposure to price fluctuations. The Company may use futures
contracts, swaps, options and fixed price physical contracts to hedge its
commodity prices. Realized gains and losses from the Company's price risk
management activities are recognized in oil and gas sales when the associated
production occurs. The Company does not hold or issue derivative instruments for
trading purposes. For fiscal 2000, the Company has elected to enter into a
combination of forward sale collars and floors, covering the majority of its
Appalachian natural gas.
Mountaineer has entered into a new rate moratorium with the WVPSC through
2001 thereby potentially exposing itself to volatility in its gas supply costs.
If such risk was left unhedged, its future cash flows could vary significantly
from historical cash flows. Mountaineer has entered into the Supply Agreement
with Coral, under which Mountaineer will purchase approximately 90% of its
natural gas supply at a fixed cost for the full duration of the rate moratorium
thereby substantially reducing its exposure to market volatility.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------- -------------------------------------------
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 June 30, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1999. Our audits
also included the financial statement schedules listed in the Index at Item 14.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules 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 June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1999 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Denver, Colorado
September 27, 1999
25
<PAGE>
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
(AMOUNTS IN THOUSANDS)
- -----------------------------------------------------------------------------------
ASSETS 1999 1998
------------ ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,557 $ 21,547
------------ ---------
Accounts receivable:
Utility gas and transportation 14,259 13,027
Gas marketing and pipeline 4,311 5,528
Oil and gas sales 6,686 7,595
Other 9,220 7,959
------------ ---------
34,476 34,109
Less allowance for doubtful accounts (1,622) (1,281)
------------ ---------
32,854 32,828
Gas in storage, at average cost 357 13,249
Income taxes receivable 3,580 4,310
Deferred income tax asset 3,702
Prepaid winter gas service 18,474
Prepaid and other current assets 3,444 5,839
------------ ---------
Total current assets 75,968 77,773
NET PROPERTY, PLANT AND EQUIPMENT (Note 2) 315,316 318,547
------------ ---------
OTHER ASSETS:
Deferred financing costs, less accumulated
amortization of $2,485 and $1,046 8,523 9,545
Notes receivable, less allowance for doubtful accounts
of $440 and $400 1,531 2,902
Notes receivable - related party 2,013 2,716
Deferred utility charges 18,785 18,233
Other 14,806 10,229
------------ ---------
Total other assets 45,658 43,625
------------ ---------
TOTAL $ 436,942 $439,945
============ =========
</TABLE>
See notes to consolidated financial statements. (Continued)
26
<PAGE>
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARES)
- ------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY 1999 1998
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 40,049 $ 38,883
Current portion of long-term debt 6,634 581
Short-term debt 16,799 19,174
Funds held for future distribution 5,378 5,716
Accrued taxes, other than income 7,635 8,472
Overrecovered gas costs 3,927 6,485
Deferred income tax liability 5,643
Other current liabilities 8,465 8,115
--------- ---------
Total current liabilities 88,887 93,069
LONG-TERM OBLIGATIONS
Long-term debt 280,021 261,507
Gas delivery obligation and deferred trust revenue 13,839 16,127
Deferred income tax liability 27,868 24,552
Other long-term obligations 11,850 12,837
--------- ---------
Total liabilities 422,465 408,092
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 15)
MINORITY INTEREST - 1,883
--------- ---------
STOCKHOLDER'S EQUITY:
Common stock, par value $1.00; 2,000,000 shares authorized;
721,000 and 720,000 shares issued in 1999 and 1998 721 720
Class A non-voting common stock, no par value; 100,000
shares authorized; 26,000 shares issued in 1999 2,940 -
Additional paid-in capital 4,656 4,510
Retained earnings 13,598 29,132
Treasury stock and notes receivable arising from
issuance of common stock (7,261) (4,082)
Accumulated comprehensive loss (177) (310)
--------- ---------
Total stockholder's equity 14,477 29,970
--------- ---------
TOTAL $436,942 $439,945
========= =========
</TABLE>
See notes to consolidated financial statements. (Concluded)
27
<PAGE>
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------------------------
1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
REVENUES:
Utility gas sales and transportation $158,439 $156,579 $173,463
Gas marketing and pipeline sales 97,467 144,133 160,345
Oil and gas sales 21,727 24,689 33,301
Well operations and service revenues 6,540 6,751 6,526
Contract settlement and other 1,430 32,184 306
--------- -------- ---------
285,603 364,336 373,941
--------- -------- ---------
COSTS AND EXPENSES:
Utility gas purchased 73,842 85,166 100,774
Gas marketing and pipeline cost of sales 92,981 146,367 150,967
Field operating expenses 9,214 9,788 13,913
Utility operations and maintenance 22,496 22,084 21,320
General and administrative 25,112 23,330 22,640
Taxes, other than income 15,260 14,882 16,094
Depletion and depreciation of oil and gas properties 8,409 8,021 8,756
Depreciation of pipelines, other property and equipment 13,629 12,017 10,289
Exploration and impairment 19,388 8,262 10,121
--------- -------- ---------
280,331 329,917 354,874
--------- -------- ---------
Income from operations 5,272 34,419 19,067
--------- -------- ---------
OTHER (INCOME) AND EXPENSE:
Interest 26,554 26,386 23,881
Loss (gain) on sale of assets (91) 1,208 (8,303)
Other (1,079) 1,551 (647)
--------- -------- ---------
25,384 29,145 14,931
--------- -------- ---------
Income (loss) before income taxes, minority interest and extraordinary loss (20,112) 5,274 4,136
Provision (benefit) for income taxes (5,232) 2,017 1,966
--------- -------- ---------
Income (loss) before minority interest and extraordinary loss (14,880) 3,257 2,170
Minority interest 7 243 152
--------- -------- ---------
Income (loss) before extraordinary loss (14,887) 3,014 2,018
Extraordinary loss on early extinguishment of debt (net of income
tax benefit of $4,233) - - 7,861
--------- -------- ---------
NET INCOME (LOSS) $(14,887) $ 3,014 $ (5,843)
========= ======== =========
Earnings per common share
Income before extraordinary loss $ (22.12) $ 4.53 $ 2.93
Extraordinary loss - - $ (11.42)
--------- -------- ---------
Basic earnings (loss) per common share $ (22.12) $ 4.53 $ (8.49)
========= ======== =========
Diluted earnings (loss) per common share $ (22.12) $ 4.53 $ (8.49)
========= ======== =========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERSEQUITY
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------
Class A Additional
Common Common Paid-In Retained Treasury
Stock Stock Capital Earnings Stock
------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996 $ 711 $ - $ 4,086 $ 34,099 $ (1,121)
Components of comprehensive loss:
Foreign currency translation adjustment
Net loss (5,843)
Comprehensive loss
Dividends ($1.50 per share) (1,007)
Exercise of employee stock options for notes receivable 3 125
Issuance of common stock 10
Purchase of treasury stock (2,054)
Reduction of notes receivable
------- -------- ----------- ---------- ----------
Balance, June 30, 1997 714 - 4,221 27,249 (3,175)
Components of comprehensive income:
Foreign currency translation adjustment
Net income 3,014
Comprehensive income
Dividends ($1.70 per share) (1,131)
Issuance of common stock 3 164
Exercise of employee stock options for notes receivable 3 125
Purchase of treasury stock (523)
Reduction of notes receivable
------- -------- ----------- ---------- ----------
Balance, June 30, 1998 720 - 4,510 29,132 (3,698)
Components of comprehensive loss:
Foreign currency translation adjustment
Net loss (14,887)
Comprehensive loss
Dividends ($0.95 per share) (647)
Common stock issued for services 1 146
Conversion of minority interest 2,040
Employee stock purchases 900
Purchase of treasury stock - common (1,761)
Purchase of treasury stock - Class A (437)
Reduction of notes receivable
------- -------- ----------- ---------- ----------
Balance, June 30, 1999 $ 721 $ 2,940 $ 4,656 $ 13,598 $ (5,896)
======= ======== =========== ========== ==========
Notes Received/ Accumulated
Issuance of Comprehensive Stockholders
Stock Income (Loss) Equity
----------------- --------------- --------------
<S> <C> <C> <C>
Balance, June 30, 1996 $ (250) $ 25 $ 37,550
--------------
Components of comprehensive loss:
Foreign currency translation adjustment (176) (176)
Net loss (5,843)
--------------
Comprehensive loss (6,019)
Dividends ($1.50 per share) (1,007)
Exercise of employee stock options for notes receivable (128) -
Issuance of common stock (8) 2
Purchase of treasury stock (2,054)
Reduction of notes receivable 126 126
----------------- --------------- --------------
Balance, June 30, 1997 (260) (151) 28,598
--------------
Components of comprehensive income:
Foreign currency translation adjustment (159) (159)
Net income 3,014
--------------
Comprehensive income 2,855
Dividends ($1.70 per share) (1,131)
Issuance of common stock 167
Exercise of employee stock options for notes receivable (128) -
Purchase of treasury stock (523)
Reduction of notes receivable 4 4
----------------- --------------- --------------
Balance, June 30, 1998 (384) (310) 29,970
--------------
Components of comprehensive loss:
Foreign currency translation adjustment 133 133
Net loss (14,887)
--------------
Comprehensive loss (14,754)
Dividends ($0.95 per share) (647)
Common stock issued for services 147
Conversion of minority interest (150) 1,890
Employee stock purchases (856) 44
Purchase of treasury stock - common (1,761)
Purchase of treasury stock - Class A (437)
Reduction of notes receivable 25 25
----------------- --------------- --------------
Balance, June 30, 1999 $ (1,365) $ (177) $ 14,477
================= =============== ==============
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(AMOUNTS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------
1999 1998 1997
--------- --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(14,887) $ 3,014 $ (5,843)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Minority interest 7 243 152
Depletion, depreciation and amortization 22,837 20,825 19,955
Write-off of deferred financing costs 4,363
Loss (gain) on sale of assets (91) 1,208 (8,304)
Deferred income taxes (7,574) 1,482 (2,534)
Exploration and impairment 16,778 8,262 10,121
Provision for losses on accounts receivable 2,295 2,572 2,102
Other, net (2,245) (3,539) (2,319)
--------- --------- ----------
17,120 34,067 17,693
Changes in assets and liabilities:
Accounts receivable (2,313) 2,631 1,407
Gas in storage 12,892 (608) (353)
Income taxes receivable 730 (2,918) 1,850
Prepaid and other assets (16,079) (1,725) (3,014)
Accounts payable and other current liabilities 1,163 7,846 (5,905)
Funds held for future distribution (338) (299) 823
Overrecovered gas costs (2,558) (3,165) (2,128)
Other (4,382) 897 (849)
--------- --------- ----------
Net cash provided by operating activities 6,235 36,726 9,524
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (36,659) (38,693) (26,376)
Proceeds from sale of oil and gas properties 3,444 568 1,114
Proceeds from sale of limited partnership interest - - 11,250
Notes receivable and other 70 (238) (1,556)
--------- --------- ----------
Net cash provided by (used in) investing activities (33,145) (38,363) (15,568)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 27,500 1,298 271,000
Principal payments on long-term debt (3,084) (296) (255,854)
Short-term borrowings, net (2,375) 3,450 7,332
Purchase of treasury stock (2,198) (523) (2,054)
Dividends (967) (834) (1,007)
Other equity transactions 44 (124) 299
Deferred financing costs - (601) (7,055)
--------- --------- ----------
Net cash provided by (used in) financing activities 18,920 2,370 12,661
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents (7,990) 733 6,617
Cash and cash equivalents, beginning of year 21,547 20,814 14,197
--------- --------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 13,557 $ 21,547 $ 20,814
========= ========= ==========
</TABLE>
See notes to consolidated financial statements.
30
<PAGE>
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
- ---------------------------------------------------------
1. NATURE OF ORGANIZATION
Energy Corporation of America (the "Company") was formed in June 1993 through an
exchange of shares with the common stockholders of Eastern American Energy
Corporation ("Eastern American"). The Company is an independent integrated
energy company. 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
Public Service Commission of West Virginia ("WVPSC").
Oil and Gas Exploration, Development, Production and Marketing - The Company,
- -----------------------------------------------------------------
primarily through Eastern American, is engaged in exploration, development and
production, transportation and marketing of natural gas primarily within the
Appalachian Basin of West Virginia, Pennsylvania and Ohio.
The Company, through its wholly owned subsidiaries Westech Energy Corporation
("Westech") and Westech Energy New Zealand Limited ("WENZL"), 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.
Principles of Consolidation - The consolidated financial statements include the
- ----------------------------
accounts of the Company; Eastern American and its subsidiaries; Eastern Systems
Corporation ("ESC") and its wholly owned subsidiary, Mountaineer and its
subsidiaries; Westech and WENZL 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 American and Mountaineer (see Note 14).
The Company owned an 80% interest in a limited partnership, Westside Operating
Partnership LP ("WOPLP"), until the end of March 1997 (see Note 3). This
investment had been consolidated prior to March 31, 1997 (see Note 12).
Fourth Quarter Results - During the fourth quarter of fiscal 1999, the Company
- ------------------------
had the normal weather related decline in earnings and unproved property
impairments. However, due to significantly more drilling and other exploratory
related activities in New Zealand and the Rocky Mountains, the fourth quarter
loss is greater than usual.
31
<PAGE>
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 geological 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 recognized as income.
The provision for depreciation of Mountaineer's utility plant is based on a
composite straight-line method. The average composite depreciation rate was
3.98%, 3.73% and 3.77% for 1999, 1998 and 1997, respectively. Mountaineer's
property, plant and equipment includes capitalized overhead for payroll related
costs and administrative and general expenses and an allowance for funds used
during construction 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. During fiscal 1999, $8.6 million of
retired other property and equipment was charged against its related accumulated
depreciation.
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
recognized as income.
At June 30 property, plant and equipment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Oil and gas properties $ 216,650 $ 210,650
Utility plant 182,590 170,721
Other property and equipment 13,948 23,743
Pipelines 19,021 18,783
---------- ----------
432,209 423,897
Less accumulated depletion, depreciation and amortization (116,893) (105,350)
---------- ----------
Net property, plant and equipment $ 315,316 $ 318,547
========== ==========
</TABLE>
Long-Lived Assets - 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", 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 whenever those assets no longer meet
the recognition criteria as defined by SFAS No. 71, "Accounting for the Effects
of Certain Types of Regulation". For the three years ended June 30, 1999, the
Company determined that no impairment needed to be recognized for applicable
assets.
Gas in Storage - Gas in storage is stated at the lower of average cost or market
- --------------
value.
32
<PAGE>
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 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 stockholders' 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.
Gas costs are expensed as incurred. For the years ended June 30, 1999, 1998 and
1997, purchased gas costs included $2.8 million, $4 million and $4 million,
respectively, in amortization of overrecovered gas costs recorded prior to
November 1, 1995. (See Note 18).
Oil and gas sales are recognized as income when the oil or gas is produced and
sold.
Stock Compensation - As permitted under SFAS No. 123, "Accounting for
- -------------------
Stock-Based Compensation", the Company has elected to continue to measure
compensation costs for stock-based employee compensation plans using the
intrinsic value method 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 futures and 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 futures and swap
agreements at the time the hedged volumes are sold as part of oil and gas
revenues.
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 depletion, depreciation, amortization and impairment of oil and
gas properties. Management emphasizes that reserve estimates are inherently
imprecise. In addition, utilization of tax credit carryforwards is based
largely on estimates of future taxable income.
Regulatory Accounting - Mountaineer is subject to the provisions of SFAS No. 71,
- ---------------------
"Accounting for the Effects of Certain Types of Regulation." Accordingly,
Mountaineer has recorded certain assets and liabilities that result from the
effects of the ratemaking process that would not be recorded under generally
accepted accounting principles for non-regulated entities. Such amounts are
primarily related to future amounts recoverable for income taxes (see Note 6).
Discontinuance of cost-based regulation or increased competition might require
regulated entities to reduce their asset balances to reflect a market basis less
than cost and to write off their associated regulatory assets and liabilities.
33
<PAGE>
The Company has evaluated the continued applicability of SFAS No. 71,
considering such factors as regulatory changes and the impact of competition.
The Company cannot predict the likelihood of discontinuance of cost-based
regulation in the future or the impact of increased competition on the Company's
future financial position and results of operations.
Prior Year Reclassifications - Certain amounts in the financial statements of
- ------------------------------
prior years have been reclassified to conform to the current year presentation.
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. 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,
where no one customer constitutes a significant credit risk. The risk of
nonpayment by purchasers, joint owners or utility customers has been considered
in the Company's allowance for doubtful accounts.
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 June 30, 1999, 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.
Recent Accounting Pronouncements - The Company adopted SFAS No. 130, "Reporting
- ---------------------------------
Comprehensive Income", effective July 1, 1998. The standard establishes rules
for the reporting of comprehensive income and its components. The Company's
comprehensive income (loss) consists of foreign currency translation adjustments
and is presented in the Consolidated Statement of Stockholders' Equity. The
adoption of SFAS No. 130 had no impact on the Company's total Stockholders'
equity. Prior year financial statements have been reclassified to conform.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued, which is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. It requires
the recognition of all derivative instruments as assets or liabilities in the
Company's balance sheet and measurement of those instruments at fair value. The
accounting treatment of changes in fair value is dependent upon whether or not a
derivative instrument is designated as a hedge and if so, the type of hedge.
The Company has not fully analyzed the impact of the provisions of SFAS No. 133
will have on the Company's financial statements.
34
<PAGE>
Supplemental Disclosures of Cash Flow Information - Supplemental cash flow
- ------------------------------------------------------
information for the years ended June 30 is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Cash paid (received) for:
Interest (net of capitalized interest of $0, $37,
and $323 in 1999, 1998 and 1997, respectively) $25,670 $25,025 $19,921
Income taxes, net 1,451 3,004 (1,142)
Noncash investing and financing activities:
Dividends declared and unpaid at year end 316
Seller financed acquisition 150 943
Acquisition of property for cancellation of notes 1,900
</TABLE>
3. DISPOSITIONS
Westside Operating Partnerships LP - 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, Breitburn
Energy Company, LLC ("BEC"), the successor to WOPLP. BEC redeemed the Company's
previous interest and purchased certain oil and gas properties, paying the
Company $11.3 million plus a $1.5 million variable rate note with certain
conversion options and distributing certain WOPLP oil and gas properties and
real estate to the Company. The Company recognized a gain of $7.8 million in
fiscal 1997 on the transaction. During fiscal 1999, BEC sold additional shares
of stock, which reduced the Company's interest to approximately 25.35%. For
accounting purposes, the Company's equity interest carrying value in BEC has
been eliminated due to the recognition of its proportionate share of operating
losses.
4. RISK MANAGEMENT
Options, Future Contracts, and Swap Agreements -The Company is a party to
- ---------------------------------------------------
natural gas options, future contracts and swap agreements in the normal course
of business. These instruments involve, to varying degrees, elements of market
and credit risk in excess of the amount recognized in the consolidated balance
sheets.
At June 30, 1999, the Company had over-the-counter natural gas futures and
options contracts related to gas sale commitments covering 3,553,000 Mmbtu of
gas maturing through June 2000. As these contracts have been designated as
hedges, any gains or losses resulting from market price changes will be included
in oil and gas sales for the month to which the contract is applicable. The
Company's net unrealized loss related to these contracts was approximately
$88,000 at June 30, 1999.
In addition to futures and options contracts, the Company enters into
over-the-counter price swap agreements to manage its exposure to commodity price
risk under existing sales commitments. At June 30, 1999, the Company had swap
agreements maturing from November 1999 through June 2000 covering 772,000 Mmbtu
under which the Company receives a fixed price in exchange for a variable price.
The Company's net unrealized gain related to these agreements was approximately
$28,000 at June 30, 1999.
35
<PAGE>
Also at June 30, 1999, the Company had natural gas fixed price purchase option
contracts for the purchase and physical delivery of 615,000 Mmbtu of gas
expiring through October 1999. The cost of these options, which totaled
approximately $190,000 for the year ended June 30, 1999, is included in Cost of
Gas Sales for the month to which the options were applicable. At June 30, 1999,
the remaining options, for the months of July 1999 through October 1999, are
carried at cost that totaled $189,875 and approximates fair value.
As of June 30, 1998, the Company had natural gas swap agreements maturing
through October 1998 covering 320,000 Mmbtu. At June 30, 1998, the market value
of these swaps, the net amount the Company would receive to terminate these swap
agreements was nominal.
For the years ended June 30, 1999 and 1998, the Company recognized a net loss on
its natural gas hedging activities of $32,240 and $47,000, respectively.
Fixed Price Gas Purchase Contracts - Mountaineer has entered into fixed price
- -------------------------------------
contracts to purchase gas in the future. Effective November 1, 1998,
Mountaineer entered into a contract with a third party to purchase up to 24
million dth of natural gas annually for a fixed price. The third party assumed
management and financial obligation of Mountaineer's firm transportation and
storage agreements. In addition, Mountaineer transferred ownership of all
storage volumes owned on November 1, 1998 to the third party in exchange for the
third party to provide delivery of such volumes during the fiscal 1999 heating
season, which has been recorded as a current asset. The contract expires
October 31, 2001.
5. DEBT
Long-Term Debt - At June 30 long-term debt consisted of the following (in
- ---------------
thousands):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ECA senior subordinated notes, interest at 9.5% payable
semi-annually, due May 15, 2007 $200,000 $200,000
Mountaineer unsecured senior notes, interest at 7.59% payable
semi-annually, due October 1, 2010 60,000 60,000
ECA revolving credit, interest floating at Prime, plus 1.5% or
LIBOR plus 3%, due 2002 25,000
Installment notes payable, collateralized by deeds of trust,
at interest rates ranging from 6.2% to 8%, respectively 1,655 2,088
--------- ---------
286,655 262,088
Less current portion (6,634) (581)
--------- ---------
$280,021 $261,507
========= =========
</TABLE>
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 agreements require the Company to
maintain certain financial conditions, including a minimum net worth,
restriction on funded debt and restrictions on the amount of dividends that can
be declared. Additionally, under its debt covenants, Mountaineer is restricted
in the payment of dividends to the Company. As of June 30, 1999, Mountaineer
had approximately $7.3 million available for declaration of dividends.
36
<PAGE>
Scheduled maturities of the Company's long-term debt at June 30, 1999 for each
of the next five years and thereafter are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 $ 6,634
2001 3,659
2002 22,461
2003 3,461
2004 3,461
Thereafter 246,979
--------
$286,655
========
</TABLE>
Revolving Credit - The Company had a $50 million revolving credit facility
- -----------------
secured by certain properties, interest and contracts. The interest rate is
variable based on Eurodollars or other defined basis. The annual commitment fee
ranges between 0.3% and 0.625% depending on usage. As of June 30, 1999, $25
million was outstanding under this facility. The Company was in violation of
certain financial covenants including tangible net worth, current ratio and
interest coverage at June 30, 1999. The lenders have waived the violations and
amended the agreement. The amendment reduces the borrowing arrangement to $22
million, requires a principal reduction of $6 million during fiscal 2000 and an
amendment fee of $335,000. Interest rates were increased as reflected above
while the minimum financial covenant requirements were reduced through June 30,
2000.
Extinguishment of Debt - In May 1997, the Company issued $200 million senior
- ------------------------
subordinated notes using the proceeds therefrom to repay debt outstanding at ESC
and Eastern American of $35 million and $136 million, respectively. As a
result, the Company recorded an extraordinary loss of $7.86 million, net of a
tax benefit of $4.23 million.
Short-Term Debt - Mountaineer had unsecured bank lines of credit totaling $67
- ----------------
million and $74 million as of June 30, 1999 and 1998, respectively. During the
years ended June 30, 1999 and 1998, the maximum outstanding balance was $53.2
million and $44.9 million, respectively, and the average daily balance was $32.5
million and $26.2 million, respectively. The weighted average interest rate was
5.5% and 6.02% on the balance outstanding during the years ended June 30, 1999
and 1998, respectively.
Other Credit Facilities - Eastern American had a $3 million and $6 million
- -------------------------
letter of credit, as of June 30, 1999 and 1998, respectively, issued by a bank
in support of Eastern American's obligations under a gas purchase contract with
the royalty trust (see Note 15). The letter of credit reduces by $3 million on
June 30 of each year until its expiration on June 30, 2000. As of June 30, 1999
and 1998, no amounts had been drawn under the letter of credit. Eastern
American also has an unsecured revolving line of credit totaling $2 million,
which expires December 31, 1999 and charges an interest rate of prime plus 0.5%.
As of June 30, 1999 and 1998, no amounts were outstanding under the line of
credit.
Seller Financed Note - The Company purchased a natural gas gathering system in
- ----------------------
West Virginia for $1.2 million. The Company paid $0.3 million in cash and
issued a note for the balance payable to the seller in 100 consecutive equal
monthly payments. As of June 30, 1999 and 1998, the balance of the note was
$0.8 million and $0.9 million.
37
<PAGE>
6. INCOME TAXES
The following table summarizes components of the Company's provision (benefit)
for income taxes for the years ended June 30 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Current:
Federal $ 2,273 $ 586 $ 491
State 69 (51) (224)
-------- ------- --------
Total current 2,342 535 267
-------- ------- --------
Deferred:
Federal (8,176) (155) (4,141)
State 602 1,637 1,607
-------- ------- --------
Total deferred (7,574) 1,482 (2,534)
-------- ------- --------
Total provision (benefit) for income taxes $(5,232) $2,017 $(2,267)
======== ======= ========
</TABLE>
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 operations for the years ended June 30 is summarized below (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Tax expense (benefit) at the federal statutory rate $(6,838) $ 1,793 $(2,707)
State taxes, net of federal tax effects (919) 358 (541)
Foreign losses 838 635
Section 29 tax credits 921 (1,783) (1,866)
Change in valuation allowance on federal, foreign
and state deferred tax assets, net of federal effect (592) 571 1,805
Investment tax credit expiration 530
IRS adjustment 519
Other, net 1,147 240 407
-------- -------- --------
Provision (benefit) for income taxes $(5,232) $ 2,017 $(2,267)
======== ======== ========
</TABLE>
During fiscal 1999, the Company finalized an IRS examination resulting in
payments for prior taxes of $0.5 million. In addition, Section 29 credits for
1998 were not utilized because of reductions to regular taxable income and have
been added to the current year's tax provision.
38
<PAGE>
Components of the Company's federal and state deferred tax assets and
liabilities, as of June 30, are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------------- -------------------------------
Federal State Total Federal State Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Overrecovered gas costs $ 1,339 $ 354 $ 1,693 $ 2,209 $ 583 $ 2,792
Bad debt allowance 566 150 716 641 169 810
Deferred compensation and profit sharing 162 43 205 1,155 304 1,459
Postretirement and pension obligations 913 242 1,155 696 183 879
Tax credits and carryforwards 13,058 8,774 21,832 14,892 10,553 25,445
Other long-term obligations 1,272 337 1,609 860 228 1,088
Other 11,899 3,150 15,049 9,408 1,345 10,753
--------- --------- --------- --------- --------- ---------
Total deferred tax assets 29,209 13,050 42,259 29,861 13,365 43,226
--------- --------- --------- --------- --------- ---------
Deferred tax liabilities:
Property, plant and equipment (39,529) (10,543) (50,072) (48,897) (13,263) (62,160)
Federal income tax on state tax credits (2,983) (2,983) (3,588) (3,588)
Other liabilities (5,920) (2,530) (8,450) (1,976) (525) (2,501)
--------- --------- --------- --------- --------- ---------
Total deferred tax liabilities (48,432) (13,073) (61,505) (54,461) (13,788) (68,249)
--------- --------- --------- --------- --------- ---------
Valuation allowance (4,920) (4,920) (1,252) (3,920) (5,172)
--------- --------- --------- --------- ---------
Net deferred income tax liability (19,223) (4,943) (24,166) (25,852) (4,343) (30,195)
---------
Current deferred tax asset (liability) 2,926 776 3,702 (4,698) (945) (5,643)
--------- --------- --------- --------- --------- ---------
Long-term deferred tax liability $(22,149) $ (5,719) $(27,868) $(21,154) $ (3,398) $(24,552)
========= ========= ========= ========= ========= =========
</TABLE>
At June 30, 1999, the Company has the following federal and state tax credits
and carryforwards (in thousands):
<TABLE>
<CAPTION>
Year of
Amount Expiration
------- ----------
<S> <C> <C>
AMT and Section 29 tax credits $12,445 None
Investment tax credits 613 2000-2001
-------
Total federal credits $13,058
=======
West Virginia tax credits $ 8,774 2002
=======
</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. Based on existing future taxable temporary differences and projections
of future West Virginia severance, property and state income taxes, management
has provided a valuation allowance for that portion of the credits not expected
to be utilized.
Included in other long-term assets as of June 30, 1999 and 1998 is a net
regulatory asset recorded by Mountaineer in accordance with state utility
ratemaking practices related to future amounts recoverable for income taxes of
$10.9 million and $11.3 million, respectively.
39
<PAGE>
7. EMPLOYEE BENEFIT PLANS
The Company and certain 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. The Company recognized $0.5 million, $2.6 million and $1.1
million of profit sharing expense during the years ended June 30, 1999, 1998,
and 1997, respectively.
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, and
charged against income as incurred, totaled $182,600, $153,600 and $140,300 for
the years ended June 30, 1999, 1998 and 1997, respectively.
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.
40
<PAGE>
The following table sets forth the Pension Plan's funded status and amounts
recognized in the consolidated balance sheets as of June 30, as determined by an
independent actuary (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Reconciliation of Funded Status
Funded status $ (6,640) $ (6,058)
Unrecognized actuarial loss 1,935 1,488
Unrecognized prior service cost 729 -
--------- ---------
Net pension accrued liability (3,976) (4,570)
Adjustment required to recognize minimum liability - -
--------- ---------
Net pension liability recognized $ (3,976) $ (4,570)
========= =========
Change in Projected Benefit Obligation
Benefit obligation at beginning of year $(33,110) $(29,777)
Service cost (750) (717)
Interest cost (2,496) (2,219)
Plan amendments (781) -
Actuarial loss (145) (3,318)
Benefit payments 2,918 2,921
--------- ---------
Benefit obligation at end of year $(34,364) $(33,110)
========= =========
Change in Plan Assets
Fair value of plan assets at beginning of year $ 27,052 $ 24,954
Actuarial return on plan assets 1,628 3,612
Employer contribution 1,962 1,407
Benefit payments (2,918) (2,921)
--------- ---------
Fair value of plan assets at end of year $ 27,724 $ 27,052
========= =========
</TABLE>
Net periodic pension cost for the years ended June 30 as determined by an
independent actuary, included the following components (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Service cost $ 750 $ 717
Interest cost 2,496 2,219
Expected return on plan assets (1,945) (3,612)
Prior service cost recognized 52
Recognized gains or losses 14 1,753
-------- --------
Net periodic pension cost $ 1,367 $ 1,077
======== ========
</TABLE>
41
<PAGE>
The assumptions used at the beginning of the fiscal year in accounting for
Mountaineer's Pension Plan at June 30 are as follows:
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Discount rate 7.75% 7.75%
Expected average increase in compensation 4.50% 4.50%
Expected long-term rate of return 8.00% 8.00%
</TABLE>
9. POST-RETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS
Mountaineer provides certain medical and life insurance benefits for retired
employees. Substantially all employees, 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 60, may become eligible for medical
benefits. Medical benefits are provided to retirees 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 50% of annual salary, respectively. 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, as of June 30 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Reconciliation of funded status
Funded status $(7,628) $(7,268)
Unrecognized actuarial gain (197) (18)
-------- --------
Net postretirement benefit liability $(7,825) $(7,286)
======== ========
Change in projected benefit obligation
Benefit obligation at beginning of year $(7,268) $(6,993)
Service cost (461) (437)
Interest cost (537) (515)
Participant contributions (140) (128)
Actuarial (gain) loss 182 (130)
Benefit payments 596 935
-------- --------
Benefit obligation at end of year $(7,628) $(7,268)
======== ========
Components of net periodic postretirement benefit cost
Service cost $ 461 $ 437
Interest cost 537 515
-------- --------
Net periodic benefit cost $ 998 $ 952
======== ========
</TABLE>
42
<PAGE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% for the years ended June 30, 1999
and 1998. The average assumed annual rate of salary increase for the life
insurance benefit plan was 4.5 % and 4.5% in 1999 and 1998, respectively.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8.0% in 1999, declining by a half percent
to 5.5% in 2004 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 $63,000 for the year ended
June 30, 1999 and increase accumulated postretirement benefit obligation as of
June 30, 1999 by $315,000. A one percentage point decrease in the assumed
health care cost trend rate would decrease the aggregate service and interest
cost by $57,000 for the year ended June 30, 1999 and decrease accumulated
postretirement benefit obligation as of June 30, 1999 by $290,000.
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 would be a
modified accrual method. The modified accrual method allows for the recovery of
current service costs on an accrual basis and recovery of the transition
obligation on a cash basis.
10. CAPITAL 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 to one share of $1 par value
common stock.
The Company has an agreement with a stockholder covering the sale or disposition
of 61,000 shares of common stock, at June 30, 1999, 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.
Class A Non-Voting Common Stock - In August 1998, the Company amended its
- -----------------------------------
articles of incorporation authorizing the issuance of up to 100,000 shares of
Class A non-voting common stock. The Company then offered and exchanged 13,517
shares of its new Class A stock for the outstanding Class A stock of its
subsidiaries, owned by certain employees, officers and directors. The minority
interest carrying value prior to exchange, which reflected the subsidiaries'
Class A shares, was the basis used to record the issuance of the Company's new
Class A stock.
Treasury Stock - At June 30, 1999, the Company had 75,352 shares of voting
- ---------------
common stock in treasury, carried at cost. The Company purchased 20,704 and
6,980 shares of voting common stock during the years ended June 30, 1999 and
1998, respectively. At June 30, 1999, the Company also had 4,516 shares of
non-voting Class A stock in treasury, carried at cost, all of which were
purchased during the current year.
43
<PAGE>
Stock Plans - During fiscal 1999, the Company created an incentive stock
- ------------
purchase agreement, primarily for outside Directors. Under the agreement,
options to purchase voting common stock were granted at $75, based on the fair
market value as determined by the Board of Directors, per share and are
exercisable based on the following schedule:
<TABLE>
<CAPTION>
Number of
Exercise Period Shares
- ------------------------------------- ---------
<S> <C>
January 1, 1999 to December 31, 2003 10,002
January 1, 2000 to December 31, 2004 10,002
January 1, 2001 to December 31, 2005 9,996
---------
30,000
=========
</TABLE>
A summary of the plan as of June 30, 1999 and the changes during the year is
presented below:
<TABLE>
<CAPTION>
Exercise
Shares Price
-------- ------
<S> <C> <C>
Outstanding at beginning of year - $ -
Granted 30,000 75
Exercised
Outstanding at end of year 30,000 $ 75
======== ======
Options exercisable at year end 10,002
========
</TABLE>
Fair value of the options at the date of grant, as estimated by management, was
nominal.
During fiscal 1999, the Company created an employee stock purchase plan. Under
the plan, 12,003 Class A shares were issued to employees at $75 per share in
exchange for cash and promissory notes bearing interest of 6.5% or 8%, depending
on the initial cash payment and recourse nature of the notes. The Company has
agreed to forgive the notes over a seven year period assuming continued
employment; therefore, the notes are being amortized over the term of
employment. The Company has a right-of-first refusal to repurchase any shares
employees wish to sell and in the event of death, disability or termination, the
Company has an option to repurchase the shares.
44
<PAGE>
11. EARNINGS PER SHARE
A reconciliation of the components of basic and diluted net income (loss) per
common share as of June 30, for the years indicated, is as follows:
<TABLE>
<CAPTION>
Per-Share
Income Shares Amount
------------- ------- --------
<S> <C> <C> <C>
1999
- ----
Basic and Diluted Earnings per Share
Loss available to common shareholders $(14,887,000) 672,973 $(22.12)
1998
- ----
Basic and Diluted Earnings per Share
Income available to common shareholders $ 3,014,000 665,074 $ 4.53
1997
- ----
Basic and Diluted Earnings per Share
Loss available to common shareholders $ (5,843,000) 688,247 $ (8.49)
</TABLE>
The effect of stock options was not included in the computation of diluted net
loss per share during fiscal years 1997 and 1999 because to do so would have
been antidilutive. There were no stock options exercisable during fiscal 1998.
12. UNCONSOLIDATED AFFILIATE
The Company's investment in BEC is accounted for under the equity method (see
Note 3). Summarized financial information for BEC as of and for the years ended
June 30, is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Current assets $ 5,914 $ 1,506
Oil and gas properties 50,528 31,580
Other assets 1,359 2,508
-------- --------
Total assets $57,801 $35,594
======== ========
Current liabilities $ 5,340 $ 2,894
Long-term debt 26,200 4,300
Other liabilities 170 152
Equity 26,091 28,248
-------- --------
Total liabilities and equity $57,801 $35,594
======== ========
Net sales $11,655 $ 8,969
======== ========
Gross profit $(1,218) $ 2,379
======== ========
Net loss $(2,557) $(1,772)
======== ========
</TABLE>
BEC began operations in March 1997. Results of operations were not material for
the three months ended June 30, 1997.
45
<PAGE>
13. 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 $1.8, $1.7 and $1.3 million for the years ended June 30, 1999,
1998 and 1997, respectively.
At June 30, 1999 future minimum lease payments for each of the next five years
and thereafter are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 $1,670
2001 1,135
2002 724
2003 486
2004 250
Thereafter 413
------
$4,678
======
</TABLE>
14. RELATED PARTY TRANSACTIONS
The Company has entered into a rental arrangement for office space from a
partnership in which certain officers are partners. Rent payments totaled
$374,200, $339,470 and $336,000 for the years ended June 30, 1999, 1998 and
1997, respectively.
Mountaineer purchases a portion of its gas supply requirements from a subsidiary
and from Eastern American. The price paid for such purchases has been approved
by the WVPSC. During 1999, 1998 and 1997 Mountaineer purchased approximately
$5.4 million, $5.6 million and $5.3 million respectively, from its subsidiary
and $7.8 million, $22.2 million and $23.2 million respectively, from Eastern
American. The contract with Eastern American expired October 31, 1998. The
related revenues and expenses between Mountaineer and its subsidiary and Eastern
American have not been eliminated in these financial statements due to the
regulated nature of Mountaineer.
The Company advanced funds to certain officers, generally at 8% interest.
Balances totaled $0.5 million and $0.2 million, respectively, at June 30, 1999
and 1998.
The Company advanced funds to certain officers in 1991 and 1994, at 8% interest
that were secured by non-voting common shares of Eastern American. Balances
totaled $0 and $320,400, respectively, at June 30, 1999 and 1998.
The Company advanced funds in 1988 to certain officers and directors at 8%
interest, secured by interests in oil and gas properties and were payable out of
net proceeds from the oil and gas production on these properties. During fiscal
1999, Eastern American purchased the related working interest from the officers
and directors, canceling the related notes.
During fiscal 1999, the Company purchased from certain officers and directors,
for $2.4 million, volumetric production from wells in New Zealand. Future
production, totaling 3.3 million Mcf, otherwise allocable to the officers and
directors will be allocated to the Company. The Company has recorded the
payment as an investment in oil and gas properties.
46
<PAGE>
15. COMMITMENTS AND CONTINGENCIES
In 1993, the Company sold working interests in certain Appalachian gas
properties in connection with the formation of a royalty 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. Unamortized proceeds
totaling $12.0 million and $13.5 million at June 30, 1999 and 1998,
respectively, have been classified as deferred trust revenue.
Certain gas production attributable to the royalty 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. 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 $3 million. The letter of credit is subject to annual reductions
of $3 million beginning June 30, 1996, and fully expires on June 30, 2000.
The Company entered into an agreement whereby it funded 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 existed as of June 30, 1998.
Amounts funded were accounted for as an advance and all outstanding amounts were
due on January 1, 1999. As settlement, during fiscal 1999, the third party
transferred $1.0 million of property and the Company has written off the
remaining balance of $0.3 million.
In connection with an existing gas delivery obligation agreement, whereby
Eastern American received an advance payment, a subsidiary of Eastern American
entered into a credit line deed of trust, which has an available balance of $6.5
million as of June 30, 1999 to collateralize its performance under the gas
delivery obligation. This credit line deed of trust declines at a rate of 7.5%
per year.
The Company is involved in various legal actions and claims arising in the
ordinary course of business. Management does not expect these matters to have a
material adverse effect on the Company's financial position.
16. FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments, as of June 30,
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>
1999 1998
------------------- -------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Notes receivable $ 4,909 $ 4,855 $ 6,002 $ 5,964
Long-term debt $ 286,655 $269,188 $ 262,088 $266,856
Futures, swaps and options $ 490 $ 430 - -
</TABLE>
The Company in estimating the fair value of its financial instruments used the
following methods and assumptions:
47
<PAGE>
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 credit characteristics and maturities.
Long-Term Debt - A portion of long-term debt was borrowed under a senior
- ---------------
revolving credit facility, which accrues interest at variable rates; as a
result, carrying value approximates fair value. The Company's subordinated debt
is traded publicly. The market value at the end of the year was used for
valuation purposes. 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 estimated current borrowing
rates for debt with similar maturities.
Futures, swaps and options - The fair value of these instruments are based on
- -----------------------------
quoted market prices.
17. CONTRACT SETTLEMENT
In March 1998, the Company entered into a Termination Agreement (the
"Agreement") with Seneca Power Partners, L.P. ("Seneca"), which provided for the
termination of a long-term gas sale and purchase contract between the Company
and Seneca. Prior to such termination, the Company was obligated to deliver up
to 12,000 Mcf of natural gas per day to Seneca's cogeneration facility. The
Agreement was a direct result of an amendment to the existing Power Purchase
Agreement by and between Seneca and Niagara Mohawk Power Corporation
("Niagara"). Niagara negotiated amendments to all of its existing Power
Purchase Agreements as part of a Master Restructuring Agreement. Pursuant to
the Agreement, the Company received cash consideration of approximately $22
million on June 30, 1998. As a result of this termination, the Company
estimated it would incur future losses of approximately $2 million on its gas
purchase commitments. Accordingly, the provision for anticipated losses was
recorded as an offset to the contract settlement income in fiscal 1998 and
amortized against the cost of gas purchased during fiscal 1999.
Although the Company terminated all rights and obligations under the contract,
the Company retained its 10% limited partnership interest in Seneca. For the
fiscal year ended June 30, 1998, the Company recorded partnership distributions
of $10.0 million, comprised of $7.2 million in cash and $2.8 million of Niagara
common stock. The Niagara stock was sold in November 1998 for $2.9 million.
18. RATE MATTERS
Since November 1995, Mountaineer has operated under a regulatory structure
whereby Mountaineer maintains its rates at an agreed upon level for a specific
period of time (the "Rate Moratorium"). In addition, during the Rate
Moratorium, Mountaineer's annual purchased gas adjustment filing with the WVPSC
is suspended. This regulatory structure results in Mountaineer assuming the
risks and rewards of changes in the cost of gas purchases, changes in interstate
pipeline costs and of all other aspects of Mountaineer's business. The Rate
Moratorium began in November 1995 and ended in October 1998. During this
period, deferral accounting for the majority of gas purchase costs was suspended
and Mountaineer was permitted to amortize $12 million of the $12.7 million
recorded balance of overrecovered gas costs as an offset to purchased gas
expense. In fiscal 1999, Mountaineer recorded total amortization of $1.3
million in accordance with the Rate Moratorium. The excess of the overrecovered
gas costs over the amount to be amortized and certain transportation revenues,
storage balancing fees and standby charges were subject to deferral accounting
in accordance with the Rate Moratorium.
48
<PAGE>
In January 1998, Mountaineer filed with the WVPSC for an increase in its base
rates, which would become effective upon expiration of the initial Rate
Moratorium. In July 1998, Mountaineer agreed to a Joint Stipulation and
Agreement for Settlement (the "Settlement") with various parties including the
Staff of the WVPSC and the Consumer Advocate Division regarding Mountaineer's
rate filing. Under the terms of the Settlement, Mountaineer was granted an
increase in its rates which, assuming certain weather conditions, would generate
additional annual revenues of approximately $9.4 million and which provided for
a new three year Rate Moratorium which began on November 1, 1998 and continues
through October 31, 2001. Other significant terms and conditions of the
Settlement are similar to those under which Mountaineer operated during the
prior Rate Moratorium. Beginning November 1, 1998, the remaining balance of
overrecovered gas costs and certain transportation revenues, storage balancing
fees and standby charges, totaling $6.4 million, previously deferred during the
initial Rate Moratorium will be credited to gas expense over the three-year
period ending October 31, 2001. During fiscal 1999, Mountaineer credited $1.4
million against gas costs in accordance with the Settlement.
19. INDUSTRY SEGMENTS
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information," in fiscal 1999. The information for fiscal 1998 and
1997 has been restated from the prior year's presentation to conform to the
fiscal 1999 presentation.
The Company's reportable business segments have been identified based on the
differences in products and service provided. Revenues for the exploration and
production segment are derived from the production and sale of natural gas and
crude oil. The regulated utility segment generates revenue from the
transportation and sale of natural gas at retail. Revenues for the marketing
and pipeline segment arise from the marketing of both Company and third party
produced natural gas volumes and the related transportation. The Company
utilizes earnings before interest, taxes, depreciation, depletion, amortization
and exploratory costs ("EBITDAX") to evaluate each segment's operations.
49
<PAGE>
Summarized financial information for the Company's reportable segments is shown
in the following table. The "other" column includes items related to corporate
items (in thousands):
<TABLE>
<CAPTION>
Exploration Marketing
and Regulated and
Production Utility Pipeline Other Consolidated
------------- ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
1999
Sales to unaffiliated customers $ 24,836 $ 158,439 $ 88,342 $ 1,430 $ 273,047
Intersegment revenues 3,431 - 9,125 - 12,556
Depreciation, depletion, amortization 10,208 9,027 1,312 1,491 22,038
Exploratory costs 19,388 - - - 19,388
Operating profit (18,031) 26,175 649 (3,521) 5,272
Interest expense 113 6,583 - 19,858 26,554
EBITDAX 12,014 35,385 1,962 (1,500) 47,861
Total assets 133,200 194,025 62,131 47,586 436,942
Capital expenditures 22,351 11,155 544 2,609 36,659
- -------------------------------------- ------------- ---------- ---------- -------- -------------
1998 - - - - -
Sales to unaffiliated customers 27,835 156,579 143,140 11,584 339,138
Intersegment revenues 3,605 - 21,593 - 25,198
Depreciation, depletion, amortization 9,707 7,777 1,270 1,284 20,038
Exploratory costs 8,262 - - - 8,262
Operating profit (2,493) 15,499 14,933 6,480 34,419
Interest expense 248 6,414 9 19,715 26,386
EBITDAX 11,893 23,362 16,202 8,260 59,717
Total assets 137,508 188,931 70,057 43,449 439,945
Capital expenditures 22,188 12,044 681 3,780 38,693
- -------------------------------------- ------------- ---------- ---------- -------- -------------
1997 - - - - -
Sales to unaffiliated customers 36,163 173,463 135,466 306 345,398
Intersegment revenues 3,672 - 24,901 (30) 28,543
Depreciation, depletion, amortization 10,376 6,387 1,222 1,060 19,045
Exploratory costs 10,121 - - - 10,121
Operating profit (1,358) 17,100 5,481 (2,156) 19,067
Interest expense 11,916 6,511 48 5,406 23,881
EBITDAX 27,354 23,490 6,703 (544) 57,003
Total assets 156,743 191,821 56,229 29,964 434,757
Capital expenditures $ 17,632 $ 10,303 $ (183) $(1,376) $ 26,376
- -------------------------------------- ------------- ---------- ---------- -------- -------------
</TABLE>
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 between the
exploration and production and the utility segments have not been eliminated in
consolidation because of the regulated nature of the gas distribution segment.
The 'Other' column includes items related to non-reportable segments, corporate
and elimination items. Included in the exploration and production segment are
net long-lived assets located in New Zealand of $1.8, $1.4 and $0.1 million, as
of June 30, 1999, 1998, and 1997.
20. SUBSEQUENT EVENTS
On July 1, 1999, Mountaineer acquired substantially all of the West Virginia
assets of Shenandoah Gas Company for the purchase price of approximately $12.6
million. The acquired assets consist primarily of natural gas distribution
facilities and related equipment located in the eastern panhandle of West
Virginia.
50
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
Costs - The following tables set forth capitalized costs as of June 30 and costs
- -----
incurred, including capitalized overhead, for oil and gas producing activities
for the years ended June 30 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Capitalized costs:
Proved properties $207,400 $197,137 192,970
Unproved properties 9,250 13,513 7,398
--------- --------- ---------
Total 216,650 210,650 200,368
Less accumulated depletion and depreciation (68,833) (64,770) (57,001)
--------- --------- ---------
Net capitalized costs $147,817 $145,880 $143,367
========= ========= =========
Company's share of equity method investee's net
capitalized costs $ 11,607 $ 9,474 8,877
========= ========= =========
Costs incurred:
Acquisition of proved properties $ 2,086 $ 2,039 $ 143
Development costs 7,527 10,227 11,649
Exploration costs 12,738 9,154 3,728
--------- --------- ---------
Total costs incurred $ 22,351 $ 21,420 $ 15,520
========= ========= =========
Company's share of equity method investee's total
costs incurred $ 3,966 $ 944 $ 115
========= ========= =========
</TABLE>
51
<PAGE>
Results of Operations - The results of operations for oil and gas producing
- -----------------------
activities, excluding corporate overhead and interest costs for the years ended
June 30 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------- -------
<S> <C> <C> <C>
Revenues from sale of oil and gas $ 21,727 $24,689 $33,301
Less:
Production costs 9,214 3,101 7,997
Production taxes 965 1,448 1,966
Exploration and impairment 19,388 8,262 10,121
Depletion, depreciation and amortization 8,409 8,021 8,325
Income tax expense (benefit) (5,681) 1,453 1,712
--------- ------- -------
Income loss from oil and gas operations $(10,562) $ 2,404 $ 3,180
========= ======= =======
Company's share of equity method investee's
income from oil and gas operations $ 183 $ 714 $ 311
========= ======= =======
</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, fuel consumed and insurance. Production costs
are net of well tending fees, which are included in well operations revenues in
the accompanying consolidated statements of operations.
Exploration and impairment expenses 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.
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, 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 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
commercially recoverable fluctuate with changes in prices and operating costs.
Reserve estimates, by their nature, are generally less precise than other
financial statement disclosures.
52
<PAGE>
The following table sets forth information for the years indicated with respect
to changes in the Company's proved reserves, substantially all of which are in
the United States.
<TABLE>
<CAPTION>
Natural Crude
Gas Oil
(Mmcf) (Mbbls)
-------- -------
<S> <C> <C>
Proved reserves:
June 30, 1996 159,449 6,668
Revision of previous estimates 331 (197)
Extensions and discoveries 13,331 545
Sales of reserves in place (3,674) (5,336)
Production (9,106) (447)
-------- -------
June 30, 1997 160,331 1,233
Revisions of previous estimates 825 (49)
Extensions and discoveries 14,545 205
Purchases of reserves in place 2,284 79
Sales of reserves in place (11)
Production (8,525) (127)
-------- -------
June 30, 1998 169,460 1,330
Revisions of previous estimates 1,036 (224)
Extensions and discoveries 5,286 74
Purchases of reserves in place - -
Sales of reserves in place (674) (85)
Production (8,840) (133)
-------- -------
June 30, 1999 166,268 962
======== =======
Proved developed reserves:
June 30, 1997 141,116 748
======== =======
June 30, 1998 138,935 733
======== =======
June 30, 1999 144,643 717
======== =======
Company's share of equity method investee's proved reserve at:
June 30, 1997 3,452 4,402
======== =======
June 30, 1998 2,077 3,113
======== =======
June 30, 1999 5,529 9,907
======== =======
</TABLE>
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 in existence at period-end.
53
<PAGE>
The assumptions used to compute estimated future net revenues do not necessarily
reflect the Company's expectations of actual revenues or costs, or their present
worth. In addition, variations from the expected production rates also could
result directly or indirectly from factors outside of the 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, this could
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 the 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 and existing tax credits, 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 net cash
flows related to its proved oil and gas reserves as of June 30 is as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Future cash in flows $ 445,872 $ 457,015 $ 473,464
Future production and development costs (165,236) (170,169) (172,219)
Future income tax expense (63,000) (57,000) (50,607)
---------- ---------- ----------
Future net cash flows before discount 217,636 229,846 250,638
10% discount to present value (126,433) (138,581) (143,791)
---------- ---------- ----------
Standardized measure of discounted future net cash
flows related to proved oil and gas reserves $ 91,203 $ 91,265 $ 106,847
========== ========== ==========
Company's share of equity method investee's
standardized measure of discounted future net
cash flows $ 28,129 $ 19,975 $ 27,201
========== ========== ==========
</TABLE>
54
<PAGE>
Principal changes in the standardized measure of discounted future net cash
flows for the years ended June 30 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Standardized measure of discounted future
net cash flows at beginning of period $ 91,265 $106,847 $109,941
Sales of oil and gas produced, net of
production costs (11,548) (13,816) (17,854)
Net changes in prices and production costs (249) (12,729) 17,395
Changes in production rates and other (7,405) (14,256) 50
Extensions, discoveries and other additions, net
of future production and development costs 4,177 5,910 12,185
Changes in estimated future development costs 2,701 (1,495) (7,609)
Development costs incurred 7,527 10,227 11,649
Revisions of previous quantity estimates (347) 422 (1,022)
Purchase of reserves in place - 2,026
Sales of reserves in place (922) (56) (25,075)
Accretion of discount 9,126 10,685 10,994
Net change in income taxes (3,122) (2,500) (3,807)
--------- --------- ---------
Standardized measure of discounted
future net cash flows at end of period $ 91,203 $ 91,265 $106,847
========= ========= =========
</TABLE>
* * * * *
55
<PAGE>
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS INFORMATION
JUNE 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
- ------------------------------------------------------------
ASSETS 1999 1998
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 12,388 $ 19,158
Accounts receivable, affiliates 39,175 19,787
Accounts receivable, other 140 388
Other current assets 5,982 5,324
-------- --------
Total current assets 57,685 44,657
PROPERTY, PLANT AND EQUIPMENT - Net 5,476 3,226
INVESTMENT IN SUBSIDIARIES 161,679 173,440
OTHER ASSETS 20,947 13,448
-------- --------
TOTAL $245,787 $234,771
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 11,934 $ 3,833
LONG-TERM LIABILITIES
Long-term debt 219,198 200,661
STOCKHOLDER'S EQUITY 14,655 30,277
-------- --------
TOTAL $245,787 $234,771
======== ========
</TABLE>
See notes to condensed financial information.
56
<PAGE>
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS INFORMATION
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
COSTS AND EXPENSES:
General and administrative $ 4,060 $ 3,355 $ 2,608
Depreciation of property, plant and equipment 350 160 40
--------- --------- --------
LOSS FROM OPERATIONS (4,410) (3,515) (2,648)
INTEREST EXPENSE 20,009 19,875 2,152
OTHER (INCOME) EXPENSE (529) (1,072) (1,246)
--------- --------- --------
LOSS BEFORE INCOME TAXES AND EQUITY
IN EARNINGS OF SUBSIDIARIES (23,890) (22,318) (3,554)
BENEFIT FROM INCOME TAXES (11,337) (8,335) (2,565)
--------- --------- --------
LOSS BEFORE EQUITY IN EARNINGS OF
SUBSIDIARIES (12,553) (13,983) (989)
EQUITY IN EARNINGS (LOSSES) OF
SUBSIDIARIES (2,334) 16,997 (4,854)
--------- --------- --------
NET INCOME (LOSS) $(14,887) $ 3,014 $(5,843)
========= ========= ========
</TABLE>
See notes to condensed financial information.
57
<PAGE>
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS INFORMATION
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------
1999 1998 1997
--------- ---------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income (loss) $(14,887) $ 3,014 $ (5,843)
Adjustments to reconcile net income to cash
Provided by (used in) operating activities:
Equity in undistributed (earnings) losses of subsidiaries 2,334 (16,997) 4,854
Depreciation and amortization 1,149 946 104
Changes in operating assets and liabilities (2,089) (9,524) 5,077
Other (9,346) (2,340) (4,634)
--------- ---------- ---------
Net cash used in operating activities (22,839) (24,901) (442)
--------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to subsidiaries (18,154) (2,022) (9,821)
Expenditures for property (2,600) (2,358) (229)
Other investing activities (141) (3,137) -
--------- ---------- ---------
Net cash used in investing activities (20,895) (7,517) (10,050)
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (960) (815) (1,007)
Proceeds from issuance of debt 27,500 1,298 200,000
Principal payments on debt (2,923) (217)
Contributions to capital of subsidiaries (5,408) (178,378)
Deferred financing costs (601) (7,055)
Repurchase of stock (2,198) (523) (2,054)
Subsidiary dividends and other 15,545 41,650 11,724
--------- ---------- ---------
Net cash provided by financing activities 36,964 35,384 23,230
--------- ---------- ---------
Net increase (decrease) in cash and cash equivalents (6,770) 2,966 12,738
Cash and cash equivalents, beginning of year 19,158 16,192 3,454
--------- ---------- ---------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 12,388 $ 19,158 $ 16,192
========= ========== =========
</TABLE>
See notes to condensed financial information.
58
<PAGE>
ENERGY CORPORATION OF AMERICA SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
- ---------------------------------------------------------
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 and Westech
Energy New Zealand Limited ("the subsidiaries"), 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 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 Consolidated Financial Statements of Energy
Corporation of America and Subsidiaries included elsewhere herein. The
Company's $200 million in 9 1/2% senior subordinated notes are due in 2007. The
Company's $22 million revolving line of credit is due in 2002.
4. DIVIDENDS RECEIVED
The Company received dividends from its subsidiaries of $15.5 million, $41.6
million and $10.4 million for the years ended June 30, 1999, 1998 and 1997,
respectively.
*****
59
<PAGE>
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
(AMOUNTS IN THOUSANDS) SCHEDULE II
- -----------------------------------------------------------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Allowance for doubtful accounts, balance at beginning of period $ 1,681 $ 1,660 $ 1,744
Charged to costs and expenses 2,109 2,572 2,102
Charged to other accounts (1) 354 58 291
Deductions (2) (2,082) (2,609) (2,477)
-------- -------- --------
Allowance for doubtful accounts, balance at end of period $ 2,062 $ 1,681 $ 1,660
======== ======== ========
<FN>
(1) Recoveries of accounts previously written off
(2) Accounts written off
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
------- ----------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
There have been no changes in or disagreements with accountants on accounting
and financial disclosure.
60
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
-------- ------------------------------------
The executive officers and Directors of the Company and the executive
officers of its subsidiaries on June 30, 1999 are listed below, together with a
description of their experience and certain other information. All of the
Directors were re-elected for a one year term at the Company's December 1998
annual meeting of stockholders. Executive officers are appointed by the Board
of Directors.
<TABLE>
<CAPTION>
Name Age Position with Company or Subsidiary
- ----------------------- --- --------------------------------------------------------------
<S> <C> <C>
John Mork 51 President and Chief Executive Officer of the Company; Director
Joseph E. Casabona 56 Executive Vice President of the Company; Director
J. Michael Forbes 39 Vice President of the Company
Isobel M. Allan 42 Vice President/Treasurer of the Company
F. H. McCullough, III 52 Vice President of the Company; Director
Donald C. Supcoe 43 Secretary of the Company; Senior Vice President of Mountaineer
Richard E. Heffelfinger 41 President of Eastern American
Michael S. Fletcher 50 President of Mountaineer
Edward J. Davies 57 President of Westech
W. Gaston Caperton, III 59 Director
Peter H. Coors 52 Director
L. B. Curtis 75 Director
John J. Dorgan 75 Director
Arthur C. Nielsen, Jr. 80 Director
Julie Mork 49 Director
</TABLE>
Isobel M. Allan joined the Company as Vice President of Finance in November
1998. Prior to joining the Company, Miss Allan was Assistant Treasurer with
Occidental Petroleum Corporation. Miss Allan graduated from the University of
Edinburgh, Scotland with a Bachelor of Science degree with Honors and a Master
of Science degree in Business Studies.
W. Gaston Caperton, III, has been a Director of the Company since September
25,1997. He served as the Governor of the State of West Virginia for two terms,
from 1989 to 1997. Mr. Caperton presently serves as President of The Caperton
Group. He currently serves as President and Chief Executive Officer of The
College Board. Mr. Caperton presently serves on the Board of Directors of Owens
Corning and United Bankshares.
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 1979 in the Pittsburgh, Pennsylvania office of KPMG Main Hurdman ("KPMG,
Peat Marwick"), became a partner in the Firm in 1980 and was named Director of
Accounting and Auditing of the Pittsburgh office in 1983. Mr. Casabona
graduated from the University of Pittsburgh with a B.S. in Business
Administration and from the Colorado School of Mines with a M.S. in Mineral
Economics. Mr. Casabona has been a Certified Public Accountant since 1969. Mr.
Casabona has been a member of the Boards of Directors of the West Virginia and
Pennsylvania Independent Oil and Gas Associations.
61
<PAGE>
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 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 was highly recognized
across the Petroleum Industry in the upstream (exploration and production)
segment of the industry. Mr. Curtis graduated from The Colorado School of Mines
with an Engineer of Petroleum Professional degree.
Edward J. Davies has been President of Westech Energy Corporation and
Managing Director of Westech Energy New Zealand Limited since 1994. Previously,
Mr. Davies was with Conoco Inc., where his most recent positions were General
Manager Exploration and Managing Director Nigeria. Mr. Davies holds a Bachelors
of Science in Geology from the University of Wales, a Doctor of Philosophy in
Geology from the University of Alberta, and a Masters of Science from the
Massachusetts Institute of Technology Sloan School of Management.
John J. Dorgan has been a Director of the Company since 1993. He served as
a Director for Eastern American in 1992. He is a former Executive Vice
President and consultant to Occidental Petroleum Corporation where he had worked
in various capacities since 1972.
Michael S. Fletcher has been President of Mountaineer Gas Company since
August 1998. Prior to that time, he also held the positions of Senior Vice
President and Chief Financial Officer of Mountaineer. Before joining
Mountaineer in 1987, Mr. Fletcher was a partner of Arthur Andersen and Company
and was employed by that firm for fifteen (15) years. Mr. Fletcher is a
Certified Public Accountant and a board member for the Board of Risk and
Insurance Management for the State of West Virginia. Mr. Fletcher graduated
from Utah State University with a Bachelors Degree in Accounting.
J. Michael Forbes has been Vice President of the Company since 1995. Prior
to that, Mr. Forbes was an officer with Eastern American, which he joined in
1982. Mr. Forbes graduated with a Bachelors of Arts in Accounting and Finance
from Glenville State College and is a Certified Public Accountant. He also
holds a Masters of Business Administration 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 Eastern
Marketing. Mr. Heffelfinger joined Eastern American in 1980. Mr. Heffelfinger
currently serves on the Board of Directors of Capital State Bank of West
Virginia. He is a member of the Young Presidents' Organization, Mountain States
Chapter, and a past President and current Board Member of the Independent Oil
and Gas Association of West Virginia. In addition, Mr. Heffelfinger currently
serves as Chairman of the Greater Kanawha Valley YMCA. Mr. Heffelfinger is a
graduate of Glenville State College.
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
Vice President of the Company. 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 Northwestern University Kellogg Graduate
School of Management Executive Marketing Program. Effective October 1, 1999,
Mr. McCullough resigned as Vice President of the Company and retained his
position as Director.
62
<PAGE>
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 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 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 from 1994 to 1995. Mr.
Mork also founded the Mountain State Chapter of the Young Presidents'
Organization located in Charleston, West Virginia. 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. He is the husband of Julie Mork.
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 Bachelor of Arts Degree in history from the
University of California in Los Angeles. She is the wife of John Mork.
Arthur C. Nielsen, Jr. has been a Director of the Company since 1993. He
was a Director of Eastern American from 1985 until 1993. He serves on the Board
of Directors of General Binding Corporation. He also serves as senior advisor
to the Toshiba Corporation.
Donald C. Supcoe has been the Senior Vice President of Mountaineer Gas
Company since August 1998. Prior to joining Mountaineer, he was the Vice
President, General Counsel and Secretary of Eastern American with whom he had
been employed since 1981. Mr. Supcoe is a past 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 Bachelor of Science Degree in Business
Administration. Mr. Supcoe received a Doctor of Jurisprudence Degree from West
Virginia University College of Law.
63
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
-------- ----------------------
The following table sets forth for fiscal year 1999 the total value of
compensation of (i) the Company's Chief Executive Officer and (ii) each other
executive officer of the Company.
<TABLE>
<CAPTION>
Salary Bonus Other Total
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
John Mork $246,820 $287,616 54,971 (1) $589,407
President and Chief Executive Officer
Joseph E. Casabona 215,086 144,250 10,300 (2) 369,636
Executive Vice President
Edward J. Davies 181,091 90,150 6,682 (3) 277,923
President of Westech Energy Corporation
Michael S. Fletcher 220,934 122,802 36,254 (4) 379,990
President of Mountaineer Gas Company
Richard E. Heffelfinger 188,356 91,320 4,403 (5) 284,079
President of Eastern American Energy Coporation
_______________
<FN>
(1) Includes $6,814 in compensation related to insurance policies provided for
the benefit of John Mork, $43,036 for personal use of company owned assets
and $5,121 in 401K matching contributions.
(2) lncludes $4,410 in compensation related to insurance policies provided for
the benefit of Joseph E. Casabona, $2,379 for personal use of company owned
assets and $3,511 in 401K matching contributions.
(3) Includes $1,188 in compensation related to an insurance policy provided for
the benefit of Edward J. Davies, $2,095 for personal use of company owned
assets and $3,399 in 401K matching contributions.
(4) Includes $924 in compensation related to an insurance policy provided for
the benefit of Michael S. Fletcher, $19,332 for personal use of company
owned assets and $16,008 for employee dependent tuition assistance.
(5) Includes $275 in compensation related to an insurance policy provided for
the benefit of Richard E. Heffelfinger, $617 for personal use of company
owned assets and $3,511 in 401K matching contributions.
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
-------- -----------------------------
BENEFICIAL OWNERS AND 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
September 1, 1999. 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.
64
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership
Common Stock
-------------------
Number
of Shares Percent
--------- --------
<S> <C> <C>
Kenneth W. Brill (1) 65,210 10.09%
W. Gaston Caperton, III 320 *
Joseph E. Casabona 18,216 2.82%
Peter H. Coors 703 *
L. B. Curtis 12,100 1.87%
John J. Dorgan 970 *
J. Michael Forbes 2,400 *
Richard E. Heffelfinger 4,860 *
F. H. McCullough, III (3)(4) 90,325 13.98%
John Mork (2) 379,923 58.81%
Julie Mork (2) 379,923 58.81%
Arthur C. Nielsen, Jr. 36,320 5.62%
Donald C. Supcoe 3,200 *
All officers and Directors as a group (13 persons) 614,547 95.12%
_______________
<FN>
* 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 75,850 shares,
respectively, of the Company Common Stock owned by him, 30,050 of which
have been purchased by the Company.
(2) Includes 371,520 shares held by John and Julie Mork as joint tenants, 2,503
shares held by Julie Mork individually, and 2,950 shares held by each of
the Alison Mork Trust and the Kyle Mork Trust.
(3) 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, all of
which have been purchased by the Company.
(4) Includes 88,405 shares held by F.H. McCullough, III and Kathy McCullough as
joint tenants, 720 shares held by the Katherine F. McCullough Trust, and
400 shares held by each of the Lesley McCullough Trust, the Meredith
McCullough Trust and the Kristin McCullough Trust.
</TABLE>
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 Class A Stock,
(ii) the share ownership of the Company's Class A Stock by each Director, (iii)
the share ownership of the Company's Class A Stock by certain executive officers
and (iv) the share ownership of the Company's Class A Stock by all directors and
executive officers as a group, in each case as of September 1, 1999. The
business address of each officer an director listed below is : c/o Energy
Corporation of American, 4643 South Ulster Street, Suite 1100, Denver, Colorado
80237.
65
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership
Class A Stock
-------------------
Number
of Shares Percent
--------- --------
<S> <C> <C>
Joseph E. Casabona 5,791 27.57%
Edward J. Davies 5,281 25.14%
Michael S. Fletcher 2,500 11.90%
Richard E. Heffelfinger 168 *
John Mork (1) 796 3.79%
Julie Mork (1) 796 3.79%
Arthur C. Nielsen, Jr. 1,160 5.52%
Donald C. Supcoe 1,667 7.94%
All officers and Directors as a group (8 persons) 17,363 82.66%
_______________
<FN>
* Less than one percent
(1) Includes 796 shares held by John and Julie Mork as joint tenants.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND
-------- -------------------------
RELATED TRANSACTIONS
--------------------
Certain officers and Directors 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 participant is
involved 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 year's Drilling Program. The officers
and Directors and their family members may participate in either or both of the
components. The following table identifies the participants' aggregate
investment in the calendar years shown:
66
<PAGE>
<TABLE>
<CAPTION>
1999 * 1998 1997
-------- ---------- --------
<S> <C> <C> <C>
Dale P. Andrews $ 10,000 $ 13,137
K.W. Brill 25,000 173,755 $ 47,318
Gaston Caperton 392,150
Joseph E. Casabona 40,000 52,732 41,871
Peter Coors 25,000 52,732
L.B. Curtis 50,000 108,688 39,877
E.J. Davies 125,000 101,051 26,985
John J. Dorgan 50,000 52,732 32,543
J. Michael Forbes 7,636 13,120
Richard L. Grant 27,905 21,287
F.H. McCullough, III 75,000 159,793 97,458
Lesley McCullough Trust (2) 7,636 542
Kristen McCullough Trust (2) 7,636 542
Meredith McCullough Trust (2) 7,636 542
Katherine McCullough Trust (2) 7,636 542
John Mork (1) 250,000 798,966 321,317
Alison Mork Trust (3) 25,000 40,984 37,300
Kyle Mork Trust (3) 25,000 40,984 37,300
Arthur C. Nielsen, Jr. 50,000 139,440 29,623
Donald C. Supcoe 7,636 4,979
ECA Foundation - 78,127 -
-------- ---------- --------
Total $750,000 $2,278,992 $753,146
======== ========== ========
_______________
<FN>
* These amounts represent only the amounts committed to the 1999 Drilling
Program, the actual investment may vary.
(1) Interest of John Mork and Julie Mork held as joint tenants.
(2) Trusts for Minor children of F. H. McCullough, III and Kathy L. McCullough.
(3) Trusts for Minor children of John Mork and Julie Mork.
</TABLE>
Certain officers, Directors and key employees of the Company have notes
payable to the Company related to employee incentive stock options that were
granted and exercised. The notes bear various interest rates, ranging from
LIBOR to 8% per annum. As of June 30, 1999, in excess of $60,000, the following
were indebted to the Company (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Dale P. Andrews $ 63
Joseph E. Casabona 187
Edward J. Davies 319
J. Michael Forbes 96
Michael S. Fletcher 187
Richard E. Heffelfinger 192
Donald C. Supcoe 209
------
Total $1,253
======
</TABLE>
67
<PAGE>
Certain officers and Directors of the Company have borrowed money from the
Company and have executed promissory notes. The notes bear interest at 8% per
annum. As of June 30, 1999, the following were indebted to the Company (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Isobel M. Allan * $158
Michael S. Fletcher * 161
F. H. McCullough, III 160
----
Total $479
====
_______________
<FN>
* Promissory notes are being forgiven over three years, assuming
continuing employment.
</TABLE>
68
<PAGE>
During fiscal 1999, the Company purchased from certain officers and
directors volumetric production from wells in New Zealand. Future production,
otherwise allocable to the officers and directors will be allocated to the
Company. The following table identifies the participants' interest:
<TABLE>
<CAPTION>
Payment Volumes
(in thousands) Mmcf
--------------- -------
<S> <C> <C>
Dale P. Andrews $ 20 26.7
K.W. Brill 200 266.7
Gaston Caperton 600 800.0
Joseph E. Casabona 50 66.7
Peter Coors 50 66.7
L.B. Curtis 150 200.0
E.J. Davies 150 200.0
John J. Dorgan 50 66.7
Thomas R. Goodwin 50 66.7
Richard L. Grant 50 66.7
F.H. McCullough, III 150 200.0
John Mork 750 1,000.0
Alison Mork Trust 50 66.7
Kyle Mork Trust 50 66.7
Arthur C. Nielsen, Jr. 94 125.3
--------------- -------
Total $ 2,464 3,285.6
=============== =======
</TABLE>
The Company rents office space in Charleston, West Virginia from Energy
Centre, Inc. a corporation owned 40.0% by John Mork, 20.0% by each of F. H.
McCullough, III and Joseph E. Casabona and 6.67% by each of Donald C. Supcoe,
Richard E. Heffelfinger and J. Michael Forbes. The aggregate amount paid by the
Company for rent to Energy Centre, Inc. was $339,470 for fiscal year 1999. The
Company believes that such rental terms are no less favorable than could have
been obtained from an unaffiliated party.
69
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
-------- -----------------------------
SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
(a) 1. Financial Statements
The Financial Statements are filed as a part of this annual report at Item 8.
2. Financial Statement Schedules
The Financial Statements are filed as a part of this annual report at Item 8.
3. Exhibits
The following is a complete list of Exhibits filed as part of, or incorporated by
reference to this Registration Statement:
70
<PAGE>
* 3.1 Articles of Incorporation of Energy Corporation of America
* 3.2 Amended Articles of Incorporation of Energy Corporation of America
* 3.3 Amended 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.
* 10.1 Eastern American Energy Corporation Profit/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, III 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 Gas Purchase Contract dated as of January 1, 1993 between Eastern
American Energy Corporation and Eastern Marketing Corporation.
* 10.5 FTSI Service Agreement No. 37994 dated as of November 1,1993 between
Mountaineer Gas Company and Columbia Gulf Transmission Company.
71
<PAGE>
* 10.6 Service Agreement No. 42794 dated as of November 1,1994 between
Mountaineer Gas Company and Columbia Gulf Transmission Company.
* 10.7 SST Service Agreement No. 38087 dated as of November 1,1993 between
Mountaineer Gas Company and Columbia Gas Transmission Corporation
* 10.8 FTS Service Agreement No. 38137 dated as of November 1,1993 between
Mountaineer Gas Company and Columbia Gas Transmission Corporation.
(Previously misidentified as FTS Service Agreement No. 38037)
* 10.9 Supplement No. 1 to Transportation Service Agreement No. 38137 dated
as of May 6, 1994 between Mountaineer Gas Company and Columbia Gas
Transmission Corporation.
* 10.10 FSS Service Agreement No. 38077 dated as of November 1,1993 between
Mountaineer Gas Company and Columbia Gas Transmission Corporation.
* 10.11 NTS Service Agreement No. 39272 dated as of November 1,1993 between
Mountaineer Gas Company and Columbia Gas Transmission Corporation.
* 10.12 FTS Service Agreement No. 38113 dated as of November 1,1993 between
Mountaineer Gas Company and Columbia Gas Transmission Corporation.
* 10.13 Supplement No. 1 to Transportation Service Agreement No. 38113 dated
as of May 6, 1994 between Mountaineer Gas Company and Columbia Gas
Transmission Corporation.
* 10.14 Gas Transportation Agreement dated as of October 1, 1994 between
Mountaineer Gas Company and Tennessee Gas Pipeline Company.
* 10.15 Amendment No. 1 to Gas Transportation Agreement dated as of May 5, 1995
between Mountaineer Gas Company and Tennessee Gas Pipeline Company.
* 10.16 FTS Service Agreement No. 60266 dated May 20, 1998 between Mountaineer
Gas Company and Columbia Gas Transmission Corporation.
* 10.17 Incentive Stock Purchase Agreement dated February 12, 1999 by and
between Energy Corporation of America and Michael S. Fletcher.
10.18 Incentive Stock Purchase Agreement dated December 16, 1998 by and
between Energy Corporation of America and Joseph E. Casabona.
10.19 Incentive Stock Purchase Agreement dated December 16, 1998 by and
between Energy Corporation of America and Edward J. Davies.
10.20 Incentive Stock Purchase Agreement dated December 16, 1998 by and
between Energy Corporation of America and Donald C. Supcoe.
10.21 Incentive Stock Purchase Agreement dated March 19, 1999 by and
between Energy Corporation of America and Gaston Caperton.
10.22 Incentive Stock Purchase Agreement dated March 19, 1999 by and
between Energy Corporation of America and Peter H. Coors.
10.23 Incentive Stock Purchase Agreement dated March 19, 1999 by and
between Energy Corporation of America and L.B. Curtis.
10.24 Incentive Stock Purchase Agreement dated March 19, 1999 by and
between Energy Corporation of America and J. J. Dorgan.
72
<PAGE>
10.25 Incentive Stock Purchase Agreement dated March 19, 1999 by and
between Energy Corporation of America and A. C. Nielsen, Jr.
10.26 Stock Purchase Agreement dated February 17, 1999 by and among Westech
Energy Corporation, Westech Energy New Zealand Limited and Edward
J. Davies
10.27 First Amendment to Credit Agreement and Assignment and Waiver dated
September 26, 1997 by and among Energy Corporation of America, General
Electric Capital Corporation, The Bank of Nova Scotia and Union Bank of
California, N.A.
10.28 Second Amendment to Credit Agreement dated April 2, 1999 by
and among Energy Corporation of America, General Electric Capital Corporation,
The Bank of Nova Scotia and Union Bank of California, N.A.
10.29 Third Amendment to Credit Agreement dated September 27, 1999 by
and among Energy Corporation of America, General Electric Capital Corporation,
The Bank of Nova Scotia and Union Bank of California, N.A.
10.30 Natural Gas Supply Management Agreement dated September 30, 1998, by and
Between Coral Energy Resources, L.P., Coral Energy, L.P. and Mountaineer.
21.1 Subsidiaries of Energy Corporation of America.
25.1 Power of Attorney set forth on the signature page contained in Part V.
27.1 Financial Data Schedule.
* Previously filed.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the fiscal year ended June 30, 1999.
</TABLE>
73
<PAGE>
PART V
------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto, duly authorized, on the 27th day of
September 1999.
ENERGY CORPORATION OF AMERICA
By: /s/ John Mork
-----------------------------------------
John Mork
President and Chief Executive Officer
74
<PAGE>
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 Isobel M. Allan 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 Form 10-K under the
Securities Act of 1934, 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 of every act and thing requisite and necessary
to be done in and about the premises in order to effectuate the same, as full to
all intents and purposes as he himself might or could do if personally present,
hereby ratifying and confirming all the 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 1934, this Form 10-K
has been signed on the ___ day of September 1999, by the following persons in
the capacities indicated.
75
<PAGE>
<TABLE>
<CAPTION>
Signature Title
- -------------------------- -----------------------------------------------------------
<S> <C>
/s/ John Mork
- --------------------------
John Mork President, Chief Executive Officer and Director
(principal executive officer)
/s/ Joseph E. Casabona
- --------------------------
Joseph E. Casabona Executive Vice President
/s/ Isobel M. Allan
- --------------------------
Isobel M. Allan Vice President (principal accounting and financial officer)
/s/ F. H. McCullough III
- --------------------------
F. H. McCullough III Director
/s/ Gaston Caperton
- --------------------------
Gaston Caperton Director
/s/ Peter H. Coors
- --------------------------
Peter H. Coors Director
/s/ L. B. Curtis
- --------------------------
L. B. Curtis Director
/s/ John J. Dorgan
- --------------------------
John J. Dorgan Director
/s/ Julie Mork
- --------------------------
Julie Mork Director
/s/ Arthur C. Nielsen, Jr.
- --------------------------
Arthur C. Nielsen, Jr. Director
</TABLE>
76
<PAGE>
INCENTIVE STOCK PURCHASE AGREEMENT
THIS INCENTIVE STOCK PURCHASE AGREEMENT made this 16th day of December,
1998 between ENERGY CORPORATION OF AMERICA, a West Virginia corporation,
(hereinafter called "ECA"), and Joseph E. Casabona (hereinafter called
"Employee").
WHEREAS, Employee is a valuable employee of ECA (or one of its
subsidiaries) and ECA considers it desirable and in its best interest that
Employee be given an added incentive to advance the interests of ECA;
NOW THEREFORE, in consideration of the mutual promises herein contained,
the parties agree as follows:
1. Grant of Purchase Rights. ECA hereby grants to Employee the right
and privilege to purchase up to 2,500 shares of its Class A common stock (the
"stock") at $75.00 per share (the "Purchase Rights"). Employee may elect to
purchase the stock by providing notice to ECA as provided in paragraph 2 below
no later than December 31, 1998.
In order to be entitled to exercise the Purchase Rights granted hereunder,
Employee must remain in good standing in the continuous employ of ECA through
December 31, 1998. If Employee's employment with ECA is terminated for any
reason during this period, all unexercised Purchase Rights shall become null and
void.
2. Method of Exercise. The Purchase Rights shall be exercised by
written notice directed to ECA at its principal place of business accompanied by
either (a) a check for payment of the purchase price for the number of shares
specified or (b) notice of Employee's election to finance the exercise of the
Purchase Rights under one of the following alternatives:
(i) Employee will pay ten percent (10%) of the purchase price in cash
at the time of the exercise and will execute a promissory note to ECA for the
balance of the purchase price with interest at a rate of six and one-half
percent (6 %), which note shall be non-recourse, secured only by the stock to
be acquired by the exercise of the Purchase Rights. Payment of principal and
interest shall be made as set forth in paragraph 3 below. Employee also shall
execute a stock pledge agreement; or
(ii) Employee will execute a promissory note to ECA for one hundred
percent (100%) of the purchase price with interest at a rate of eight percent
(8%), which note shall be secured by the stock to be acquired by the exercise of
the Purchase Rights, which note shall also be fully recourse. Payment of
principal and interest shall be made as set forth in paragraph 3 below.
Employee also shall execute a stock pledge agreement.
3. Payment of Principal and Interest.
a. Payment of Principal. The principal amount due under any note
executed as provided in paragraph 2(i) or (ii) shall be paid in equal annual
installments due on December 31, 2002, December 31, 2003, December 31, 2004, and
December 31, 2005 respectively. All unpaid principal and interest shall be due
in full on December 31, 2005; provided however, that such repayment obligations
shall be cancelled as follows:
(i) If Employee remains in the continuous employment, in good standing,
of the Company from the date hereof through December 31, 2002, one-fourth of the
principal balance shall be cancelled.
(ii) If Employee remains in the continuous employment, in good
standing, of the Company from the date hereof through December 31, 2003, an
additional one-fourth of the principal balance shall be cancelled.
(iii) If Employee remains in the continuous employment, in good
standing, of the Company from the date hereof through December 31, 2004, an
additional one-fourth of the principal balance shall be cancelled.
(iv) If Employee remains in the continuous employment, in good standing, of the
Company from the date hereof through December 31, 2005, all obligations due
hereunder with respect to the principal shall be cancelled.
b. Payment of Interest. Employee shall pay interest on the outstanding
principal balance, due annually beginning on December 31, 1999.
4. Limitation Upon Transfer. All rights granted in this Agreement
shall be exercisable only by Employee. The Purchase Rights granted under this
agreement 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 Purchase Rights contrary to the
provisions in this Agreement, or upon the levy of any attachment or similar
process upon such Purchase Rights, such Purchase Rights shall immediately become
null and void.
5. Restrictions. All shares acquired by Employee shall be subject to
the terms and restrictions set forth in ECA's articles of incorporation, and in
the ECA Class A Stock Ownership Program Resolution, as the same may be amended
from time to time.
All share certificates representing shares acquired by the exercise of the
Purchase Rights shall have endorsed thereon the following legend:
"The shares represented by this certificate are subject to the terms and
restrictions set forth in Energy Corporation of America's articles of
incorporation, and in the ECA Class A Stock Ownership Program Resolution, as the
same may be amended from time to time."
6. Value. For purposes of any repurchase by ECA, the value of the
shares shall be calculated in accordance with the methodology set forth in the
ECA Stock Ownership Program Resolution, as the same may be amended from time to
time.
7. Rights as Shareholder. Employee shall not have any rights or
privileges as a shareholder of ECA in the shares of Class A common stock until
payment of the purchase price or execution and delivery of the Promissory Note
referred to in paragraph 2.
8. Holding Period. Employee agrees to hold all shares acquired by
exercising the Purchase Rights for a period of at least six (6) months from the
date of the exercise. Thereafter, the shares will remain subject to the
restrictions on transfer as set forth in paragraph 5 above.
9. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of any successor or successors of ECA. 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
---------------------------
JOHN MORK
Its: President and CEO
/s/ Joseph E. Casabona
-------------------------------
Joseph E. Casabona
INCENTIVE STOCK PURCHASE AGREEMENT
THIS INCENTIVE STOCK PURCHASE AGREEMENT made this 16th day of December,
1998 between ENERGY CORPORATION OF AMERICA, a West Virginia corporation,
(hereinafter called "ECA"), and Edward J. Davies (hereinafter called
"Employee").
WHEREAS, Employee is a valuable employee of ECA (or one of its
subsidiaries) and ECA considers it desirable and in its best interest that
Employee be given an added incentive to advance the interests of ECA;
NOW THEREFORE, in consideration of the mutual promises herein contained,
the parties agree as follows:
1. Grant of Purchase Rights. ECA hereby grants to Employee the right
and privilege to purchase up to 2,500 shares of its Class A common stock (the
"stock") at $75.00 per share (the "Purchase Rights"). Employee may elect to
purchase the stock by providing notice to ECA as provided in paragraph 2 below
no later than December 31, 1998.
In order to be entitled to exercise the Purchase Rights granted hereunder,
Employee must remain in good standing in the continuous employ of ECA through
December 31, 1998. If Employee's employment with ECA is terminated for any
reason during this period, all unexercised Purchase Rights shall become null and
void.
2. Method of Exercise. The Purchase Rights shall be exercised by
written notice directed to ECA at its principal place of business accompanied by
either (a) a check for payment of the purchase price for the number of shares
specified or (b) notice of Employee's election to finance the exercise of the
Purchase Rights under one of the following alternatives:
(i) Employee will pay ten percent (10%) of the purchase price in cash
at the time of the exercise and will execute a promissory note to ECA for the
balance of the purchase price with interest at a rate of six and one-half
percent (6 %), which note shall be non-recourse, secured only by the stock to
be acquired by the exercise of the Purchase Rights. Payment of principal and
interest shall be made as set forth in paragraph 3 below. Employee also shall
execute a stock pledge agreement; or
(ii) Employee will execute a promissory note to ECA for one hundred
percent (100%) of the purchase price with interest at a rate of eight percent
(8%), which note shall be secured by the stock to be acquired by the exercise of
the Purchase Rights, which note shall also be fully recourse. Payment of
principal and interest shall be made as set forth in paragraph 3 below.
Employee also shall execute a stock pledge agreement.
3. Payment of Principal and Interest.
a. Payment of Principal. The principal amount due under any note
executed as provided in paragraph 2(i) or (ii) shall be paid in equal annual
installments due on December 31, 2002, December 31, 2003, December 31, 2004, and
December 31, 2005 respectively. All unpaid principal and interest shall be due
in full on December 31, 2005; provided however, that such repayment obligations
shall be cancelled as follows:
(i) If Employee remains in the continuous employment, in good standing, of the
Company from the date hereof through December 31, 2002, one-fourth of the
principal balance shall be cancelled.
(ii) If Employee remains in the continuous employment, in good standing, of
the Company from the date hereof through December 31, 2003, an additional
one-fourth of the principal balance shall be cancelled.
(iii) If Employee remains in the continuous employment, in good standing,
of the Company from the date hereof through December 31, 2004, an additional
one-fourth of the principal balance shall be cancelled.
(iv) If Employee remains in the continuous employment, in good standing, of
the Company from the date hereof through December 31, 2005, all obligations due
hereunder with respect to the principal shall be cancelled.
b. Payment of Interest. Employee shall pay interest on the outstanding
principal balance, due annually beginning on December 31, 1999.
4. Limitation Upon Transfer. All rights granted in this Agreement
shall be exercisable only by Employee. The Purchase Rights granted under this
agreement 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 Purchase Rights contrary to the
provisions in this Agreement, or upon the levy of any attachment or similar
process upon such Purchase Rights, such Purchase Rights shall immediately become
null and void.
5. Restrictions. All shares acquired by Employee shall be subject to
the terms and restrictions set forth in ECA's articles of incorporation, and in
the ECA Class A Stock Ownership Program Resolution, as the same may be amended
from time to time.
All share certificates representing shares acquired by the exercise of the
Purchase Rights shall have endorsed thereon the following legend:
"The shares represented by this certificate are subject to the terms and
restrictions set forth in Energy Corporation of America's articles of
incorporation, and in the ECA Class A Stock Ownership Program Resolution, as the
same may be amended from time to time."
6. Value. For purposes of any repurchase by ECA, the value of the
shares shall be calculated in accordance with the methodology set forth in the
ECA Stock Ownership Program Resolution, as the same may be amended from time to
time.
7. Rights as Shareholder. Employee shall not have any rights or
privileges as a shareholder of ECA in the shares of Class A common stock until
payment of the purchase price or execution and delivery of the Promissory Note
referred to in paragraph 2.
8. Holding Period. Employee agrees to hold all shares acquired by
exercising the Purchase Rights for a period of at least six (6) months from the
date of the exercise. Thereafter, the shares will remain subject to the
restrictions on transfer as set forth in paragraph 5 above.
9. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of any successor or successors of ECA. 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
---------------------------------
JOHN MORK
Its: President and CEO
/s/ Edward J. Davies
---------------------------------
Edward J. Davies
INCENTIVE STOCK PURCHASE AGREEMENT
THIS INCENTIVE STOCK PURCHASE AGREEMENT made this 16th day of December,
1998 between ENERGY CORPORATION OF AMERICA, a West Virginia corporation,
(hereinafter called "ECA"), and Donald C. Supcoe (hereinafter called
"Employee").
WHEREAS, Employee is a valuable employee of ECA (or one of its
subsidiaries) and ECA considers it desirable and in its best interest that
Employee be given an added incentive to advance the interests of ECA;
NOW THEREFORE, in consideration of the mutual promises herein contained,
the parties agree as follows:
1. Grant of Purchase Rights. ECA hereby grants to Employee the right
and privilege to purchase up to 1,667 shares of its Class A common stock (the
"stock") at $75.00 per share (the "Purchase Rights"). Employee may elect to
purchase the stock by providing notice to ECA as provided in paragraph 2 below
no later than December 31, 1998.
In order to be entitled to exercise the Purchase Rights granted hereunder,
Employee must remain in good standing in the continuous employ of ECA through
December 31, 1998. If Employee's employment with ECA is terminated for any
reason during this period, all unexercised Purchase Rights shall become null and
void.
2. Method of Exercise. The Purchase Rights shall be exercised by
written notice directed to ECA at its principal place of business accompanied by
either (a) a check for payment of the purchase price for the number of shares
specified or (b) notice of Employee's election to finance the exercise of the
Purchase Rights under one of the following alternatives:
(i) Employee will pay ten percent (10%) of the purchase price in cash
at the time of the exercise and will execute a promissory note to ECA for the
balance of the purchase price with interest at a rate of six and one-half
percent (6 %), which note shall be non-recourse, secured only by the stock to
be acquired by the exercise of the Purchase Rights. Payment of principal and
interest shall be made as set forth in paragraph 3 below. Employee also shall
execute a stock pledge agreement; or
(ii) Employee will execute a promissory note to ECA for one hundred
percent (100%) of the purchase price with interest at a rate of eight percent
(8%), which note shall be secured by the stock to be acquired by the exercise of
the Purchase Rights, which note shall also be fully recourse. Payment of
principal and interest shall be made as set forth in paragraph 3 below.
Employee also shall execute a stock pledge agreement.
3. Payment of Principal and Interest.
a. Payment of Principal. The principal amount due under any note
executed as provided in paragraph 2(i) or (ii) shall be paid in equal annual
installments due on December 31, 2002, December 31, 2003, December 31, 2004, and
December 31, 2005 respectively. All unpaid principal and interest shall be due
in full on December 31, 2005; provided however, that such repayment obligations
shall be cancelled as follows:
(i) If Employee remains in the continuous employment, in good standing,
of the Company from the date hereof through December 31, 2002, one-fourth of the
principal balance shall be cancelled.
(ii) If Employee remains in the continuous employment, in good
standing, of the Company from the date hereof through December 31, 2003, an
additional one-fourth of the principal balance shall be cancelled.
(iii) If Employee remains in the continuous employment, in good
standing, of the Company from the date hereof through December 31, 2004, an
additional one-fourth of the principal balance shall be cancelled.
(iv) If Employee remains in the continuous employment, in good standing, of
the Company from the date hereof through December 31, 2005, all obligations due
hereunder with respect to the principal shall be cancelled.
b. Payment of Interest. Employee shall pay interest on the outstanding
principal balance, due annually beginning on December 31, 1999.
4. Limitation Upon Transfer. All rights granted in this Agreement
shall be exercisable only by Employee. The Purchase Rights granted under this
agreement 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 Purchase Rights contrary to the
provisions in this Agreement, or upon the levy of any attachment or similar
process upon such Purchase Rights, such Purchase Rights shall immediately become
null and void.
5. Restrictions. All shares acquired by Employee shall be subject to
the terms and restrictions set forth in ECA's articles of incorporation, and in
the ECA Class A Stock Ownership Program Resolution, as the same may be amended
from time to time.
All share certificates representing shares acquired by the exercise of the
Purchase Rights shall have endorsed thereon the following legend:
"The shares represented by this certificate are subject to the terms and
restrictions set forth in Energy Corporation of America's articles of
incorporation, and in the ECA Class A Stock Ownership Program Resolution, as the
same may be amended from time to time."
6. Value. For purposes of any repurchase by ECA, the value of the
shares shall be calculated in accordance with the methodology set forth in the
ECA Stock Ownership Program Resolution, as the same may be amended from time to
time.
7. Rights as Shareholder. Employee shall not have any rights or
privileges as a shareholder of ECA in the shares of Class A common stock until
payment of the purchase price or execution and delivery of the Promissory Note
referred to in paragraph 2.
8. Holding Period. Employee agrees to hold all shares acquired by
exercising the Purchase Rights for a period of at least six (6) months from the
date of the exercise. Thereafter, the shares will remain subject to the
restrictions on transfer as set forth in paragraph 5 above.
9. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of any successor or successors of ECA. 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
---------------------------
JOHN MORK
Its: President and CEO
/s/ Donald C. Supcoe
---------------------------
Donald C. Supcoe
INCENTIVE STOCK PURCHASE AGREEMENT
THIS INCENTIVE STOCK PURCHASE AGREEMENT made this 19th day of March, 1999
by and between ENERGY CORPORATION OF AMERICA, a West Virginia corporation
(hereinafter referred to as "ECA"), and Gaston Caperton (hereinafter referred to
as "Caperton")
WHEREAS, Caperton provides valuable service to ECA as a Director of the
Company and ECA considers it desirable and in its best interest that Caperton be
given an added incentive to advance the interests of ECA.
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties agree as follows:
1. Grant of Purchase Rights. ECA hereby grants to Caperton the right and
- -- ---------------------------
privilege to purchase up to 5,000 shares of its Common Stock at $75.00 per share
(the "Purchase Rights") in the following manner:
a. On and after January 1, 1999, to and including December 31, 2003, 1667
shares.
b. On and after January 1, 2000, to and including December 31, 2004, 1667
shares.
c. On and after January 1, 2001, to and including December 31, 2005, 1666
shares.
During each five (5) year period, shares may be purchased incrementally or
in one lump sum. Caperton may elect to purchase the stock by providing notice
to ECA as provided in paragraph 2.
In order to be entitled to exercise the Purchase Rights granted hereunder,
Caperton must remain an active and recognized Director of ECA during the
purchase period. If Caperton's Director role with ECA is completed for any
reason during the purchase period, all unexercised Purchase Rights shall become
null and void on the date the role is ended.
Failure to exercise the Purchase Rights by December 31 of each year
specified above shall result in the termination of the Purchase Rights granted
during that time period and such Purchase Rights shall become null and void.
2. Method of Exercise. The Purchase Rights shall be exercised by written
--------------------
notice directed to ECA at its principal place of business accompanied by check
for payment of the price for the number of shares specified.
3. Limitation Upon Transfer. All rights granted in this Agreement shall be
-------------------------
exercisable only by Caperton. The Purchase Rights granted under this Agreement
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 Purchase Rights contrary to this
provisions of this Agreement, or upon the levy of any attachment or similar
process upon such Purchase Rights, such Purchase Rights shall immediately become
null and void.
4. Restrictions. All shares acquired by Caperton shall be subject to (a)
------------
the requirement that they first be offered to ECA and (b) the terms and
restrictions set forth in ECA's articles of incorporation as each may be amended
from time to time.
All share certificates representing shares acquired by the exercise of the
Purchase Rights shall have endorsed thereon the following legend:
"The shares represented by this certificate are subject to the requirement that
they be first offered to Energy Corporation of America, per that certain
Incentive Stock Purchase Agreement dated March 19, 1999 by and between Energy
Corporation of America and Gaston Caperton."
The shares represented by this certificate are subject to the requirement that
they be first offered to Energy Corporation of America, per that certain
Incentive Stock Purchase Agreement dated March 19, 1999 by and between Energy
Corporation of America and Gaston Caperton.
5. Rights as Shareholder. Caperton shall not have any rights or
-----------------------
privileges as a shareholder of ECA in the shares of common stock until payment
of the purchase price.
6. Holding Period. Caperton agrees to hold all shares acquired by
----------------
exercising the Purchase Rights for a period of at least six (6) months from the
date of the exercise. Thereafter, the shares will remain subject to the
restrictions on transfer as set forth in paragraph 4 above.
7. Governing Law. This Agreement shall be governed by, and construed under
--------------
the laws of West Virginia and shall be binding and inure to the benefit of any
successor or successors of ECA.
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
---------------------------
John Mork
Its: President and CEO
/s/ Gaston Caperton
----------------------------
Gaston Caperton
INCENTIVE STOCK PURCHASE AGREEMENT
THIS INCENTIVE STOCK PURCHASE AGREEMENT made this 19th day of March, 1999
by and between ENERGY CORPORATION OF AMERICA, a West Virginia corporation
(hereinafter referred to as "ECA"), and Peter H. Coors (hereinafter referred to
as "Coors")
WHEREAS, Coors provides valuable service to ECA as a Director of the
Company and ECA considers it desirable and in its best interest that Coors be
given an added incentive to advance the interests of ECA.
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties agree as follows:
1. Grant of Purchase Rights. ECA hereby grants to Coors the right and
---------------------------
privilege to purchase up to 5,000 shares of its Common Stock at $75.00 per share
(the "Purchase Rights") in the following manner:
a. On and after January 1, 1999, to and including December 31, 2003, 1667
shares.
b. On and after January 1, 2000, to and including December 31, 2004, 1667
shares.
c. On and after January 1, 2001, to and including December 31, 2005, 1666
shares.
During each five (5) year period, shares may be purchased incrementally or
in one lump sum. Coors may elect to purchase the stock by providing notice to
ECA as provided in paragraph 2.
In order to be entitled to exercise the Purchase Rights granted hereunder,
Coors must remain an active and recognized Director of ECA during the purchase
period. If Coors's Director role with ECA is completed for any reason during
the purchase period, all unexercised Purchase Rights shall become null and void
on the date the role is ended.
Failure to exercise the Purchase Rights by December 31 of each year
specified above shall result in the termination of the Purchase Rights granted
during that time period and such Purchase Rights shall become null and void.
2. Method of Exercise. The Purchase Rights shall be exercised by written
--------------------
notice directed to ECA at its principal place of business accompanied by check
for payment of the price for the number of shares specified.
3. Limitation Upon Transfer. All rights granted in this Agreement shall be
-------------------------
exercisable only by Coors. The Purchase Rights granted under this Agreement
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 Purchase Rights contrary to this
provisions of this Agreement, or upon the levy of any attachment or similar
process upon such Purchase Rights, such Purchase Rights shall immediately become
null and void.
4. Restrictions. All shares acquired by Coors shall be subject to (a) the
------------
requirement that they first be offered to ECA and (b) the terms and restrictions
set forth in ECA's articles of incorporation as each may be amended from
time to time.
All share certificates representing shares acquired by the exercise of the
Purchase Rights shall have endorsed thereon the following legend:
"The shares represented by this certificate are subject to the requirement that
they be first offered to Energy Corporation of America, per that certain
Incentive Stock Purchase Agreement dated March 19, 1999 by and between Energy
Corporation of America and Peter H. Coors."
5. Rights as Shareholder. Coors shall not have any rights or
-----------------------
privileges as a shareholder of ECA in the shares of common stock until payment
of the purchase price.
6. Holding Period. Coors agrees to hold all shares acquired by
----------------
exercising the Purchase Rights for a period of at least six (6) months from the
date of the exercise. Thereafter, the shares will remain subject to the
restrictions on transfer as set forth in paragraph 4 above.
7. Governing Law. This Agreement shall be governed by, and construed under
--------------
the laws of West Virginia and shall be binding and inure to the benefit of any
successor or successors of ECA.
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
-----------------------------
John Mork
Its: President and CEO
/s/ Peter H. Coors
--------------------------------
Peter H. Coors
INCENTIVE STOCK PURCHASE AGREEMENT
THIS INCENTIVE STOCK PURCHASE AGREEMENT made this 19th day of March, 1999
by and between ENERGY CORPORATION OF AMERICA, a West Virginia corporation
(hereinafter referred to as "ECA"), and L.B. Curtis (hereinafter referred to as
"Curtis")
WHEREAS, Curtis provides valuable service to ECA as a Director of the
Company and ECA considers it desirable and in its best interest that Curtis be
given an added incentive to advance the interests of ECA.
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties agree as follows:
1. Grant of Purchase Rights. ECA hereby grants to Curtis the right and
---------------------------
privilege to purchase up to 5,000 shares of its Common Stock at $75.00 per share
(the "Purchase Rights") in the following manner:
a. On and after January 1, 1999, to and including December 31, 2003, 1667
shares.
b. On and after January 1, 2000, to and including December 31, 2004, 1667
shares.
c. On and after January 1, 2001, to and including December 31, 2005, 1666
shares.
During each five (5) year period, shares may be purchased incrementally or
in one lump sum. Curtis may elect to purchase the stock by providing notice to
ECA as provided in paragraph 2.
In order to be entitled to exercise the Purchase Rights granted hereunder,
Curtis must remain an active and recognized Director of ECA during the purchase
period. If Curtis's Director role with ECA is completed for any reason during
the purchase period, all unexercised Purchase Rights shall become null and void
on the date the role is ended.
Failure to exercise the Purchase Rights by December 31 of each year
specified above shall result in the termination of the Purchase Rights granted
during that time period and such Purchase Rights shall become null and void.
2. Method of Exercise. The Purchase Rights shall be exercised by written
--------------------
notice directed to ECA at its principal place of business accompanied by check
for payment of the price for the number of shares specified.
3. Limitation Upon Transfer. All rights granted in this Agreement shall be
-------------------------
exercisable only by Curtis. The Purchase Rights granted under this Agreement
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 Purchase Rights contrary to this
provisions of this Agreement, or upon the levy of any attachment or similar
process upon such Purchase Rights, such Purchase Rights shall immediately become
null and void.
4. Restrictions. All shares acquired by Curtis shall be subject to (a) the
------------
requirement that they first be offered to ECA and (b) the terms and restrictions
set forth in ECA's articles of incorporation as each may be amended from
time to time.
All share certificates representing shares acquired by the exercise of the
Purchase Rights shall have endorsed thereon the following legend:
"The shares represented by this certificate are subject to the requirement that
they be first offered to Energy Corporation of America, per that certain
Incentive Stock Purchase Agreement dated March 19, 1999 by and between Energy
Corporation of America and L.B. Curtis."
5. Rights as Shareholder. Curtis shall not have any rights or
-----------------------
privileges as a shareholder of ECA in the shares of common stock until payment
of the purchase price.
6. Holding Period. Curtis agrees to hold all shares acquired by
----------------
exercising the Purchase Rights for a period of at least six (6) months from the
date of the exercise. Thereafter, the shares will remain subject to the
restrictions on transfer as set forth in paragraph 4 above.
7. Governing Law. This Agreement shall be governed by, and construed
--------------
under the laws of West Virginia and shall be binding and inure to the benefit of
any successor or successors of ECA.
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
-----------------------------
John Mork
Its: President and CEO
/s/ L. B. Curtis
-----------------------------
L.B. Curtis
INCENTIVE STOCK PURCHASE AGREEMENT
THIS INCENTIVE STOCK PURCHASE AGREEMENT made this 19th day of March, 1999
by and between ENERGY CORPORATION OF AMERICA, a West Virginia corporation
(hereinafter referred to as "ECA"), and J.J. Dorgan (hereinafter referred to as
"Dorgan")
WHEREAS, Dorgan provides valuable service to ECA as a Director of the
Company and ECA considers it desirable and in its best interest that Dorgan be
given an added incentive to advance the interests of ECA.
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties agree as follows:
1. Grant of Purchase Rights. ECA hereby grants to Dorgan the right and
---------------------------
privilege to purchase up to 5,000 shares of its Common Stock at $75.00 per share
(the "Purchase Rights") in the following manner:
a. On and after January 1, 1999, to and including December 31, 2003, 1667
shares.
b. On and after January 1, 2000, to and including December 31, 2004, 1667
shares.
c. On and after January 1, 2001, to and including December 31, 2005, 1666
shares.
During each five (5) year period, shares may be purchased incrementally or
in one lump sum. Dorgan may elect to purchase the stock by providing notice to
ECA as provided in paragraph 2.
In order to be entitled to exercise the Purchase Rights granted hereunder,
Dorgan must remain an active and recognized Director of ECA during the purchase
period. If Dorgan's Director role with ECA is completed for any reason during
the purchase period, all unexercised Purchase Rights shall become null and void
on the date the role is ended.
Failure to exercise the Purchase Rights by December 31 of each year
specified above shall result in the termination of the Purchase Rights granted
during that time period and such Purchase Rights shall become null and void.
2. Method of Exercise. The Purchase Rights shall be exercised by written
- -- --------------------
notice directed to ECA at its principal place of business accompanied by check
for payment of the price for the number of shares specified.
3. Limitation Upon Transfer. All rights granted in this Agreement shall be
-------------------------
exercisable only by Dorgan. The Purchase Rights granted under this Agreement
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 Purchase Rights contrary to this
provisions of this Agreement, or upon the levy of any attachment or similar
process upon such Purchase Rights, such Purchase Rights shall immediately become
null and void.
4. Restrictions. All shares acquired by Dorgan shall be subject to (a) the
------------
requirement that they first be offered to ECA and (b) the terms and restrictions
set forth in ECA's articles of incorporation as each may be amended from
time to time.
All share certificates representing shares acquired by the exercise of the
Purchase Rights shall have endorsed thereon the following legend:
"The shares represented by this certificate are subject to the requirement that
they be first offered to Energy Corporation of America, per that certain
Incentive Stock Purchase Agreement dated March 19, 1999 by and between Energy
Corporation of America and J.J. Dorgan."
5. Rights as Shareholder. Dorgan shall not have any rights or
-----------------------
privileges as a shareholder of ECA in the shares of common stock until payment
of the purchase price.
6. Holding Period. Dorgan agrees to hold all shares acquired by
----------------
exercising the Purchase Rights for a period of at least six (6) months from the
date of the exercise. Thereafter, the shares will remain subject to the
restrictions on transfer as set forth in paragraph 4 above.
7. Governing Law. This Agreement shall be governed by, and construed
--------------
under the laws of West Virginia and shall be binding and inure to the benefit of
any successor or successors of ECA.
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
-----------------------------
John Mork
Its: President and CEO
/s/ J.J. Dorgan
----------------------------
J.J. Dorgan
INCENTIVE STOCK PURCHASE AGREEMENT
THIS INCENTIVE STOCK PURCHASE AGREEMENT made this 19th day of March, 1999
by and between ENERGY CORPORATION OF AMERICA, a West Virginia corporation
(hereinafter referred to as "ECA"), and A.C. Nielsen, Jr. (hereinafter referred
to as "Nielsen.")
WHEREAS, Nielsen provides valuable service to ECA as a Director of the
Company and ECA considers it desirable and in its best interest that Nielsen be
given an added incentive to advance the interests of ECA.
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties agree as follows:
1. Grant of Purchase Rights. ECA hereby grants to Nielsen the right and
---------------------------
privilege to purchase up to 5,000 shares of its Common Stock at $75.00 per share
(the "Purchase Rights") in the following manner:
a. On and after January 1, 1999, to and including December 31, 2003, 1667
shares.
b. On and after January 1, 2000, to and including December 31, 2004, 1667
shares.
c. On and after January 1, 2001, to and including December 31, 2005, 1666
shares.
During each five (5) year period, shares may be purchased incrementally or
in one lump sum. Nielsen may elect to purchase the stock by providing notice to
ECA as provided in paragraph 2.
In order to be entitled to exercise the Purchase Rights granted hereunder,
Nielsen must remain an active and recognized Director of ECA during the purchase
period. If Nielsen's Director role with ECA is completed for any reason during
the purchase period, all unexercised Purchase Rights shall become null and void
on the date the role is ended.
Failure to exercise the Purchase Rights by December 31 of each year
specified above shall result in the termination of the Purchase Rights granted
during that time period and such Purchase Rights shall become null and void.
2. Method of Exercise. The Purchase Rights shall be exercised by written
--------------------
notice directed to ECA at its principal place of business accompanied by check
for payment of the price for the number of shares specified.
3. Limitation Upon Transfer. All rights granted in this Agreement shall be
-------------------------
exercisable only by Nielsen. The Purchase Rights granted under this Agreement
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 Purchase Rights contrary to this
provisions of this Agreement, or upon the levy of any attachment or similar
process upon such Purchase Rights, such Purchase Rights shall immediately become
null and void.
4. Restrictions. All shares acquired by Nielsen shall be subject to (a) the
------------
requirement that they first be offered to ECA and (b) the terms and
restrictions set forth in ECA's articles of incorporation as each may be amended
from time to time.
All share certificates representing shares acquired by the exercise of the
Purchase Rights shall have endorsed thereon the following legend:
"The shares represented by this certificate are subject to the requirement that
they be first offered to Energy Corporation of America, per that certain
Incentive Stock Purchase Agreement dated March 19, 1999 by and between Energy
Corporation of America and A.C. Nielsen, Jr."
5. Rights as Shareholder. Nielsen shall not have any rights or
-----------------------
privileges as a shareholder of ECA in the shares of common stock until payment
of the purchase price.
6. Holding Period. Nielsen agrees to hold all shares acquired by
----------------
exercising the Purchase Rights for a period of at least six (6) months from the
date of the exercise. Thereafter, the shares will remain subject to the
restrictions on transfer as set forth in paragraph 4 above.
7. Governing Law. This Agreement shall be governed by, and construed under
--------------
the laws of West Virginia and shall be binding and inure to the benefit of any
successor or successors of ECA.
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
----------------------------------
John Mork
Its: President and CEO
/s/ A.C. Nielsen, Jr.
---------------------------------
A.C. Nielsen, Jr.
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT, made this 17th day of February, 1998, by and
among WESTECH ENERGY CORPORATION, a Colorado corporation ("Westech"), WESTECH
ENERGY NEW ZEALAND LIMITED, a ________________ corporation ("WESNZ"), and EDWARD
DAVIES ("Davies").
W I T N E S S E T H:
-------------------
WHEREAS, Westech is a wholly owned subsidiary of Energy Corporation of
America, a West Virginia corporation ("ECA"), and ECA owns all of the issued and
outstanding voting common stock of Westech, consisting of One Million
(1,000,000) shares, One Dollar ($1.00) par value; and
WHEREAS, the Articles of Incorporation of Westech have been amended to
create a new class of nonvoting stock referred to as Class A stock, which shares
have all the same rights and privileges as the stock owned by ECA other than
voting rights; and
WHEREAS, WESNZ is a wholly owned subsidiary of ECA and ECA owns all of the
issued and outstanding voting stock of WESNZ, consisting of One Thousand (1,000)
shares _____ par value; and
WHEREAS, WESNZ's corporate documents have been amended to create a new
class of nonvoting stock referred to as Class A stock, which shares have all
the same rights and privileges as stock owned by ECA other than voting rights;
and
WHEREAS, Davies is the President of Westech and a valued employee of
Westech and ECA considers it desirable and in its best interest that Davies be
given an added incentive to advance the interests of the company; and
WHEREAS, Westech desires to issue to Davies Twenty-Five Thousand Six
Hundred Forty-One (25,641) shares of Class A stock of Westech, which shares when
issued will represent 2.5 percent of all the outstanding stock of Westech, and
Davies desires to purchase Twenty-Five Thousand Six Hundred Forty-One (25,641)
shares of Class A stock of Westech on the terms and conditions set forth herein;
and
WHEREAS, WESNZ desires to issue to Davies Twenty-Six (26) shares of Class A
stock of WESNZ, which shares when issued will represent 2.5 percent of all
outstanding stock of WESNZ,, and Davies desires to purchase Twenty-Six (26)
shares of Class A stock of WESNZ on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties do hereby agree as follows:
1. Sale and Issurance of Stock. Westech agrees to sell and issue to
------------------------------
Davies and Davies agrees to purchase from Westech Twenty-Five Thousand Six
Hundred Forty-One (25,641) shares of Class A stock representing 2.5 percent of
all outstanding stock of Westech. WESNZ agrees to sell and issue to Davies and
Davies agrees to purchase from WESNZ Twenty-Six (26) shares of Class A stock to
WESNZ representing 2.5 percent of all outstanding stock of WESNZ. The
Twenty-Five Thousand Six Hundred Forty-One (25,641) shares WESNZ Class A stock
are hereinafter collectively referred to as the "Stock". Davies agrees to pay a
total purchase price of One Hundred Fifty Thousand Dollars ($150,000.00) for the
Stock.
2. Payment of Purchase Price. In payment of the purchase price for the
-------------------------
Stock, Davies agrees to execute and deliver in favor of Westech and WESNZ a
promissory note substantially in the form of Exhibit A hereto, in the principal
amount of One Hundred Fifty Thousand Dollars ($150,000.00) bearing interest at
the rate of eight percent (8%) per year, interest payable quarterly, with all
outstanding interest and principal payable ten (10) years from the date of
execution of the promissory note.
3. Stock Pledge. To secure the repayment of the promissory note to be
-------------
executed and delivered in accordance with Paragraph 2 above, Davies hereby
agrees to pledge his Westech and WESNZ shares to Westech and WESNZ respectively
and to execute and deliver to Westech and WESNZ a Stock Pledge Agreement
substantially in the form of Exhibit B attached hereto.
4. Restrictions. The Stock acquired by Davies hereunder shall be
------------
subject to the following restrictions:
(a) The Stock is nontransferable and is subject to the terms and
conditions of this Stock Purchase Agreement, including Davies' obligation to
resell the Westech shares to Westech and the WESNZ shares to WESNZ as set forth
in Paragraph 4(b) below.
(b) If Davies' employment with Westech is terminated for any
reason, including death, Davies, or the executor of Davies' estate, agrees to
immediately resell the Stock purchased hereunder to the respective corporation
at the price per share set forth herein. The resale price per share for the
Westech shares shall be equal to six (6) times the average per share earnings
for the most recent three (3) fiscal years of Westech.
"Earnings" shall mean Westech's earnings (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 Westech's regularly engaged accountants, which determination shall be final
and binding upon Davies and Westech.
The resale price per share for the WESNZ shares shall be equal to six (6)
times the average per share earnings for the most recent three (3) fiscal years
of WESNZ.
"Earnings" shall mean WESNZ's earnings (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 WESNZ's regularly engaged accountants, which determination shall be final and
binding upon Davies and WESNZ.
5. Binding Effect. This agreement shall be binding upon and inure to
---------------
the benefit of any successor or successors of Westech or WESNZ.
IN WITNESS WHEREOF, the parties have caused this agreement to be executed
as of the day and year first above written.
WESTECH ENERGY CORPORATION
By:/s/ Dale P. Andrews
--------------------------------
Its: Secretary
WESTECH ENERGY NEW ZEALAND LIMITED
By:/s/ Dale P. Andrews
---------------------------------
Its: Secretary
/s/ Edward Davies
---------------------------------
EDWARD DAVIES
FIRST AMENDMENT TO CREDIT AGREEMENT
AND
ASSIGNMENT AND WAIVER
THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND ASSIGNMENT AND WAIVER (herein
called the "Amendment") made as of September 26, 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 named on Schedule 3 to the Original
Agreement ("Original Lenders"),
W I T N E S S E T H:
WHEREAS, Borrower, Agent and Original Lenders have entered into that
certain Credit Agreement dated as of May 20, 1997 (the "Original Agreement") for
the purpose and consideration therein expressed, whereby Original Lenders became
obligated to make loans to Borrower as therein provided; and
WHEREAS, Borrower, Agent and Original Lenders desire to amend the Original
Agreement to modify certain covenants, waive the failure by Borrower to comply
with certain covenants and to reflect the addition of a new Lender;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement and in
consideration of the loans which may hereafter be made by Lenders to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and Reference
-------------------------
Section 1.1. Terms Defined in the Original Agreement. Unless the context
---------------------------------------
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
Section 1.2. Other Defined Terms. Unless the context otherwise requires,
-------------------
the following terms when used in this Amendment shall have the meanings assigned
to them in this Section 1.2
"Amendment" shall mean this First Amendment to Credit Agreement and
Assignment and Waiver.
"Credit Agreement" shall mean the Original Agreement as amended hereby.
"Lenders" shall mean collectively, the Original Lenders and Union Bank of
California, N.A.
ARTICLE II.
Borrowing Base, Amendments; Waiver
----------------------------------
Section 2.1. Waiver of Limitation on Distributions. Agent and Lenders
----------------------------------------
hereby waive Borrower's noncompliance with Section 7.6 of the Credit Agreement
for the Fiscal Year ended June 30, 1997 arising from the payment of dividends on
Borrower's common stock in the approximate amount of $250,000 paid on or about
June 30, 1997 and any Default or Event of Default resulting from such
noncompliance. For purposes of calculating Consolidated Net Income for the
determination of the amount of Distributions permitted under Section 7.6 of the
Credit Agreement through and including the quarter ending March 31, 1998, the
following items identified on Borrower's Consolidated Net Income Statement for
the period ended June 30, 1997 shall be eliminated from such calculation:
1. Impairment and exploratory costs in the amount of $10,121,492;
2. Deferred financing costs in the amount of $4,425,714; and
3. Extraordinary item (John Hancock/Eastern Systems Corporation make
whole payment) in the amount of $5,034,719 (pre-tax $7,745,721); such that the
after-tax amount of loss to be excluded will be $14,490,402.
Section 2.2. Tangible Net Worth. Section 7.12 of the Original Agreement is
------------------
hereby
amended in its entirety to read as follows:
"Section 7.12. Tangible New Worth. Borrower's Consolidated Tangible
Net Worth will never be less than the sum of (i) $20,000,000 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, determined on a cumulative basis;
provided that clause (ii) of this section shall be added only if such cumulative
amount is a positive number."
Section 2.3. Replacement of Schedule 3. Schedule 3 to the Original
----------------------------
Agreement is hereby amended in its entirety to read as set forth in Schedule 3
attached hereto.
ARTICLE III.
Assignment and Acceptance
-------------------------
GE Capital and The Bank of Nova Scotia; ("BNS" and in this article, GE
Capital and BNS are collectively called "Assignors") and Union Bank of
California, N.A. ("Assignee") hereby agree as follows:
<PAGE>
Section 3.1. Assignors hereby sell and assign to Assignee, without recourse
and without representation or warranty except as expressly set forth herein, and
Assignee hereby purchases and assumes from Assignors, an interest in and to
Assignors' rights and obligations under the Credit Agreement and the other Loan
Documents as of the date hereof equal to the percentage interest specified on
Annex I hereto of all outstanding rights and obligations under the Credit
Agreement and the other Loan Documents. After giving effect to such sale and
assignment, Assignee's and Assignors' Percentage Shares of the Commitment and
the amount of Assignee's and Assignors' Percentage Share of Outstanding Loans
will be as set forth on Annex I hereto.
Section 3.2. GE Capital, with respect to the interests assigned by it
hereunder (a) represents and warrants that with respect to the interests
assigned by it hereunder, it is the legal and beneficial owner of the interest
being assigned by it hereunder and that such interest is free and clear of any
adverse claim; (b) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Loan
Documents or any other instrument or document furnished pursuant thereto; (c)
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of any Restricted Person or the performance or
observance by any Restricted Person of any of its obligations under the Loan
Documents or any other instrument or document furnished pursuant thereto; and
(d) delivers herewith the Note held by GE Capital and requests that Agent
exchange such Note for new Notes payable to the order of Assignee in an amount
equal to the Percentage Share of the Commitment assumed by Assignee pursuant
hereto and to GE Capital in an amount equal to the Percentage Share of the
Commitment retained by the GE Capital as specified on Annex I.
Section 3.3. BNS, with respect to the interests assigned by it hereunder
(a) represents and warrants that with respect to the interests assigned by it
hereunder, it is the legal and beneficial owner of the interest being assigned
by it hereunder and that such interest is free and clear of any adverse claim;
(b) makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with the Loan Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Loan Documents or any
other instrument or document furnished pursuant thereto; (c) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of any Restricted Person or the performance or observance by
any Restricted Person of any of its obligations under the Loan Documents or any
other instrument or document furnished pursuant thereto; and (d) delivers
herewith the Note held by BNS and requests that Agent exchange such Note for new
Notes payable to the order of Assignee in an amount equal to the Percentage
Share of the Commitment assumed by Assignee pursuant hereto and to BNS in an
amount equal to the Percentage Share of the Commitment retained by the BNS as
specified on Annex I.
Section 3.4. Assignee (a) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 6.2 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Amendment; (b) agrees that it will, independently and without reliance upon
Agent, Assignors or any other Lender and based on such 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 Credit Agreement; (c)
confirms that it is an Eligible Transferee; (d) appoints and authorizes Agent to
take such action as agent on its behalf and to exercise such powers and
discretion under the Credit Agreement as are delegated to Agent by the terms
thereof, together with such powers and discretion as are reasonably incidental
thereto; (e) agrees that it will perform in accordance with their terms all of
the obligations that by the terms of the Credit Agreement are required to be
performed by it as a Lender; and (f) delivers herewith any U.S. Internal Revenue
Service or other forms required under Section 3.6(d).
Section 3.5. Upon such acceptance and recording by Agent, (a) Assignee
shall be a party to the Credit Agreement and, to the extent provided in this
Amendment, have the rights and obligations of a Lender thereunder and (b)
Assignors shall, to the extent provided in this Article, relinquish their rights
and be released from their obligations under the Credit Agreement.
Section 3.6. Upon such acceptance and recording by Agent, from and after
the effective date of this Amendment, Agent shall make all payments under the
Credit Agreement and the Notes in respect of the interest assigned hereby
(including, without limitation, all payments of principal, interest and
commitment fees with respect thereto) to Assignee. Assignors and Assignee shall
make all appropriate adjustments in payments under the Credit Agreement and the
Notes for periods prior to the effective date of this Amendment directly between
themselves.
ARTICLE IV.
Conditions of Effectiveness
---------------------------
Section 4.1. Effective Date. This Amendment shall become effective as of
--------------
the date first above written when, and only when all of the following have been
satisfied:
(a) Documents. Agent shall have received all of the following
---------
documents in form and substance satisfactory to Agent:
(i) this Amendment;
(ii) the Notes with appropriate insertions, in the form
attached hereto as Exhibit A, payable to the order of each Lender on or before
the Maturity Date (such Notes herein called the "Renewal Notes"), in a principal
amount equal to the amount set out in Annex I hereto;
(iii) the written opinion of Goodwin and Goodwin, LLP dated
as of the date of this Amendment, addressed to Agent, to the effect that this
Amendment and each Renewal Note has been duly authorized, executed and delivered
by Borrower and that the Credit Agreement and each Renewal Note constitute the
legal, valid and binding obligations of Borrower, enforceable in accordance with
their terms (subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency and similar laws and to moratorium laws and other
laws affecting creditors' rights generally from time to time in effect);
(iv) a certificate of a duly authorized officer of Borrower
dated the date of this Amendment certifying that (A) attached thereto is a true
and complete copy of resolutions adopted by the Board of Directors of Borrower
authorizing the execution, delivery and performance of this Amendment and each
Renewal Note and certifying the names and true signatures of the officers of
Borrower authorized to sign this Amendment and each Renewal Note and (B) all of
the representations and warranties set forth in Article V hereof are true and
correct at and as of the time of such effectiveness; and
(v) such other supporting documents as Agent may reasonably
request.
(b) Fees. Agent shall have received, for the benefit of Lenders,
-----
an amendment fee in the amount of $25,000.
ARTICLE V.
Representations and Warranties
------------------------------
Section 5.1. Representations and Warranties of Borrower. In order to
----------------------------------------------
induce each Lender to enter into this Amendment, Borrower represents and
warrants to each Lender that:
(a) All representations and warranties made by any Related Person
in any Loan Document delivered on or before the date hereof are true on and as
of the date hereof (except to the extent that the facts upon which such
representations are based have been changed by the transactions contemplated
herein) as if such representations and warranties had been made as of the date
hereof.
(b) Borrower is duly authorized to execute and deliver this
Amendment and each Renewal Note and is and will continue to be duly authorized
to borrow monies and to perform its obligations under the Credit Agreement.
Borrower has duly taken all corporate action necessary to authorize the
execution and delivery of this Amendment and each Renewal Note and to authorize
the performance of the obligations of Borrower hereunder and thereunder.
(c) The execution and delivery by Borrower of this Amendment and
each Renewal Note, the performance by Borrower of its obligations hereunder and
thereunder and the consummation of the transactions contemplated hereby and
thereby do not and will not conflict with any provision of law, statute, rule or
regulation or of the articles of incorporation and bylaws of Borrower, or of any
material agreement, judgment, license, order or permit applicable to or binding
upon Borrower, or result in the creation of any lien, charge or encumbrance upon
any assets or properties of Borrower. Except for those which have been
obtained, no consent, approval, authorization or order of any court or
governmental authority or third party is required in connection with the
execution and delivery by Borrower of this Amendment and each Renewal Note or to
consummate the transactions contemplated hereby and thereby.
(d) When duly executed and delivered, each of this Amendment, the
Credit Agreement and the Renewal Notes will be a legal and binding obligation of
Borrower, enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency or similar laws of general application relating to the
enforcement of creditors' rights and by equitable principles of general
application.
ARTICLE VI.
Miscellaneous
-------------
Section 6.1. Ratification of Agreements. The Original Agreement as hereby
--------------------------
amended is hereby ratified and confirmed in all respects. Any reference to the
Credit Agreement in any Loan Document shall be deemed to be a reference to the
Original Agreement as hereby amended. Any reference to the Notes in any other
Loan Document shall be deemed to be a reference to the Renewal Notes issued and
delivered pursuant to this Amendment. The execution, delivery and effectiveness
of this Amendment and the Renewal Notes shall not, except as expressly provided
herein or therein, operate as a waiver of any right, power or remedy of Lenders
under the Credit Agreement, the Notes, or any other Loan Document nor constitute
a waiver of any provision of the Credit Agreement, the Notes or any other Loan
Document.
Section 6.2. Survival of Agreements. All representations, warranties,
------------------------
covenants and agreements of Borrower herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loans and the issuance and delivery of
the Renewal Notes, and shall further survive until all of the Obligations are
paid in full. All statements and agreements contained in any certificate or
instrument delivered by Borrower any Related Person hereunder or under the
Credit Agreement to any Lender shall be deemed to constitute representations and
warranties by, and/or agreements and covenants of, Borrower under this Amendment
and under the Credit Agreement.
Section 6.3. Loan Documents.This Amendment and each Renewal Note are each a
---------------
Loan Document, and all provisions in the Credit Agreement pertaining to Loan
Documents apply hereto and thereto.
Section 6.4. Governing Law. THIS AMENDMENT SHALL BE DEEMED A CONTRACT AND
-------------
INSTRUMENT 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.
Section 6.5. Counterparts. This Amendment may be separately executed in
------------
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
THIS AMENDMENT 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 OF THE PARTIES.
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
BORROWER:
ENERGY CORPORATION OF AMERICA
By: /s/ J. Michael Forbes
-------------------------------
J. Michael Forbes
Vice President/Treasurer
AGENT:
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and Lender
By: /s/ Michael J. Tzougrakis
------------------------------
Manager - Operations
THE BANK OF NOVA SCOTIA, as
Documentation Agent and Lender
By: /s/ F.C.H. Ashby
------------------------------
Name: F.C.H. Ashby
Title: Sr. Mgr. Loan Operations
UNION BANK OF CALIFORNIA, N.A., as
Assignee and Lender
By: /s/ Randall Osterberg
-------------------------------
Name: Randall Osterberg
Title: Vice President
<PAGE>
ANNEX I
Percentage Share assigned by GE Capital: 10%
Amount assigned by GE Capital: $5,000,000
Percentage Share assigned by BNS: 20%
Amount assigned by BNS: $10,000,000
Assignee's Percentage Share: 30%
Amount of Assignee's Percentage Share: $15,000,000
Assignee's Commitment: $15,000,000
Principal amount of Note payable to BNS: $15,000,000
Assignee's Commitment: $15,000,000
Principal amount of Note payable to Assignee: $15,000,000
Principal amount of Note payable to GE Capital: $20,000,000
Principal amount of Note payable to BNS: $15,000,000
<PAGE>
SCHEDULE 3
LENDERS SCHEDULE
Percentage Share
GENERAL ELECTRIC CAPITAL CORPORATION 40.00%
Lending Office for ABR and Eurodollar Loans:
General Electric Capital Services
Structured Finance Group, Inc. - Energy Portfolio Operations
120 Long Ridge Road
Stanford, Connecticut 06927
Attn: Peter Fortmann
Tel: (203) 357-6536
Fax: (203) 357-4890
THE BANK OF NOVA SCOTIA 30.00%
Lending Office for ABR and Eurodollar Loans:
The Bank of Nova Scotia
Atlanta Agency
600 Peachtree Street, N.E., Suite 2700
Atlanta, Georgia 30308
Tel: (404) 877-1500
Fax: (404) 888-8998
UNION BANK OF CALIFORNIA 30.00%
Lending Office for ABR and Eurodollar Loans:
Union Bank of California
500 North Akard, Suite 4200
Dallas, Texas 75201
Attn.: Randall Osterberg
Tel: (214) 922-4200
Fax: (214) 922-4209
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (herein called the "AMENDMENT")
made as of April 2, 1999 by and among Energy Corporation of America, a West
Virginia corporation (herein called "BORROWER"), General Electric Capital
Corporation, individually and as agent (herein called "AGENT"), and the Lenders
named on Schedule 3 to the Original Agreement ("LENDERS").
W I T N E S S E T H:
WHEREAS, Borrower, Agent and Lenders have entered into that certain Credit
Agreement dated as of May 20, 1997, as amended by a First Amendment to Credit
Agreement and Assignment and Waiver dated as of September 26, 1997 (the
"Original Agreement"), for the purpose and consideration therein expressed,
whereby Lenders became obligated to make loans to Borrower as therein provided;
and
WHEREAS, Borrower, Agent and Lenders desire to amend the Original Agreement
to modify certain covenants to allow for additional Investments (as defined in
the Original Agreement) and to waive the failure by Borrower to comply with
certain covenants;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement and in
consideration of the loans which may hereafter be made by Lenders to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE 1.
Definitions and References
--------------------------
Section 1.1. Terms Defined in the Original Agreement. Unless the context
---------------------------------------
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
Section 1.2. Other Defined Terms. Unless the context otherwise requires,
-------------------
the following terms when used in this Amendment shall have the meanings assigned
to them in this Section 1.2.
"AMENDMENT" shall mean this Second Amendment to Credit Agreement.
"CREDIT AGREEMENT" shall mean the Original Agreement as amended hereby.
ARTICLE II.
Amendments to Original Agreement
--------------------------------
Section 2.1. Tangible Net Worth. Section 7.7 of the Original Agreement is
------------------
hereby
amended in its entirety to read as follows:
"Section 7.7. Limitation on Investments and New Businesses. No
Restricted Person will:
(a) 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;
(b) engage directly or indirectly in any business or conduct any
operations except the energy business;
(c) make any acquisitions of or Investments in any Person, except
for the following Investments made by any Restricted Person other than Eastern
Capital:
(i) Investments in Cash Equivalents;
(ii) Investments in Wholly-owned Subsidiaries of Borrower;
(iii) Investments in Capital Stock of any Person; provided:
(A) such Person or is engaged primarily in owning and/or operating oil and gas
properties or in the energy utility business and (B) such Investments do not
exceed $1,000,000, in the aggregate; and
(iv) Investments in Capital Stock of any Person (in this
subsection called a "Target"); provided (A) the Target is engaged primarily in
owning and/or operating oil and gas properties or in the energy utility business
and (B) the Target shall become a Wholly-owned Subsidiary within the Acquisition
Period (as defined below in this section); provided that: the Investments
described in the immediately preceding clause (iii) and in this clause (iv)
shall not exceed $5,000,000 in the aggregate; provided further: that Borrower
shall give written notice to Agent when the Investments described in the
immediately preceding clause (iii) and in this clause (iv) exceed $1,000,000 in
the aggregate;
(d) make any significant acquisition of or Investments in any
properties except properties used in the energy business;
(e) make Investments by Eastern Capital Corporation in an aggregate
amount in excess of $5,000,000.
Notwithstanding the foregoing, no acquisition or Investment permitted under
the immediately preceding clauses (c) and (d) and under this subsection (e) 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.
As used in this subsection "Acquisition Period" means (1) a period of
eighteen months beginning on the date of the original Investment by any
Restricted Person in the Target or (2) if by the end of such eighteen-month
period, (x) the Target and such Restricted Person have executed a letter of
intent for such Restricted Person to purchase the Target and Borrower has
delivered a copy of such letter to Agent or (y) such Restricted Person is
negotiating in good faith to acquire the Target and has provided to Agent a
written summary of the status of such negotiations, "Acquisition Period" shall
mean a period of twenty-four months from the date of such Restricted Person's
first Investment in the Target."
Section 2.2. Limitation on Credit Extensions. Section 7.8 of the Original
-------------------------------
Agreement is hereby amended by deleting the "and" immediately prior to
subsection (iii) thereof and adding the following at the end of such section:
"and (iv) extensions of credit to key employees of Borrower for the
purchase of Class A Stock of Borrower pursuant to a Resolution of the Board of
Directors dated December 10, 1998."
ARTICLE III.
Conditions of Effectiveness
---------------------------
Section 3.1. Effective Date. This Amendment shall become effective as of
--------------
the date first above written when, and only when Agent shall have received all
of the following documents in form and substance satisfactory to Agent:
(a) this Amendment;
(b) the Consent of the Subsidiaries of Borrower which have executed and
delivered Security Documents;
(c) the written opinion of Goodwin and Goodwin, LLP dated as of the
date of this Amendment, addressed to Agent, to the effect that this Amendment
has been duly authorized, executed and delivered by Borrower and that the Credit
Agreement and the Notes constitute the legal, valid and binding obligation of
Borrower, enforceable in accordance with their terms (subject, as to enforcement
of remedies, to applicable bankruptcy, reorganization, insolvency and similar
laws and to moratorium laws and other laws affecting creditors' rights generally
from
time to time in effect);
(d) a certificate of the Secretary of Borrower dated the date of this
Amendment certifying: (i) that resolutions adopted by the Board of Directors of
the Borrower authorize the execution, delivery and performance of this Amendment
by Borrower; (ii) the names and true signatures of the officers of the Borrower
authorized to sign this Amendment; and (iii) that all of the representations and
warranties set forth in Article V hereof are true and correct at and as of the
time of such effectiveness; and
(e) such other supporting documents as Agent may reasonably request.
ARTICLE IV.
Representations and Warranties
------------------------------
Section 4.1. Representations and Warranties of Borrower. In order to
----------------------------------------------
induce each
Lender to enter into this Amendment, Borrower represents and warrants to each
Lender that:
(a) All representations and warranties made by any Restricted Person in
any Loan Document delivered on or before the date hereof are true on and as of
the date hereof (except to the extent that the facts upon which such
representations are based have been changed by the transactions contemplated
herein) as if such representations and warranties had been made as of the date
hereof.
(b) Borrower is duly authorized to execute and deliver this Amendment
and is and will continue to be duly authorized to borrow monies and to perform
its obligations under the Credit Agreement. Borrower has duly taken all
corporate action necessary to authorize the execution and delivery of this
Amendment and to authorize the performance of the obligations of
Borrower hereunder.
(c) The execution and delivery by Borrower of this Amendment and the
performance by Borrower of its obligations hereunder and the consummation of the
transactions contemplated hereby does not and will not conflict with any
provision of law, statute, rule or regulation or of the articles of
incorporation and bylaws of Borrower, or of any material agreement, judgment,
license, order or permit applicable to or binding upon Borrower, or result in
the creation of any lien, charge or encumbrance upon any assets or properties of
Borrower. Except for those which have been obtained, no consent, approval,
authorization or order of any court or governmental authority or third party is
required in connection with the execution and delivery by Borrower of this
Amendment or to consummate the transactions contemplated hereby.
(d) When duly executed and delivered, each of this Amendment and the
Credit Agreement will be a legal and binding obligation of Borrower, enforceable
in accordance with its terms, except as limited by bankruptcy, insolvency or
similar laws of general application relating to the enforcement of creditors'
rights and by equitable principles of general application.
(e) The audited annual Consolidated financial statements of Borrower
dated as of June 30, 1998 and the unaudited quarterly Consolidated financial
statements of Borrower dated as of December 31, 1998 fairly present the
Consolidated financial position at such dates and the Consolidated statement of
operations and the changes in Consolidated financial position for the periods
ending on such dates for Borrower. Copies of such financial statements have
heretofore been delivered to each Lender. Since such dates, no material adverse
change has occurred in the financial condition or businesses or in the
Consolidated financial condition or businesses of Borrower.
ARTICLE V.
Miscellaneous
-------------
Section 5.1. Ratification of Agreements. The Original Agreement as hereby
--------------------------
amended is hereby ratified and confirmed in all respects. Any reference to the
Credit Agreement in any Loan Document shall be deemed to be a reference to the
Original Agreement as hereby amended. The execution, delivery and effectiveness
of this Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of Lenders under the Credit Agreement, the
Notes, or any other Loan Document nor constitute a waiver of any provision of
the Credit Agreement, the Notes or any other Loan Document.
Section 5.2. Survival of Agreements. All representations, warranties,
------------------------
(covenants and agreements of Borrower herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loans and shall further survive until
all of the Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by Borrower any Restricted
Person hereunder or under the Credit Agreement to any Lender shall be deemed to
constitute representations and warranties by, and/or agreements and covenants
of, Borrower under this Amendment and under the Credit Agreement.
Section 5.3. Loan Documents. This Amendment is a Loan Document, and all
---------------
provisions in the Credit Agreement pertaining to Loan Documents apply hereto.
Section 5.4. Governing Law. THIS AMENDMENT SHALL BE DEEMED A CONTRACT AND
-------------
INSTRUMENT MADE UNDER THE LAWS OF THIS 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.
Section 5.5. Counterparts: Fax. This Amendment may be separately executed
-----------------
in counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Amendment. This Amendment may be validly executed and delivered by facsimile or
other electronics transmission.
THIS AMENDMENT 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 OF THE PARTIES.
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
BORROWER:
ENERGY CORPORATION OF AMERICA
By: /s/ I. M. Allan
---------------------------
Isobel M. Allan
Vice President Finance
AGENT:
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and Lender
By: /s/ Eric A. Schaefer
---------------------------
Manager - Operations
THE BANK OF NOVA SCOTIA, as
Documentation Agent and Lender
By: /s/ F.C.H. Ashby-
---------------------------
Name: F.C. H. Ashby
Title: Sr. Mgr. Loan Operations
UNION BANK OF CALIFORNIA, N.A., as
Lender
By: /s/ Randall Osterberg
---------------------------
Name: Randall Osterberg
Title: Vice President
UNION BANK OF CALIFORNIA, N.A., as
Lender
By: /s/ Carl Stutzman
--------------------------
Name: Carl Stutzman
Title: Sr. Vice President
and Manager
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (herein called the "AMENDMENT")
made as of September 27, 1999 by and among Energy Corporation of America, a West
Virginia corporation (herein called "BORROWER"), General Electric Capital
Corporation, individually and as agent (herein called "AGENT"), and the Lenders
named on Schedule 3 to the Original Agreement ("LENDERS").
W I T N E S S E T H:
WHEREAS, Borrower, Agent and Lenders have entered into that certain Credit
Agreement dated as of May 20, 1997, as amended by a First Amendment to Credit
Agreement and Assignment and Waiver dated as of September 26, 1997, and as
amended by a Second Amendment to Credit Agreement dated as of April 2, 1999 (the
"ORIGINAL AGREEMENT"), for the purpose and consideration therein expressed,
whereby Lenders became obligated to make loans to Borrower as therein provided;
and
WHEREAS, Borrower, Agent and Lenders desire to amend the Original Agreement
as set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement and in
consideration of the loans which may hereafter be made by Lenders to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and References
--------------------------
Section 1.1. Terms Defined in the Original Agreement. Unless the context
---------------------------------------
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
Section 1.2. Other Defined Terms. Unless the context otherwise requires,
-------------------
the following terms when used in this Amendment shall have the meanings assigned
to them in this Section 1.2.
"AMENDMENT" shall mean this Third Amendment to Credit Agreement.
"CREDIT AGREEMENT" shall mean the Original Agreement as amended
hereby.
<PAGE>
ARTICLE II.
Amendments, Agreements and Waivers
----------------------------------
Section 2.1. Definitions. (a) The following definitions in Section 1.1
-----------
of the Original Agreement are hereby amended in their entirety to provide as
follows:
"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. During the Fiscal Quarters ended September 30,
1999, December 31, 1999, March 31, 2000, and June 30, 2000, "Adjusted EBITDA"
shall include impairment and exploration charges for Fiscal Year 1999 in the
amount of $19,387,592.
'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 and one half of one percent
(1.50%) per annum, and (ii) at all other times, the per annum rate of interest
two percent (2.00%) 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.
"Borrowing Base" means, at the particular time in question, the amount
---------------
determined by Agent in accordance with the provisions of Section 2.9, as reduced
by the Quarterly Reduction Amount on each Borrowing Base Reduction Date;
provided, however, that in no event shall the Borrowing Base ever exceed the
Commitment.
'Commitment Fee Rate' means, on each day:
---------------------
(a) thirty basis points (.30%) per annum when the Facility Usage on
such day is less than twenty-five percent of the Commitment on such day,
(b) fifty basis points (.50%) 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) sixty two and one half basis points (.625%) per annum when the
Facility Usage on such day is greater than or equal to fifty percent (50%)
of the Commitment on such day.
'Eurodollar Margin' means (i) on each day when no Obligation is past due,
------------------
three percent (3.00%) per annum and (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).
<PAGE>
'Evaluation Date' means each of the following:
----------------
(i) Each date which Borrower 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 Borrower shall
not be entitled to request any such redetermination more than once during
any Fiscal Year;
(ii) Each date which Lender, at its option, specifies as a date as of
which the Borrowing Base is to be redetermined;
(iii) the last day of each Fiscal Year, beginning June 30, 1997."
(b) The following new definitions are hereby added to Section 1.1 of
the Original Agreement:
"Quarterly Reduction Amount" means the amount of $750,000.
----------------------------
"Borrowing Base Reduction Date" means December 31, 1999, March 31, 2000,
-------------------------------
June 30, 2000 and September 30, 2000.
Section 2.2. Mandatory Prepayments. Section 2.7(b) is hereby amended in
----------------------
its entirety to read as follows:
"(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:
(i) if such Borrowing Base Deficiency results from a reduction in the
Borrowing Base due to the Quarterly Reduction Amount, Borrower will prepay
the principal of the Loans in an aggregate amount at least equal to such
Borrowing Base Deficiency on the date Agent gives notice of such Borrowing
Base Deficiency to Borrower, and if such Borrowing Base Deficiency results
from the reduction of the Borrowing Base to $22,000,000 pursuant to the
Third Amendment to this Agreement, Borrower will prepay the principal of
the Loans in an aggregate amount at least equal to such Borrowing Base
Deficiency on the day after the Effective Date;
(ii) except as set forth in clause (i) of this subsection (b)
immediately above, within five Business Days after Agent gives notice of
such fact to Borrower, do any of the following:
(A) prepay the principal of the Loans in an aggregate amount at
least equal to such Borrowing Base Deficiency, or
(B) 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
<PAGE>
(C) 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)."
Section 2.3. Subsequent Determinations of Borrowing Base. The second
-----------------------------------------------
sentence of Section 2.9 of the Original Agreement is hereby amended in its
entirety to read as follows:
"Within forty-five days after receiving such information, reports
and data, Required Lenders shall agree upon an amount for the
Borrowing Base (provided that all Lenders must agree to any increase
in 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."
Section 2.4. Financial Covenants. Sections 7.11, 7.12 and 7.13 of the
---------------------
Original Agreement are hereby deleted in their entirety and replaced with the
following:
"Section 7.11. Current Ratio. The ratio of Borrower's Consolidated
--------------
current assets to Borrower's Consolidated current liabilities will never be
less than (i) 0.6 to 1.0 at any time during the period from July 1, 1999,
through and including December 30, 1999, and (ii) 1.0 to 1.0 at any time
thereafter. 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.
<PAGE>
Section 7.12. Tangible Net Worth. Borrower's Consolidated Tangible Net
-------------------
Worth will never be less than the sum of (i) $20,000,000 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, determined on
a cumulative basis; provided that clause (ii) of this section shall be
added only if such cumulative amount is a positive number and provided
further that for each Fiscal Quarter ended through June 30, 2000,
impairment and exploration charges in the amount of $19,387,592 shall be
added back for the purpose of the calculation of Borrower's Consolidated
Tangible Net Worth.
Section 7.13. Interest CoverageSection 7.13. Interest Coverage. The
---------------------------------------------------
ratio of (a) Adjusted EBITDA to (b) Adjusted Interest Expense for the Four
Quarter Period then ended shall not be less than (i) 1.15 to 1.0 for the
Fiscal Quarters ended September 30, 1999, December 31, 1999, March 31, 2000
and June 30, 2000 and (ii) 1.5 to 1.0 at any time thereafter.
Section 2.5. Borrowing Base. Pursuant to Section 2.9, Agent hereby
---------------
notifies Borrower that during the period from the date hereof to the first
Determination Date immediately following the date hereof the Borrowing Base
shall be $22,000,000, as reduced by the Quarterly Reduction Amount on each
Borrowing Base Reduction Date.
Section 2.6. Amendment Fee. In consideration of Agent and each Lenders'
--------------
agreement to enter into this Amendment, Borrower will pay to Agent for the
account of Lenders an amendment and waiver fee in the aggregate amount of
$335,000. This amendment fee shall be due and payable on the day after the
Effective Date of this Amendment.
Section 2.7. Waiver of Financial Covenants. Borrower has informed Agent
------------------------------
and Lenders that Borrower is in violation of the provisions of Sections 7.11,
7.12 and 7.13 of the Credit Agreement for the Fiscal Quarter ended June 30,
1999. Agent and Lenders hereby (i) waive any violation of Sections 7.11, 7.12
and 7.13 of the Original Agreement for the Fiscal Quarter ended June 30, 1999
and (ii) waive any Default or Event of Default resulting from such violations.
ARTICLE III.
Conditions of Effectiveness
---------------------------
Section 3.1. Effective Date. This Amendment shall become effective (the
---------------
"Effective Date") as of the date first above written when, and only when Agent
shall have received all of the following documents in form and substance
satisfactory to Agent:
(a) this Amendment;
(b) the Consent of the Subsidiaries of Borrower which have executed and
delivered Security Documents;
<PAGE>
(c) the written opinion of Goodwin and Goodwin, LLP dated as of the date of
this Amendment, addressed to Agent, to the effect that this Amendment has been
duly authorized, executed and delivered by Borrower and that the Credit
Agreement and the Notes constitute the legal, valid and binding obligation of
Borrower, enforceable in accordance with their terms (subject, as to enforcement
of remedies, to applicable bankruptcy, reorganization, insolvency and similar
laws and to moratorium laws and other laws affecting creditors' rights generally
from time to time in effect);
(d) a certificate of the Secretary of Borrower dated the date of this
Amendment certifying: (i) that resolutions adopted by the Board of Directors of
the Borrower authorize the execution, delivery and performance of this Amendment
by Borrower; (ii) the names and true signatures of the officers of the Borrower
authorized to sign this Amendment; and (iii) that all of the representations and
warranties set forth in Article IV hereof are true and correct at and as of the
time of such effectiveness;
(e) such other supporting documents as Agent may reasonably request.
ARTICLE IV.
Representations and Warranties
------------------------------
Section 4.1. Representations and Warranties of Borrower. In order to
----------------------------------------------
induce each Lender to enter into this Amendment, Borrower represents and
warrants to each Lender that:
(a) All representations and warranties made by any Restricted Person in any
Loan Document delivered on or before the date hereof are true on and as of the
date hereof (except to the extent that the facts upon which such representations
are based have been changed by the transactions contemplated herein) as if such
representations and warranties had been made as of the date hereof.
(b) Borrower is duly authorized to execute and deliver this Amendment and
is and will continue to be duly authorized to borrow monies and to perform its
obligations under the Credit Agreement. Borrower has duly taken all corporate
action necessary to authorize the execution and delivery of this Amendment and
to authorize the performance of the obligations of Borrower hereunder.
(c) The execution and delivery by Borrower of this Amendment and the
performance by Borrower of its obligations hereunder and the consummation of the
transactions contemplated hereby does not and will not conflict with any
provision of law, statute, rule or regulation or of the articles of
incorporation and bylaws of Borrower, or of any material agreement, judgment,
license, order or permit applicable to or binding upon Borrower, or result in
the creation of any lien, charge or encumbrance upon any assets or properties of
Borrower. Except for those which have been obtained, no consent, approval,
authorization or order of any court or governmental authority or third party is
required in connection with the execution and delivery by Borrower of this
Amendment or to consummate the transactions contemplated hereby.
<PAGE>
(d) When duly executed and delivered, each of this Amendment and the Credit
Agreement will be a legal and binding obligation of Borrower, enforceable in
accordance with its terms, except as limited by bankruptcy, insolvency or
similar laws of general application relating to the enforcement of creditors'
rights and by equitable principles of general application.
(e) Drafts of the audited annual Consolidated financial statements of
Borrower dated as of June 30, 1999 (the "Draft Financial Statements") fairly
present the Consolidated financial position at such date and the Consolidated
statement of operations and the changes in Consolidated financial position for
the periods ending on such date for Borrower. The Draft Financial Statements
have heretofore been delivered to each Lender. Since such date, no material
adverse change has occurred in the financial condition or businesses or in the
Consolidated financial condition or businesses of Borrower.
ARTICLE V.
Miscellaneous
-------------
Section 5.1. Ratification of Agreements. The Original Agreement as hereby
--------------------------
amended is hereby ratified and confirmed in all respects. Any reference to the
Credit Agreement in any Loan Document shall be deemed to be a reference to the
Original Agreement as hereby amended. The execution, delivery and effectiveness
of this Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of Lenders under the Credit Agreement, the
Notes, or any other Loan Document nor constitute a waiver of any provision of
the Credit Agreement, the Notes or any other Loan Document.
Section 5.2. Survival of Agreements. All representations, warranties,
------------------------
covenants and agreements of Borrower herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loans and shall further survive until
all of the Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by Borrower any Restricted
Person hereunder or under the Credit Agreement to any Lender shall be deemed to
constitute representations and warranties by, and/or agreements and covenants
of, Borrower under this Amendment and under the Credit Agreement.
Section 5.3. Loan Documents. This Amendment is a Loan Document, and all
---------------
provisions in the Credit Agreement pertaining to Loan Documents apply hereto.
Section 5.4. Governing Law. THIS AMENDMENT SHALL BE DEEMED A CONTRACT AND
-------------
INSTRUMENT 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.
Section 5.5. Counterparts: Fax. This Amendment may be separately executed
------------------
in counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Amendment. This Amendment may be validly executed and delivered by facsimile or
other electronic transmission.
<PAGE>
THIS AMENDMENT 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 OF THE PARTIES.
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
BORROWER:
ENERGY CORPORATION OF AMERICA
By: /s/ John Mork
-------------------------
John Mork
Chief Executive Officer
AGENT:
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and Lender
By: /s/ Michael Tzougrakis
-----------------------------------
Name: Michael Tzougrakis
Title: Manager of Operations
THE BANK OF NOVA SCOTIA, as
Documentation Agent and Lender
By: /s/ F.C.H. Ashby
-----------------------------------
Name: F.C.H. Ashby
Title: Sr. Mgr. Loan Operations
UNION BANK OF CALIFORNIA, N.A., as
Lender
By: /s/ Gary Shekerian
-----------------------------------
Name: Gary Shekerian
Title: Assistant Vice President
[Third Amendment]
<PAGE>
CONSENT
Reference is made to that certain Credit Agreement dated as of May 20, 1997
(the "Original Agreement") as amended by a Second Amendment to Credit Agreement
dated as of April 2, 1999, and as amended by a Third Amendment dated as of even
date herewith (the "Second Amendment" and together with the Original Agreement,
the "Agreement"), by and among Energy Corporation of America, General Electric
Capital Corporation, as Agent, and certain financial institutions, which
Agreement is in full force and effect on the date hereof. Terms which are
defined in the Agreement are used herein with the meanings given them in the
Agreement.
Each of the undersigned hereby consents to the Third Amendment and agrees
and acknowledges, with respect to each Security Document executed by it that (i)
the Security Documents are and shall continue in full force and effect for the
benefit of the Lenders with respect to the Secured Obligations secured thereby;
(ii) there are no offsets, claims or defenses of the undersigned with respect to
the Security Documents nor, to the knowledge of the undersigned, with respect to
the Loan; (iv) the Security Documents are not released, diminished or impaired
in any way by the transaction(s) contemplated in connection with the Third
Amendment; and (v) the Security Documents are hereby ratified and confirmed in
all respects.
<PAGE>
Dated: September 27, 1999 EASTERN PIPELINE CORPORATION
EASTERN AMERICAN ENERGY
CORPORATION
By: /s/ Kenneth Mariani
------------------------
Name: Kenneth Mariani
Title: President
By: /s/ Richard E. Heffelfiner
---------------------------------
Name: Richard E. Heffelfinger
Title: President
ALLEGHENY & WESTERN ENERGY
CORPORATION
EASTERN MARKETING
CORPORATION
By: /s/ Richard E. Heffelfinger
----------------------------
Name: Richard E. Heffelfinger
Title: President
By: /s/ Richard E. Heffelfinger
------------------------------
Name: Richard E. Heffelfinger
Title: President
<PAGE>
NOTE: THIS DOCUMENT CONTAINS INFORMATION THAT IS CONSIDERED CONFIDENTIAL.
-------------------------------------------------------------------------
THROUGHOUT THE DOCUMENT AND ITS EXHIBITS, THE CONFIDENTIAL PORTIONS HAVE BEEN
-----------------------------------------------------------------------------
OMITTED, REPLACED BY "[*]" AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
- --------------------------------------------------------------------------------
COMMISSION.
-----------
NATURAL GAS SUPPLY MANAGEMENT AGREEMENT
BETWEEN
CORAL ENERGY RESOURCES, L.P.,
CORAL ENERGY, L.P.,
AND
MOUNTAINEER GAS COMPANY
SEPTEMBER 30, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I
<S> <C> <C>
DEFINITIONS 1
ARTICLE II
TERM 1
2.1 INITIAL TERM 1
2.2 RIGHT OF FIRST REFUSAL 1
ARTICLE III
SCOPE OF SERVICES 2
3.1 COMMITMENT 2
3.2 LIST OF SERVICES 4
3.3 RELEASED INTERSTATE TRANSPORTATION CAPACITY; RELEASED STORAGE
CAPACITY; CNR AGREEMENT 4
3.4 CORAL SALE VOLUMES 8
3.5 ADMINISTRATIVE SERVICES 9
3.6 ACCESS AND COOPERATION 10
3.7 COMPENSATION 11
3.8 LIMITATION OF RELATIONSHIP, AUTHORITY 11
3.9 STANDARD OF PERFORMANCE 11
ARTICLE IV
NOMINATIONS AND SCHEDULING 12
4.1 FIRST-OF-MONTH NOMINATIONS 12
4.2 CHANGES IN NOMINATIONS 12
4.3 FAILURE TO NOMINATE 12
4.4 FORM OF NOMINATION 13
ARTICLE V
DEFAULT 13
5.1 CORAL'S FAILURE TO DELIVER 13
5.2 MITIGATION; COVER 13
5.3 INABILITY TIMELY TO COVER; DAMAGES 14
5.4 EXCUSE OF DELIVERY DEFAULT 15
5.5 REMEDIES FOR NON-PERFORMANCE 16
5.6 LIMITATION ON DAMAGES 16
5.7 EARLY TERMINATION 16
5.8 SET-OFF 17
5.9 CURTAILMENT 17
<PAGE>
ARTICLE VI
CONDITIONS OF DELIVERY 19
6.1 PRESSURE 19
6.2 MEASUREMENT 20
6.3 QUALITY 21
6.4 OTHER DELIVERY OBLIGATIONS 22
ARTICLE VII
MANAGEMENT OF IMBALANCES 23
7.1 UPSTREAM IMBALANCES 23
7.2 ALLOCATION OF DELIVERIES 24
7.3 INFORMATION 24
7.4 DOWNSTREAM IMBALANCES 24
ARTICLE VIII
CONSIDERATION 25
8.1 TOTAL CONSIDERATION 25
8.2 ALLOCATION OF PRICE 25
8.3 CALCULATION OF CORAL SALE VOLUMES 26
8.4 EXCESS WITHDRAWAL QUANTITIES 26
8.5 ALTERNATIVE INDEX 27
ARTICLE IX
FINANCIAL RESPONSIBILITY 27
9.1 JOINDER OF CELP 27
9.2 COVENANTS RELATING TO FINANCIAL RESPONSIBILITY 29
ARTICLE X
BILLINGS AND PAYMENT; AUDIT 29
10.1 INVOICES 29
10.2 PAYMENTS 29
10.3 LATE/DISPUTED PAYMENTS 30
10.4 AUDIT 30
ARTICLE XI
TAXES 31
11.1 GENERAL TAX PROVISION 31
11.2 OTHER TAX PROVISIONS 31
ARTICLE XII
FORCE MAJEURE 33
12.1 EFFECT OF FORCE MAJEURE 33
12.2 DEFINITION OF FORCE MAJEURE 33
12.3 EXCLUSIONS FROM FORCE MAJEURE 33
12.4 STRIKES AND LOCKOUTS 33
<PAGE>
ARTICLE XIII
REPRESENTATIONS AND WARRANTIES 34
13.1 REPRESENTATIONS AND WARRANTIES OF CORAL AND CELP 34
13.2 MGC'S REPRESENTATIONS AND WARRANTIES 35
13.3 DISCLAIMERS OF WARRANTIES 37
ARTICLE XIV
INDEMNIFICATION 37
14.1 INDEMNITIES OF CORAL 37
14.2 INDEMNITIES OF MGC 38
14.3 INDEMNIFICATION PROCEDURES 38
ARTICLE XV
WINDING UP ARRANGEMENTS 39
15.1 GENERALLY 39
15.2 SURVIVAL 39
ARTICLE XVI
MISCELLANEOUS 39
16.1 COMMUNICATION 39
16.2 GOVERNMENTAL REGULATION 40
16.3 GOVERNING LAW 41
16.4 ENTIRE AGREEMENT 41
16.5 CONFIDENTIALITY 41
16.6 EXCLUSION OF THIRD PARTY RIGHTS 42
16.7 WAIVER 42
16.8 TITLES 43
16.9 TRANSFERS 43
16.10 PROCESSING RIGHTS 43
16.11 APPLICATION OF GAAP 43
16.12 ARBITRATION 43
16.13 ANNOUNCEMENTS 44
APPENDIX I Definitions I-i
SCHEDULE 13.2(F) EXISTING DISPUTES
EXHIBIT A RETAINED DELIVERY POINTS
EXHIBIT B INJECTION/WITHDRAWAL PLAN
EXHIBIT C INTERSTATE TRANSPORTATION AGREEMENTS/RELEASED INTERSTATE TRANSPORTATION CAPACITY
EXHIBIT D STORAGE AGREEMENT
EXHIBIT E CNR AGREEMENT
EXHIBIT F LOCAL PRODUCTION/MGS SUPPLIES AGREEMENTS; HISTORICAL DATA
<PAGE>
EXHIBIT G FORM OF CONFIRMATION
EXHIBIT H TOTAL FIRM ENTITLEMENT
EXHIBIT I FORM OF CONFIDENTIALITY AGREEMENT - MGC EMPLOYEE
EXHIBIT J BASELINE TRANSPORTATION AND STORAGE CHARGES
</TABLE>
<PAGE>
NATURAL GAS SUPPLY MANAGEMENT AGREEMENT
THIS NATURAL GAS SUPPLY MANAGEMENT AGREEMENT ("Agreement") is made and
---------
entered into on this 30th day of September, 1998, between CORAL ENERGY
RESOURCES, L.P. ("Coral"), and CORAL ENERGY, L.P. ("CELP") (for the purposes set
----- ----
forth in Section 9.1), both of which are Delaware limited partnerships having as
-----------
their address 909 Fannin, Suite 700, Houston, Texas 77010, and MOUNTAINEER GAS
COMPANY ("MGC"), a West Virginia corporation having as its address 414 Summers
---
Street, Charleston, West Virginia 25301 (each of Coral, CELP and MGC being
referred to individually herein as a "Party" and collectively as the "Parties";
----- -------
references herein to Coral as a "Party" shall be deemed also to include CELP).
-----
R E C I T A L S
WHEREAS, MGC owns and operates a local distribution system in the State of
West Virginia, subject to the public utility jurisdiction of the West Virginia
PSC, serving approximately 200,000 residential, commercial and industrial
consumers; and
WHEREAS, MGC desires to contract with a third party engaged in the business
of Gas marketing and providing Gas management services to (a) manage certain
existing transportation and storage agreements to which MGC is a party, and (b)
provide to MGC such Gas supplies in excess of certain third party and affiliate
Gas supplies of MGC as are necessary to perform its public utility service
obligation to its consumers; and
WHEREAS, Coral desires to provide such Gas supplies and management
services;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
Coral, CELP and MGC agree as follows:
ARTICLE I
DEFINITIONS
-----------
Capitalized terms used in this Agreement shall have the meanings given to
such terms in Appendix I.
-----------
ARTICLE II
TERM
----
2.1 Initial Term. This Agreement shall become effective as of the
-------------
Effective Date and, unless earlier terminated as provided herein, shall remain
in effect for a term of thirty-six (36) Months ending at 9:00 a.m. C.C.T. on
November 1, 2001.
2
<PAGE>
2.2 Right of First Refusal. No later than October 31, 2000, the
-------------------------
Parties shall commence discussions concerning whether to extend the relationship
of the Parties under this Agreement beyond the term hereof and, if so, the terms
and conditions of such extension. Such discussions shall not, however, prohibit
or otherwise impair the right of MGC to solicit bids from third parties
(including Affiliates of MGC) for services similar to the Services provided by
Coral hereunder to begin at the end of the term hereof. Notwithstanding MGC's
right to solicit such third party bids, however, Coral shall have the right of
first refusal as provided hereinafter with respect to any proposal by such a
third party to provide to MGC services comparable to the Services provided by
Coral hereunder which commence at the end of the term hereof. Prior to entering
into a binding service agreement with a third party to provide such Services
commencing at the end of the term hereof, MGC shall give written notice to Coral
of its intention to enter into such a proposed service agreement with such third
party, with full information concerning the proposed transaction, including the
name and address of the prospective service provider (who must be ready,
willing, and able to enter into such agreement and perform thereunder), the
price(s) proposed to be charged by such service provider for Gas sales and
services, and all other terms of the proposed transaction. Coral shall then
have the option, exercisable by written notice to MGC within thirty (30) Days
after its receipt of MGC's notice (or such shorter period of time specified in
such notice as may be required because of deadlines imposed by the proposed
third party service provider, but in no event less than fifteen (15) Business
Days), to enter into the proposed service transaction with MGC for the same
consideration and on the same terms and conditions as agreed to by the relevant
third party service provider. Terms of the proposed service transaction which
are unique to such third party service provider and are impossible for Coral to
match may be matched by terms which are the economic equivalent of such unique
terms and place MGC in the same economic position afforded MGC under such unique
terms. The failure of Coral to enter into such proposed service transaction
within such notice period shall constitute an election by Coral not to enter
into the proposed service transaction with MGC. If Coral elects not to enter
into such proposed service transaction, MGC shall have no further obligation to
Coral hereunder with respect thereto. Coral shall treat any information
received from MGC concerning such a proposed third party service transaction as
Confidential Information subject to the provisions of Section 16.5.
-------------
ARTICLE III
SCOPE OF SERVICES
-----------------
3.1 Commitment.
----------
(a) During the term hereof and subject to Coral's performance of the
Services in accordance with this Agreement, MGC hereby engages Coral to be
the exclusive provider of the Services, which are listed in Section 3.2 and
-----------
are described more fully in this Article III.
------------
(b) Coral hereby accepts such exclusive engagement and agrees to
perform the Services in accordance with this Agreement. Coral shall not be
required to provide the Services contemplated in this Agreement as its sole
and exclusive activity, and Coral may have other business interests and may
engage in other activities with third parties similar in character to the
Services provided hereunder without obligation to MGC with respect thereto.
Coral shall pay all costs, expenses, and other amounts incurred by Coral in
connection with or relating to its other business interests and activities
and shall pursue, conduct, perform, and deal with its other business
interests and activities in a manner which shall not conflict or interfere
with the performance by Coral of the Services or Coral's other obligations
under this Agreement. Any conflict or interference with Coral's other
business interests or activities shall not excuse Coral from the
performance by Coral of the Services or Coral's other obligations under
this Agreement.
3
<PAGE>
(c) Coral shall have no obligation or responsibility under this
Agreement or otherwise with respect to the Management of the Local
Production or the MGS Supplies. MGC shall have full responsibility for all
nominations, gathering, transportation, and other Management of all Local
Production and MGS Supplies, and shall pay all amounts incurred by MGC in
connection with the purchase thereof and all other costs and expenses of
MGC relating thereto. No later than the twentieth (20th) Day of each Month
during the term hereof, MGC shall provide to Coral a report setting forth
the actual quantity of Local Production and MGS Supplies purchased by and
delivered to MGC during the immediately preceding Month (or, if actual
quantities of such Local Production or MGS Supplies are not known by such
date, the estimated quantities thereof based upon nominations to the Final
Transporter, such estimates to be corrected as soon as possible but in no
event later than the last Day of the relevant Month). MGC agrees that the
aggregate quantities of Local Production and MGS Supplies so purchased by
and delivered to MGC on a cumulative annual basis during the term of this
Agreement shall not vary by more than [*] from a level of [*]. At the end
of each Contract Year, Coral will determine whether the actual quantity of
Local Production and MGS Supplies so purchased by and delivered to MGC
during such Contract Year was greater or less than [*] by a factor of more
than [*], as confirmed by MGC with the Final Transporter. If, on a
cumulative annual basis for such Contract Year, the actual quantity of
Local Production and MGS Supplies purchased by and delivered to MGC is
greater or less than [*] by a factor of more than [*], MGC shall pay Coral
the following amounts under the indicated circumstances:
(i) in a Contract Year in which (A) there exists such a
cumulative annual net excess, and (B) the aggregate Coral Sale Volumes
delivered during such Contract Year (inclusive of the quantities of
---------
Gas deemed to have been injected into storage in accordance with the
Injection/Withdrawal Plan, but exclusive of quantities of Gas deemed
---------
to have been withdrawn from storage under the Injection/Withdrawal
Plan) are less than the Fixed Price Quantity, the amount calculated by
multiplying (A) the lesser of the amount of such cumulative annual net
----------- ------
excess or the amount by which the Fixed Price Quantity exceeds such
--
aggregate Coral Sale Volumes, by (B) the sum of the Demand Charge,
-- ---
plus the Asset Flexibility Loss Charge, plus the Fixed Price
---- ----
Adjustment applicable to such Contract Year; and
(ii) in a Contract Year in which (A) there exists such a
cumulative annual net shortfall, and (B) the aggregate Coral Sale
Volumes delivered during such Contract Year (inclusive of the
---------
quantities of Gas deemed to have been injected into storage in
accordance with the Injection/Withdrawal Plan, but exclusive of
---------
quantities of Gas deemed to have been withdrawn from storage under the
Injection/Withdrawal Plan) equals or exceeds the Fixed Price Quantity,
the amount calculated by multiplying (A) the lesser of the amount of
----------- ------
such cumulative annual net shortfall or the amount by which such
-- --
aggregate Coral Sale Volumes exceed the Fixed Price Quantity, by (B)
the Asset Flexibility Loss Charge.
4
<PAGE>
Notwithstanding the foregoing, the provisions of this Section 3.1(c) shall not
--------------
apply to the extent that MGC purchases such Local Production or MGS Supplies on
any Day in satisfaction of MGC's Gas supply requirements that are in excess of
the Total Firm Entitlement or which constitute Replacement Gas.
3.2 List of Services. The Services consist of:
------------------
(a) provision of MGC's Daily Gas Supply Requirements in accordance
with Section 3.4 pursuant to Coral's ownership and utilization of
-----------
the Released Interstate Transportation Capacity, the Released
Storage Capacity, and the rights of MGC under the CNR Agreement,
the forecasting of the total load requirements and throughput of
the MGC System (provided that this service shall not reduce or
eliminate MGC's obligation to provide estimates to Coral as
described herein), and the procurement, Scheduling, and delivery
of Coral Sale Volumes in accordance with Section 3.4; and
------------
(b) associated administrative services.
3.3 Released Interstate Transportation Capacity; Released Storage
------------------------------------------------------------------
Capacity; CNR Agreement.
- -------------------------
(a) Concurrently with the execution of this Agreement: (i) MGC
has released to Coral, for a term coextensive with the term of this
Agreement, the Released Interstate Transportation Capacity and the
Released Storage Capacity, subject to the terms and conditions of the
applicable Interstate Transportation Agreements, the Storage
Agreement, and the applicable FERC Gas tariffs (including, without
limitation, the electronic posting of such releases in accordance with
such FERC Gas tariffs); and (ii) MGC has transferred and assigned to
Coral, for a term coextensive with the term of this Agreement, all of
MGC's rights, titles, and interests in and under the CNR Agreement,
subject to the terms and conditions of such agreement. The
transportation and storage capacity and contract rights released and
assigned to Coral pursuant to this Section 3.3(a) shall all be subject
---------------
to MGC's right of recall or reversion under Sections 3.3(b) and
---------------------
3.3(d).
------
(b) The Released Interstate Transportation Capacity and the
Released Storage Capacity shall be released to Coral at, and Coral
shall pay during the term of such release, the maximum rates
applicable under the FERC Gas tariff of each of the relevant
Transporters. The release to Coral of the Released Interstate
Transportation Capacity and the Released Storage Capacity shall be
treated by the Parties as transactions exempt from posting under the
FERC Gas tariffs of the relevant Transporters. Except to the extent
provided otherwise in Section 3.3(d), the Released Interstate
---------------
Transportation Capacity and the Released Storage Capacity shall
automatically vest in and be recalled by MGC, and the rights assigned
under the CNR Agreement shall automatically revert to and vest in MGC,
in each case only upon (i) the expiration of the term of this
Agreement or (ii) the establishment of an Early Termination Date.
Certain Released Interstate Transportation Capacity shall be subject
to reversion in accordance with Article XI.
5
<PAGE>
(c) During the term of the release to Coral of the Released
Interstate Transportation Capacity and the Released Storage Capacity
and the assignment of rights under the CNR Agreement pursuant to
Section 3.3(a): (i) Coral shall become the replacement shipper/buyer
--------------
under the Interstate Transportation Agreements and the Storage
Agreement, to the extent of the Released Interstate Transportation
Capacity and the Released Storage Capacity; (ii) Coral expressly
assumes and agrees to pay, perform, comply with, and discharge all
duties, obligations, and liabilities, whether in contact, in tort, or
arising by operation of law, of MGC accruing or resulting from,
arising under, or otherwise associated with the terms and conditions
of the Interstate Transportation Agreements, to the extent of the
Released Interstate Transportation Capacity, the Storage Agreement,
and the CNR Agreement, in each case that accrue during or that are
attributable to such period; (iii) Coral shall pay all amounts due and
payable to the applicable Transporters with respect to the Released
Interstate Transportation Capacity and the Released Storage Capacity
and under the terms of the CNR Agreement that accrue during such
period; and (iv) Coral shall be responsible and liable for all Claims,
whether in contract, in tort, or arising by operation of law, accruing
during or that are attributable to such period with respect to the
Released Interstate Transportation Capacity and the Released Storage
Capacity or under the terms of the CNR Agreement and that arise from
the acts or omissions of Coral. MGC shall have no liability for any
demand charges incurred by Coral under any Interstate Transportation
Agreement, the Storage Agreement, the CNR Agreement, or otherwise as
the result of MGC's failure to receive from Coral quantities of Gas at
least equal to the Fixed Price Quantity during any Contract Year. In
addition, as between Coral and MGC, all risk of loss associated with
Gas either transported using the Released Interstate Transportation
Capacity or under the terms of the CNR Agreement or stored using the
Released Storage Capacity, in each case during the term of its release
or assignment to Coral, and all responsibility for loss or liability
resulting from injury to or death of any person, persons, or other
living things, or loss, damage or destruction of property, caused by
such Gas, shall be borne by Coral, unless caused by the act or
omission of MGC in conflict with MGC's obligations under this
Agreement. MGC expressly retains and shall remain responsible for all
duties, obligations, and liabilities, whether in contract, in tort, or
arising by operation of law, of MGC accruing or resulting from,
arising out of, or otherwise associated with the Released Interstate
Transportation Capacity, the Released Storage Capacity, and the rights
assigned under the CNR Agreement (y) for the periods before and after
the term of such release or assignment to Coral for which
responsibility has not been allocated to or assumed by Coral under
this Section 3.3(c) and (z) during the term of such release or
---------------
assignment for actions taken by MGC pursuant to Section 3.3(j) and
---------------
otherwise for the acts or omissions of MGC in conflict with MGC's
obligations under this Agreement.
(d) Coral and MGC understand that the Released Interstate
Transportation Capacity on the Columbia Gulf System that is subject to
the Interstate Transportation Agreement identified as Service
Agreement No. 37994, Rate Schedule FTS1 on Exhibit C, includes 10,000
---------
Dth per Day of transportation capacity that MGC has voluntarily agreed
to release and transfer to Columbia Gulf upon the approval by the FERC
of Columbia Gulf's request for authority to expand the transportation
capacity of the Columbia Gulf System, currently pending before the
FERC in Docket No. CP 98-596. As of the effective date of Columbia
Gulf's expansion of the capacity of the Columbia Gulf System or such
earlier date as Columbia Gulf may provide: (i) MGC shall be entitled
to recall such 10,000 Dth per Day of transportation capacity; and (ii)
Exhibit C shall be deemed to be amended to reflect the reduction of
---------
the Released Interstate Transportation Capacity on the Columbia Gulf
System that is subject to Service Agreement No. 37994, Rate Schedule
FTS1, by 10,000 Dth per Day, effective as of the effective date of
such recall by MGC. If Columbia Gulf's expansion of the Columbia Gulf
System does not become effective during the term of this Agreement,
MGC shall have no right to recall such 10,000 Dth per Day of
transportation capacity during the term of this Agreement, and there
shall be no adjustment to the quantity of the Released Interstate
Transportation Capacity.
6
<PAGE>
(e) Coral shall make injections of Gas into storage pursuant to
the Storage Agreement at such times and in such quantities under the
terms of the Storage Agreement and the FERC Gas tariff applicable to
the TCo System. Regardless of the quantities of Gas injected into
storage or the timing of such injections, however, MGC shall pay to
Coral, each Month during the period from May through October during
each Contract Year, an amount as consideration for Gas injected by
Coral into storage pursuant hereto equal to the product obtained by
-------
multiplying (i) the Fixed Price or the Market Level Price, as
-----------
applicable under Section 8.2, in effect for the relevant Month or
------------
portion thereof, by (ii) the quantity of Gas specified under the
--
Injection/Withdrawal Plan on Exhibit B for injection during such Month
---------
or part thereof. For purposes of this Section 3.3(e), Gas will be
---------------
deemed to be injected on a prorata Daily basis. MGC shall have no
further obligation to Coral regarding payment for quantities of Gas
injected into storage.
(f) Subject to the applicable provisions of the Storage Agreement
and the FERC Gas tariff for the TCo System, the withdrawal of Gas from
storage pursuant hereto shall be in the discretion of Coral. Coral
shall bear all costs and expenses under the Storage Agreement
associated with each withdrawal of Gas from storage. In calculating
the Monthly Invoiced Sale Quantity for each Month, however, Coral
shall deduct only the quantities of Gas specified in the
Injection/Withdrawal Plan to have been withdrawn by Coral during the
period from November through April of the relevant Contract Year as
set forth on Exhibit B, regardless of the quantities of Gas actually
---------
withdrawn by Coral from storage or the timing of such withdrawals.
(g) (i) On the Effective Date, MGC agrees to cause the quantity
of Gas in storage under the Storage Agreement to be no less than
11,600,000 Dth. If the Effective Date Storage Quantity is less than
11,600,000 Dth, MGC agrees to pay Coral an amount equal to the product
-------
obtained by multiplying (A) the difference obtained by subtracting the
----------- ---------- -----------
Effective Date Storage Quantity from 11,600,000 Dth, by (B) the [*]
---- --
Index Price in effect on the Effective Date. Upon MGC's payment to
Coral of any such amount due under this Section 3.3(g)(i), the
---------
Effective Date Storage Quantity shall thereafter be deemed to be
11,600,000 Dth.
7
<PAGE>
(ii) At the expiration of the term of this Agreement under
Section 2.1, Coral agrees to cause the quantity of Gas in storage
-----------
under the Storage Agreement to be no less than the Expiration
Date Storage Quantity. If, at the expiration of the term of this
Agreement, the actual quantity of Gas in storage under the
Storage Agreement is greater than the Expiration Date Storage
-------
Quantity, then, at Coral's election, MGC shall either: (A)
deliver to Coral, prior to the last Day of the Month following
the Month in which the term of this Agreement expires and at
delivery rates and points of delivery as mutually agreed upon by
the Parties, a quantity of Gas equal to the difference obtained
----------
by subtracting the Expiration Date Storage Quantity from the
----------- ----
quantity of Gas actually in storage under the Storage Agreement
at the expiration of such term; or (B) pay to Coral, on or before
forty-five (45) Days after the expiration of the term of this
Agreement, an amount equal to the product obtained by multiplying
------- -----------
(1) the difference obtained by subtracting the Expiration Date
---------- -----------
Storage Quantity from the quantity of Gas actually in storage
under the Storage Agreement at the expiration of the term hereof,
by (2) the [*] Index Price in effect for the Month following the
Month in which the term of this Agreement expires. If, at the
expiration of the term of this Agreement, the actual quantity of
Gas in storage under the Storage Agreement is less than the
----
Expiration Date Storage Quantity, then, at MGC's election, Coral
shall either: (A) deliver to MGC, prior to the last Day of the
Month following the Month in which the term of this Agreement
expires and at delivery rates and points of delivery as directed
by MGC, a quantity of Gas equal to the difference obtained by
----------
subtracting the quantity of Gas actually in storage under the
-----------
Storage Agreement at the expiration of the term hereof from the
----
Expiration Date Storage Quantity; or (B) pay to MGC, on or before
forty-five (45) Days after the expiration of the term hereof, an
amount equal to the product obtained by multiplying (1) the
------- -----------
difference obtained by subtracting the quantity of Gas actually
---------- -----------
in storage under the Storage Agreement at the expiration of the
term hereof from the Expiration Date Storage Quantity, by (2) the
---- --
[*] Index Price in effect for the Month following the Month in
which the term of this Agreement expires.
(iii) If either Party establishes an Early Termination Date,
Coral agrees to cause the quantity of Gas in storage under the
Storage Agreement on such Early Termination Date to be no less
than the Early Termination Storage Quantity. If, on an Early
Termination Date, the actual quantity of Gas in storage under the
Storage Agreement is greater than the Early Termination Storage
-------
Quantity, then, at Coral's election, MGC shall either: (A)
deliver to Coral, prior to the last Day of the Month following
the Month in which the Early Termination Date occurs and at
delivery rates and points of delivery as mutually agreed upon by
the Parties, a quantity of Gas equal to the difference obtained
----------
by subtracting the Early Termination Storage Quantity from the
----------- ----
quantity of Gas actually in storage under the Storage Agreement
at the Early Termination Date; or (B) pay to Coral, on or before
forty-five (45) Days after the Early Termination Date, an amount
equal to the product obtained by multiplying (1) the difference
----------- ----------
obtained by subtracting the Early Termination Storage Quantity
-----------
from the quantity of Gas actually in storage under the Storage
----
Agreement at the Early Termination Date, by (2) the [*] Index
--
Price in effect for the Month following the Month in which the
Early Termination Date occurs. If, on an Early Termination Date,
the actual quantity of Gas in storage under the Storage Agreement
is less than the Early Termination Storage Quantity, then, at
----
MGC's election, Coral shall either: (A) deliver to MGC, prior to
the last Day of the Month following the Month in which the Early
Termination Date occurs and at delivery rates and points of
delivery as directed by MGC, a quantity of Gas equal to the
difference obtained by subtracting the quantity of Gas actually
---------- -----------
in storage under the Storage Agreement at the Early Termination
Date from the Early Termination Storage Quantity; or (B) pay to
----
MGC, on or before forty-five (45) Days after the Early
Termination Date, an amount equal to the product obtained by
-------
multiplying (1) a quantity of Gas equal to the difference
----------- ----------
obtained by subtracting the quantity of Gas actually in storage
-----------
under the Storage Agreement at the Early Termination Date from
----
the Early Termination Storage Quantity, by (2) the [*] Index
--
Price in effect for the Month following the Month in which the
Early Termination Date occurs.
8
<PAGE>
(iv) Title to Gas in storage under the Storage Agreement on
the Effective Date shall be transferred by MGC to Coral as of the
Effective Date, free and clear of any sale, purchase, exchange,
swap, or other obligation incurred by MGC. Title to Gas in
storage under the Storage Agreement at the expiration of the term
of this Agreement or on an Early Termination Date, as the case
may be, shall be transferred by Coral to MGC as of the expiration
of the term of this Agreement or the Early Termination Date, as
the case may be, free and clear of any sale, purchase, exchange,
swap, or other obligation incurred by Coral.
(h) During the term of this Agreement, neither Coral nor MGC shall
take any action without the agreement of the other Party that will result
in the amendment of any Interstate Transportation Agreement, the Storage
Agreement, or the CNR Agreement in any manner, including, without
limitation, to decrease the amount of the transportation or storage
capacity available thereunder or change the primary receipt points and
delivery points provided for therein. This Section 3.3(h) shall not apply
--------------
to changes in a Transporter's tariff, whether initiated by the Transporter
or other party.
(i) Except as otherwise provided in this Agreement, Coral shall have
full and complete discretion regarding the use of the Released Interstate
Transportation Capacity, the Released Storage Capacity, and the rights
assigned under the CNR Agreement. Coral may use the Released Interstate
Transportation Capacity, the Released Storage Capacity, or the rights
assigned under the CNR Agreement to effect transportation or storage of all
or any portion of the Daily Gas Supply Requirements, but shall be free to
use the Released Interstate Transportation Capacity, the Released Storage
Capacity, and the rights assigned under the CNR Agreement to effect the
transportation or storage of Gas sold to third parties solely for Coral's
account.
(j) Notwithstanding MGC's release to Coral of the Released Interstate
Transportation Capacity and the Released Storage Capacity, and the
assignment of rights to Coral under the CNR Agreement, MGC reserves to
itself the right, by itself or in combination with third parties, to
protest supplier rate, service, tariff, or other changes proposed before
the FERC, the West Virginia PSC, or any other governmental authority having
jurisdiction or that pertain in any way to the Released Interstate
Transportation Capacity, the Released Storage Capacity, or the assigned
rights under the CNR Agreement, and to initiate complaint proceedings
relating thereto. Coral agrees to use reasonable efforts to cooperate with
MGC in its pursuit of any such protest or Claim.
3.4 Coral Sale Volumes
--------------------
(a) Delivery Obligation. Subject to and in accordance with the
--------------------
provisions of this Agreement, each Day during the term of this Agreement,
Coral agrees to deliver, or cause to be delivered, to MGC on a firm basis
the quantities of Gas required at the Delivery Points to satisfy the Daily
Gas Supply Requirements, not to exceed the Total Firm Entitlement.
(b) Receipt Obligation. Subject to and in accordance with the
-------------------
provisions of this Agreement, each Day during the term hereof, MGC agrees
to receive, or cause to be received, from Coral on a firm basis at the
Delivery Points, the Daily Gas Supply Requirements, not to exceed the Total
Firm Entitlement. MGC does not, by its execution of this Agreement, incur
any minimum purchase or "load factor" obligation in favor of Coral.
9
<PAGE>
(c) Delivery Points. The Delivery Point(s) shall be the point(s) of
----------------
delivery set forth in the Interstate Transportation Agreements, the Storage
Agreement, and the CNR Agreement (identified as "Scheduling Points" in the
CNR Agreement), as each may be amended from time to time, that are physical
interconnects between the TCo System and the MGC System or between the
Tennessee System and the MGC System or constitute "Scheduling Points" under
the CNR Agreement, LESS AND EXCEPT, the Retained Delivery Points. The
---------------
Delivery Point(s) may be added or deleted only by mutual agreement;
provided, however, that Coral agrees to add or delete any Delivery Point(s)
requested by MGC to the extent such changes, in the aggregate, do not
increase Coral's maximum daily delivery obligation hereunder to a level in
excess of the amount of the Released Interstate Transportation Capacity and
the Released Storage Capacity in a particular operating area on the TCo
System or the Tennessee System. MGC's release and assignment of the
Released Interstate Transportation Capacity, the Released Storage Capacity,
and the CNR Agreement to Coral pursuant to this Agreement shall save and
except the Retained Delivery Points.
(d) Title; Risk of Loss. Title to all Gas delivered hereunder shall
--------------------
pass from Coral to MGC at the Delivery Point(s). As between the Parties,
Coral shall be deemed to be in exclusive control and possession of all Gas
delivered hereunder, and shall be responsible for any loss or liability
resulting from injury to or death of any person, persons, or other living
things, or loss, damage or destruction of property, caused thereby, prior
to the time such Gas shall have been delivered to MGC at the Delivery
Point(s). MGC shall be deemed to be in exclusive control and possession of
all Gas delivered hereunder, and responsible for any loss or liability
resulting from injury to or death of any person, persons, or other living
things, or loss, damage or destruction of property, caused thereby, at and
after the delivery of such Gas to MGC at the Delivery Point(s).
3.5 Administrative Services. Coral shall perform the following
------------------------
administrative functions ancillary to the other Services described herein:
(a) review the books and records of all Transporters to verify Gas
receipts, deliveries, imbalances, invoices, and other information relevant
to the transactions contemplated in this Agreement, inform MGC of any
------------------
apparent material inaccuracies, and endeavor to resolve any material
---------------------------------------------------------------------------
discrepancies so as to avoid charges for late payment;
------------------------------------------------------
(b) provide to MGC the periodic reports containing: (i) information
consistent with MGC's reporting requirements under applicable laws and
regulations promulgated by FERC, the West Virginia PSC, or other
governmental authority having jurisdiction; (ii) a report showing Daily
injections and withdrawals of Gas into and from storage pursuant to the
Storage Agreement; (iii) a report showing the Daily quantities of Gas
transported using the Released Interstate Transportation Capacity and the
rights under the CNR Agreement; and (iv) a report identifying all
transportation capacity release and storage capacity release transactions
entered into by Coral relating to, respectively, the Released Interstate
Transportation Capacity, the Released Storage Capacity, and the rights
under the CNR Agreement; provided, however, that nothing contained in this
Section 3.5(b) or Section 10.4 shall require Coral to disclose to MGC
--------------- -------------
specific information concerning any of Coral's Gas sale, Gas supply,
transportation, storage, gathering, financial hedging, or other contracts
or any term or provision thereof, customer or supplier information, or
other proprietary information of Coral not directly related to the
transactions contemplated in this Agreement;
10
<PAGE>
(c) promptly notify MGC of any material or significant matters
relating to the Services, and Coral's performance of its duties hereunder;
(d) monitor and provide to MGC prompt notice of transportation and
-----------------------------------------------------------------
storage issues under consideration by the FERC, as well as proposed changes
---------------------------------------------------------------------------
in the FERC Gas tariff of any Transporter, that are relevant to the
---------------------------------------------
Released Interstate Transportation Capacity and the Released Storage
Capacity; and
(e) consult with and advise representatives or employees of MGC when
requested to do so by MGC concerning any matters related to the Services.
3.6 Access and Cooperation. MGC shall select one (1) key employee from
----------------------
MGC's Gas supply department to be resident in Coral's Houston, Texas, office
during the term of this Agreement (the "MGC Employee"). The MGC Employee shall
------------
remain the employee of MGC, and the MGC Employee's work shall continue to be
subject to the direction and control of MGC. MGC may, from time to time,
replace the previously designated MGC Employee with another key employee from
MGC's Gas supply department who shall then become the "MGC Employee" hereunder.
The MGC Employee shall be given reasonable access to and the right to observe
Coral's Day-to-Day operations relating to the Services and the right to consult
with and ask questions of Coral's employees regarding the performance of the
Services, in each case in a manner which is reasonable and will not unduly
interfere with Coral's orderly performance of the Services. Prior to the
commencement of the MGC Employee's work in Coral's offices, the MGC Employee and
Coral shall execute a confidentiality agreement in the form attached hereto as
Exhibit I with respect to his or her work under this Section 3.6. Coral's
- ---------- -----------
employees may ask questions of and consult with the MGC Employee regarding the
performance of the Services, in each case in a manner which is reasonable and
will not unduly interfere with the MGC Employee's work for MGC on matters
related to this Agreement. It is anticipated that the MGC Employee will spend
most of his or her working time in Coral's Houston office, although the MGC
Employee may spend some working time in MGC's offices and at other locations as
may be reasonable under the circumstances. Coral shall provide the MGC Employee
with an office and office furnishings and supplies comparable to Coral employees
with similar positions in Coral's Houston office, including a telephone and a
personal computer with Internet access. Coral shall also provide the MGC
Employee reasonable access to and the right to use photocopy equipment. The MGC
Employee shall not have access to Coral's licensed computer software; provided,
however, that Coral shall cooperate with and assist MGC and the MGC Employee in
any attempts by MGC and the MGC Employee to obtain their own licenses with
respect to such software for use in Coral's offices. [*].
11
<PAGE>
3.7 Compensation. Except for the payment of the amounts set forth in
------------
Article VIII, Coral shall receive no additional fee or other compensation for
- -------------
the performance of the Services. Except for the compensation and payments
provided herein, neither Party has made or agreed to make any payments, loans,
or promises or offers of payments or loans to the other Party or any officer,
director, employee or representative of the other Party in connection with the
procurement, negotiation, execution or performance of this Agreement; provided,
however, that the foregoing shall not apply to meals, entertainment, or
non-monetary gifts which are of a nominal value or customary in the gas
marketing industry.
3.8 Limitation of Relationship, Authority. Coral shall not be deemed
---------------------------------------
to be the agent or attorney-in-fact of MGC. Coral shall have no authority to
amend, modify, or waive compliance with any Interstate Transportation Agreement,
the Storage Agreement, or the CNR Agreement. Coral shall not undertake to
negotiate new agreements or submit transaction proposals to third parties
without MGC's written consent. All contracts and agreements of every kind and
character arranged for and negotiated by Coral pursuant hereto must be executed
by a duly authorized officer or other representative of MGC before any such
contract or agreement will become binding on MGC. Nothing contained in this
Agreement shall be deemed or construed to create a relationship among the
Parties of partnership, joint venture, agency, or other relationship creating
fiduciary, quasi-fiduciary, or similar duties and obligations inter se, or that
would otherwise subject the Parties to joint and several or vicarious liability
in favor of any third party. Coral shall perform the Services hereunder as an
independent contractor and under the sole supervision, management, direction,
and control of Coral in accordance with the specifications herein set out. Any
provision of this Agreement that appears to give MGC a measure of control over
the details of the Services shall be deemed to mean that Coral shall follow the
general guidelines and desires of MGC, but MGC shall look to Coral for results
only and shall have no right at any time to direct or supervise Coral or its
servants or employees in the performance of such work or as to the manner,
means, and method in which the Services are performed. Neither Coral nor anyone
employed by Coral shall be deemed to be an employee, agent, or servant of MGC.
Coral shall be responsible for the payment of local, state, and federal income
tax, social security tax, workers' compensation insurance, unemployment tax, and
other similar payments, if any, relating to Coral's business and employees, and
MGC shall not withhold any amounts for such purposes from payments made to Coral
as long as Coral provides a valid withholding exemption certificate. As an
independent contractor, neither Coral nor anyone employed by Coral shall be
eligible for the benefits provided to regular employees of MGC, including,
without limitation, health and disability insurance.
3.9 Standard of Performance. Coral shall perform the Services in good
------------------------
faith, in a good and workmanlike manner, with due diligence and dispatch, in
accordance with the particular nature of the obligations created by this
Agreement and good practice in the Gas marketing industry, and in compliance
with all applicable laws, rules, regulations, and orders.
12
<PAGE>
ARTICLE IV
NOMINATIONS AND SCHEDULING
--------------------------
4.1 First-of-Month Nominations. Each Month during the term of this
---------------------------
Agreement, no later than[*] Days prior to the closing date of the NYMEX Gas
- --------------------------- ------------------------------------------------
futures contract for deliveries of Gas during the next succeeding Month, MGC
- ----------------------------------------------------------------------------
shall deliver to Coral a preliminary nomination of the Daily Gas Supply
Requirements for each Day of the next succeeding Month. After Coral's receipt
of such preliminary nomination, Coral shall consult with MGC to develop a plan
for delivering the estimated Daily Gas Supply Requirements at the Delivery
Point, which plan shall include: (i) the estimated quantities of Local
Production and MGS Supplies to be delivered into the MGC System; (ii) the
estimated load for transportation customers on the MGC System; and (iii) the
---------
aggregate quantities of Gas representing Coral Sale Volumes estimated to be
required hereunder. Coral and MGC agree to cooperate to finalize such
nominations and plan of delivery as expeditiously as possible. No later than[*]
-------------
Business Days prior to the closing date of the NYMEX Gas futures contract for
- --------------------------------------------------------------------------------
deliveries of Gas during the next succeeding Month, MGC will provide to Coral a
- ----------------------------------------------------
final nomination setting forth the final nominations concerning Local Production
and MGS Supplies, transportation customer nominations, and Daily Gas Supply
Requirements for the next Month. Notwithstanding the provisions of this Section
-------
4.1 and Section 4.2, MGC shall have no liability to Coral in the event of
- ----------------------
divergences between its actual Daily Gas Supply Requirements and the quantities
of Gas nominated pursuant to this Article IV, and no such divergence between
----------
actual requirements and nominated quantities shall affect or limit the
obligations of Coral to deliver Gas hereunder.
4.2 Changes in Nominations. During any Month, Coral and MGC shall
------------------------
consult as necessary concerning MGC's anticipated Gas supply requirements, the
particular sources of supply, and transportation paths to be used by Coral to
satisfy such requirements. If MGC, during any Month, desires to change the
quantity of the Daily Gas Supply Requirements nominated pursuant to Section 4.1
-----------
for delivery on any Day, then no later than [*] prior to the nomination deadline
of the Final Transporter for the next Day, MGC shall provide to Coral written
notice in the form of a transaction confirmation substantially in the form of
Exhibit H that has been properly completed in all material respects, setting
- ----------
forth the quantities of Gas by which MGC desires to increase or decrease its
nomination hereunder, and the Day(s) on which MGC desires such changed
nomination to be in effect. Such change of nomination shall be effective for
all purposes under this Agreement when Coral is deemed to have received MGC's
notice thereof under Section 16.1.
-------------
4.3 Failure to Nominate. If MGC fails to make the final nomination of
--------------------
its Daily Gas Supply Requirements for any Month in a timely manner as provided
in Section 4.1, Coral shall be entitled to use the preliminary Daily Gas Supply
-----------
Requirements for that Month submitted by MGC pursuant to the first sentence of
Section 4.1. If MGC fails to provide either the preliminary or final
- ------------
nominations required under Section 4.1 in a timely manner as provided therein,
- ---------- -----------
Coral shall be entitled either to use the Daily Gas Supply Requirements
nominated by MGC for the immediately preceding Month, or take such other action
as Coral, in its reasonable judgment exercised in good faith, deems to be
appropriate under the circumstances.
4.4 Form of Nomination. Except as otherwise provided in Section 4.3,
-------------------- -----------
nomination notices to Coral will be accepted by telephone conversation, which
may be recorded, but shall be confirmed by facsimile of a transaction
confirmation substantially in the form of Exhibit G that has been properly
---------
completed in all material respects, sent as provided in Section 16.1.
-------------
13
<PAGE>
ARTICLE V
DEFAULT
-------
5.1 Coral's Failure to Deliver. If, on any Day during the term of this
---------------------------
Agreement, Coral fails to deliver to MGC at the Delivery Points the quantities
of Gas required by MGC to satisfy the Daily Gas Supply Requirements (not to
exceed the Total Firm Entitlement), and such failure is not the result of (a)
Force Majeure, (b) any of the causes enumerated and excused in Section 5.4 and
- -------------- -----------
Section 11.2 (if applicable) below, or (c) any material act or omission of MGC
- -------------
that directly affects Coral's ability to perform, a "Seller's Deficiency
-------------------
Quantity" shall be deemed to exist and shall be equal to the positive difference
- -------- ----------
(if any) obtained by subtracting (i) the Coral Sale Volumes on any Day from (ii)
----------- ----
the Daily Gas Supply Requirements (or, for purposes of Section 5.3, MGC's
-----------
nominated Daily Gas Supply Requirements) on such Day, not to exceed the Total
Firm Entitlement. No Seller's Deficiency Quantity shall exist for purposes of
this Agreement if Coral's failure to perform under this Section 5.1 is excused
-----------
as provided in the immediately preceding sentence hereof. If Coral fails to
deliver to MGC at the Delivery Points the quantities of Gas required by MGC to
satisfy the Daily Gas Supply Requirements (not to exceed the Total Firm
Entitlement), then, whether or not such failure by Coral to deliver is excused
or unexcused, (x) the Parties will cooperate in their respective efforts to cure
or mitigate such failure and (y) Coral shall dedicate the Released Interstate
Transportation Capacity, the Released Storage Capacity, and all rights under the
CNR Agreement to MGC's exclusive use in attempting to cover such Daily Gas
Supply Requirements. Without limiting the foregoing, Coral shall use Best
Efforts to cooperate with and assist MGC in locating and transporting to the
Delivery Points supplies of Gas to satisfy such undelivered Daily Gas Supply
Requirements (not to exceed the Total Firm Entitlement). While the Released
Interstate Transportation Capacity, the Released Storage Capacity, and all
rights under the CNR Agreement are dedicated to MGC's exclusive use pursuant to
this Section 5.1, MGC, to the extent permitted by applicable laws and FERC
------------
regulations, shall cooperate with and assist Coral in facilitating the use of
the portion of such dedicated capacity not required by MGC for the
transportation of the Daily Gas Supply Requirements to transport other
quantities of Gas that Coral is obligated to deliver at points of delivery on or
served by the Released Interstate Transportation Capacity. Within three (3)
Business Days after any failure by Coral to perform its obligations under
Section 3.4(a), whether excused or unexcused, Coral shall submit to MGC in
- ---------------
writing a detailed explanation, based on the best information then available to
Coral, of the factors which led to Coral's failure to perform, and the measures,
if any, which Coral will take to prevent a recurrence.
5.2 Mitigation; Cover. MGC shall exercise Best Efforts to cover any
-------------------
Seller's Deficiency Quantity by making any reasonable purchase of or contract to
purchase Replacement Gas in the manner contemplated by Chapter 46, Article 2,
Section 712(1) of the West Virginia Code. If MGC purchases Replacement Gas,
Coral shall pay to MGC, as "cover" damages, an amount equal to the sum of:
---
14
<PAGE>
(a) with respect to the portion (if any) of such Seller's Deficiency
Quantity that constitutes an Undelivered Storage Quantity, the product
-------
obtained by multiplying (i) the quantity of Replacement Gas purchased with
-----------
respect to such Undelivered Storage Quantity, by (ii) the price paid by MGC
--
to acquire such Replacement Gas; plus
----
(b) with respect to the portion (if any) of such Seller's Deficiency
Quantity that does not constitute an Undelivered Storage Quantity, the
product obtained by multiplying (i) the quantities of Replacement Gas
------- -----------
purchased with respect to such portion of the Seller's Deficiency Quantity,
--------------------------------------------------------------------------
by (ii) the positive difference, if any, obtained by subtracting the price
-- ---------- -----------
that would have been applicable to such portion of the Seller's Deficiency
Quantity under this Agreement if such Gas had been delivered from the price
----
paid by MGC to acquire such Replacement Gas; plus
----
(c) incremental transportation costs (if any) incurred by MGC as the
result of the Seller's Deficiency Quantity and the purchase of Replacement
Gas.
Coral shall also be responsible for the payment of all Transportation Penalties
imposed as the result of the Seller's Deficiency Quantity. All Replacement Gas
purchased and received by MGC as contemplated in this Section 5.2 shall be
-----------
treated as having been delivered by Coral hereunder for purposes of (i)
determining when the total quantities of Coral Sale Volumes delivered in any
Contract Year equal the Fixed Price Quantity, and (ii) determining the portion
(if any) of an Excess Withdrawal Quantity to be carried over under Section 8.4,
-----------
but not for any other purposes. [*].
5.3 Inability Timely to Cover; Damages. If MGC is unable by the
---------------------------------------
exercise of Best Efforts to purchase Replacement Gas as provided in Section 5.2,
-----------
MGC shall exercise Best Efforts to minimize any adverse consequences of the
Seller's Deficiency Quantity at and downstream of every Delivery Point affected
thereby. To the extent MGC is unable to cover a Seller's Deficiency Quantity
occurring on any Day by the acquisition of Replacement Gas as provided in
Section 5.2, then, with respect to the portion of such uncovered Seller's
- ------------
Deficiency Quantity that constitutes an Undelivered Storage Quantity, Coral
shall pay to MGC an amount equal to the product obtained by multiplying (a) the
------- -----------
amount of the Undelivered Storage Quantity, by (b) the Weighted Average
--
Injection Period Price in effect at the time when the relevant Seller's
Deficiency Quantity occurs. Coral's payment of the amount required by the
preceding sentence with respect to an Undelivered Storage Quantity when required
pursuant to this Section 5.3 and Section 10.2 shall (i) be deemed to constitute
----------- ------------
the delivery by Coral of such Undelivered Storage Quantity for purposes of (A)
determining when the total quantities of Coral Sale Volumes delivered in any
Contract Year equal the Fixed Price Quantity and (B) determining the portion (if
any) of an Excess Withdrawal Quantity to be carried over under Section 8.4, but
-----------
not for any other purposes, and (ii) release Coral from the obligation to pay
any further damages with respect to such Undelivered Storage Quantity, but
(without duplication of any damages) shall not release Coral from any obligation
to pay any Termination Payment or to pay and indemnify MGC as hereinafter
provided in this Section 5.3. Payment for any Undelivered Storage Quantity
------------
pursuant to this Section 5.3 shall not be considered "cover" damages. In
------------
addition, to the extent that, notwithstanding MGC's exercise of Best Efforts,
MGC incurs bona fide damage, loss, or liability in favor of any third party
(including, without limitation, Permitted MGC Affiliates) as the direct result
of such uncovered Seller's Deficiency Quantity or any costs and expenses in
attempting to minimize any adverse consequences of the Seller's Deficiency
Quantity downstream of the Delivery Point(s) affected thereby, then in lieu of
the remedy provided under Section 5.2 with respect to any portion of a Seller's
-----------
Deficiency Quantity for which Replacement Gas is not obtained, Coral shall pay
and indemnify MGC against (a) all reasonable costs and expenses incurred by MGC
in accordance with this Section 5.3 attempting to minimize any adverse
------------
consequences of the Seller's Deficiency Quantity downstream of the Delivery
Point(s) affected thereby and (b) all Claims by any third party (including,
without limitation, Permitted MGC Affiliates) directly resulting from or caused
by such Seller's Deficiency Quantity up to an amount not to exceed, for any
individual occurrence or in the aggregate, [*]. The sole and exclusive remedy
of Coral (a) for any failure by MGC to exercise Best Efforts to cover as
required by Section 5.2 and (b) for any failure by MGC to exercise Best Efforts
-----------
to minimize any adverse consequences of a Seller's Deficiency Quantity as
required by this Section 5.3 shall be as an offset to Coral's obligations under
-----------
this Section 5.3.
------------
15
<PAGE>
5.4 Excuse of Delivery Default. Subject to Sections 6.1(b), 6.3(b),
------------------------------ ------------------------
and 6.4, no Seller's Deficiency Quantity shall result under this Agreement, nor
- --------
shall Coral incur liability in favor of MGC for damages under Sections 5.2, 5.3
------------ ----
or otherwise, to the extent that Coral's inability to perform its obligations
under Section 5.1 (x) is not attributable to any act or omission by Coral and
------------
(y) is attributable to:
(a) the receipt by either Party of an Emergency Notice affecting
primary points of receipt or delivery under the Interstate Transportation
Agreements, the Storage Agreement, or the CNR Agreement that is not caused
by the act or omission of Coral, requiring a reduction in deliveries of Gas
by Coral or receipts of Gas by MGC; or
(b) the failure for any reason of any Transporter under any Interstate
Transportation Agreement, the Storage Agreement, or the CNR Agreement to
deliver at any Delivery Point quantities of Gas properly Scheduled by Coral
affecting primary points of receipt or delivery under the Interstate
Transportation Agreements, the Storage Agreement, or the CNR Agreement on
the relevant Transporter's system.
In addition, Coral shall have no liability or obligation in favor of MGC in the
event of (i) the failure by any seller of Local Production or by MGS with
respect to the MGS Supplies to deliver quantities of Gas properly nominated by
MGC to any such party; or (ii) the delivery by MGS or such a third party seller
of Local Production of Gas not in conformity with the pressure or quality
specifications contained in the applicable Gas purchase agreements. Coral shall
exercise reasonable efforts to mitigate the effects of any shortfall in Gas
supply caused by the circumstances described in this Section 5.4, but Coral
-----------
shall have no liability in favor of MGC if Coral is unsuccessful in such
reasonable efforts to mitigate.
5.5 Remedies for Non-Performance. Without limiting the remedies in
------------------------------
Sections 5.2 and 5.3, upon the occurrence of a Default, the Party which has not
- ---------------------
committed the Default (the "non-defaulting Party") will have the right to
---------------------
exercise all rights and remedies available to it under this Agreement, at law,
and in equity, including, without limitation, the rights (a) [*] (b) to enforce
any security provided by the Party who has committed the Default (the
"defaulting Party") to the non-defaulting Party; and (c) [*].
-----------------
16
<PAGE>
5.6 Limitation on Damages. [*]
-----------------------
5.7 Early Termination.
------------------
(a) If a Default occurs with respect to either Party at any time
during the term of this Agreement, the non-defaulting Party, in addition to
any other rights and remedies available to it under this Agreement, at law,
and in equity, may, upon [*] written notice and opportunity to cure to the
defaulting Party, which notice shall be given no later than [*] after
notice from the non-defaulting Party to the defaulting Party of the
occurrence of the Default, establish an Early Termination Date [*].[*].
(b) If an Early Termination Date occurs by reason of a Default, the
non-defaulting Party shall in good faith calculate its damages, including
its associated costs [*] and attorneys' fees, resulting from the
termination of the Agreement (the "Termination Payment"). The Termination
--------------------
Payment will be determined by (i) comparing the net present value
(determined in a commercially reasonable manner) of (A) the performance of
this Agreement for the remaining term had it not been terminated,
including, without limitation, the Services, quantities and prices
applicable under this Agreement, to (B) the market value of performance
equivalent to performance of this Agreement for the remaining term had it
not been terminated, including, without limitation, equivalent services,
quantities and market prices for such remaining term, and (ii) ascertaining
the associated costs (not including lost profits or revenues) and
attorneys' fees. To ascertain the market prices of a replacement contract,
the non-defaulting Party may consider, among other valuations, any or all
of the prices of NYMEX Gas futures contracts, quotations from leading
dealers in Gas swap contracts, and other bona fide third party offers, all
adjusted for the length of the remaining term and the basis differential.
The non-defaulting Party shall give the defaulting Party written notice of
the amount of the Termination Payment, inclusive of a statement showing its
determination. The defaulting Party shall pay the Termination Payment to
the non-defaulting Party within [*] of receipt of such notice. The
occurrence of an Early Termination Date shall not relieve either Party of
(i) any obligation under Article V, Section 10.4, Articles XIV and XV, and
--------- ------------- ------------ --
Section 16.5, or (ii) any unfulfilled obligation or undischarged liability
------------
of such Party on the Early Termination Date. At the time for payment of any
amount due under this Section 5.7(b), each Party shall pay to the other
---------------
Party all additional amounts payable by it as the result of any such
unfilled obligation or undischarged liability under this Agreement
(including, without limitation, any amounts owed by either Party under
Section 3.3(g)), but all such amounts shall be netted and aggregated with
----------------
any Termination Payment payable hereunder.
5.8 Set-off. Each Party reserves to itself all rights, set-offs,
-------
counterclaims, and other remedies and/or defenses which such Party is or may be
entitled to assert arising from or out of this Agreement. All outstanding
transactions subject to this Agreement and other agreements between Coral and
MGC, and the obligations to make payment in connection herewith and therewith
may be off-set against each other, set-off, or recouped therefrom.
5.9 Curtailment.
-----------
17
<PAGE>
(a) In the event that a Transporter on any Day gives notice to Coral,
by Emergency Notice or otherwise, that it will curtail the firm
transportation capacity (or the primary points of receipt and/or delivery
thereunder) under the Interstate Transportation Agreements, the Storage
Agreement, and/or the CNR Agreement, with the result that Coral is unable
to perform its obligations under Section 3.4(a) on any Day, Coral shall
---------------
notify MGC as soon as practicable after the receipt of such notice. Coral
and MGC shall immediately consult regarding all feasible measures to offset
Transporter's curtailment, including a request for relief under the
Transporter's FERC or West Virginia PSC Gas tariff. Any resulting
curtailment of MGC's Daily Gas Supply Requirements shall not exceed the
quantities curtailed by the Transporter under the Interstate Transportation
Agreements, the Storage Agreement, and/or the CNR Agreement.
(b) [*].
ARTICLE VI
CONDITIONS OF DELIVERY
----------------------
6.1 Pressure. (a) Coral shall deliver, or cause to be delivered,
--------
thermally equivalent quantities of Gas intended for delivery as Coral Sale
Volumes at pressures sufficient to cause such Gas to enter the transmission
facilities of the Final Transporter, but not in excess of the applicable maximum
allowable operating pressure specified in the Final Transporter's FERC or West
Virginia PSC Gas tariff. If a Final Transporter is unable to receive such Gas
for which delivery is attempted because of insufficient delivery pressure, the
first Party to discover such circumstance shall provide to the other Party
prompt verbal notice of such fact, followed by written notice. If such Final
Transporter's inability to receive such Gas prevents Coral from complying with
its obligations under Section 3.4(a), the quantity of Gas that such Transporter
--------------
was unable to receive because of insufficient delivery pressure shall be treated
as a Seller's Deficiency Quantity subject to the provisions of Sections 5.2 and
----------------
5.3.
- ---
18
<PAGE>
(b) If (i) Coral complies with its obligations under Section 6.1(a)
--------------
with respect to a Final Transporter utilizing the Released Interstate
Transportation Capacity, but (ii) the relevant Final Transporter is unable
to deliver to MGC at a Delivery Point Gas intended for delivery as Coral
Sale Volumes because of pressures insufficient to cause such Gas to enter
the MGC System at such Delivery Point, the resulting shortfall in
deliveries of Gas shall not be treated as a Seller's Deficiency Quantity,
but Coral shall be responsible and liable for the payment to MGC of all
damages of every kind or nature which MGC may incur or suffer as a result
of such inability to deliver; [*]. Coral agrees to use reasonable efforts
to pursue all remedies available to Coral against such a Transporter
utilizing the Released Interstate Transportation Capacity; provided,
however, that MGC shall reimburse Coral on a current basis for all
reasonable costs and expenses (including attorneys' fees, court costs, and
costs of settlement) incurred by Coral in the pursuit of such remedies. MGC
shall have full control over Coral's pursuit of such remedies and any
settlement with respect thereto and may select the legal counsel retained
by Coral to pursue such remedies and settlement; provided that, MGC agrees
not to request or cause Coral (or such legal counsel on behalf of Coral) to
pursue any such remedies or settlement in a manner which is in violation of
applicable laws, rules, regulations or orders of any governmental authority
having jurisdiction, which is contrary to the established ethical policies
of Royal Dutch Petroleum Company, The "Shell" Transport and Trading
Company, plc., Shell Oil Company, CELP, or Coral or otherwise to good and
honest business practices which are generally recognized in the Gas
marketing industry, or which is contrary to a publically filed position of
Shell Oil Company or any of its Affiliates in a proceeding before a
regulatory agency or body in the United States of America relating to Gas
transportation or storage. Coral shall not agree to the settlement of any
such claim against such Transporter without MGC's express written consent.
All damages and other compensation recovered by Coral from such Transporter
pursuant to the foregoing shall be held in trust by Coral for the benefit
of MGC. To the extent that assignment of such Claims from Coral to MGC is
permitted under applicable laws, rules, regulations and orders of any
governmental authority having jurisdiction and under the terms of the
contracts or agreements under which such Claims arise, then MGC and Coral
agree that, in satisfaction of all damages for which Coral is responsible
and liable as a result of such inability to deliver, Coral shall assign to
MGC all Claims that Coral, in its capacity as the replacement shipper under
the Interstate Transportation Agreements, may have against such Final
Transporter as the result of such Transporter's inability to deliver Gas to
MGC because of insufficient pressures. At MGC's request, Coral agrees to
cooperate and assist MGC in MGC's prosecution, settlement or other pursuit
of such Claims; provided, however, that MGC agrees not to request Coral to
cooperate or assist MGC in a manner which is in violation of applicable
laws, rules, regulations or orders of any governmental authority having
jurisdiction, which is contrary to the established ethical policies of
Royal Dutch Petroleum Company, The "Shell" Transport and Trading Company,
plc., Shell Oil Company, CELP, or Coral or otherwise to good and honest
business practices which are generally recognized in the Gas marketing
industry, or which is contrary to a publically filed position of Shell Oil
Company or any of its Affiliates in a proceeding before a regulatory agency
or body in the United States of America relating to Gas transportation or
storage. MGC shall reimburse Coral on a current basis for all reasonable
out-of-pocket costs and expenses incurred by Coral in rendering such
cooperation and assistance.
6.2 Measurement. All Gas delivered under this Agreement shall be
------------
measured, for purposes of this Agreement, at the meter owned by the Final
Transporter at each Delivery Point. All such measurements shall be made in
accordance with the applicable provisions of the FERC Gas tariff of the Final
Transporter, as such provisions may be changed from time to time. To the extent
permissible under the applicable transportation agreements, each Party shall
have the right to install, maintain, and operate, at its sole cost and expense,
check measuring equipment at each Delivery Point on a Transporter's system.
Promptly upon its receipt of notice from the relevant Transporter, the Party in
privity of contract with such Transporter shall provide to the other Party
notice of, and shall use reasonable efforts to cause such Transporter to permit
such other Party to be present to observe, any cleaning, changing, repairing,
inspection, testing, calibration, or adjustment of any measurement equipment at
any Delivery Point on such Transporter's system. Upon the request of the Party
not in privity with such Transporter, and subject to any confidentiality
restrictions in favor of the Transporter contained in the applicable
transportation agreement, the Party in privity with such Transporter shall
provide to the other Party, for inspection and verification by such other Party,
the records, charts, and associated measurement data received by the Party in
privity from its Transporter. If a Party not in privity with a Transporter
desires to conduct an unscheduled cleaning, changing, inspection, testing,
calibration, or adjustment of any measurement equipment at a Delivery Point on
such Transporter's system, such Party shall provide notice of the desired action
to the Party in privity with such Transporter, and both Parties shall use
reasonable efforts to secure prompt execution of the action desired by the
requesting Party. All costs and expenses incurred in connection with any such
cleaning, changing, inspection, testing, calibration, or adjustment of such
measurement equipment shall be borne and paid by the requesting Party. For
purposes of this Agreement, Coral shall be deemed to be the Party in privity of
contract with the Transporters providing the Released Interstate Transportation
Capacity, the Released Storage Capacity, and the assigned rights under the CNR
Agreement. Any retroactive adjustment to metered quantities secured under the
terms of any agreement with the Final Transporter shall be reflected by Coral in
a corrected invoice under this Agreement.
19
<PAGE>
6.3 Quality. (a) The quality of all Coral Sale Volumes delivered
-------
hereunder shall conform to the quality specifications, including specifications
with regard to caloric value, applicable to points of receipt contained in the
FERC or West Virginia PSC Gas tariff of the Final Transporter, as such
provisions may be changed from time to time. If the MGC System is the Final
Transporter, and to the extent that such a presumption arises under the FERC Gas
tariff of any other Final Transporter, the acceptance by such Final Transporter
of Coral Sale Volumes delivered by Coral into points of receipt on such Final
Transporter's system in accordance with the procedures for monitoring Gas
quality and rejecting non-conforming Gas contained in such Transporter's FERC or
West Virginia PSC Gas tariff shall be presumed to evidence the conformity of
such Coral Sale Volumes to the quality specifications of such Final Transporter.
If the Final Transporter rejects thermally equivalent quantities of Gas intended
for delivery as Coral Sale Volumes that Coral attempts to deliver into the Final
Transporter's system because such Gas fails to meet such Transporter's point of
receipt quality specifications, the first Party to discover such circumstance
shall provide to the other Party prompt verbal notice of such fact, followed by
written notice. Coral shall exercise reasonable efforts to correct any such
failure to conform to the applicable quality specifications. If the Final
Transporter's refusal to accept such non-conforming Gas prevents Coral from
complying with its obligations under Section 3.4(a), the quantity of Gas
---------------
rejected by such Transporter pursuant to this Section 6.3(a) shall be treated as
--------------
a Seller's Deficiency Quantity subject to the provisions of Sections 5.2 and
----------------
5.3.
- ---
(b) If (i) Coral complies with its obligations under Section 6.3(a)
--------------
with respect to a Final Transporter utilizing the Released Interstate
Transportation Capacity, but (ii) such Final Transporter delivers to MGC at
a Delivery Point Gas intended for delivery as Coral Sale Volumes that does
not conform to such Final Transporter's point of delivery quality
specifications, and MGC rejects such Gas, the failure of such Final
Transporter to Deliver conforming Gas shall not be treated as a Seller's
Deficiency Quantity, but Coral shall be responsible and liable for the
payment to MGC of all damages of every kind or nature which MGC may incur
or suffer as a result of such Transporter's failure to deliver conforming
Gas to MGC; [*]. Coral agrees to use reasonable efforts to pursue all
remedies available to Coral against such a Transporter utilizing the
Released Interstate Transportation Capacity; provided, however, that MGC
shall reimburse Coral for all reasonable costs and expenses (including
attorneys' fees, court costs, and costs of settlement) incurred by Coral in
the pursuit of such remedies. MGC shall have full control over Coral's
pursuit of such remedies and any settlement with respect thereto and may
select the legal counsel retained by Coral to pursue such remedies and
settlement; provided that, MGC agrees not to request or cause Coral (or
such legal counsel on behalf of Coral) to pursue any such remedies or
settlement in a manner which is in violation of applicable laws, rules,
regulations or orders of any governmental authority having jurisdiction,
which is contrary to the established ethical policies of Royal Dutch
Petroleum Company, The "Shell" Transport and Trading Company, plc., Shell
Oil Company, CELP, or Coral or otherwise to good and honest business
practices which are generally recognized in the Gas marketing industry, or
which is contrary to a publically filed position of Shell Oil Company or
any of its Affiliates in a proceeding before a regulatory agency or body in
the United States of America relating to Gas transportation or storage.
Coral shall not agree to the settlement of any such claim against such
Transporter without MGC's expressed written consent. All damages and other
compensation recovered by Coral from such Transporter pursuant to the
foregoing shall be held in trust by Coral for the benefit of MGC. To the
extent that assignment of such Claims from Coral to MGC is permitted under
applicable laws, rules, regulations and orders of any governmental
authority having jurisdiction and under the terms of the contracts or
agreements under which such Claims arise, then MGC and Coral agree that, in
satisfaction of all damages for which Coral is responsible and liable as a
result of such Transporter's failure to deliver conforming Gas to MGC,
Coral shall assign to MGC all Claims that Coral, in its capacity as the
replacement shipper under the Interstate Transportation Agreements, may
have against such Final Transporter as the result of such Transporter's
failure to deliver conforming Gas to MGC. At MGC's request, Coral agrees to
cooperate and assist MGC in MGC's prosecution, settlement or other pursuit
of such Claims; provided, however, that MGC agrees not to request Coral to
cooperate or assist MGC in a manner which is in violation of applicable
laws, rules, regulations or orders of any governmental authority having
jurisdiction, which is contrary to the established ethical policies of
Royal Dutch Petroleum Company, The "Shell" Transport and Trading Company,
plc., Shell Oil Company, CELP, or Coral or otherwise to good and honest
business practices which are generally recognized in the Gas marketing
industry, or which is contrary to a publically filed position of Shell Oil
Company or any of its Affiliates in a proceeding before a regulatory agency
or body in the United States of America relating to Gas transportation or
storage. MGC shall reimburse Coral on a current basis for all reasonable
out-of-pocket costs and expenses incurred by Coral in rendering such
cooperation and assistance.
21
<PAGE>
6.4 Other Delivery Obligations. If, on any Day during the term of this
---------------------------
Agreement, (a) Coral fails to deliver to MGC at the Delivery Points the
quantities of Gas required by MGC to satisfy the Daily Gas Supply Requirements
(not to exceed the Total Firm Entitlement), (b) such failure to deliver would
have constituted a Seller's Deficiency Quantity but for a cause or excuse set
forth in clause (a) of Section 5.1 or clause (a) or clause (b) of Section 5.4,
----------- -----------
and (c) such failure to deliver is caused by or results from an act or omission
of a Transporter, then, although the failure of such Transporter to deliver Gas
is not treated as a Seller's Deficiency Quantity, Coral nevertheless shall be
responsible and liable for the payment to MGC of all damages of every kind or
nature which MGC may incur or suffer as a result of such failure to deliver Gas
to MGC;[*]. Coral agrees that Coral will use reasonable efforts to pursue all
remedies available to against such Transporter; provided, however, that MGC
shall reimburse Coral on a current basis for all reasonable costs and expenses
(including attorneys' fees, court costs, and costs of settlement) incurred by
Coral in the pursuit of such remedies. MGC shall have full control over Coral's
pursuit of such remedies and any settlement with respect thereto and may select
the legal counsel retained by Coral to pursue such remedies and settlement;
provided, however, that MGC agrees not to request or cause Coral (or such legal
counsel on behalf of Coral) to pursue any such remedies or settlement in a
manner which is in violation of applicable laws, rules, regulations or orders of
any governmental authority having jurisdiction, which is contrary to the
established ethical policies of Royal Dutch Petroleum Company, The "Shell"
Transport and Trading Company, plc., Shell Oil Company, CELP, or Coral or
otherwise to good and honest business practices which are generally recognized
in the Gas marketing industry, or which is contrary to a publically filed
position of Shell Oil Company or any of its Affiliates in a proceeding before a
regulatory agency or body in the United States of America relating to Gas
transportation or storage. All damages and other compensation recovered by
Coral from such Transporter pursuant to the foregoing shall be held in trust by
Coral for the benefit of MGC. To the extent that assignment of such Claims from
Coral to MGC is permitted under applicable laws, rules, regulations and orders
of any governmental authority having jurisdiction and under the terms of the
contracts or agreements under which such Claims arise, then MGC and Coral agree
that in satisfaction of all damages for which Coral is responsible and liable as
a result of such failure to deliver, Coral shall assign to MGC all Claims that
Coral may have against such Transporter as the result of such act or omission
which caused or resulted in such failure to deliver Gas to MGC. At MGC's
request, Coral agrees to cooperate and assist MGC in MGC's prosecution,
settlement or other pursuit of such Claims; provided that, MGC agrees not to
request Coral to cooperate or assist MGC in a manner which is in violation of
applicable laws, rules, regulations or orders of any governmental authority
having jurisdiction, which is contrary to the established ethical policies of
Royal Dutch Petroleum Company, The "Shell" Transport and Trading Company, plc.,
Shell Oil Company, CELP, or Coral or otherwise to good and honest business
practices which are generally recognized in the Gas marketing industry, or which
is contrary to a publically filed position of Shell Oil Company or any of its
Affiliates in a proceeding before a regulatory agency or body in the United
States of America relating to Gas transportation or storage. MGC shall
reimburse Coral on a current basis for all reasonable out of pocket costs and
expenses incurred by Coral in rendering such cooperation and assistance. Coral
covenants and agrees that all dealings with a Transporter that are undertaken by
Coral or an Affiliate of Coral in connection with the performance of Coral's
obligations under this Agreement will be undertaken by Coral, CELP, or a
permitted assignee of Coral or CELP under Section 16.9.
-------------
21
<PAGE>
ARTICLE VII
MANAGEMENT OF IMBALANCES
------------------------
7.1 Upstream Imbalances. Coral shall be responsible for the Management
--------------------
of all transportation and storage imbalances relating to the Daily Gas Supply
Requirements on all Transporter systems upstream of the Delivery Points. As
frequently as required by the FERC Gas tariff or applicable transportation
agreement of the relevant Transporter, Coral shall resolve all such
transportation and storage imbalances in Gas or in cash, as Coral may elect,
consistent with the requirements of the FERC Gas tariff or applicable
transportation agreement of such Transporter. Except as otherwise provided in
Section 7.4, all Transportation Penalties and other costs and expenses incurred
- ------------
by Coral in connection with the Management of such transportation and storage
imbalances shall be borne and paid by Coral. In addition, all economic gain or
loss realized or suffered by Coral from any sales, purchases, or exchanges of
Gas (whether on a current or forward basis) and other imbalance market
transactions undertaken by Coral utilizing the transportation and/or storage
imbalance tolerances in effect under the FERC Gas tariff or applicable
transportation agreement of any Transporter shall be for Coral's account.
22
<PAGE>
7.2 Allocation of Deliveries. For purposes of this Agreement, Gas
---------------------------
delivered through the Delivery Points on each Day during the term hereof, as
confirmed by MGC with the Final Transporter, shall be allocated according to the
quantities of Gas actually delivered at the Delivery Points in the following
order of priority: [*].
7.3 Information. MGC agrees to provide to Coral all information
------------
necessary to enable Coral to comply with all Scheduling, balancing, and other
requirements of all Transporters, including any changes in the Daily Gas Supply
Requirements that could result in the incurrence of Transportation Penalties.
MGC shall give to Coral as much advance written notice as is reasonably possible
of any planned or unplanned shutdown of any portion of the MGC System or the
facilities of any of MGC's transportation or sales customers or the construction
of new facilities by any of MGC's customers affecting the level of the Daily Gas
Supply Requirements. Upon reasonable advance request, MGC will notify Coral on
a Daily, intraday, or hourly basis as to its actual or anticipated Gas
requirements at any Delivery Point if, in Coral's reasonable judgment, such
information is needed to avoid Transportation Penalties. In addition, each Party
shall deliver to the other Party, no later than twenty-four (24) hours after
receipt, copies of all pipeline statements received by such Party concerning,
respectively, the quantities of Gas delivered by the Final Transporter at each
Delivery Point.
7.4 Downstream Imbalances. MGC shall be responsible for the Management
----------------------
of all imbalances occurring on the MGC System between MGC and its customers
downstream of the Delivery Points. As frequently as required by MGC's West
Virginia PSC Gas tariff, MGC shall resolve all such imbalances in Gas or in
cash, as MGC may elect, consistent with the requirements of such tariff and
applicable Gas sale or transportation agreements with its customers. All
Transportation Penalties and other costs and expenses incurred by MGC in
connection with the Management of such imbalances downstream of the Delivery
Points shall be borne and paid by MGC. During the term of this Agreement, MGC
agrees to take such actions as are necessary to maintain the quantities of such
imbalances at levels consistent with the provisions of MGC's tariff and its past
practices. [*]. Nothing contained in this Section 7.4 shall be interpreted to
-----------
prevent either Party from negotiating freely with its respective individual
customers or to limit the ability of either Party to serve such customers.
ARTICLE VIII
CONSIDERATION
-------------
8.1 Total Consideration. As consideration for the sale by Coral to MGC
-------------------
of the Coral Sale Volumes and the performance by Coral of the remainder of the
Services, MGC shall pay to Coral, each Month during the term of this Agreement,
an amount equal to the sum of:
---
(a) the product obtained by multiplying (i) the Fixed Price, by (ii)
------- ----------- --
the portion of the Monthly Invoiced Sale Quantity for the
preceding Month to which the Fixed Price applies under Section
-------
8.2; plus
---------
23
<PAGE>
(b) the product obtained by multiplying (i) the Market Level Price by
------- ----------- --
(ii) the portion of the Monthly Invoiced Sale Quantity for the
preceding Month to which the Market Level Price applies under
Section 8.2; plus
-----------------
(c) the product obtained by multiplying (i) the amount by which the
------- -----------
total charges for transportation or storage service on any
Transporter have been increased over the total charges in effect
for such Transporter as set forth on Exhibit J, by (ii) the
--------------
Monthly Invoiced Sale Quantity for the preceding Month; minus
-----
(d) the product obtained by multiplying (i) the amount by which the
------- -----------
total charges for transportation or storage service on any
Transporter have been reduced from the total charges in effect
for such Transporter as set forth on Exhibit J, by (ii) the
--------------
Monthly Invoiced Sale Quantity for the preceding Month; minus
-----
(e) the product obtained by multiplying (i) the amount of the
------- -----------
Retained Interstate Transportation Capacity, by (ii) the
--
applicable FTS demand charge in effect under the applicable
Interstate Transportation Agreements; minus
-----
(f) the amounts of all FERC-approved refunds relating to the Released
Interstate Transportation Capacity and/or Released Storage
Capacity received by Coral during the preceding Month.
8.2 Allocation of Price. Each Contract Year, the Fixed Price shall
---------------------
apply to all Coral Sale Volumes delivered hereunder until the aggregate Coral
Sale Volumes delivered during such Contract Year (inclusive of the quantities of
---------
Gas deemed to have been injected into storage in accordance with the
Injection/Withdrawal Plan, but exclusive of quantities of Gas deemed to have
---------
been withdrawn from storage under the Injection/Withdrawal Plan equal [*] Dth
(the "Fixed Price Quantity"). The Market Level Price shall apply to all
quantities of Coral Sale Volumes delivered during the remainder of such Contract
Year in excess of the Fixed Price Quantity, inclusive of quantities of Gas
---------
deemed to have been injected into storage under the Injection/Withdrawal Plan,
but exclusive of quantities of Gas deemed to have been withdrawn from storage
---------
under the Injection/Withdrawal Plan.
8.3 Calculation of Coral Sale Volumes. Each Day, the quantity of Coral
---------------------------------
Sale Volumes delivered hereunder shall be calculated as [*] of:
(a) the total quantity of Gas (exclusive of Replacement Gas)
delivered into the MGC System from any source during such Day at
all points of delivery thereon, including, without limitation,
the Delivery Points hereunder; [*]
(b) all quantities of Gas transported by MGC on the MGC System on
behalf of customers procuring their own Gas supplies at all
points of delivery thereon, including, without limitation, the
Delivery Points hereunder; [*]
24
<PAGE>
(c) all Local Production and MGS Supplies delivered into the MGC
System during such Day at all points of delivery thereon,
including, without limitation, the Delivery Points hereunder;
provided, however, that Replacement Gas purchased and received by MGC as
contemplated in Section 5.2 shall be included in the calculation of Coral Sale
----------- -----
Volumes delivered each Day for purposes only of determining when the total
----
quantities of Coral Sale Volumes delivered in any Contract Year equal the Fixed
Price Quantity. For purposes of allocating withdrawals of Gas from storage to
Coral Sale Volumes on a Daily basis, the quantity of Gas specified under the
Injection/Withdrawal Plan for withdrawal during a Month shall be deemed
withdrawn from storage on each Day during such Month pro rata on the basis of
the number of Days in such Month. For any Day on which Gas is deemed to be
withdrawn from storage under the Injection/Withdrawal Plan (as allocated on a
Daily basis pursuant to this Section 8.3), the Coral Sale Volumes delivered
-----------
during such Day, calculated as provided in this Section 8.3, shall be deemed
-----------
first to constitute Gas withdrawn by Coral from storage up to the maximum
quantity of Gas deemed to be withdrawn from storage during such Day under the
Injection/Withdrawal Plan.
8.4 Excess Withdrawal Quantities. To the extent that the quantity of
------------------------------
Coral Sale Volumes delivered during any Day is less than the maximum quantity of
Gas deemed to be withdrawn from storage during such Day under the
Injection/Withdrawal Plan (plus any Excess Withdrawal Quantity carried over to
such Day from the preceding Day), then such excess shall constitute an "Excess
------
Withdrawal Quantity" for such Day. If an Excess Withdrawal Quantity occurs on
-------------------
the same Day as a Seller's Deficiency Quantity, such Excess Withdrawal Quantity
shall also constitute an "Undelivered Storage Quantity" to the extent of the
Seller's Deficiency Quantity for such Day. The portion, if any, of the Excess
Withdrawal Quantity for any Day (net of any Undelivered Storage Quantities as to
which payment is made in accordance with Sections 5.2 and 5.3) shall be carried
--------------------
over to the next Day for purposes of allocating Coral Sale Volumes under Section
-------
8.3, and the Coral Sale Volumes delivered during such next Day, calculated as
- ---
provided in Section 8.3, shall be deemed (i) first to constitute Gas previously
-----------
withdrawn by Coral from storage to the extent of such carried over Excess
Withdrawal Quantity and (ii) second to constitute Gas withdrawn by Coral from
storage up to the maximum quantity of Gas (if any) deemed to be withdrawn from
storage under the Injection/Withdrawal Plan during such next succeeding Day.
8.5 Alternative Index.
------------------
(a) If the index or other price source used to determine the [*]
Index Price ceases to be available in the future for such
determination, the Parties agree promptly to negotiate a mutually
satisfactory alternative index or other price source to maintain
as nearly as practicable the prior economic relationships. If, on
or before thirty (30) Days after notice is received by one Party
that the applicable index or other price source is no longer
available, the Parties are unable to agree as to the
unavailability of such index or other price source or on a
substitute index or price source, the Parties shall submit such
determination to arbitration in accordance with Section 16.12.
-------------
25
<PAGE>
(b) Upon the determination of the new index or price source pursuant
to Section 8.5(a), the total consideration computed under Section
-------------- -------
8.1 will be adjusted retroactively to the date as of which the
---
relevant index or price source ceased to be available and the net
difference shall be promptly paid upon demand by Coral or MGC, as
the case may be. Until a determination has been made by agreement
or otherwise that the relevant index or price source has become
unavailable and the new index or price source has been determined
and applied retroactively, payments shall be made in the interim
on the basis of the last prices quoted in the relevant index or
price source prior to the time that it ceased to be available.
ARTICLE IX
FINANCIAL RESPONSIBILITY
9.1 Joinder of CELP.
-----------------
[*].
9.2 Covenants Relating to Financial Responsibility.
--------------------------------------------------
[*].
ARTICLE X
BILLINGS AND PAYMENT; AUDIT
---------------------------
10.1 Invoices. On or before the twentieth (20) Day of each Month,
--------
Coral shall provide to MGC a written invoice covering (a) the amount of all
consideration payable under Article VIII with respect to Gas delivered during
------------
the preceding Month in the detail contemplated in Section 8.1, and (b) all other
-----------
amounts, costs, and expenses payable by or owed to either Party hereunder for
the preceding Month. To the extent that MGC determines that Coral is obligated
to pay damages under Sections 5.2 or 5.3, MGC shall provide to Coral a written
-------------------
invoice setting forth the amount of such damages claimed by MGC. Billing and
payment for Gas will be based on actual quantities of Gas delivered hereunder;
provided that, if actual quantities of Gas are not known at the time Coral
issues its invoice, Coral will base its invoice on the nominated quantities of
Coral Sale Volumes, and differences between such nominated quantities and actual
quantities of Gas will be corrected or settled in cash by reflecting such
settlement or correction in the invoice for the following Month.
10.2 Payments. Payment of all funds shall be made in U.S. currency
--------
and, as indicated below, in such manner that funds are immediately available to
the Party to whom payment is due on the applicable due date. All amounts payable
to a Party hereunder are due by wire transfer to the account set forth in
Section 16.1 by the later of (i) the tenth (10th) calendar day following a
- -------------
Party's receipt of the other Party's original or faxed invoice therefor or (ii)
the last Day of the Month. If the payment due date falls on a weekend or
holiday, payment will be due on the next Business Day following the weekend or
holiday following the paying Party's receipt of the invoice therefor. If MGC
and Coral are each required to pay an amount in the same Month, whether under
this Agreement or otherwise, then such amounts with respect to each Party shall
be aggregated, and the Parties shall discharge their obligations to pay through
netting, in which case the Party, if any, owing the greater aggregate amount may
pay to the other Party the difference between the amounts owed. If either Party
is delinquent in the payment of any amounts owed by that Party to the other
Party hereunder that are not the subject of a good faith dispute, then in
addition to any other remedy available to such Party hereunder, the Party to
whom the delinquent payment is owed shall be entitled, upon five (5) Business
Days' notice, to suspend its performance hereunder (including, without
limitation, the withholding of any payments due hereunder) until all unpaid
amounts due and owing by the delinquent Party to the Party to whom the
delinquent payment is owed (including accrued and unpaid interest under Section
-------
10.3) are paid in full.
- ----
26
<PAGE>
10.3 Late/Disputed Payments. Interest on past due amounts shall accrue
----------------------
at the Interest Rate. If any invoice is disputed by a Party, such Party shall
pay the undisputed amounts, and, at its election the disputed amount, and shall,
within twenty (20) Days from the date of receipt of Coral's invoice, give Coral
written notification setting forth the disputed amount and the basis therefor.
Except as provided in Section 10.4, a Party's payment of a disputed amount or
------------
failure to dispute any amount shall not waive any rights, claims, or remedies
which such Party has with respect to such amount. MGC and Coral shall use
reasonable diligence to resolve disputed amounts within thirty (30) Days
following written notification. If the undisputed amount is not paid when due,
the undisputed amount shall be subject to late payment charges as described
above. Any disputed amount which later is determined to be due to a Party and
that is not paid when due shall be subject to late payment charges from the
original due date.
10.4 Audit. During the term of this Agreement and for a period of
-----
twenty-four (24) Months after the expiration or termination of this Agreement,
MGC or Coral or any third party representative thereof shall have the right, at
its expense, upon reasonable notice and at reasonable times, to examine the
books and records of the other Party to the extent reasonably necessary to
verify the accuracy of any computation made under this Agreement and, to the
extent of the information underlying the reports required to be provided by
Coral to MGC under Section 3.5(b), to monitor the performance and compliance of
--------------
Coral under this Agreement; provided, however, that in no event shall Coral be
obligated to disclose to MGC any of Coral's Gas sale, Gas supply,
transportation, storage, gathering, financial hedging, or other contracts or any
term or provision thereof, customer or supplier information, or other
proprietary information of Coral not directly related to the transactions
contemplated in this Agreement. Except for fraud or willful misconduct, no
adjustment or correction shall be made to any computation made under this
Agreement, and all records and payments shall be conclusively presumed to be
final, unless notice specifying the error or inaccuracy is given within two (2)
calendar years from the end of the calendar year during which such error or
inaccuracy occurred. The provisions of this Section 10.4 shall survive the
------------
termination of this Agreement. Each Party shall keep and maintain its books and
records of account relating to this Agreement and the performance hereof in
accordance with GAAP, except when MGC is required to conform to the Uniform
System of Accounts. All such books and records shall be kept for a minimum
period of twenty-four (24) Months after the expiration or termination of this
Agreement.
27
<PAGE>
ARTICLE XI
TAXES
-----
11.1 General Tax Provision. During the term of this Agreement, MGC
-----------------------
shall reimburse Coral for all ad valorem Taxes actually assessed against the Gas
in storage pursuant to the Released Storage Capacity based on a valuation of the
Gas in storage up to $[*] per Dth to the extent that such ad valorem Taxes are
calculated based upon injections of Gas into and withdrawals of Gas from storage
under the Storage Agreement in accordance with the Injection/Withdrawal Plan.
Coral shall be responsible for all such ad valorem Taxes in excess of the
amounts described in the first sentence of this Article XI that result from
----------
injections of Gas into and withdrawals of Gas from storage by Coral under the
Storage Agreement that are not in accordance with the Injection/Withdrawal Plan
or a valuation of the Gas in storage at a value in excess of $[*] per Dth.
Otherwise, the prices paid for Gas sold hereunder include full reimbursement
for, and Coral shall pay, or reimburse MGC for, all Taxes or other governmental
charges imposed by federal, state or local authorities applicable to the Coral
Sale Volumes upstream of the Delivery Point(s). The prices paid for Gas sold
hereunder do not include reimbursement for, and MGC shall pay, or reimburse
Coral for, all Taxes applicable to the Coral Sale Volumes downstream of the
Delivery Point(s), and sales and/or use taxes, if any, applicable to the sale of
the Coral Sale Volumes to MGC at the Delivery Points. If either Party is
reimbursed by any third party purchaser or any other person or entity for Taxes
assessed or levied on the Coral Sale Volumes and borne by the other Party, then
the Party receiving such reimbursement shall pay the Party bearing such Tax the
amount of such reimbursement. Upon request, a Party shall provide a certificate
of exemption or other evidence of exemption from any Tax, including a tax
identification number and a withholding exemption certificate, and each Party
agrees to cooperate with the other in obtaining exemptions and minimizing Taxes
payable in respect of all transactions pursuant to this Agreement.
28
<PAGE>
11.2 Other Tax Provisions. If the State of West Virginia enacts any
----------------------
new, additional, or increased Tax against Coral in connection with its
performance of the Services or against the Coral Sale Volumes, then effective as
of the effective date of such new, additional, or increased Tax, Coral may, at
its option, exercisable by written notice to MGC given no later than three (3)
Business Days prior to such effective date, cause (a) the point of
interconnection between the Columbia Gulf System and the TCo System to become a
new Delivery Point under this Agreement in lieu of the then-current Delivery
Points on the TCo System and the MGC System; (b) all of the Released Interstate
Transportation Capacity on the TCo System, the Released Storage Capacity, and
all rights under the CNR Agreement to revert to MGC; (c) a mutually agreed new
point of delivery in the State of Kentucky on the Tennessee System to become a
new Delivery Point under this Agreement in lieu of the then-current Delivery
Points on the Tennessee System; and (d) all of the Released Interstate
Transportation Capacity with respect to the segment of the Tennessee System
extending from the then-current Delivery Points to such new Delivery Point in
the State of Kentucky on the Tennessee System to revert to MGC. Thereafter, MGC
(acting through the MGC Employee who shall be present in Coral's Houston, Texas
offices for these purposes) shall act as Coral's agent for the performance of
the Agent Duties with respect to such reverted Released Interstate
Transportation Capacity, Released Storage Capacity, and rights under the CNR
Agreement in connection with the delivery of the Daily Gas Supply Requirements
to such new Delivery Points and the delivery of other quantities of Gas that
Coral is obligated to deliver to third parties at points of delivery on or
served by the reverted Released Interstate Transportation Capacity and the
rights under the CNR Agreement. Insofar as MGC is acting in its capacity as
Coral's agent with respect to such reverted Released Interstate Transportation
Capacity, Released Storage Capacity, and rights under the CNR Agreement under
this Section 11.2, MGC agrees to perform the Agent Duties in accordance with the
------------
instructions of Coral which are timely received by MGC with respect to such
matters (the "Agency Instructions"). MGC shall not be obligated to perform
--------------------
Agent Duties until it receives Agency Instructions. If, on any Day during the
term of this Agreement after the reversion of such Released Interstate
Transportation Capacity, Released Storage Capacity, and rights under the CNR
Agreement pursuant to this Section 11.2, Coral fails to perform its obligations
------------
under Section 3.4(a) as the result of the failure of MGC as agent to carry out
---------------
Coral's Agency Instructions, and such failure by MGC is not the result of any
material act or omission of Coral that directly affects MGC's ability to
perform, such failure of Coral to perform shall be excused under Section 5.1(c);
--------------
provided, however, that if any such failure by MGC to carry out Coral's Agency
Instructions results from a Force Majeure, any occurrence with respect to MGC of
-------------
any of the causes enumerated in clause (a) or clause (b) of Section 5.4, or any
-----------
material act or omission of Coral that directly affects MGC's ability to
perform, MGC shall have no liability to Coral with respect to such failure. In
the event of any such unexcused failure by MGC as agent to carry out Coral's
Agency Instructions, Coral shall have all rights and remedies available under
this Agreement, at law, and in equity, subject to the provisions of Section 5.6.
-----------
Without limiting MGC's obligation to follow Coral's Agency Instructions in
accordance with this Section 11.2, Coral shall pay and reimburse MGC for (or, at
MGC's option, MGC shall receive a credit on the invoices MGC receives from Coral
hereunder in an amount equal to) all charges paid by MGC and all Taxes, costs,
losses and liabilities (including, without limitation, costs, losses and
liabilities allocated to Coral under Sections 3.3(b), 3.3(c) and 3.3(f))
-------------------------------------
incurred by MGC with respect to such reverted Released Interstate Transportation
Capacity, Released Storage Capacity, and rights under the CNR Agreement or in
its capacity as agent under this Section 11.2, in each case as if such reverted
------------
Released Interstate Transportation Capacity, Released Storage Capacity, and
rights under the CNR Agreement had not reverted to MGC. Under such
circumstances, Coral shall continue to invoice MGC for volumes delivered to MGC
(i) on the same citygate basis (with appropriate adjustment made for TCo System
or Tennessee System shrinkage) as if the relevant new, additional, or increased
Tax had not been enacted, and (ii) at the same price per Dth as if such Released
Interstate Transportation Capacity, Released Storage Capacity, and rights under
the CNR Agreement had not reverted to MGC. If, after Coral has exercised the
option described in the first sentence of this Section 11.2, Coral determines
------------
that it no longer wishes MGC as agent to perform the Agent Duties with respect
to the delivery of quantities of Gas that Coral is obligated to deliver to third
parties at points of delivery on or served by the reverted Released Interstate
Transportation Capacity or the rights under the CNR Agreement, MGC agrees to
cooperate in good faith with Coral to structure mutually acceptable capacity
release, buy-sell, or other transactions relating to such third party
obligations of Coral, consistent with Coral's obligations under this Agreement.
Notwithstanding the preceding provisions of this Section 11.2, if Coral and MGC
------------
subsequently determine that (i) the actions described in the first sentence of
this Section 11.2 would have no effect on the assessment of or liability for the
------------
relevant new, additional, or increased Tax against Coral in connection with its
performance of the Services or against the Coral Sale Volumes, and (ii) MGC
would be responsible for the payment of such new, additional, or increased Tax
if this Agreement had not been executed, MGC shall reimburse Coral promptly upon
invoice for any such new, additional, or increased Tax which Coral is required
to pay, but only insofar as such Tax is attributable to the Services or the
Coral Sale Volumes. Any dispute among Coral and MGC concerning the matters
described in clause (i) or clause (ii) of the immediately preceding sentence of
this Section 11.2, shall be submitted to arbitration in accordance with Section
------------ -------
16.12. If Coral has elected to cause the actions described in clauses (a),
- -----
(b), (c) and (d) of this Section 11.2 and Coral and MGC determine (by agreement
- --- ------------
or through arbitration) that such actions would have no effect on the assessment
of or liability for such Tax as provided in clause (i) of the sentence
immediately preceding the preceding sentence, then such actions shall be
promptly reversed. The Parties' respective obligations under Section 3.3(g)
--------------
shall not be affected by reversion of the Released Storage Capacity under this
Section 11.2, and such reversion of the Released Storage Capacity to MGC shall
------------
not, in and of itself, subject either Party to any obligation in favor of the
other Party under Section 3.3(g).
---------------
29
<PAGE>
ARTICLE XII
FORCE MAJEURE
-------------
12.1 Effect of Force Majeure. Except with regard to a Party's
---------------------------
obligation to make payments due under the Agreement, in the event either Party
hereto is rendered unable, wholly or in part, by Force Majeure to carry out its
obligations under this Agreement, it is agreed that upon such Party's giving
notice and full particulars of such Force Majeure within twenty-four (24) hours,
such notice to be confirmed in writing, by facsimile, or by telegram to the
other Party, after the occurrence of the cause relied on, then the obligations
of the Party giving such notice, insofar as they are affected by such Force
Majeure, shall be suspended during the continuance of any inability so caused
from its inception but for no longer period.
12.2 Definition of Force Majeure. The term "Force Majeure" as employed
---------------------------
in this Agreement will mean acts of God, strikes, lockouts, or industrial
disputes or disturbances, equipment failure, civil disturbances, interruptions
by government or court orders, necessity for compliance with any court order,
law, statute, ordinance, or regulation promulgated by a governmental authority
having jurisdiction, acts of the public enemy, or any other cause of like kind
not reasonably within the control of the Party claiming Force Majeure and which
by the exercise of due diligence of such Party could not have been prevented or
is unable to be overcome.
12.3 Exclusions from Force Majeure. In addition to circumstances that
------------------------------
would not be considered "Force Majeure", the term "Force Majeure" specifically
excludes the following occurrences or events: (i) the loss, interruption, or
curtailment of interruptible transportation on any Transporter necessary to
effect receipt or delivery of Gas hereunder, unless the same event also curtails
firm transportation to the extent firm transportation is available on the
affected pipeline segment; (ii) increases or decreases in natural gas supply due
to allocation or reallocation of production by well operators, pipelines, or
other parties; (iii) loss of markets; (iv) failure of specific, individual wells
or appurtenant facilities in the absence of a Force Majeure event broadly
affecting other wells in the same geographic area; and (v) regulatory
disallowance of the pass through of the costs of natural gas or other related
costs.
30
<PAGE>
12.4 Strikes and Lockouts. It is understood and agreed that the
----------------------
settlement of strikes or lockouts shall be entirely within the discretion of the
party having the difficulty, and that the above requirement of the use of
diligence in restoring normal operating conditions shall not require the
settlement of strikes or lockouts by acceding to the terms of the opposing party
when such course is inadvisable in the discretion of the party having the
difficulty.
ARTICLE XIII
REPRESENTATIONS AND WARRANTIES
------------------------------
13.1 Representations and Warranties of Coral and CELP. As a principal
-------------------------------------------------
cause and material inducement to MGC to enter into this Agreement, Coral and
CELP hereby jointly and severally represent and warrant to MGC, as of the date
hereof and again as of the Effective Date (and as a continuing warranty and
representation in the case of Section 13.1(f) below), as follows:
----------------
(a Coral and CELP are limited partnerships duly formed, currently
existing, and in good standing under the laws of the State of Delaware and
are registered and authorized to conduct business as foreign limited
partnerships in each jurisdiction where the nature of their respective
activities makes such registration necessary. Coral GP, L.P., a Delaware
limited partnership, is the general partner of Coral, and CELP is the
limited partner of Coral. Coral and CELP have all requisite power and
authority to carry on their respective businesses as now conducted,
including, without limitation, the execution and performance of this
Agreement.
(b This Agreement and any other documents and instruments to be
executed and delivered by Coral and CELP pursuant hereto, and the
performance by Coral and CELP of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary action of Coral and
CELP. This Agreement has been, and each such other document or instrument
will be, duly executed and delivered by Coral and CELP and constitutes, or
upon such execution and delivery will constitute, the legal, valid, and
binding obligations of Coral and CELP, enforceable against Coral and CELP
in accordance with their respective terms, subject, however, to applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting creditors' rights generally and except as the enforceability
thereof may be limited by general principles of equity (regardless of
whether considered in a proceeding in equity or at law).
(c To the knowledge of Coral and CELP, Coral and CELP have complied
with all applicable laws, rules, regulations, and ordinances of any
governmental authority having jurisdiction over Coral and CELP as to which
non-compliance would have a material adverse effect on Coral or CELP or the
ability of Coral or CELP to perform their respective obligations hereunder.
Coral and CELP have all consents, licenses, approvals, and authorizations
of and registrations with any governmental or regulatory authority or with
any third party that are required in connection with their execution and
delivery of this Agreement and the performance of their respective
obligations hereunder, and all of such consents, licenses, approvals,
authorizations, and registrations are in full force and effect.
31
<PAGE>
(d The execution, delivery, and performance by Coral and CELP of this
Agreement and the other documents and instruments to be delivered by Coral
and CELP pursuant hereto, and the transactions contemplated hereby and
thereby, do not and will not (i) violate or conflict with any provision of
the certificate of limited partnership, limited partnership agreement, or
other organizational documents of Coral or CELP, (ii) violate or constitute
a default under any agreement or instrument to which Coral or CELP is a
party or by which Coral or CELP is bound, which violation will have a
material adverse effect on the ability of Coral or CELP to perform their
respective obligations hereunder, or (iii) violate any existing statute or
law or any judgment, injunction, decree, order, regulation, or rule of any
court or governmental authority applicable to Coral or CELP, which
violation will have a material adverse effect on the ability of Coral or
CELP to perform their respective obligations hereunder.
(e There are no judicial or administrative actions, proceedings or
investigations (including, without limitation, bankruptcy, reorganization,
or insolvency actions, proceedings, or investigations) pending or, to the
knowledge of Coral or CELP, threatened that (i) challenge the validity of
this Agreement or the transactions contemplated hereby, (ii) seek to
restrain or prevent any action taken or to be taken by Coral or CELP in
connection with this Agreement, or (iii) if adversely determined, would
have a material adverse effect upon the ability of Coral or CELP to perform
their respective obligations hereunder.
(f Coral warrants the title to all Gas delivered or caused to be
delivered by Coral to MGC hereunder, the right to sell the same, and that
such Gas is free and clear of all liens, security interests, encumbrances,
claims of royalty, and other adverse claims.
13.2 MGC's Representations and Warranties. As a principal cause and
---------------------------------------
material inducement to Coral to enter into this Agreement, MGC hereby represents
and warrants to Coral, as of the date hereof and on the effective date hereof,
as follows:
(a MGC is a corporation duly organized, validly existing, and in good
standing under the laws of the State of West Virginia and is qualified to
conduct business in each jurisdiction where the nature of MGC's activities
makes such qualification necessary. MGC has all requisite power and
authority to carry on its business as now conducted, including, without
limitation, the execution and performance of this Agreement.
(b This Agreement and any other documents and instruments to be
delivered by MGC pursuant hereto, and the performance by MGC of the
transactions contemplated hereby and thereby, have been duly authorized by
all necessary corporate action of MGC. This Agreement has been, and each
such other document or instru-ment will be, duly executed and delivered by
MGC and constitutes, or upon such execution and delivery will constitute,
the legal, valid, and binding obligations of MGC, enforceable against MGC
in accordance with its respective terms, subject, however, to applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting creditors' rights generally and except as the enforceability
thereof may be limited by general principles of equity (regardless of
whether considered in a proceeding in equity or at law).
32
<PAGE>
(c To the knowledge of MGC, MGC has complied with all applicable laws,
rules, regulations, and ordinances of any governmental authority having
jurisdiction over MGC as to which non-compliance would have a material
adverse effect on MGC or MGC's ability to perform its obligations
hereunder. MGC has all consents, licenses, approvals, and authorizations of
and registrations with any governmental or regulatory authority or with any
third party that are required in connection with its execution and delivery
of this Agreement and the performance of its obligations hereunder, and all
such consents, licenses, approvals, authorizations, and registrations are
in full force and effect.
(d The execution, delivery, and performance by MGC of this Agreement
and the other documents and instruments to be delivered by MGC pursuant
hereto, and the transactions contemplated hereby and thereby, do not and
will not (i) violate or conflict with any provision of the articles or
certificate of incorporation and bylaws of MGC, (ii) violate or constitute
a default under any Interstate Transportation Agreement, the Storage
Agreement, the CNR Agreement, or other agreement or instrument to which MGC
is a party or by which MGC is bound, which violation will have a material
adverse effect on MGC's ability to perform its obligations hereunder, or
(iii) violate any existing statute or law or any judgment, injunction,
decree, order, regulation, or rule of any court or governmental authority
applicable to MGC, which violation will have a material adverse effect on
MGC's ability to perform its obligations hereunder.
(e There are no judicial or administrative actions, proceedings, or
investiga-tions (including, without limitation, bankruptcy, reorganization,
or insolvency actions, proceedings, or investigations) pending or, to MGC's
knowledge, threatened that (i) challenge the validity of this Agreement or
the transactions contemplated hereby, (ii) seek to restrain or prevent any
action taken or to be taken by MGC in connection with this Agreement, or
(iii) if adversely determined, would have a material adverse effect upon
MGC's ability to perform its obligations hereunder.
(f All Interstate Transportation Agreements are identified on Exhibit
-------
C. To the knowledge of MGC, and subject to Coral's providing the Services
-
substantially in accordance with MGC's past practices, the Interstate
Transportation Agreements, the Storage Agreement, and the CNR Agreement
constitute all of the agreements with any Transporter necessary to permit
Coral to perform the Services hereunder. MGC has afforded to Coral and
Coral's officers, employees, counsel, accountants, and authorized
representatives full and complete access to, and photocopies of, all of the
Interstate Transportation Agreements, the Storage Agreement, and the CNR
Agreement. No information, records, or data relating to any of such
agreements furnished by MGC to Coral prior to the execution of this
Agreement shall be incorrect or inaccurate in any material respect when so
furnished, and no documents relating thereto were removed, nor were any
information or documents relating thereto omitted from the information,
records, or data relating thereto furnished by MGC to Coral, which are
necessary to make the information, records, and data furnished not
misleading in any material respect. Except as otherwise indicated on
Schedule 13.2(f), MGC has not received notice of the existence of any
-----------------
default by MGC or any third party under any Interstate Transportation
Agreement, the Storage Agreement, or the CNR Agreement, nor, to the
knowledge of MGC, is MGC in default thereunder, nor, to the knowledge of
MGC, does there exist any event or circumstance that, with notice or lapse
of time or both, would give rise to such a default by MGC or any third
party. As used in this Section 13.2(f), the term "knowledge" means the
----------------
actual knowledge (excluding any imputed or implied knowledge) of the
officers, in-house attorneys, and employees of MGC who are at a supervisory
or higher level with MGC or who are directly involved on behalf of MGC in
matters directly relating to any Interstate Transportation Agreements, the
Storage Agreement, or the CNR Agreement.
33
<PAGE>
13.3 Disclaimers of Warranties. EACH OF MGC AND CORAL ACKNOWLEDGES
---------------------------
THAT IT HAS ENTERED INTO THIS AGREEMENT AND IS CONTRACTING PURSUANT HERETO BASED
SOLELY UPON THE EXPRESS REPRESENTATIONS AND WARRANTIES HEREIN AND SUCH PARTY'S
INDEPENDENT ANALYSIS OF THE DATA AND INFORMATION (INCLUDING CONFIDENTIAL
INFORMATION) RELATING TO THE TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT
SUPPLIED TO SUCH PARTY BY THE OTHER PARTY IN CONNECTION THEREWITH. CORAL AND
MGC EACH EXPRESSLY NEGATES ANY OTHER REPRESENTATION OR WARRANTY, WRITTEN OR
ORAL, EXPRESSED OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR
WARRANTY WITH RESPECT TO MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
34
<PAGE>
ARTICLE XIV
INDEMNIFICATION
---------------
14.1 Indemnities of Coral. Regardless of any investigation made at any
--------------------
time by or on behalf of MGC or any information MGC may have, and regardless of
the presence or absence of insurance, Coral shall indemnify and hold harmless
MGC and its Indemnity Group from and against any and all Claims of third parties
caused by, arising out of, resulting from, or relating in any way to, and to pay
MGC any sum that MGC pays or becomes obligated to pay on account of: (a) any
adverse Claim based on title of any person to or against the Coral Sale Volumes
and Gas transported using the Released Interstate Capacity, or the proceeds
thereof; (b) INJURY TO OR DEATH OF ANY PERSON, PERSONS, OR OTHER LIVING THINGS,
OR LOSS, DAMAGE, OR DESTRUCTION OF PROPERTY, RESULTING DIRECTLY OR INDIRECTLY
FROM ANY ACT OR ACCIDENT OCCURRING WITH RESPECT TO (i) THE CORAL SALE VOLUMES
WHEN SUCH GAS IS IN THE EXCLUSIVE POSSESSION AND CONTROL OF CORAL, (ii) GAS
TRANSPORTED USING THE RELEASED INTERSTATE TRANSPORTATION CAPACITY OR STORED
USING THE RELEASED STORAGE CAPACITY DURING THE TERM OF SUCH RELEASE TO CORAL,
AND (iii) GAS TRANSPORTED OR EXCHANGED USING THE RIGHTS ASSIGNED UNDER THE CNR
AGREEMENT DURING THE TERM OF SUCH ASSIGNMENT TO CORAL, IN EACH CASE WITHOUT
REGARD TO THE CAUSES OF THE DAMAGE OR LOSS, INCLUDING, WITHOUT LIMITATION, THE
NEGLIGENCE OF MGC OR ANY OF ITS INDEMNITY GROUP, WHETHER SUCH NEGLIGENCE BE
SOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE, OR THE STRICT LIABILITY OF MGC
OR ANY OF ITS INDEMNITY GROUP; (c) all Taxes for which Coral is responsible
hereunder; (d) any breach or default in the performance by Coral of any material
covenant or material agreement of Coral contained in this Agreement; (e) all
contractual Claims accruing under the Interstate Transportation Agreements with
respect to the Released Interstate Transportation Capacity, the Storage
Agreement with respect to the Released Storage Capacity, and under the CNR
Agreement, in each case during the term of such release or assignment to Coral,
for which responsibility has been allocated to or assumed by Coral under Section
-------
3.3, except to the extent that any such contractual Claim results from any act
- ---
or omission of MGC or any of its Indemnity Group in conflict with MGC's
obligations under this Agreement; (f) any breach of a material warranty or
representation made by Coral herein; or (g) MGC's service as Coral's agent and
its performance of the Agent Duties pursuant to Section 11.2, or MGC's following
------------
any instructions given by Coral to MGC as Coral's agent pursuant to Section 11.2
------------
(whether or not such instructions constitute Agency Instructions), except to the
extent of the unexcused failure by MGC as agent to perform any of the Agent
Duties or MGC's gross negligence or willful misconduct in the performance or
non-performance thereof.
35
<PAGE>
14.2 Indemnities of MGC. Regardless of any investigation made at any
--------------------
time by or on behalf of Coral or any information Coral may have, and regardless
of the presence or absence of insurance, MGC shall indemnify and hold harmless
Coral and its Indemnity Group from and against any and all Claims of third
parties caused by, arising out of, resulting from, or relating in any way to,
and to pay Coral any sum that Coral pays or becomes obligated to pay on account
of: (a) any adverse Claim based on title of any person to or against Gas
transported using the Retained Interstate Transportation Capacity or the
proceeds thereof; (b) INJURY TO OR DEATH OF ANY PERSON, PERSONS, OR OTHER LIVING
THINGS, OR LOSS, DAMAGE, OR DESTRUCTION OF PROPERTY, RESULTING DIRECTLY OR
INDIRECTLY FROM ANY ACT OR ACCIDENT OCCURRING WITH RESPECT TO GAS TRANSPORTED
USING THE RETAINED INTERSTATE TRANSPORTATION CAPACITY, WITHOUT REGARD TO THE
CAUSES OF THE DAMAGE OR LOSS, INCLUDING, WITHOUT LIMITATION, THE NEGLIGENCE OF
CORAL OR ANY OF ITS INDEMNITY GROUP, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR
CONCURRENT, OR ACTIVE OR PASSIVE, OR THE STRICT LIABILITY OF CORAL OR ANY OF ITS
INDEMNITY GROUP; (c) all Taxes for which MGC is responsible hereunder; (d) any
breach or default in the performance by MGC of any material covenant or material
agreement of MGC contained in this Agree-ment; (e) all contractual Claims
accruing before, during, and after the term of this Agreement with respect to
the Released Interstate Transportation Capacity, the Released Storage Capacity,
and the assigned rights under the CNR Agreement that are not included within the
ambit of the indemnities of Coral set forth in Section 14.1; (f) all contractual
------------
Claims accruing at any time with respect to the Retained Interstate Capacity;
(g) Claims resulting from any protest or proceeding undertaken by MGC pursuant
to Section 3.3(i); or (h) any breach of a material warranty or representation
---------------
made by MGC herein.
14.3 Indemnification Procedures. With respect to each indemnification
---------------------------
included in this Agreement, the indemnity is given to the fullest extent
permitted by applicable law and the following provisions shall be applicable.
The Indemnified Party shall promptly notify the Indemnifying Party in writing of
any Claim, and the Indemnifying Party shall have the right to assume its
investigation and defense, including employment of counsel, and shall be
obligated to pay related court costs, attorneys' fees and experts' fees and to
post any appeals bonds; provided, however, that the Indemnified Party shall have
the right to employ at its expense separate counsel and participate in the
defense of any Claim. The Indemnifying Party shall not be liable for any
settlement of a Claim without its express written consent thereto. In order to
prevent double recovery, the Indemnified Party shall reimburse the Indemnifying
Party for payments or costs incurred in respect of an indemnity with the
proceeds of any judgment, bond, surety or other recovery made by the Indemnified
Party with respect to a covered event other than insurance maintained by or for
the benefit of the Indemnified Party.
ARTICLE XV
WINDING UP ARRANGEMENTS
-----------------------
15.1 Generally. Upon the expiration or early termination of this
---------
Agreement, Coral and MGC shall proceed to wind up the business and activities
conducted hereunder in accordance with the provisions of this Article XV. On or
----------
prior to the Termination Date (or after the Termination Date in the case of
subsection (b) below), Coral and MGC shall take the following actions:
36
<PAGE>
(a Coral and MGC shall give all notices, execute such documents and
agreements, and to take all other steps necessary to cause the recall or
reversion to MGC of all of the Released Interstate Transportation Capacity,
the Released Storage Capacity, and the rights assigned under the CNR
Agreement. The recall or reversion of the Released Interstate
Transportation Capacity, the Released Storage Capacity, and the rights
assigned under the CNR Agreement shall be effective at the earliest time
mutually agreed upon by Coral and MGC, but in no event later than the
Termination Date, and shall be accomplished in accordance with all of the
terms and provisions of the FERC Gas tariffs applicable to the TCo System,
the Columbia Gulf System, and the Tennessee System, all applicable FERC
regulations, and all Interstate Transportation Agreements, the Storage
Agreement, and the CNR Agreement.
(b As soon as is reasonably practicable after the Termination Date,
Coral and MGC shall enter into an accounting of all things relating to the
business and activities conducted hereunder. Upon the completion of such
accounting, any monies, penalties, or other charges due and owing Coral or
MGC shall be paid, any corrections or adjustment to payments previously
made shall be determined, and any refunds owed to Coral or MGC shall be
paid.
15.2 Survival. The provisions of this Agreement shall survive the
--------
termination hereof to the extent required to facilitate the wind up of the
business and affairs of Coral and MGC hereunder in accordance with this Article
-------
XV. Following the completion of such winding up arrangements, [*] and the
- --
provisions of Sections 5.6, 6.1(b), 6.3(b), 6.4, 10.4, Article XIV, and Sections
16.1, 16.3, 16.4, 16.5, 16.6, 16.7, 16.8, 16.9 and 16.12 shall survive the
- --------------------------------------------------------------
expiration or termination of this Agreement and shall remain in full force and
effect between the Parties to the extent provided therein. Except as provided
in Section 10.4, termination of this Agreement shall not release or affect the
-------------
rights, interests and obligations of the Parties under this Agreement with
respect to the period prior to termination.
ARTICLE XVI
MISCELLANEOUS
-------------
16.1 Communication.
-------------
(a) Notices All notices shall be made as specified in this Section
------- -------
16.1. Notices required to be in writing shall be delivered in written form
----
by letter, facsimile or other documentary form. Notice by facsimile,
automation or hand delivery shall be deemed to have been received when
delivered by hand or actually received, except that notices sent by
facsimile shall be deemed received when receipt is confirmed, provided that
notice sent by facsimile and received by recipient after its normal
business hours on a Business Day shall be deemed to be received on the
following Business Day or such earlier time confirmed by the receiving
Party. Notice by overnight mail or courier shall be deemed to have been
received on the date that such mail or courier delivery is effected or its
delivery is attempted, if delivery is refused or rejected, or such earlier
time confirmed by the receiving Party. Any notices in respect of the
termination of this Agreement shall be given as specified in this Section
-------
16.1. Any Party may change its addresses by providing notice of same in
----
accordance herewith.
37
<PAGE>
TO MGC: TO CORAL AND/OR CELP:
Notices/Correspondence/Termination/Invoices
Notices/Correspondence/Termination
(Mail/Fax): (Mail/Fax):
MOUNTAINEER GAS COMPANY CORAL ENERGY RESOURCES, L.P.
P.O. Box 3152 909 Fannin, Suite 700
Charleston, West Virginia 25332 Houston, Texas 77010
Attention: Mr. Jeffrey L. Kirk Attention: Contract Administration
Facsimile: (304) 345-1569 Facsimile: (713) 767-5456
WIRE TRANSFER INSTRUCTIONS: WIRE TRANSFER INSTRUCTIONS:
Mountaineer Gas Company NationsBank
c/o One Valley Bank N.A. Dallas, Texas 75284-4408
ABA# 0519-0035-3 ABA No. 111000012
For Credit To: MGC For Credit To: Coral Energy
Resources, L.P.
Account# 654-642-8 Account No.: 37507-70027
(b) Account Directors. At all times during the term of this Agreement,
-----------------
each of Coral and MGC shall have identified for each other personnel
employed by each of such Parties, together with their respective addresses
and telephone and facsimile information, who will serve as the account
directors of such Parties for purposes of this Agreement. The designated
account director for each Party shall be available to deliver and receive
routine communications and inquiries concerning the transactions
contemplated in this Agreement. Either Party may change its account
director by written notice to the other Party, given in accordance with the
provisions of Section 16.1(a).
---------------
16.2 Governmental Regulation. If, during the term of this Agreement,
------------------------
there occurs a change in any law or regulation (other than with respect to new
Taxes) applicable to either Party, or either Party becomes subject to a law or
regulation (other than with respect to new Taxes) of any kind to a greater or
different extent than that existing on the Effective Date, and such new or
changed law or regulation either renders this Agreement, in whole or in part,
illegal or unenforceable or materially adversely affects the ability of one or
both Parties to perform this Agreement, the Party affected by such new or
changed law or regulation may declare an Early Termination Date on one (1)
Business Day's notice and otherwise in accordance with Section 5.7, effective as
-----------
of the Day prior to the enactment or promulgation of the relevant new or changed
law or regulation. The Parties agree that the exercise by either Party of its
rights under this Section 16.2 may be made on a retroactive basis, it being
-------------
understood that in such case Coral and MGC shall agree on terms to apply to Gas
sold and Services performed after the date of any termination under this Section
-------
16.2. The Parties agree to negotiate in good faith a new agreement resulting in
- ----
substantially the same economic benefits as in the terminated Agreement.
16.3 GOVERNING LAW. HIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
--------------
ACCORDANCE WITH THE LAWS OF THE STATE OF WEST VIRGINIA, INCLUDING, WITHOUT
LIMITATION, THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN THE STATE OF WEST
VIRGINIA, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, EXCLUDING ANY PRINCIPLE
OF CONFLICT OF LAWS WHICH MAY REQUIRE THE APPLICATION OF THE LAWS OF A DIFFERENT
JURISDICTION.
16.4 Entire Agreement. This Agreement, the attachments, schedules and
-----------------
exhibits hereto, and the Confidentiality Agreement to be executed by the Parties
and the MGC Employee pursuant to Section 3.6 constitute the entire agreement
-----------
between the Parties relating to the subject matter contemplated by this
Agreement. This Agreement expressly supercedes the Letter Agreement dated [*]
between Coral and MGC relating to the subject matter of this Agreement.
Otherwise, there are no prior or contemporaneous agreements or representations
(whether oral or written) affecting the subject matter other than those herein
expressed. No amendment or modification to this Agreement shall be enforceable,
unless reduced to writing and executed by both Parties.
38
<PAGE>
16.5 Confidentiality. Each Party agrees to treat as confidential this
---------------
Agreement and its terms (except for the identities of the Parties). In
addition, each Party agrees to treat as confidential all proposals, data,
correspondence, documents, and other information which is proprietary in nature
relating to this Agreement disclosed at any time, either orally or in writing,
by the other Party to such Party, including, without limitation, all (a) pricing
methodology and procedures, (b) risk management structures and pricing, (c) Gas
management service procedures and structures, (d) credit information, (e) Gas
supply and transportation capacity requirements, (f) business plans, and (g)
market information, in each case to the extent proprietary in nature. The
information defined as confidential in the first two (2) sentences of this
Section 16.5, together with the other information so identified herein, shall
- -------------
constitute "Confidential Information" for purposes hereof. Each Party agrees to
------------------------
keep confidential all such Confidential Information disclosed to it pursuant
hereto. Except as provided hereinafter, neither Party shall, without the prior
written consent of the other Party, disclose or authorize or permit any person
under such Party's control or direction to disclose to anyone not properly
entitled thereto any of such Confidential Information. For purposes of this
Agreement, persons properly entitled to such information (i) shall include
employees, lenders, counsel, accountants, and other professional consultants of
Coral and MGC retained to assist Coral or MGC, as applicable, who have a clear
need to know and have been advised to keep the Confidential Information
confidential, but (ii) shall not include such personnel employed by or in the
---
service of any Affiliate of any Party, except, in the case of Coral, for such
------
personnel employed by or in the service of Coral Energy, L.P., Tejas Energy,
LLC, and their respective subsidiaries. Each Party shall be responsible,
however, for ensuring that all persons assisting such Party who are properly
entitled thereto shall keep the Confidential Information confidential and shall
not disclose or divulge the same to any unauthorized person. The obligations
contained in this Section 16.5 shall not apply, however, to any portion of the
------------
Confidential Information that (a) is or becomes public knowledge through no act
or failure to act by either Party, or (b) is disclosed pursuant to the operation
of applicable law, regulation, or governmental authority or pursuant to the
requirements of the rules of a public stock exchange on which the securities of
a Party or of a Party's Affiliate are listed. If a Party or its representatives
are requested or required pursuant to judicial or other legal process to
disclose any Confidential Information, such Party shall promptly notify the
other Party of such request or requirement, to the extent it is not restricted
from doing so by applicable laws, rules, regulations or ordinances of any
governmental authority having jurisdiction, so that the other Party may, if it
wishes, attempt to intervene to protect its interests and so that the other
Party may seek an appropriate protective order or waive compliance with this
Section 16.5. If, in the absence of a protective order or the receipt of a
- -------------
waiver hereunder, a Party or its representatives are, in the good faith opinion
of such Party, compelled either to disclose the Confidential Information or
stand liable for contempt or suffer other censure or penalty, such Party and its
representatives may disclose only that portion of the Confidential Information
to the party compelling disclosure as, in the good faith opinion of such Party,
is required by applicable law, rule, regulation, or ordinance and, in connection
with such compelled disclosure, such Party and its representatives shall use
reasonable efforts to obtain from the party to whom disclosure is made written
assurance that confidential treatment will be accorded to such portion of the
Confidential Information as is disclosed; provided that, if such Party has given
the other Party at least fifteen (15) Business Days advance written notice of
such request or requirement, and the other Party has not sought to intervene to
protect its interests, or the other Party has intervened, but has been
unsuccessful in obtaining a protective order, then such Party shall not be
obligated to pursue efforts to obtain written assurances that confidential
treatment will be accorded such disclosed Confidential Information. Upon the
expiration or termination of this Agreement, each Party which has received
Confidential Information from the other Party shall turn over to such other
Party all Confidential Information relating in any way to the transactions
contemplated in this Agreement received from such other Party; provided,
however, that each Party may retain and use its own internally generated reports
and other documents which may refer to, or make use of, Confidential Information
subject to the confidentiality requirements of this Section 16.5. The Party
------------
returning such Confidential Information agrees that it will not take or retain,
without the written authorization of the other Party, photocopies or other
reproductions of any such Confidential Information; provided, however, that in
the event of subsequent litigation or arbitration proceedings relating to this
Agreement or the transactions contemplated herein, the Party and its
representatives returning such Confidential Information shall be entitled to
review the Confidential Information returned to the Party which provided the
same. The form of this Agreement, excluding the commercial terms specific to
this transaction, does not constitute Confidential Information. This Section
-------
16.5 shall survive the termination of this Agreement and remain in effect for a
- ----
period of two (2) years following such termination.
39
<PAGE>
16.6 Exclusion of Third Party Rights. The provisions of this Agreement
-------------------------------
shall not impart rights enforceable by any other person, firm, or organization
not a Party or not bound as a Party, or not a permitted successor or assignee of
a Party bound to this Agreement.
16.7 Waiver. A waiver by either Party of any provision hereof shall
------
not be construed to constitute a continuing waiver hereunder by such Party, and
furthermore, a waiver by either Party of any one or more defaults by the other
Party in performance of any provisions of this Agreement shall not operate or be
construed as a waiver of any future default or defaults, whether of a like or
different character.
16.8 Titles. Article, section, appendix, and exhibit references herein
------
are to the articles, sections, appendices, and exhibits of this Agreement,
unless expressly stated otherwise. The titles of the articles and sections
hereof are intended for descriptive purposes only, and are not intended to be
utilized in the construction of the provisions hereof.
16.9 Transfers. Subject to the provisions of this Section 16.9, this
--------- ------------
Agreement shall be binding upon the permitted successors and assigns of Parties.
Neither Party shall assign this Agreement in whole or in part without the prior
written consent of the other Party, which consent may be withheld or given
entirely at the option of such other Party; provided, however, that either Party
may, without the prior written consent of any other Party, (a) assign its right
to receive payment for Gas delivered or received hereunder upon prior written
notice to the payor, (b) transfer its interest hereunder, or grant a security
interest therein, to secure indebtedness of such Party, or (c) [*] Except as
otherwise provided in the preceding sentence of this Section 16.9, the
-------------
assignment of this Agreement by any Party shall impose upon the assignee all of
the obligations and liabilities chargeable to the assigning Party hereunder, and
shall give and grant to the assignee all benefits accruing hereunder, in each
case from and after the effective date of such assignment.
40
<PAGE>
16.10 Processing Rights. Coral reserves, prior to the Delivery
------------------
Point(s), all processing rights and title to all liquids and liquefiable
hydrocarbons in the Coral Sale Volumes sold hereunder, subject to Coral's
obligation to reimburse MGC for any reduction in the thermal content of such Gas
due to the exercise of such rights. Coral shall have all risk of loss during,
and assumes all liabilities arising from, such processing.
16.11 Application of GAAP. All determinations or calculations of the
----------------------
character or amount of any asset, liability, item of income, or item of expense
required to be made in this Agreement shall be made in accordance with GAAP,
unless otherwise expressly specified herein.
16.72 Arbitration. Any disagreement, difference, or dispute among the
-----------
Parties provided in Sections 7.4, 8.5and 11.2 to be resolved by arbitration
---------------------------
shall be resolved according to the procedures set forth in this Section 16.12.
-------------
Any other disagreement, difference, or dispute among the Parties under this
Agreement may be resolved by arbitration according to the procedures set forth
in this Section 16.12 only if agreed to by both Parties by subsequent written
--------------
agreement. Either Party may commence an arbitration proceeding under Section
-------
7.4, 8.5,or 11.2 by giving written notice to the other Party. Arbitration
- ------------------
proceedings with respect to any other matter arising hereunder shall be
commenced as provided hereinafter following the execution by the Parties of an
agreement to arbitrate.
(a) To the extent that the dispute relates to the amount of any
payment, charge, or other accounting matter arising hereunder, then no
later five (5) Business Days after the delivery of the notice commencing
the arbitration proceeding or the execution of the agreement to arbitrate
(as applicable), Coral and MGC shall submit the dispute to resolution by
the Designated Accountants. The Parties will present their positions to the
Designated Accountants within fifteen (15) Business Days after the
submission of the dispute. The Designated Accountants will be requested to
resolve the dispute, in a fair and equitable manner and in accordance with
GAAP, within thirty (30) Days after the Parties have presented their
positions to the Designated Accountants.
(b) If the dispute relates to any matter other than one of the matters
described in Section 16.12(a), then no later than five (5) Business Days
----------------
after the delivery of the notice commencing the arbitration proceeding or
the execution of the agreement to arbitrate (as applicable), Coral and MGC
shall each select an arbitrator. Promptly following their selection, the
arbitrators selected by Coral and MGC jointly shall select a third
arbitrator. The third arbitrator shall hear and decide all matters relating
to the dispute that is subject to arbitration pursuant to this Section
-------
16.12(b). All arbitrators selected pursuant to this Section 16.12(b) shall
-------- ----------------
have at least eight (8) years of professional experience in one (1) of the
following areas: (i) the commodity markets and the business of marketing of
Gas, (ii) natural Gas distribution operations or management, or (iii) other
experience directly involved in the natural Gas industry. None of the
arbitrators shall previously have been employed by either Party or have a
direct or indirect interest in either Party or the subject matter of the
arbitration. The arbitration shall commence as soon as is practical, but in
no event later than thirty (30) Days after the selection of the third
arbitrator. The rules of the Federal Arbitration Act and the Commercial
Arbitration Rules of the American Arbitration Association shall apply to
the extent not inconsistent with the rules specified in this Agreement. If
any arbitrator selected under this Section 16.12(b) should die, resign, or
----------------
otherwise be unable to perform its duties hereunder, a successor arbitrator
shall be selected pursuant to the procedures set forth in this Section
-------
16.12(b).
--------
41
<PAGE>
(c) Arbitration hearings shall be held in Houston, Harris County,
Texas. All hearings shall be conducted on a confidential basis without
continuance or adjournment. Evidence concerning any offer made or the
details of any negotiation prior to arbitration, and, other than for
purposes of awarding attorneys' fees and expenses, the cost to the Parties
of their representatives and counsel shall not be admissible. The law
governing all such disputes shall be the laws of the State of West
Virginia, including, without limitation, the West Virginia Code, but
without regard to conflicts of laws principles. The charges and expenses of
the Designated Accountants or arbitrators, as applicable, shall be shared
equally by the Parties. The decision of the Designated Accountants or the
third arbitrator, as applicable, shall be final and binding on the Parties
and CELP without right of appeal and, if necessary, may be enforced in any
court of competent jurisdiction. Judgment upon the award rendered by the
Designated Accountants or in the arbitration, as applicable, may be entered
in any court having jurisdiction over the person or assets of the Party
owing the award (or any guarantor of such Party's obligation hereunder) or
application may be made to such court for a judicial acceptance of the
award and an order of enforcement, as the case may be. Any payment to be
made as a result of any such dispute will be made by wire transfer of
immediately available funds on the third (3rd) Business Day following the
receipt by Coral and MGC of a written notice from the Designated
Accountants or the third arbitrator, as applicable, of their determination.
16.83 Announcements. Coral and MGC will consult in advance on the
-------------
timing and contents of announcements and disclosures concerning the transactions
contemplated in this Agreement. Except with respect to announcements or
disclosures in response to legal requirements or stock exchange and similar
regulations, all such announcements and disclosures shall require the consent of
both Parties.
IN WITNESS WHEREOF, the Parties have executed this Agreement in multiple
counterparts to be construed as one (1) and the same contract, on and effective
as of the Effective Date.
SIGNATURES ON SUCCEEDING PAGES
42
<PAGE>
Signature Page for Natural Gas Supply Management
Agreement dated as of September 30, 1998,
between Coral Energy Resources, L.P.,
Coral Energy, L.P., and Mountaineer Gas Company
CORAL ENERGY RESOURCES, L.P.
By: /s/ James W. Whalen
-----------------------------------------
Name: James W. Whalen
-----------------------------------------
Title: President and Chief Operating Officer
-----------------------------------------
CORAL ENERGY, L.P.
By: /s/ James W. Whalen
-----------------------------------------
Name: James W. Whalen
-----------------------------------------
Title: President and Chief Operating Officer
-----------------------------------------
43
<PAGE>
Signature Page for Natural Gas Supply Management
Agreement dated as of September 30, 1998,
between Coral Energy Resources, L.P.,
Coral Energy, L.P., and Mountaineer Gas Company
MOUNTAINEER GAS COMPANY
By: /s/ Michael S. Fletcher
--------------------------
Michael S. Fletcher
President
44
<PAGE>
APPENDIX I
Attached to and made a part of Natural Gas Supply
Management Agreement between Coral Energy Resources, L.P.,
Coral Energy, L.P., and Mountaineer Gas Company
DEFINITIONS
"Affiliate" means, with respect to any person, any other person (other than
---------
an individual) that, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, such person.
For purposes of the foregoing definition, "control" shall mean the direct or
indirect ownership of more than fifty percent (50%) of the outstanding capital
stock or other equity interests having ordinary voting power.
"Agency Instructions" shall have the meaning set forth in Section 11.2.
-------------------- -----------
"Agent Duties" means, for purposes of Section 11.2, the duties to be
------------- -----------
performed by MGC as Coral's agent with respect to the portion of the Released
Interstate Transportation Capacity, the Released Storage Capacity, and the
rights under the CNR Agreement that Coral has caused to revert to MGC pursuant
to Section 11.2, which shall include: (a) pipeline and storage
------------
injection/withdrawal nominations and confirmations thereof; (b) the delivery to
Coral of all pipeline and storage orders, statements, notices, and other
communications received from any Transporter; (c) resolution of Gas imbalances;
(d) responding to Transporter orders, including Emergency Orders; and (e) such
other ministerial tasks as Coral may reasonably request to permit Coral
efficiently to implement and coordinate flows of Gas and perform its obligations
to deliver Gas to MGC and third parties utilizing such reverted Released
Interstate Transportation Capacity, Released Storage Capacity, and rights under
the CNR Agreement.
"Asset Flexibility Loss Charge" means (a) for purposes of Section
---------------------------------
3.1(c)(i), $[*]per Dth, and (b) for purposes of Section 3.1(c)(ii), $[*].
"Best Efforts" shall mean the taking, in good faith and without
-------------
unreasonable delay, of all reasonable, necessary, and operationally feasible
steps consistent with due diligence, including the expenditure of such time, the
expenditure of commercially reasonable amounts of funds, and the commitment of
qualified personnel, that is reasonable and necessary for the causation or
prevention of an event or condition that reasonably would have been taken in
similar circumstances by a prudent Party of established reputation engaged in
the same or a similar business.
I-i
<PAGE>
"Btu" means the amount of heat required to raise the temperature of one
---
avoirdupois pound of pure water from fifty-eight and one-half degrees Fahrenheit
(58.5 F) to fifty-nine and one-half degrees Fahrenheit (59.5 F) at a constant
pressure of fourteen and seventy-three hundredths pounds per square inch
absolute (14.73 psia).
"Business Day" means a Day on which Coral or MGC is open for business, and
-------------
a Business Day shall open at 9:00 a.m. and close at 5:00 p.m. C.C.T.
"Central Clock Time" or "C.C.T." means the time in the United States
-------------------- ------
Central time zone, taking into account daylight savings time.
"Claims" means all claims or actions, threatened or filed, that directly or
------
indirectly relate to the transactions contemplated herein, and the resulting
losses, damages, expenses, attorneys' fees, experts' fees, and court costs,
whether incurred by settlement or otherwise, and whether such claims or actions
are threatened or filed prior to or after the termination of this Agreement, but
shall not include any claims or actions (or the resulting losses, damages,
expenses, attorneys' fees, experts' fees, and court costs) that directly or
indirectly relate to or result from an order or decision of the FERC.
"CNR Agreement" means the agreement identified on Exhibit E.
-------------- ----------
"Columbia Gulf" means Columbia Gulf Transmission Company.
--------------
"Columbia Gulf System" means the interstate Gas pipeline system owned and
----------------------
operated by Columbia Gulf.
"Confidential Information" shall have the meaning set forth in Section
------------------------- -------
16.5.
- ----
"Contract Year" means the period of twelve (12) Months beginning on
--------------
November 1 and ending on October 31.
"Coral Sale Volumes" means the quantities of Gas delivered by Coral to MGC
-------------------
at the Delivery Points, as confirmed by MGC with the Final Transporter, pursuant
to this Agreement in satisfaction of the Daily Gas Supply Requirements.
"Daily Gas Supply Requirements" means the total quantities of Gas required
------------------------------
by MGC each Day for delivery into the MGC System at the Delivery Points, as
confirmed by MGC with the Final Transporter, for resale to its tariff sales
customers in satisfaction of its public service obligation, which is in excess
of that portion of such Gas requirements to be satisfied from Local Production
and MGS Supplies. The Daily Gas Supply Requirements do not include the
quantities of Gas transported by MGC on behalf of its transportation customers
that procure their own Gas supplies, as confirmed by MGC with the Final
Transporter
I-ii
<PAGE>
"Day" means a period of twenty-four (24) consecutive hours, beginning at
---
8:00 a.m. Central Clock Time on any calendar Day.
"Default" means (a) the failure of either Party to make, when due, any
-------
payment required under this Agreement if said failure is not remedied within
five (5) Business Days after written notice of such failure is given to the
defaulting Party, provided that such payment is not the subject of a good faith
dispute as described Section 10.3; (b) the failure by either Party to perform
------------
(unless such performance is excused by Force Majeure or such failure is caused
-------------
by the act or omission of the other Party) any covenant or other agreement set
forth in this Agreement (other than the obligation to make any payment or any
other obligation, the failure in the performance of which specifically
constitutes a Default under another clause of this definition of "Default"),
[*]; (c) the failure of Coral to perform (unless such performance is excused by
Force Majeure or such failure is caused by the act or omission of MGC or the act
- -------------
or omission of a third party with respect to its obligations under any
Interstate Transportation Agreement, the Storage Agreement or the CNR Agreement)
any covenant or obligation arising under any Interstate Transportation
Agreement, the Storage Agreement, or the CNR Agreement that Coral has undertaken
to perform on MGC's behalf pursuant to Coral's performance of the Services
hereunder and that is not cured in a timely manner as provided in the applicable
agreement; (d) any representation or warranty made by either Party in this
Agreement shall prove to have been false or misleading in any material respect
when made or deemed to be repeated; (e) the failure of any Party to comply with
its covenants contained in Section 9.2 in a timely manner as provided therein;
-----------
or (f) any Party (or its guarantor, if applicable) shall (i) make an assignment
or any general arrangement for the benefit of creditors; (ii) file a petition or
otherwise commence, authorize, or acquiesce in the commencement of a proceeding
or cause under any bankruptcy or similar law for the protection of creditors, or
have such petition filed against it, and such proceeding remains undismissed for
sixty (60) Days; (iii) otherwise becomes bankrupt or insolvent (however
evidenced); or (iv) be unable to pay its debts as they fall due.
"Dekatherm" or "Dth" means one MMBtu.
--------- ---
"Delivery Point(s)" means the agreed point(s) of delivery pursuant to
------------------
Section 3.4(c) herein.
- ---------------
"Demand Charge" means $[*]
--------------
I-iii
<PAGE>
"Designated Accountants" means a mutually acceptable independent public
-----------------------
accounting firm selected by the Parties for purposes of conducting arbitrations
under Section 16.12.
--------------
"Early Termination Date" means a date prior to the expiration of the term
------------------------
hereof on which this Agreement and the transactions herein may be terminated
pursuant to Section 5.7.
------------
"Early Termination Storage Quantity" means the sum of (a) 11,600,000 Dth of
---------------------------------- ---
Gas, plus or minus (b) the aggregate net quantity of Gas specified under the
---- -----
Injection/Withdrawal Plan for injection and withdrawal through the Month
immediately preceding the Month in which an Early Termination Date occurs, plus
----
or minus (c) the quantity of Gas, prorated on a Daily basis through the Early
- -- -----
Termination Date, specified under the Injection/Withdrawal Plan for injection or
withdrawal, as applicable, during the Month in which the Early Termination Date
occurs, plus (d) the quantity of Gas (if any) by which the Effective Date
----
Storage Quantity exceeded 11,600,000 Dth, plus (e) any Excess Withdrawal
----
Quantity existing as of the Early Termination Date which has not been accounted
for as an Undelivered Storage Quantity under Section 5.2 or 5.3 and has not been
------------------
allocated to the Coral Sale Volumes under Section 8.4 as of the Early
------------
Termination Date.
"Effective Date" means November 1, 1998, at 9:00 a.m. C.C.T.
---------------
"Effective Date Storage Quantity" means the actual quantity of Gas in
----------------------------------
storage under the Storage Agreement on the Effective Date, subject to the
provisions of Section 3.3(g)(i).
------------------
"Emergency Notice" means (a) any notice, order, or directive from a
-----------------
Transporter whose facilities directly connect to the MGC System (as well as from
-
any suppliers or other Transporters as the Parties may mutually designate in
writing from time to time) which requires MGC immediately to adjust receipts of
Gas at any Delivery Point or to take other immediate action to prevent penalties
or harm to property or human safety, and (b) any operational flow order, notice,
order, or directive to a Transporter whose facilities directly connect to the
MGC System (as well as from any suppliers or other Transporters as the Parties
may mutually designate in writing from time to time) which requires immediate
action by such entity in order to protect MGC's operations or to prevent harm to
property or human safety.
"Excess Withdrawal Quantity" shall have the meaning set forth in Section
---------------------------- -------
8.4.
- ---
I-iv
<PAGE>
"Expiration Date Storage Quantity" means the sum of (i) 11,600,000 Dth of
----------------------------------
Gas, plus (ii) the quantity of Gas (if any) by which the actual quantity of Gas
in storage under the Storage Agreement on the Effective Date exceeded 11,600,000
Dth, plus (iii) any Excess Withdrawal Quantity existing as of the Termination
----
Date which has not been accounted for as an Undelivered Storage Quantity under
Section 5.2 or 5.3 and has not been allocated to the Coral Sale Volumes under
- ---------------------
Section 8.4 as of the Termination Date.
- ------------
"FERC" means the Federal Energy Regulatory Commission, or any successor
----
agency.
"Final Transporter(s)" means the Transporter that delivers Gas to a
---------------------
Delivery Point; provided, however, that to the extent that Coral purchases Gas
for delivery hereunder from producers whose Gas wells are connected directly
into the MGC System, the term "Final Transporter" shall also include the MGC
System.
"Fixed Price" means $[*] per Dth.
------------
"Fixed Price Adjustment" means, [*].
------------------------
"Fixed Price Quantity" shall have the meaning set forth in Section 8.2.
---------------------- -----------
"FTS Capacity" means the Released Interstate Transportation Capacity on the
------------
TCo System which is subject to Rate Schedule FTS.
"GAAP" means generally accepted accounting principles as in effect in the
----
United States from time to time, including, without limitation, applicable
statements, bulletins, and interpretations issued by the Financial Accounting
Standards Board, and bulletins, opinions, interpretations, and statements issued
by the American Institute of Certified Public Accountants or its committees.
"Gas" means natural gas or any mixture of hydrocarbon gases or of
---
hydrocarbon gases and non-combustible gases, consisting predominantly of
methane.
"Indemnified Party" and "Indemnifying Party" mean the Party receiving and
------------------ -------------------
providing an indemnity, respectively.
"Indemnity Group" means, for each Party, that Party's Affiliates, and the
----------------
officers, directors, employees, agents, and representatives of that Party or
that Party's Affiliates.
"Injection/Withdrawal Plan" means the schedule of planned injections of Gas
-------------------------
into, and withdrawals of Gas from, storage currently in effect under the Storage
Agreement, as set forth on Exhibit B.
----------
"Interest Rate" means, for any Day, a rate of interest equal to the prime
--------------
rate of interest for commercial loans announced from time to time by
NationsBank, Texas, N.A., as the same may change from time to time, plus two
percent (2%) per annum; provided however, that the Interest Rate shall never
exceed the maximum lawful rate permitted by applicable law.
I-v
<PAGE>
"Interstate Transportation Agreements" means, collectively, the agreements
-------------------------------------
listed on Exhibit C.
----------
"Local Production" means the Gas supplies purchased by MGC from third party
----------------
Gas suppliers in the Appalachian region.
"Manage" means pursuing all steps necessary or reasonable to implement
------
natural Gas purchases, transportation, capacity releases, banking, and sales,
including, but not limited to: nominations; confirmation of nominations;
injecting into or withdrawing from storage; identifying, resolving, trading, or
cashing-out imbalances; using electronic bulletin boards; commingling supplies;
entering into pooling, exchange and allocation arrangements; trading supplies;
selling supplies; responding to Transporters' orders; and such other
commercially reasonable steps required efficiently to implement and coordinate
agreements, services, and flows of Gas. "Management" means the act of Managing.
----------
"Market Level Price" means [*].
--------------------
"MGC Employee" shall have the meaning set forth in Section 3.6.
------------- ------------
"MGC System" means the local distribution system owned and operated by MGC
-----------
in the State of West Virginia.
"MGS" means Mountaineer Gas Services Company, a West Virginia corporation
---
and an Affiliate of MGC.
"MGS Supplies" means the Gas supplies and services provided to MGC by MGS
-------------
under the Gas purchase and service agreements in existence on the date of this
Agreement.
"MMBtu" means one million Btu.
-----
"Month" means a period of time beginning at 9:00 a.m. C.C.T. on the first
-----
Day of any calendar month and ending at 9:00 a.m. C.C.T., on the first Day of
the following calendar month.
<PAGE>
"Monthly Invoiced Sale Quantity" means the quantities of Coral Sale Volumes
------------------------------
delivered by Coral to MGC hereunder during any Month, calculated as provided in
Section 8.3, plus the quantities of Gas (if any) deemed to have been delivered
- ------------ ----
into storage during such Month in accordance with the Injection/Withdrawal Plan,
minus the quantities of Gas (if any) deemed to have been withdrawn from storage
- -----
during such Month under the Injection/Withdrawal Plan.
I-vi
<PAGE>
"Net Cumulative Imbalance" means, for each Final Transporter, the
--------------------------
difference, calculated on a cumulative basis for the period from the first day
- ----------
of each Month through the date of determination under Article VII, between
-----------
(a) the quantities of Gas nominated for delivery into such Final
Transporter's system under Article IV, and
-----------
(b) the cumulative total quantity of Gas actually delivered at the Delivery
Points located on such Final Transporter's system.
"Permitted MGC Affiliate" means Energy Corporation of America, Eastern
-------------------------
Marketing Corporation, Gas Access Systems, Inc., Eastern American Energy
Corporation, and Allegheny & Western Energy Corporation.
"Released Interstate Transportation Capacity" means the firm Gas pipeline
---------------------------------------------
transportation capacity rights owned by MGC on the TCo System, the Tennessee
System, and the Columbia Gulf System, subject to and in accordance with the
provisions of, and at the receipt and delivery points set forth in, the
Interstate Transportation Agreements to be released to Coral pursuant to this
Agreement, LESS AND EXCEPT the Retained Interstate Transportation Capacity. The
----------------
Released Interstate Transportation Capacity shall be in the quantities set forth
for the pipeline systems identified on Exhibit C.
----------
"Released Storage Capacity" means the firm Gas storage capacity rights,
---------------------------
together with associated injection and withdrawal rights, owned by MGC in
storage facilities constituting a part of or served by the TCo System in
accordance with the provisions of, and at the receipt and delivery points set
forth in, the Storage Agreement to be released to Coral pursuant to this
Agreement including the right to withdraw Gas injected by Coral pursuant to such
storage capacity rights.
"Replacement Gas" means a quantity of Gas secured by MGC to replace a
----------------
Seller's Deficiency Quantity pursuant to Section 5.2.
------------
"Retained Delivery Points" means the points identified on Exhibit A.
- --------------------------- ----------
I-viii
<PAGE>
"Retained Interstate Transportation Capacity" means (a) 1,500 Dth per Day
---------------------------------------------
firm Gas pipeline capacity on the TCo System under the terms of the TCo FTS
Transportation Agreement, Agreement No. 60266, included herein as a part of
Exhibit C setting forth the Interstate Transportation Agreements, at the
- ----------
Retained Delivery Point(s) as set forth in Exhibit A, currently owned by MGC and
---------
that will be retained by MGC, for the period commencing on the Effective Date
and ending on October 30, 1999, and (b) 1,500 Dth per Day of firm Gas pipeline
transportation capacity on the TCo System under the terms of the TCo FTS
Transportation Agreement, Agreement No. 38113, included herein as part of
Exhibit C setting forth the Interstate Transportation Agreements, at the
- ----------
Retained Delivery Point(s) as set forth in Exhibit A, currently owned by MGC and
---------
that will be retained by MGC throughout the term of this Agreement.
"Schedule" means to make Gas available, or to cause Gas to be made
--------
available, for delivery into the pipeline system of a Transporter at a defined
point of delivery, including the making and confirmation of all pipeline
nominations.
"Seller's Deficiency Quantity" shall have the meaning set forth in Section
----------------------------- -------
5.1
- ---
"Services" shall have the meaning set forth in Article III.
-------- ------------
"Storage Agreement" means the agreement identified on Exhibit D.
------------------ ----------
"Taxes" means any and all ad valorem, property, occupation, severance,
-----
production, extraction, first use, conservation, Btu or energy, gathering,
transport, pipeline, utility, gross receipts, municipal usage or easement, Gas
or oil revenue, Gas or oil import, privilege, sales, use, consumption, excise,
lease, transaction, and other taxes, governmental charges, licenses, fees,
permits and assessments, or increases therein. For purposes hereof, the term
"Taxes" expressly excludes (a) income taxes, franchise taxes, and taxes based on
net income (including alternative minimum taxable income) or net worth, (b) any
tax, charge or assessment which is hereafter levied, charged, assessed or
imposed in replacement or substitution of any of the taxes in clause (a) above,
and (c) any interest, fines, penalties and additions to any of the taxes,
charges or assessments in clauses (a) or (b) above.
"[*] Index Price"means [*].
------------
"TCo System" means the interstate Gas pipeline system owned and operated by
----------
Columbia Gas Transmission Corporation.
"Tennessee System" means the interstate Gas pipeline system owned and
-----------------
operated by Tennessee Gas Pipe Line Company.
"Termination Date" means the date on which the term of this Agreement
-----------------
expires or the effective date of any early termination of this Agreement, as
applicable.
"Termination Payment" shall have the meaning set forth in Section 5.7(b).
-------------------- --------------
"Total Firm Entitlement" means: [*].
------------------------
"Transition Period" means (a) the period of thirty (30) Days immediately
------------------
preceding the expiration of the term of this Agreement or (b) the period between
the date on which a Party declares an early termination of this Agreement and
the Termination Date.
I-viii
<PAGE>
"Transportation Penalties" means all fees, penalties (in cash or in kind),
-------------------------
cash-outs, overrun charges, and similar charges assessed by a Transporter for
failure, whether daily or monthly, to comply with, or to satisfy, the
Transporter's transportation and/or storage balancing, nomination, Scheduling,
and/or similar requirements.
"Transporter" means either the pipeline delivering or receiving Gas at a
-----------
Delivery Point(s) under this Agreement or providing storage capacity pursuant to
the Storage Agreement. For purposes hereof, Columbia Natural Resources shall be
deemed to be a Transporter, subject to and in accordance with the CNR Agreement.
"Undelivered Storage Quantity" shall have the meaning set forth in Section
----------------------------- -------
8.4.
- ---
"Weighted Average Injection Period Price" means the weighted average of the
---------------------------------------
Fixed Price and each Market Level Price (if any) in effect during the Months of
May, June, July, August, September, and October of each Contract Year, with the
weighting to be determined based on the Monthly Invoiced Sale Quantities to
which the Fixed Price and each Market Level Price in effect during such six (6)
Month period is applicable in accordance with Section 8.2.
------------
"West Virginia Code" means the Uniform Commercial Code as in effect in the
-------------------
State of West Virginia, as the same may be amended from time to time.
"West Virginia PSC" means the Public Service Commission of West Virginia,
-------------------
or any successor agency.
I-ix
<PAGE>
SCHEDULE 13.2(f)
----------------
Attached to and made a part of Natural Gas Supply
Management Agreement between Coral Energy Resources, L.P.,
Coral Energy, L.P., and Mountaineer Gas Company
EXISTING DISPUTES
[*]
I-x
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
Attached to and made a part of Natural Gas Supply
Management Agreement between Coral Energy Resources, L.P.,
Coral Energy, L.P. and Mountaineer Gas Company
Retained Delivery Points
------------------------------------------------------------
Maximum
Daily
Service Delivery
Interstate Agreement Rate Scheduling Scheduling Measuring Measuring Obligation
Pipeline Number Schedule Date Point No. Point Name Point No. Point Name (Dth/Day)
- ------------ --------- -------- -------- ---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Columbia Gas 11/1/93, Mountaineer
Transmission 38113 FTS As 27 OP - 3 27 N/A 1,500
Corporation Amended
- ------------ --------- -------- -------- ---------- ----------- --------- ----------- -----------
Columbia Gas Baltimore
Transmission 60266 FTS 7/16/98 4 Gas & Elec 802690 GBE Granite 1,500
Corporation
- ------------ --------- -------- -------- ---------- ----------- --------- ----------- -----------
</TABLE>
I-xi
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT B
ATTACHED TO AND MADE A PART OF NATURAL GAS SUPPLY
MANAGEMENT AGREEMENT BETWEEN CORAL ENERGY RESOURCES, L.P.,
CORAL ENERGY, L.P., AND MOUNTAINEER GAS COMPANY
STORAGE INJECTION/WITHDRAWAL PLAN
---------------------------------
NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT
--- --- --- --- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*] [*] [*] [*] [*] [*]
STORAGE
WITHDRAWAL
DTH EQUIVALENT
--- --- --- --- --- --- --- --- --- --- --- ---
[*] [*] [*] [*] [*] [*]
STORAGE
INJECTION
PLAN
DTH EQUIVALENT
--- --- --- --- --- --- --- --- --- --- --- ---
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT C
ATTACHED TO AND MADE A PART OF NATURAL GAS SUPPLY
MANAGEMENT AGREEMENT BETWEEN CORAL ENERGY RESOURCES, L.P.,
CORAL ENERGY, L.P., AND MOUNTAINEER GAS COMPANY
INTERSTATE TRANSPORTATION AGREEMENTS/
RELEASED INTERSTATE TRANSPORTATION CAPACITY
-------------------------------------------------
(DTH PER DAY)
-------------------------------------------------
SERVICE
INTERSTATE AGREEMENT RATE 11/1/98- 9/1/99- 10/31/99- 8/1/00- 11/1/00-
PIPELINE NUMBER SCHEDULE DATE 8/31/99 10/30/99 7/31/00 10/31/00 10/31/01
- ------------- --------- -------- ---------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COLUMBIA GAS 11/1/93,
TRANSMISSION 38113 FTS AS 56,357 56,357 56,357 59,357 59,357
CORPORATION AMENDED
- ------------- --------- -------- ---------- -------- -------- --------- -------- --------
COLUMBIA GAS
TRANSMISSION 60266 FTS 7/16/98 500 500 0 0 0
CORPORATION
- ------------- --------- -------- ---------- -------- -------- --------- -------- --------
COLUMBIA GAS
TRANSMISSION 39272 NTS 11/1/93 40,000 40,000 40,000 40,000 40,000
CORPORATION
- ------------- --------- -------- ---------- -------- -------- --------- -------- --------
COLUMBIA GAS 231,893 231,893 231,893 231,893 231,893
TRANSMISSION 38087 SST 11/1/93, OCT-MAR; OCT-MAR; OCT-MAR; OCT-MAR; OCT-MAR;
CORPORATION AS 115,946 115,946 115,946 115,946 115,946
AMENDED APR-SEP APR-SEP APR-SEP APR-SEP APR-SEP
- ------------- --------- -------- ---------- -------- -------- --------- -------- --------
TENNESSEE GAS 8396 FTA 10/1/94, 4,825 4,825 4,825 4,825 0
PIPELINE AS AMENDED
- ------------- --------- -------- ---------- -------- -------- --------- -------- --------
COLUMBIA GULF 11/1/93,
TRANSMISSION 37994 FTS1 AS 103,801* 104,953* 104,953* 104,953* 104,953*
COMPANY AMENDED
- ------------- --------- -------- ---------- -------- -------- --------- -------- --------
COLUMBIA GULF 11/1/94,
TRANSMISSION 42794 FTS2 AS 75,291 76,491 76,491 76,491 76,491
COMPANY AMENDED
- ------------- --------- -------- ---------- -------- -------- --------- -------- --------
<FN>
*SEE SECTION 3.3(D)
</TABLE>
I-1
<PAGE>
EXHIBIT D
ATTACHED TO AND MADE A PART OF NATURAL GAS SUPPLY
MANAGEMENT AGREEMENT BETWEEN CORAL ENERGY RESOURCES, L.P.,
CORAL ENERGY, L.P., AND MOUNTAINEER GAS COMPANY
STORAGE AGREEMENT
FSS SERVICE AGREEMENT NO. 38077 DATED AS OF NOVEMBER 1, 1993, BETWEEN COLUMBIA
GAS TRANSMISSION CORPORATION ("SELLER") AND MOUNTAINEER GAS COMPANY ("BUYER"),
PROVIDING FOR STORAGE AND TRANSPORTATION SERVICE UNDER THE FSS RATE SCHEDULE AND
APPLICABLE GENERAL TERMS AND CONDITIONS OF SELLER'S FERC GAS TARIFF, SECOND
REVISED VOLUME NO. 1, ON FILE WITH THE FERC.
I-1
<PAGE>
EXHIBIT E
ATTACHED TO AND MADE A PART OF NATURAL GAS SUPPLY
MANAGEMENT AGREEMENT BETWEEN CORAL ENERGY RESOURCES, L.P.,
CORAL ENERGY, L.P., AND MOUNTAINEER GAS COMPANY
CNR AGREEMENT
SERVICE AGREEMENT DATED DECEMBER 17, 1997, BETWEEN COLUMBIA NATURAL RESOURCES,
INC., AND MOUNTAINEER GAS COMPANY.
I-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT F
ATTACHED TO AND MADE A PART OF NATURAL GAS SUPPLY
MANAGEMENT AGREEMENT BETWEEN CORAL ENERGY RESOURCES, L.P.,
CORAL ENERGY, L.P., AND MOUNTAINEER GAS COMPANY
LOCAL PRODUCTION VOLUMES AND MG SERVICES VOLUMES
DTH/MONTH FOR EACH CONTRACT MONTH AND YEAR
-------- -------- ------- -------- ----- ----- --- ---- ---- ------ --------- ------- -----
NOVEMBER DECEMBER JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER TOTAL
-------- -------- ------- -------- ----- ----- --- ---- ---- ------ --------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL CITYGATE [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
-------- -------- ------- -------- ----- ----- --- ---- ---- ------ --------- ------- -----
VOLUME
-------- -------- ------- -------- ----- ----- --- ---- ---- ------ --------- ------- -----
COMMITMENTS
-------- -------- ------- -------- ----- ----- --- ---- ---- ------ --------- ------- -----
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT G
ATTACHED TO AND MADE A PART OF NATURAL GAS SUPPLY
MANAGEMENT AGREEMENT BETWEEN CORAL ENERGY RESOURCES, L.P.,
CORAL ENERGY, L.P., AND MOUNTAINEER GAS COMPANY
FORM OF CONFIRMATION
ESTIMATED DAILY REQUIREMENTS FOR _______, 199__ (DTH)
ESTIMATED/ACTUAL ESTIMATED/ACTUAL ESTIMATED/ACTUAL
TOTAL INCO DIRECT/LOCAL ESTIMATED/ACTUAL ESTIMATED/ACTUAL
SYSTEM DEMAND ESTIMATED/ACTUAL DELIVERIES DIRECT/LOCAL TCO
THRUPUT THROUGH ENDUSER INTO MGC1 DELIVERIES REQUIREMENTS
(EXCLUDING CEDAR TRANSPORT -END USER INTO MGC1 FOR SYSTEM
INCO) CREST TRANSPORT -SYSTEM SUPPLY
_________ _________ ________ __________ _________
<S> <C> <C> <C> <C> <C> <C> <C>
1998
[MONTH] 1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
<FN>
1/ INCLUDES DELIVERIES FROM A & W, CABOT-WOODBINE, TENNESSEE GAS PIPELINE-ST ALBANS, ROARING FORK-HUNTINGTON,
ARLINGTON-MGS AND VARIOUS LOCAL PRODUCTION.
</TABLE>
I-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT H
ATTACHED TO AND MADE A PART OF NATURAL GAS SUPPLY
MANAGEMENT AGREEMENT BETWEEN CORAL ENERGY RESOURCES, L.P.,
CORAL ENERGY, L.P., AND MOUNTAINEER GAS COMPANY
TOTAL FIRM ENTITLEMENT
---------------------------------------
(DTH PER DAY)
---------------------------------------
SERVICE
INTERSTATE AGREEMENT RATE 11/1/98- 10/31/99- 8/1/00- 11/1/00-
PIPELINE NUMBER SCHEDULE DATE 10/30/99 7/31/00 10/31/00 10/31/01
- ------------- --------- -------- ---- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
[*] [*] [*] [*] [*] [*] [*]
COLUMBIA GAS
TRANSMISSION
CORPORATION
- ------------- --------- -------- ---- -------- --------- -------- --------
[*] [*] [*] [*] [*] [*] [*]
COLUMBIA GAS
TRANSMISSION
CORPORATION
- ------------- --------- -------- ---- -------- --------- -------- --------
[*] [*] [*] [*] [*] [*] [*]
COLUMBIA GAS
TRANSMISSION
CORPORATION
- ------------- --------- -------- ---- -------- --------- -------- --------
[*] [*] [*] [*] [*] [*] [*]
COLUMBIA GAS
TRANSMISSION
CORPORATION
- ------------- --------- -------- ---- -------- --------- -------- --------
[*] [*] [*] [*] [*] [*] [*]
TENNESSEE GAS
PIPELINE
- ------------- --------- -------- ---- -------- --------- -------- --------
[*] [*] [*] [*]
TOTAL FIRM
ENTITLEMENT
- ------------- --------- -------- ---- -------- --------- -------- --------
</TABLE>
I-1
<PAGE>
EXHIBIT I
Attached to and made a part of Natural Gas Supply
Management Agreement between Coral Energy Resources, L.P.,
Coral Energy, L.P., and Mountaineer Gas Company
CONFIDENTIALITY AND NONDISCLOSURE AGREEMENT
This Confidentiality and Nondisclosure Agreement (this "Agreement") is made
and entered into this _____ day of __________, 1998, by and between CORAL ENERGY
RESOURCES, L.P. ("Coral"), and CORAL ENERGY, L.P. ("CELP"), both of which are
Delaware limited partnerships having as their address 909 Fannin, Suite 700,
Houston Texas 77010, and MOUNTAINEER GAS COMPANY ("MGC"), a West Virginia
corporation, and _____________________ ("MGC Employee"), both of which have as
their address 414 Summers Street, Charleston, West Virginia 25301. References
herein to Coral shall be deemed also to include CELP. MGC and MGC Employee
shall be referred to herein collectively as the "Receiving Party."
RECITALS
WHEREAS, pursuant to the Natural Gas Supply Management Agreement dated as
of September 30, 1998, between Coral, CELP, and MGC ("NGSMA"), Coral agreed (a)
to provide to MGC such gas supplies in excess of certain third party and
affiliate gas supplies of MGC as are necessary to permit MGC to perform its
public utility service obligations to its consumers, and (b) to manage certain
existing transportation and storage agreements to which MGC is a party in
connection therewith; and
WHEREAS, pursuant to Section 3.6 of the NGSMA, MGC has selected the MGC
Employee to be resident in Coral's Houston, Texas, office, and to perform the
work described in such provision; and
WHEREAS, in performing his or her work under Section 3.6 of the NGSMA, the
MGC Employee may receive, review, or otherwise become aware of certain "Coral
Information" (as hereinafter defined) that is not covered by the confidentiality
provisions contained in Section 16.5 of the NGSMA;
NOW THEREFORE, for and in consideration of the covenants and agreements of
the parties hereto contained in the NGSMA, and in further consideration of the
premises and the agreements herein contained, the sufficiency of which are
hereby acknowledged and confessed, the parties do hereby agree as follows:
<PAGE>
1. Nondisclosure of Coral Information. Until the termination of this
------------------------------------
Agreement, the Coral Information (as defined in Section 4) will be kept strictly
confidential by Receiving Party, and the Receiving Party will not use the Coral
Information in any way detrimental to the business interests of Coral. The
Coral Information shall not be disclosed to any person by the MGC Employee. It
is understood that MGC will be responsible for any breach of this Agreement by
the MGC Employee. If and to the extent MGC receives Coral Information from the
MGC Employee, MGC shall not disclose the Coral Information to any person, and
shall safeguard the Coral Information from unauthorized disclosure. For
purposes hereof, "person" will be interpreted broadly to include any
corporation, company, partnership, limited liability company, individual or
governmental authority.
2. Term. This Agreement shall terminate five (5) years after the
----
"Termination Date" under the NGSMA.
3. Notice Preceding Compelled Disclosure. If Receiving Party or its
----------------------------------------
officers, directors or employees (the "Representatives") are requested or
required (by oral question, interrogatories, requests for information or
documents, subpoena, civil, criminal or regulatory investigative demand, or
similar process) to disclose any Coral Information, Receiving Party shall
promptly notify Coral of such request or requirement, to the extent not
prohibited from doing so by applicable laws, rules or regulations of
governmental authority, so that Coral may seek an appropriate protective order
or waive compliance with this Agreement. If, in the absence of a protective
order or the receipt of a waiver hereunder, Receiving Party or its
Representatives are, in the opinion of legal counsel of MGC, compelled to
disclose the Coral Information or else stand liable for contempt or suffer other
censure or penalty, Receiving Party and its Representatives may disclose only
such of the Coral Information to the party compelling disclosure as, in the
opinion of legal counsel of MGC, is required by applicable law, rule,
regulation, or ordinance and, in connection with such compelled disclosure, MGC
shall use its reasonable efforts to obtain from the party to whom disclosure is
made written assurance that confidential treatment will be accorded to such
portion of the Coral Information as is disclosed; provided, however, that if the
Receiving Party has given Coral at least fifteen (15) business days' advance
written notice of such request or requirement, and Coral has not sought to
intervene to provide its interest, or Coral has intervened, but has been
unsuccessful in obtaining a protective order, then MGC shall not be obligated to
pursue efforts to obtain written assurances that confidential treatment will be
accorded such disclosed Coral Information.
<PAGE>
4. Definition of "Coral Information". As used in this Agreement,
------------------------------------
"Coral Information" means all information or materials (exclusive of
"Confidential Information" as defined in the NGSMA) furnished to the MGC
Employee (while the MGC Employee is the "MGC Employee" under the NGSMA) by Coral
in writing, orally, via computer or information storage media, or of which the
MGC Employee (while the MGC Employee is the "MGC Employee" under the NGSMA)
otherwise becomes aware in the performance of his or her work as described in
Section 3.6 of the NGSMA, which is confidential or otherwise not generally
available to the public, and concerns the business and operations of Coral or
its customers, suppliers, partners, co-venturers, or "Affiliates" (as defined in
the NGSMA), including, but not limited to, (a) gas supply, gas sale,
transportation, storage, gathering, financial hedging, and other contracts, (b)
customer and supplier lists and other information, (c) price methodology and
procedures, (d) risk management structures and pricing, (e) gas management
service procedures and structures, (f) credit information, (g) business plans,
(h) market information, (i) software, (j) databases, (k) data and tables
contained in such databases, (l) database description language, and (m) data
definitions. Except with respect to "Confidential Information" (as defined in
the NGSMA) that is delivered by Coral to the MGC Employee subject to the
provisions of Section 16.5 of the NGSMA, any information furnished to MGC
Employee by a director, officer, employee, affiliate, partner, co-venturer,
consultant, agent, or representative of Coral will be deemed furnished by Coral
for the purpose of this Agreement. Notwithstanding the foregoing, the following
will not constitute Coral Information for purposes of this Agreement: (i)
information which is or becomes generally available to the public other than as
a result of a disclosure by Receiving Party or its Representatives in violation
of this Agreement; (ii) information which was already known to Receiving Party
on a nonconfidential basis prior to being furnished to Receiving Party by Coral;
(iii) information which becomes available to Receiving Party on a
nonconfidential basis from a source other than Coral or a representative of
Coral if such disclosure by such source was not in violation of any prohibition,
to which such source was subject, against transmitting the information to
Receiving Party and was not in violation of a confidentiality agreement of such
source with Coral, and (iv) information which MGC obtains by operation of law in
connection with enforcing MGC's rights under the NGSMA.
5. Return of Information. The Coral Information will remain the
-----------------------
property of Coral. Coral Information which is furnished in written form,
including any copies of such written Coral Information that may be found in
drafts, notes, compilations, studies, synopses, or summaries thereof, on
computer or other information storage media or in other documents prepared by or
for the MGC Employee, MGC or its Representatives, will be returned to Coral, to
the extent of the Coral Information, immediately upon its request, and no copies
of such Coral Information will be retained by the MGC Employee, MGC or its
Representatives. Any Coral Information that may be found in documents prepared
by or for the MGC Employee or MGC, oral Coral Information, and written Coral
Information not so requested to be returned will be held by Receiving Party and
kept subject to the terms of this Agreement, or destroyed.
6. No Waiver. No failure or delay in exercising any right, power, or
----------
privilege hereunder will operate as a waiver thereof, nor will any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege hereunder.
7. Remedies. Receiving Party acknowledges and agrees that money
--------
damages would not be a sufficient remedy for any breach of this Agreement by
Receiving Party or its Representatives and Coral will be entitled to specific
performance and injunctive relief as remedies for any such breach. Such
remedies will not be deemed to be the exclusive remedies for a breach of this
Agreement by Receiving Party or any of its Representatives but will be in
addition to all other remedies available at law or in equity to Coral.
<PAGE>
8. Miscellaneous. This Agreement inures to the benefit of Coral and
-------------
its successors and permitted assigns under the NGSMA and is binding on Receiving
Party and Receiving Party's successors and assigns. This Agreement and the
NGSMA constitutes the entire agreement between Coral and Receiving Party with
respect to the subject matter hereof. The headings of the Sections of this
Agreement are inserted for convenience only and do not constitute a part hereof
or affect in any way the meaning or interpretation of this Agreement. THIS
AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF WEST VIRGINIA WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES THEREOF
WHICH WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAWS OF A DIFFERENT
JURISDICTION.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
CORAL ENERGY RESOURCES, L.P.
Name:
Title:
CORAL ENERGY, L.P.
Name:
Title:
MOUNTAINEER GAS COMPANY
Name:
Title:
Name:
MGC Employee
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT J
ATTACHED TO AND MADE A PART OF NATURAL GAS SUPPLY
MANAGEMENT AGREEMENT BETWEEN CORAL ENERGY RESOURCES, L.P.,
CORAL ENERGY, L.P., AND MOUNTAINEER GAS COMPANY
COLUMBIA GAS TRANSMISSION PROJECTED
- ------------------------------------- DEMAND CHARGES
CORPORATION (PER DTH OF
- ------------------------------------- RELEASED
TRANSPORTATION
RELEASED INTERSTATE TRANSPORTATION/STORAGE CAPACITY CAPACITY)
--------------------------------------------------------------- --------------
1/1/98 9/1/99 10/31/99 8/1/00 11/1/00 11/1/98
RATE SCHEDULE/AGREEMENT NO. -8/31/99 -10/30/99 -7/31/00 -10/31/01 -10/31/01 -12/31/98
----------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
[*] [*] [*] [*] [*]
FTS-AGREEMENT NO. 38113 $ 6.6300
----------- ----------- ----------- ----------- ----------- --------------
[*] [*] [*] [*] [*]
FTS-AGREEMENT NO. 60266 $ 6.6300
----------- ----------- ----------- ----------- ----------- --------------
[*] [*] [*] [*] [*]
NTS-AGREEMENT NO. 39272 $ 8.1535
----------- ----------- ----------- ----------- ----------- --------------
115,946 115,946 115,946 115,946 115,946
(APR-SEP); (APR-SEP); (APR-SEP); (APR-SEP); (APR-SEP);
231,893 231,893 231,893 231,893 231,893
SST-AGREEMETN NO. 38087 (OCT-MAR) (OCT-MAR) (OCT-MAR) (OCT-MAR) (OCT-MAR) $ 6.3000
----------- ----------- ----------- ----------- ----------- --------------
[*] [*] [*] [*] [*]
FSS-AGREEMENT NO. 38077 $ 1.5120
----------- ----------- ----------- ----------- ----------- --------------
[*] [*] [*] [*] [*]
FSS CP-AGREEMENT NO. 38077 $ 0.0290
----------- ----------- ----------- ----------- ----------- --------------
RP95-408 SETTLEMENT CREDIT N/A N/A N/A N/A N/A ($591,666.67)
/MONTH
----------- ----------- ----------- ----------- ----------- --------------
COLUMBIA GULF TRANSMISSION COMPANY
- -------------------------------------
RATE SCHEDULE/AGREEMENT NO.-
[*] [*] [*] [*] [*]
FTS1-AGREEMENT NO. 37994 $ 3.1450
----------- ----------- ----------- ----------- ----------- --------------
[*] [*] [*] [*] [*]
FTS2-AGREEMENT NO. 42794 $ 0.9995
----------- ----------- ----------- ----------- ----------- --------------
[*] [*] [*] [*] [*]
TRANSMISSION GAS PIPE LINE COMPANY
- -------------------------------------
RATE SCHEDULE/AGREEMENT NO.-
FT-A - AGREEMENT NO. 8396 $ 11.343
COLUMBIA NATURAL RESOURCES, INC.
- -------------------------------------
COMMODITY PRICE TO BE UTILIZED FOR
CHANGES IN RETAINAGE PERCENTAGES N/A
(FTS2 COLUMBIA GULF EQUIVALENT; ZONE
1 TENNESSEE GAS PIPE LINE EQUIVALENT)
PROJECTED PROJECTED
DEMAND CHARGES (PER DTH OF RELEASED COMMODITY RETAINAGE
TRANSPORTATION CAPACITY) CHANGES PERCENTAGES
---------------------------------------------- ----------- ----------
RATE SCHEDULE/AGREEMENT NO. 1/1/99 2/1/99 11/1/00 11/1/98 11/1/9/
-1/31/99 -10/31/00 -10/31/01 -10/31/01 -10/31/01
-------------- -------------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
FTS-AGREEMENT NO. 38113 $ 6.6300 $ 6.5090 $ 6.5090 $ 0.0246 2.2340%
-------------- -------------- -------------- ----------- ----------
FTS-AGREEMENT NO. 60266 $ 6.6300 $ 6.6300 N/A $ 0.0246 2.2340%
-------------- -------------- -------------- ----------- ----------
NTS-AGREEMENT NO. 39272 $ 8.1535 $ 8.0325 $ 8.0325 N/A N/A
-------------- -------------- -------------- ----------- ----------
SST-AGREEMETN NO. 38087 $ 6.3000 $ 6.1790 $ 6.1790 $ 0.0135 2.2340%
$ .0134
FSS-AGREEMENT NO. 38077 $ 1.5120 $ 1.5120 $ 1.5120 INJECTION/ 0.1300%
WITHDRAWAL
FEE
-------------- -------------- -------------- ----------- ----------
FSS CP-AGREEMENT NO. 38077 $ 0.0290 $ 0.0290 $ 0.0290 N/A N/A
-------------- -------------- -------------- ----------- ----------
RP95-408 SETTLEMENT CREDIT ($591,666.67) ($591,666.67) ($591,666.67) N/A N/A
/MONTH /MONTH /MONTH
-------------- -------------- -------------- ----------- ----------
COLUMBIA GULF TRANSMISSION COMPANY
- -------------------------------------
RATE SCHEDULE/AGREEMENT NO.-
FTS1-AGREEMENT NO. 37994 $ 3.1450 $ 3.1450 $ 3.1450 $ 0.0170 2.9190%
-------------- -------------- -------------- ----------- ----------
FTS2-AGREEMENT NO. 42794 $ 0.9995 $ 0.9995 $ 0.9995 $ 0.0039 0.6090%
-------------- -------------- -------------- ----------- ----------
TRANSMISSION GAS PIPE LINE COMPANY
- -------------------------------------
RATE SCHEDULE/AGREEMENT NO.-
FT-A - AGREEMENT NO. 8396 $ 9.70 $ 9.70 N/A $ 0.0984 4.9900%
COLUMBIA NATURAL RESOURCES, INC. $ 80,000 N/A N/A N/A
- -------------------------------------
ANNUALLY
COMMODITY PRICE TO BE UTILIZED FOR
CHANGES IN RETAINAGE PERCENTAGES N/A N/A N/A $ 2.3800 N/A
(FTS2 COLUMBIA GULF EQUIVALENT; ZONE
1 TENNESSEE GAS PIPE LINE EQUIVALENT)
-------------- -------------- -------------- ----------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
COMPANY. . . . . . . . . . . . . . . . STATE OF INCORPORATION
Eastern American Energy Corporation. . West Virginia
Eastern Marketing Corporation. . . . . West Virginia
Eastern Pipeline Corporation . . . . . West Virginia
Eastern Systems Corporation. . . . . . West Virginia
Eastern Capital Corporation. . . . . . West Virginia
Eastern Exploration Corporation. . . . West Virginia
Mountaineer Gas Company. . . . . . . . West Virginia
Mountaineer Gas Services . . . . . . . West Virginia
Westech Energy Corporation . . . . . . Colorado
Westech Energy New Zealand Limited . . New Zealand
Westside Acquisition Corporation . . . Colorado
Allegheny & Western Energy Corporation West Virginia
Natural Gas Transportation Company . . West Virginia
Mapcom Systems, Inc. . . . . . . . . . Virginia
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY'S JUNE
30, 1999 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 13557
<SECURITIES> 0
<RECEIVABLES> 34476
<ALLOWANCES> 1622
<INVENTORY> 357
<CURRENT-ASSETS> 75968
<PP&E> 432209
<DEPRECIATION> 116893
<TOTAL-ASSETS> 436942
<CURRENT-LIABILITIES> 88887
<BONDS> 280121
0
0
<COMMON> 721
<OTHER-SE> 13756
<TOTAL-LIABILITY-AND-EQUITY> 436942
<SALES> 285603
<TOTAL-REVENUES> 285603
<CGS> 166823
<TOTAL-COSTS> 280331
<OTHER-EXPENSES> (1170)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26554
<INCOME-PRETAX> (20112)
<INCOME-TAX> (5232)
<INCOME-CONTINUING> (14887)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14887)
<EPS-BASIC> (22.12)
<EPS-DILUTED> (22.12)
</TABLE>
