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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 DECEMBER 31, 1993
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-11994
CORNERSTONE NATURAL GAS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-1952257
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8080 N.CENTRAL EXPRESSWAY 75206
SUITE 1200 (Zip Code)
DALLAS, TEXAS
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 691-5536
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ----------------
Common Stock, $0.10 par value per share American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 AND (2) HAS BEEN SUBJECT TO SUCH FILINGS
REQUIREMENTS FOR THE PAST 90 DAYS. YES __X__ NO _____
INDICATE BY CHECK MARK WHETHER DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN THE PROXY STATEMENT INCORPORATED BY
REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K.
YES _____ NO __X__
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES __X__ NO _____
AS OF MARCH 21, 1994, THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING WAS
12,515,959. THE AGGREGATE MARKET VALUE OF THE 6,172,333 SHARES OF COMMON STOCK
HELD BY NONAFFILIATES OF CORNERSTONE NATURAL GAS, INC. AS OF SUCH DATE WAS
APPROXIMATELY $10,030,041.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement to be filed
with the Securities and Exchange Commission on or before April 30, 1994, are
incorporated herein by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS TO FORM 10-K
PART I PAGE
----
1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-6
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-9
3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 9
4. Submission of Matters to a Vote of Security Holders. . . . . . . 9
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . . . . 10
6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . 11
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . 12-16
8. Financial Statements and Supplementary Data. . . . . . . . . . . 16-33
9. Changes in and Disagreements on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
PART III
10. Directors and Executive Officers of the Registrant . . . . . . . 33
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 33
12. Security Ownership of Certain Beneficial Owners and Management . 33
13. Certain Relationships and Related Transactions . . . . . . . . . 33
PART IV
14. Exhibits, Financial Statement Schedules and Reports and Form 8-K . 33-41
`<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Cornerstone Natural Gas, Inc. (formerly Endevco, Inc.), a Delaware corporation
("Cornerstone"), is engaged in the business of natural gas pipeline and natural
gas processing operations. Natural gas pipeline operations include purchasing,
gathering, transporting and marketing of natural gas. Natural gas processing
operations include recovering and marketing of natural gas liquids ("NGLs") from
natural gas and treating natural gas by removing noncommercial components.
Natural gas processing operations also include refining condensate and crude oil
into various petroleum products. Cornerstone, its subsidiaries and affiliated
companies are herein collectively referred to as the "Company", unless the
context otherwise indicates.
The Company was incorporated under the laws of Texas in 1977 as Endevco, Inc.
and was reincorporated under the laws of Delaware in May 1988. The Company
changed its name in November 1993 to Cornerstone Natural Gas, Inc. in connection
with its emergence from bankruptcy. The Company's principal administrative
offices are located at 8080 North Central Expressway, Suite 1200, Dallas, Texas
75206 and the telephone number is (214) 691-5536.
RECENT DEVELOPMENTS
On June 4, 1993, Endevco, Inc. and its subsidiaries ANGIC, Inc. (formerly known
as Cornerstone Natural Gas Company), Mississippi Fuel Company and Endevco Taft
Company (collectively, the "Debtors") filed voluntary petitions for
reorganization under Chapter 11 of the Bankruptcy Code with the United States
Bankruptcy Court for the Eastern District of Texas, Sherman Division (the
"Bankruptcy Court"). No other subsidiary of the Company was included in the
bankruptcy filing.
On September 29, 1993, the Bankruptcy Court confirmed the Debtor's First Amended
Joint Plan of Reorganization (the "Plan"), and the Plan was consummated on
November 2, 1993. For details about the Plan see Note 2 of "Notes to
Consolidated Financial Statements" and Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
NATURAL GAS PIPELINE OPERATIONS
GENERAL. In November 1993, the Company transferred four of its natural gas
gathering and transmission systems to its former Noteholders in return for the
release of approximately $44.1 million in debt and accrued interest. See Note 2
of "Notes to Consolidated Financial Statements" and Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
However, management believes that it is essential to own natural gas pipeline
systems in order to compete in the natural gas industry. Therefore, the Company
will continue to pursue natural gas pipeline projects. Revenues from these
operations are generated in two ways. First, natural gas is transported or
purchased and sold using Company-owned facilities, resulting in what are termed
"System sales". Second, natural gas is purchased and sold using only facilities
owned by third parties, resulting in what are termed "Off-system sales". The
Company's natural gas pipeline operations accounted for 53%, 49%, and 56% of
consolidated revenues in 1993, 1992 and 1991 respectively. For information
about revenues, operating earnings and identifiable assets, see Note 9 of "Notes
to Consolidated Financial Statements".
SYSTEM SALES. System sales accounted for 90%, 91%, and 94% of natural gas
pipeline operations gross margin in 1993, 1992 and 1991 respectively. The
Company has two primary strategies for utilizing its facilities to generate
System sales. One is to aggregate supplies of natural gas connected to its
systems and deliver the natural gas to local markets or connecting pipelines.
The Company typically gathers natural gas at the wellhead or a central gathering
location. This natural gas is primarily owned by independent producers,
however, some is owned by major integrated oil companies. The Company either
transports for a fee or purchases the natural gas at the wellhead and, if there
is no local market, arranges transportation on the intrastate and interstate
pipelines and resells it to local distribution companies ("LDCs"), utilities,
commercial or industrial end-users or other natural gas marketing companies.
The Company generally purchases natural gas under contracts whose prices are
determined by prevailing market conditions. Gas is then resold at higher prices
under sales contracts with similar pricing terms. The Company earns a margin
equal to the difference between the gas purchase price it pays the supplier and
the sales price it receives from the purchaser. The
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Company also offers services such as marketing, gas control, contract
administration and pipeline operations which are not usually available to small
producers.
The Company's other strategy is to identify a utility or industrial end-user
whose natural gas is supplied from limited sources. As a result of the limited
competition, these end-users often pay a premium price for their natural gas.
Typically, the Company will enter into a long-term contract (3-10 years) to
construct a pipeline and supply all, or some agreed upon minimum, of the end-
user's natural gas needs. The Company generally shares a portion of the price
savings with the end-user. This allows the end-user to pay less for their
natural gas supply and the Company to recover its capital expenditures over a
short period of time. The Company completed one such project in 1993, its Port
Hudson System located in East Baton Rouge Parish, Louisiana.
OFF-SYSTEM SALES. In addition to marketing natural gas gathered and transported
through its systems, the Company purchases and sells gas acquired from others
utilizing only third party systems. In such transactions, the Company usually
contracts on a short-term "best efforts" basis with producers, pipelines or
other suppliers and sells to LDCs, utilities, commercial or industrial end-users
or other natural gas marketing companies. The volume of natural gas throughput
for Off-system sales can vary significantly from month-to-month. Off-system
sales allow the Company to respond quickly to changing market conditions
particularly in peak demand periods. Off-system sales also allow the Company to
develop new marketing relationships that can later be supplied by the Company's
own facilities.
GAS SUPPLIES. The Company does not own any natural gas reserves. However, the
Company continually seeks new supplies of natural gas connected to its systems,
both to offset natural declines and to provide new supplies to increase
throughput. The Company purchases Off-system natural gas from a variety of
suppliers including independent producers, major integrated oil companies and
other natural gas marketing companies. With the advent of "open access" on the
interstate pipelines, the Company has an abundant source of natural gas to
supply its current markets.
NATURAL GAS PROCESSING AND OPERATIONS
GENERAL. The Company's original core business was the treating and processing
of natural gas. Management is currently refocusing on this core business. The
Company is in the process of relocating two cryogenic gas processing plants from
Brazoria County, Texas to Lincoln Parish, Louisiana to replace existing
refrigerated lean oil facilities. These plants will be used in conjunction with
the Company's approximately 492 miles of gathering pipelines in North Louisiana.
The plants, with an inlet capacity of 45-50 million cubic feet per day
("MMCFD"), are expected to be operational early in the second quarter of 1994.
The Company entered into petroleum refining during the fourth quarter of 1988.
Management of the reorganized Company believes it is necessary to decrease its
emphasis on refining. Therefore, the Company discontinued operations at one of
its two refineries in July 1993. Management is continuing to examine its
alternatives to further decrease its emphasis on refining operations. The
Company's gas processing and refining operations accounted for 47%, 51%, and 44%
of consolidated revenues in 1993, 1992 and 1991 respectively. For more
information about revenues, operating earnings and identifiable assets, see Note
9 of "Notes to Consolidated Financial Statements".
GAS LIQUIDS EXTRACTION. The Company's gas liquids extraction operations consist
primarily of extracting NGLs such as ethane, propane, butane and natural
gasoline from a natural gas stream. Gathering facilities collect natural gas
from producers' wells and transport it to a Company processing plant where it is
separated into NGLs and residue gas. The NGLs are then either fractionated into
differentiated component products by the Company or transported by truck to a
central location for fractionation. Once fractionated, NGLs are transported by
truck and sold to end-users or wholesalers.
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<PAGE>
The Company historically has installed a natural gas processing plant in areas
where wells produce natural gas that either contain sufficient NGLs to
economically process or that require processing to meet pipeline quality
standards. The value of the NGLs is generally greater if extracted than if left
in the natural gas stream. The Company agrees to install a natural gas
processing plant in exchange for a portion of the proceeds from the NGLs
extracted or for a fee. The Company may also receive a portion of the residue
gas.
Generally, gas liquids extraction services have been performed separately from
the Company's natural gas pipeline operations. However, the Company has fully
integrated its gathering and processing facilities in North Louisiana to provide
full service to the producers. The Company gathers, treats, processes and often
markets natural gas and NGLs for a percentage of the proceeds or, in some cases,
for a fee.
The Company's North Louisiana facilities are located in an area of known
hydrocarbon production and although there can be no assurance of continued
development, management believes that additional natural gas and gas liquids
reserves will be developed to offset normal production declines in the area.
The Company is working diligently to put several of its idle gas processing and
treating plants back into service. See "Properties - Gas Liquids
Recovery/Refining". The Company's gas liquids extraction operations would be
adversely affected by a decline in NGL prices or a decline in natural gas
throughput.
PETROLEUM REFINING. The Company's refining operations consist of manufacturing
petroleum products including unleaded gasoline, hydrocarbon solvents, diesel
fuel, residual fuel oil and other related products from crude oil and condensate
("feedstock"). The feedstock is gathered by transporters from area leases by
truck or pipeline to the plants. The feedstock is separated into major
components by a series of processes and then blended and/or converted into
finished products. The processes include distillation, hydrosulfurization,
catalytic reforming, isomerization and fractionation. A solvent unit at the
Claiborne plant adds a further process of splitting the diesel-kerosene stream
into hydrocarbon solvents. The finished products are transported by truck or
pipeline to wholesalers or end-users. The Company is putting less emphasis on
its refining operations as a result of the working capital financing
requirements and volatility of refining margins.
GAS TREATING. Gas treating operations involve the treating of unmarketable
natural gas to remove impurities and thus make it marketable. This service is
generally performed for producers under contract, whereby the Company agrees to
install and operate a facility to remove noncommercial components from gas
dedicated to that facility. The services are normally conducted under long-
term contracts for a fixed fee, a per unit fee, or a combination thereof. The
Company's gas treating operations would be adversely affected by reduced volumes
of gas treated. The Company is actively working to put its idle gas treating
facilities back into service. See "Properties - Gas Liquids Recovery/Refining".
MARKETS AND MAJOR CUSTOMERS
NATURAL GAS PIPELINE OPERATIONS. The Company's reorganization included the
transfer of four gas pipeline systems to the Company's former Noteholders. See
Note 2 of "Notes to Consolidated Financial Statements" and Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations". This
significantly reduced the Company's natural gas pipeline operations.
Additionally, the financial difficulties of the Company and associated
uncertainties reduced the number of suppliers willing to do business on normal
terms. As a result, the Company was limited in the amount of natural gas it
could buy. The Company kept its major customers supplied first and sold to
others only when supply was available. As such, the Company reduced the overall
number of sales customers in 1993. During 1993, the Company's sales to Georgia
Pacific Company accounted for 12% of consolidated revenues. During 1992 and
1991, the Company had no single customer from its natural gas pipeline
operations responsible for over 10% of consolidated revenues.
GAS PROCESSING AND OPERATIONS. The Company has begun to decrease its emphasis
on refining operations. As a result, the Company had no single customer from
its gas processing operations responsible for over 10% of consolidated revenues
in 1993 or 1992. During 1991, the Company's sales to Continental Ozark
accounted for 14% of consolidated revenues.
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<PAGE>
PRODUCT PRICES. During the three years ended December 31, 1993, the average
sales prices for natural gas, significant NGLs, and refined products were as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Natural gas sales ($/MMBTU):
System sales . . . . . . . . . . . . . . . . . . $ 2.17 $ 1.80 $ 1.57
Off-system sales . . . . . . . . . . . . . . . . $ 2.24 $ 2.00 $ 1.94
Average NGL prices ($/Gal):
Propane. . . . . . . . . . . . . . . . . . . . . $ 0.33 $ 0.32 $ 0.36
Butanes (Iso and Normal) . . . . . . . . . . . . $ 0.36 $ 0.38 $ 0.42
Natural gasoline . . . . . . . . . . . . . . . . $ 0.45 $ 0.49 $ 0.54
Refined product prices ($/Gal):
Regular unleaded gasoline. . . . . . . . . . . . $ 0.53 $ 0.57 $ 0.62
Jet fuel . . . . . . . . . . . . . . . . . . . . $ 0.55 $ 0.57 $ 0.61
Diesel . . . . . . . . . . . . . . . . . . . . . $ 0.53 $ 0.56 $ 0.57
Solvents . . . . . . . . . . . . . . . . . . . . $ 0.67 $ 0.66 $ 0.74
Residual fuel oil and gas oil. . . . . . . . . . $ 0.43 $ 0.47 $ 0.49
</TABLE>
The Company sometimes receives NGLs in kind as its fee for its gas processing
services. Revenues from such operations are directly affected by fluctuations
in NGL prices. The natural gas sales contracts and natural gas purchase
contracts of the Company are generally interrelated as to term and pricing, and
the Company's income is derived from either a fixed spread or a fixed fee per
unit of natural gas. Although the margin between purchase and resale prices
tends to fluctuate with the increase or decrease in the sales price of natural
gas, such fluctuations are generally less severe and not necessarily directly
correlative with the changes in natural gas prices.
COMPETITION
The natural gas pipeline and natural gas processing industries are highly
competitive. In marketing natural gas, the Company has numerous competitors,
including marketing affiliates of major interstate pipelines, the major
integrated oil companies, and local and national gas gatherers, brokers and
marketers of widely varying sizes, financial resources and experience. Certain
competitors, such as major oil companies, have capital resources many times
greater than those of the Company and control substantial supplies of natural
gas. Local utilities and distributors of natural gas (some of which are
customers of the Company) are, in some cases, engaged directly, and through
affiliates, in marketing activities that compete with the Company.
The Company competes against other companies in the gathering, marketing and
transmission business for supplies of natural gas, for customers to whom to sell
its natural gas, and for availability of pipeline capacity. Competition for
natural gas supplies is primarily based on efficiency, reliability, availability
of transportation and ability to pay a satisfactory price for the producer's
natural gas. Competition for customers is primarily based upon reliability of
supply and price of deliverable natural gas. Some of the Company's customers
have the capability of using alternative fuels. In these cases, the Company
also competes against companies capable of providing alternative fuels on the
basis of price.
Since the capacity of the major interstate pipelines is sometimes less than
sufficient to transport all natural gas that could otherwise be purchased, the
Company and its customers and suppliers are often in competition with other
shippers for pipeline capacity. The Company's ability to transport its natural
gas through third party pipelines may be adversely affected during periods of
peak demand because the Company and some of its principal suppliers and
purchasers have interruptible transportation rights. During periods of peak
demand, shippers with firm transportation rights may displace natural gas being
shipped by its customers and suppliers. The Company attempts to alleviate these
problems by emphasizing sales to local markets or to customers having firm
transportation rights on interstate pipelines.
The Company has net operating loss ("NOL") carryforwards for income tax purposes
of approximately $28.9 million. In addition, the Company has unused investment
tax credits of approximately $1.6 million available to offset future federal
income tax liabilities. Management expects these tax benefits to give the
Company a competitive advantage when bidding
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on new projects.
GOVERNMENTAL REGULATION
Governmental regulation has a significant effect on the Company's operations.
Its facilities and operations are affected by both federal and state regulatory
agencies. State regulatory agencies are responsible for the enforcement of
applicable state statutes and regulations, and generally have the responsibility
of enforcing the Natural Gas Pipeline Safety Act of 1968 and the regulations
promulgated thereunder. The Federal Energy Regulatory Commission ("FERC") is
responsible generally for enforcing federal statutes and regulations applicable
to the natural gas industry, and the Environmental Protection Agency ("EPA") and
other federal and state agencies are responsible for enforcing various
environmental laws and regulations.
FEDERAL REGULATION. The primary federal statutes associated with the regulation
of the natural gas industry are the Natural Gas Act of 1938 (the "NGA") and the
Natural Gas Policy Act of 1978 (the "NGPA"). The provisions of the statutes are
effected through regulations promulgated by the FERC which are of particular
relevance in the regulation of the natural gas industry.
The NGA applies to (i) the transportation of natural gas in interstate commerce
(ii) sales of natural gas for resale in interstate commerce and (iii) companies
engaged in either the transportation of, or sale for resale of, natural gas in
interstate commerce. The gathering and local distribution of natural gas, as
well as transportation and sales transactions not included in the three
aforementioned categories, are specifically excluded from the purview of the
NGA. Further, the NGPA provided additional exceptions and exemptions from NGA
regulation.
The passage of the NGPA addressed partial deregulation of both the sale and the
transportation of natural gas. Certain sales and transportation transactions,
previously subject to NGA jurisdiction, were exempted from NGA jurisdiction.
Section 311 of the NGPA allows, among other things, intrastate pipelines to
perform certain specifically described types of transportation and sales
transactions in interstate commerce without becoming subject to the NGA.
The FERC has promulgated regulations to increase competition in the natural gas
industry. The current regulatory scheme of the FERC is designed to make access
to natural gas transportation services more available. Through its regulations,
FERC has created the "open access" concept. Open access means that natural gas
pipelines subject to this regulation must offer natural gas transportation
services upon similar terms, and without undue discrimination, to all who desire
such services. The FERC has attempted to create more competition in the natural
gas industry by requiring interstate pipelines to "unbundle" their services.
Unbundling means charging separately for each service (i.e., sales,
transportation, storage, swing capacity, etc.), that the pipeline performs. The
customer pays only for services actually requested. Although many of these
initiatives are new, and their ultimate impact cannot be predicted, these
efforts have increased and are generally expected to further increase access to
transportation and other services which encourage greater competition among
natural gas suppliers and transporters.
The Company is dependent upon the transportation services of various interstate
pipeline companies. Much of the natural gas purchased and sold by the Company
is transported through the facilities of these companies. Thus, changes in the
rules, regulations and policies implemented by the FERC with respect to
interstate pipelines may impact the Company.
The Company offers transportation services through its Texas intrastate pipeline
systems on an open access basis subject to certain NGA-exempt provisions of the
NGPA and applicable FERC regulations. Rates for transportation services through
the Company's systems in Texas are, pursuant to special approval by the FERC,
required to be established and approved by the Texas Railroad Commission. Thus,
certain of the Company's operations are directly affected by the regulations and
policies of FERC.
STATE REGULATION. The Company's operations are also subject to regulation by
various agencies of the states in which the Company operates. State regulatory
requirements and policies, and the effects thereof, vary from state to state.
Those of the states of Louisiana, Texas and Pennsylvania have the greatest
impact on the Company due to the concentration of the Company's capital in such
states and the volume of business associated therewith.
The Company's operations in Texas are subject to the Texas Utility Regulatory
Act, as implemented by the Texas Railroad Commission. Generally, the Texas
Railroad Commission is vested with authority to ensure that rates charged for
natural gas sales and transportation services are just and reasonable. The
Company's operations within the states of Pennsylvania and
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Louisiana are subject to regulation by the applicable state regulatory agencies,
which generally regulate the rates and services offered by the Company in these
states.
ENVIRONMENTAL AND SAFETY MATTERS
The Company's activities in connection with the operation and construction of
pipelines, plants and other facilities for transporting, processing or treating
natural gas and other products are subject to environmental regulation by
federal and state authorities. This includes state air and water quality
control boards and the EPA, which can increase the cost of planning, designing,
initial installation and the operations of such facilities. The Occupational
Safety and Health Administration's final rule on "Process Safety Management"
which became law in February 1992, has been a labor intensive project requiring
certain additional manpower. The Company is preparing its process hazard
analyses and will implement any required changes. The law requires full
compliance by 1996. It is not expected that the Company will be required in the
near future to expend amounts that are material in relation to its total capital
expenditures to comply with environmental or safety laws.
EMPLOYEES
At March 21, 1994, the Company had 129 full-time employees.
ITEM 2. PROPERTIES.
GATHERING AND TRANSMISSION SYSTEMS. The Company's gathering and transmission
systems are primarily in Texas and Louisiana. The principal systems are the
Port Hudson System, the Mountain Creek System, the Elm Grove System, the Gregg
County System and the East Texas System. Two other pipeline systems (the Dubach
and Claiborne Systems) are utilized in connection with the Company's gas
processing operations.
The Company completed construction and began initial deliveries through its Port
Hudson System in April 1993. This 5.0 mile pipeline system has a capacity of 40
MMCFD and has averaged 20 MMCFD since completion. The Company has a five year
contract to deliver natural gas to an industrial end-user in East Baton Rouge
Parish, Louisiana. The Company receives natural gas through an interstate
pipeline for redelivery.
The Company completed construction and began initial deliveries through its
Mountain Creek Pipeline System in November 1989. The Company owns 50% and is
the operator of this approximately 15.5 mile system located near Dallas, Texas.
This system has a capacity of approximately 225 MMCFD and averaged 26 MMCFD in
1993. The system delivers natural gas under a 20 year contract to a plant owned
by a local electric company. The plant is obligated under the contract to take
at least 50% of its natural gas supply from the Mountain Creek System.
The Company completed construction and began initial deliveries through its Elm
Grove System in October 1990. This approximately 5.4 mile system receives gas
from a central gathering point and delivers it to a gas processing plant in
Bossier Parish, Louisiana. The capacity of this system is approximately
20 MMCFD. Although this system only averaged 3 MMCFD in 1993, it is
strategically located should new natural gas wells be drilled in the area.
The Company completed construction and began initial deliveries through its
Gregg County System in May 1990. This 1.6 mile pipeline system has a capacity
of 10 MMCFD and averaged throughput in 1993 of approximately 2 MMCFD. The
Company had an initial three year contract to deliver natural gas to an
industrial end-user in Gregg County, Texas. The Company now operates on a year-
to-year contract.
The East Texas System consists of two separate pipelines, the Nacogdoches System
and the Shelby County System. The East Texas System was constructed in April
1984 and was expanded in 1985. The East Texas System aggregates approximately
84 miles of gathering and transmission lines in Nacogdoches and Shelby Counties,
Texas. This system averaged 3 MMCFD in 1993. The system gathers natural gas
from the wellhead and is interconnected with four major pipelines (two
intrastate and two interstate) that serve the Gulf Coast and Midwest markets.
The Dubach System was acquired in November 1988 in connection with the Company's
purchase of the Dubach and
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Calhoun gas processing and refining plants. The system consists of
approximately 302 miles of gathering lines and its principal purpose is to
gather natural gas to be processed at the Company's North Louisiana facilities.
The system averaged 41 MMCFD in 1993. The Company either charges a combined fee
or retains a percentage of the products for gathering, treating and processing
the natural gas. Residue gas at the tailgate of the Company's plants is
delivered to both interstate and intrastate pipeline systems.
The Claiborne System was acquired in August 1991 in connection with the
Company's purchase of the Claiborne gas processing and refining plants. The
system consists of approximately 190 miles of gathering lines and its principal
purpose is to gather natural gas to be processed at the Company's Claiborne
facilities in Claiborne Parish, Louisiana. The system averaged 25 MMCFD in
1993. The Company retains a percentage of the products for gathering, treating
and processing the natural gas. Residue gas at the tailgate of the Company's
plants is delivered to several interstate pipelines.
The following table sets forth pertinent information with respect to the
Company's natural gas gathering and transmission systems at December 31, 1993:
<TABLE>
<CAPTION>
Date of Daily Average Daily
Gathering and Acquisition Capacity Volume of
Transmission or Initial of Gas Gas in 1993 Miles of
Pipeline Systems Operation (MMCF)(1) (MMCF) (1) Pipeline (1)
- ---------------- ----------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Claiborne August 1991 100 25 190
Dubach November 1988 90 41 302
East Texas Systems April 1984 131 3 84
Elm Grove October 1990 20 3 5
Gregg County May 1990 10 2 2
Mountain Creek (2) November 1989 225 26 16
Port Hudson April 1993 40 20 5
Other Various N/A (3) 2 18
------------- ------------
TOTAL - 100% Interest 122 622
------------------ ------------
------------------ ------------
TOTAL - Net Company Interest 109 614
------------------ ------------
------------------ ------------
<FN>
(1) All capacity, volume, and mileage information is approximate. Amounts
shown are for the total system and have not been reduced to reflect the
Company's net ownership interest. All capacity information is subject to
increases or decreases depending on operating pressures and point of
delivery into or out of the system.
(2) The Company owns a 50% interest in the joint venture that owns the Mountain
Creek Pipeline.
(3) Capacity for these systems is not meaningful.
</TABLE>
GAS LIQUIDS RECOVERY/REFINING. The Company's primary gas processing, treating
and refining facilities are located in North Louisiana. The Company also has
facilities in Texas, Mississippi and Pennsylvania. Many of the facilities
outside Louisiana are underutilized or idle as a result of diminished
deliverability of the natural gas reserves behind the plants at then existing
locations. Most of the idle or underutilized facilities are skid mounted to
facilitate relocation. The Company is focusing on putting these facilities back
into service.
NORTH LOUISIANA FACILITIES
The Company acquired the Calhoun and Dubach gas processing plants along with the
Dubach refinery in November 1988. The Calhoun plant has the capacity to process
60 MMCFD of natural gas and averaged 26 MMCFD in 1993. The Calhoun plant is a
refrigerated lean oil plant that recovers natural gas liquids and delivers them
by pipeline to the Dubach facility for fractionation. The Calhoun plant
delivers residue gas into an interstate pipeline. The Dubach gas processing
plant was shut down in January 1993 in order to deliver Dubach System gas to the
Company's Claiborne facility. All the Company's North Louisiana liquids are
currently fractionated at the Dubach facility. The Company discontinued
operations at its
-7-
<PAGE>
Dubach refinery in July 1993 as the Company began reducing its emphasis on
refining. The Company has two treating plants in North Louisiana, its Cummings
and Fandango plants, which are used in conjunction with the Calhoun and Dubach
facilities. The Fandango plant is currently idle.
The Company acquired the Claiborne gas processing plant and refinery in August
1991. The Claiborne plant has a capacity of 60 MMCFD and with the addition of
the Dubach gas, averaged 40 MMCFD in 1993. The Claiborne plant utilizes a
refrigerated lean oil recovery system. In September 1993, the Company
discontinued operations at its Claiborne fractionation unit and now fractionates
all its liquids at the Dubach facility. The Claiborne refinery has a capacity
to refine 8,000 barrels per day ("BPD") of crude oil and condensate. The
Claiborne facility also has a solvent unit to further process about 2,500 BPD.
The Company is in the process of moving its Bear Wallow and Cheyenne cryogenic
recovery plants to North Louisiana at the Company's Dubach site. These plants
were located in Brazoria County, Texas and have a combined capacity of 45-50
MMCFD. The Cheyenne plant was underutilized and the Bear Wallow plant was idle.
Once the move is complete, the Company will discontinue operations at its
Claiborne gas processing plant. Initial operation of the cryogenic plants is
expected early in the second quarter of 1994. The cryogenic plants are more
fuel efficient, achieve greater recoveries of NGLs, are less labor intensive,
and have lower operating costs than the Company's current gas processing
operations.
TEXAS
The Company's Cheyenne plant operated until November 1993 and is currently being
moved to North Louisiana. The Company's Bear Wallow plant was idle in 1993.
The Company owned 50% and was the operator of these plants until acquiring the
remaining 50% in July 1993. The Cheyenne plant average inlet volume in 1993 was
10 MMCFD. The Company is treating natural gas in Dewitt County, Texas at its
Gun Point III plant. This treating plant has a capacity of 53 MMCFD and
averaged 6 MMCFD in 1993. The Company owns all or part of three idle cryogenic
and two natural gas treating plants in Texas.
OTHER
The Company owns a 50% interest in a cryogenic recovery plant in Green County,
Pennsylvania. This plant has an inlet capacity of 14 MMCFD and averaged 10
MMCFD in 1993. The Company also owns a gas treating plant in Brandon,
Mississippi. This treating plant has a capacity of 17 MMCFD and averaged 12
MMCFD in 1993. The Company charges a fee per million cubic feet ("MCF") for
this service.
-8-
<PAGE>
The following table sets forth pertinent information with respect to the
Company's significant operating natural gas processing and treating plants at
December 31, 1993:
<TABLE>
<CAPTION>
Plant Daily Average Daily
Capacity of Gas Volume in
Plant Plant Type (MMCF) (1) 1993 (MMCF) (1)
- ----- ----------- --------------- ---------------
<S> <C> <C> <C>
Brandon Treating 17 12
Gun Point III Treating 53 6
Cummings Treating 10 2
Tembec (2) Processing 14 10
Calhoun Processing 60 26
Claiborne Processing 60 40
--------------- --------------
TOTAL - 100% Interest 214 96
------------------- --------------
------------------- --------------
TOTAL - Net Company Interest 207 91
------------------- --------------
------------------- --------------
<FN>
1. All capacity and volume information is approximate. Amounts
shown are for the total plant and have not been reduced to
reflect the Company's net ownership interest.
2. The Company owns 50% of the Tembec Plant.
</TABLE>
ASSETS PLEDGED AS COLLATERAL. Virtually all of the Company's assets are
pledged as collateral on various loans. See Note 4 of "Notes to Consolidated
Financial Statements".
ITEM 3. LEGAL PROCEEDINGS.
On June 4, 1993, Endevco, Inc. and its subsidiaries ANGIC, Inc., Mississippi
Fuel Company and Endevco Taft Company filed voluntary petitions for
reorganization under Chapter 11 of the Bankruptcy Code with the United States
Bankruptcy Court for the Eastern District of Texas, Sherman Division. No other
subsidiary of the Company was included in the bankruptcy filing.
On September 29, 1993, the Bankruptcy Court confirmed the Debtor's First Amended
Joint Plan of Reorganization, and the Plan was consummated on November 2, 1993.
For details about the Plan see Note 2 of "Notes to Consolidated Financial
Statements" and Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
The Company is involved in certain legal actions and claims arising in the
ordinary course of their business. It is the opinion of management (based on
advice of legal counsel) that such litigation and claims will be resolved
without material effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters during the fourth quarter of the fiscal
year covered by this Annual Report to a vote of security holders.
-9-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The common stock of the Company, par value $.10 per share, is traded on the
American Stock Exchange under the symbol "CGA." Set forth below are the high
and low sales prices for the common stock.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1992
First Quarter . . . . . . . . . . . . . . . $ 2.25 $ 1.50
Second Quarter. . . . . . . . . . . . . . . 1.50 1.13
Third Quarter. . . . . . . . . . . . . . . 1.38 .56
Fourth Quarter . . . . . . . . . . . . . . . .75 .25
1993
First Quarter . . . . . . . . . . . . . . . .75 .38
Second Quarter . . . . . . . . . . . . . . . 1.25 .50
Third Quarter . . . . . . . . . . . . . . . 1.56 .88
Fourth Quarter . . . . . . . . . . . . . . 1.81 1.13
1994
First Quarter (through March 21, 1994) . . . 1.94 1.44
</TABLE>
On March 21, 1994, the closing price for the common stock, as reported by the
American Stock Exchange, was $1.63 per share.
As of March 21, 1994, there were 575 holders of record of common stock. The
Company believes that there are substantially more beneficial holders of common
stock.
The Company has not paid any cash dividends on its common stock and intends to
retain its earnings for use in operations and for expansion of its business. In
addition, the Company is prohibited from paying dividends under the terms of its
loan agreements. See Note 4 of "Notes to Consolidated Financial Statements".
-10-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial information for the years ended December 31,
1989 through 1993, is derived from the consolidated financial statements of the
Company for such years. The information should be read in conjunction with the
consolidated financial statements and the notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1993 (1) 1992 1991 1990 1989
-------- ------ ------ ------ ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues from continuing operations. . . . . . . . $ 215,625 $ 244,696 $ 209,272 $ 200,042 $ 194,625
Expenses . . . . . . . . . . . . . . . . . . . . . 220,097 245,695 207,994 195,416 190,033
Operating earnings (loss). . . . . . . . . . . . . (4,472) (999) 1,278 4,626 4,593
Other expense. . . . . . . . . . . . . . . . . . . (2,040) (5,428) (3,232) (5,020) (4,621)
Loss from continuing operations. . . . . . . . . . (22,291) (5,630) (1,582) (338) (191)
Loss from discontinued operations. . . . . . . . . - - - - (616)
Net loss . . . . . . . . . . . . . . . . . . . . . (22,291) (5,630) (1,582) (338) (807)
Preferred Stock dividend requirements. . . . . . . (791) (1,900) (1,900) (1,900) (1,900)
Net loss applicable to common stock. . . . . . . . (23,082) (7,530) (3,482) (2,238) (2,707)
Net loss per share:
Continuing operations . . . . . . . . . . . . (2.66) (.97) (.46) (.29) (.29)
Discontinued operations . . . . . . . . . . . - - - - (.08)
Primary . . . . . . . . . . . . . . . . . . . (2.66) (.97) (.46) (.29) (.37)
<CAPTION>
As of December 31,
------------------------------------------------------------------
1993 (1) 1992 1991 1990 1989
-------- ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets . . . . . . . . . . . . . . . . . . . $ 46,446 $ 114,549 $ 120,960 $ 146,710 $ 129,989
Net property, plant and equipment. . . . . . . . . 22,652 78,386 83,044 102,811 88,398
Working capital (deficit). . . . . . . . . . . . . (5,151) (39,924)(2) (3,995) (3,288) 4,574
Long-term debt . . . . . . . . . . . . . . . . . . 7,768 5,659 39,927 59,096 51,532
Preferred Stock plus accrued
dividends in arrears. . . . . . . . . . . . . . - 25,736 23,725 21,715 19,704
Stockholders' equity . . . . . . . . . . . . . . . 11,554 12,159 19,548 22,785 24,727
<FN>
(1) On November 2, 1993, the Company consummated the Plan. See Note 2 of
"Notes to Consolidated Financial Statements".
(2) Includes $36,965,000 of debt and $5,546,000 of interest subject to the
Standstill Agreement. See Note 4 of "Notes to Consolidated Financial
Statements."
</TABLE>
-11-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
REORGANIZATION. On June 4, 1993, the Debtors filed voluntary petitions for
reorganization under Chapter 11 of the Bankruptcy Code. On September 29, 1993,
the Bankruptcy Court issued an order confirming the Debtor's First Amended Joint
Plan of Reorganization. On November 2, 1993, the following transactions
resulted from the consummation of the Plan:
(1) The Debtors paid approximately $2.1 million in cash and transferred
their Mississippi Fuel, Ada, Chalybeate Springs and Leaf River
gathering and pipeline systems along with certain contractual rights
owned by the Debtors to the holders (the "Noteholders") of the
Debtor's 9% Senior Notes, 11.7% Senior Notes and 11.5% Subordinated
Convertible Debentures. The cash payments and transfer of assets was
in full satisfaction of all allowed claims of the Noteholders
(approximately $44.1 million of debt and accrued interest on the
financial records of the Debtors). The Company paid in full all other
creditors.
(2) The Debtors paid approximately $4.6 million in cash and issued
promissory notes in the aggregate of $2.5 million (the "Note") to the
holders (the "Preferred Stockholders") of the Company's $9.50 Series A
Cumulative Convertible Exchangeable Preferred Stock (the "Preferred
Stock") in satisfaction of all allowed claims (approximately $27.0
million on the financial records of the Debtors, which includes the
liquidation value of the Preferred Stock and all accrued and unpaid
dividends thereon). The Note is secured by a lien on the stock of all
the subsidiaries of Cornerstone and is guaranteed by its subsidiary,
Cornerstone Pipeline Company (formerly known as Endevco Pipeline
Company), which holds an interest in the Mountain Creek Joint Venture
and also owns the Excelsior gathering system. Pursuant to the terms
of the Note, the Company is prohibited from paying dividends or
repurchasing shares of its capital stock.
(3) All outstanding common stock, par value $.10 per share (the "Former
Common Stock"), of Endevco, Inc. was canceled and each holder thereof
was issued one share of the common stock of Cornerstone (the "New
Common Stock") for each share of Former Common Stock held. Holders of
the Former Common Stock constitute approximately 63% of the shares of
New Common Stock. All outstanding stock options were canceled.
(4) Pursuant to the First Amended Stock Purchase Agreement by and between
Ray Davis, Trustee (the "Purchaser") and Cornerstone dated May 28,
1993, Ray Davis and his assigns acquired 4,576,659 shares of New
Common Stock and warrants to acquire an additional 2,564,103 shares of
New Common Stock with an exercise price of $.78 per share. The
aggregate purchase price of such shares of New Common Stock and
warrants was $3.0 million. The purchased shares constitute
approximately 37% of the Company's issued and outstanding shares of
New Common Stock. The purchased shares and the warrants, if
exercised, would constitute approximately 47% of the fully diluted
capital stock of the Company.
(5) The Company entered into a term loan and revolving credit facility
(the "Senior Loan") with a financial institution. The term portion of
the Senior Loan was for $5.8 million and provides for monthly
principal and interest payments. The interest is to be calculated at
the applicable prime rate plus two percent. The revolving credit
facility allows for working capital loans and standby letters of
credit up to an aggregate of $6.0 million. A portion of the proceeds
from the new Senior Loan were used to retire the remaining debt
associated with the purchase of the original assets of Dubach Gas
Company ("Dubach") as well as the debt incurred when the assets of
Claiborne Gasoline Company were acquired.
(6) The Company amended its Certificate of Incorporation to (1) change the
Company's name to Cornerstone Natural Gas, Inc. from Endevco, Inc. and
(2) provide for certain restrictions on the transfer of New Common
Stock.
One of the goals of the Company from the reorganization was to restructure the
Company's debt obligations so they could be met from continuing operations. As
part of the Plan, the Company is moving two of its cryogenic plants from
Brazoria County, Texas to Lincoln Parish, Louisiana. The cost to move and
install these plants is estimated to be $2.5 million. The cryogenic plants are
expected to be operational early in the second quarter of 1994. The cryogenic
plants are more fuel
-12-
<PAGE>
efficient, achieve greater recoveries of NGLs, are less labor intensive, and
have lower operating costs than the Company's current gas processing operations.
Management expects these plants to significantly improve cash flows from
operations by the second half of 1994.
CAPITAL EXPENDITURES. The Company made capital expenditures of approximately
$3.7 million in 1993. Approximately $1.6 million of these related to the
building of a five mile pipeline to service a paper mill in East Baton Rouge
Parish, Louisiana (the "Port Hudson Pipeline"). Approximately $1.2 million has
been spent towards the moving of the two cryogenic plants to Lincoln Parish,
Louisiana. The Company anticipates spending another approximately $1.3 million
in 1994 to complete the project.
The Company is continuing to evaluate its remaining assets in regard to its
current strategic direction. As such, the Company is actively attempting to
redeploy existing idle assets into new projects and is evaluating potential
sales of nonperforming assets.
The Company's Senior Loan requires lender approval to pursue major projects.
The Company's capital budget for 1994 is limited under the the Senior Loan to
$500,000 (excluding the moving of the two cryogenic gas processing plants).
However, the Company continues to pursue projects that would require long-term
borrowing. These funds and the approvals necessary under existing loan
agreements will be secured prior to committing to any new projects. The Company
believes that its current relationships with existing lenders will allow
borrowing capacity for future capital requirements. However, each project will
be separately evaluated, and must meet its own cash flow requirements. There
can be no assurance regarding the Company's ability to obtain additional capital
when needed on acceptable terms or that all necessary consents or waivers will
be obtained from its lenders.
LINE OF CREDIT. On July 1, 1993, Dubach discontinued operations at one of its
two condensate refineries. As a result, the Company is buying less condensate
and crude oil reducing the amount of standby letters of credit needed. Dubach
reduced its line of credit to $10.0 million under which standby letters of
credit can be issued. This line of credit expires March 31, 1994. Dubach has
replaced this line of credit with a $2.6 million line of credit from a different
financial institution. The maturity date of the new line is April 30, 1994.
The current line of credit covers Dubach's requirements for buying condensate
and crude oil for the refinery through March business. Dubach will need an
extension of this line or must reduce its purchases of crude oil for April
business. See Note 4 of "Notes to Consolidated Financial Statements."
NOL CARRYFORWARDS. The Company has NOL carryforwards for income tax purposes of
approximately $28.9 million which, if not previously utilized, will expire at
various times from 2001 until 2008. In addition, the Company has unused
investment tax credits of approximately $1.6 million available to offset future
federal income tax liability. The Company considers such carryforwards and tax
credits to be potentially valuable assets which may be used to shelter future
taxable earnings from income taxes. If a change of ownership as defined in
Internal Revenue Code Section 382 occurs, utilization of the NOL carryforwards
could be severely limited.
WORKING CAPITAL. The Company's working capital deficit was $5.2 million at
December 31, 1993. The Company expects to maintain a working capital deficit
throughout 1994 in order to effectively manage cash. Management believes that
its improved cash flows from operations combined with amounts available under
its $6.0 million line of credit will be sufficient to meet its cash requirements
in 1994.
-13-
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1992
GENERAL. The Company's operations were negatively impacted in 1993 by the
reorganization. The uncertainty related to the Company's financial condition
limited the Company's ability to purchase natural gas. Many suppliers required
prepayments or put restrictions on purchases which ultimately resulted in an
increase in the cost of natural gas to the Company. Management believes that
the negative influences of the reorganization will begin to dissipate in 1994.
In addition, average margins on refined products decreased in 1993 from 1992.
This combined with a decrease in emphasis on refining is expected to allow the
Company to return to profitability.
NATURAL GAS PIPELINE OPERATIONS. Sales volumes for natural gas declined in 1993
as the financial condition of the Company required curtailment of certain
business activities. The following table provides pertinent information
relating to the Company's natural gas pipeline operations.
<TABLE>
<CAPTION>
Increase
1993 1992 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Gross margin . . . . . . . . . . . . . . . . . . $9,322 $13,933 $(4,611)
Earnings from operations before depreciation . . 4,477 8,396 (3,919)
(MILLION CUBIC FEET PER DAY)
Natural gas sales . . . . . . . . . . . . . 215 276 (61)
</TABLE>
The Company's natural gas pipeline operations contributed 44% of total
consolidated gross margin in 1993 compared to 49% in the prior year. Earnings
from operations before depreciation declined $3.9 million (47%) primarily as a
result of a decrease in throughput of natural gas. As a result of the Company's
reorganization, it became increasingly difficult to acquire supplies of natural
gas. The Company utilized its supplies to ensure that it fulfilled its
commitments on all its term sales contracts. From the limited supply, the
Company was forced to curtail certain other marketing activities. This
particularly impacted the assets transferred as part of the reorganization.
Throughput on the transferred assets declined 63 MMCFD. The Company also
experienced a decline in throughput of approximately 7 MMCFD on its Mountain
Creek System. This was the result of maintenance performed on the power plant
which is supplied by the Mountain Creek System. The maintenance required the
plant to be taken off-line for three months. Additionally, this plant will have
lower utilization in the future as the utility has replaced some of its needs
with nuclear power. These declines in throughput were partially offset by the
addition of the Company's Port Hudson System which began operations in April
1993.
The Company's Off-system sales throughput declined 5 MMCFD (7%) in 1993. Gross
margin on these sales decreased approximately $378,000. This was caused in part
by an increase in the cost of supply relative to sales. Additionally, higher
natural gas prices during most of 1993 limited the Company's ability to compete
with utility tariffs in the northeast market areas.
NATURAL GAS PROCESSING OPERATIONS. The following table provides pertinent
information relating to the Company's gas processing operations.
<TABLE>
<CAPTION>
Increase
1993 1992 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Gross margin . . . . . . . . . . . . . . . . . . $11,954 $14,527 $(2,573)
Earnings from operations before depreciation . . 842 2,266 (1,424)
(MILLION CUBIC FEET PER DAY)
Natural gas inlet volumes . . . . . . . . . 112 100 12
(BARRELS PER DAY)
Liquid sales volumes. . . . . . . . . . . . 12,324 14,465 (2,141)
</TABLE>
Gross margin from gas processing operations contributed 56% of consolidated
margin compared to 51% in the prior year. Earnings from operations declined
$1.4 million (63%) in 1993. The decreased earnings was primarily the result of
a decline
-14-
<PAGE>
in margin per barrel sold. The Company discontinued operations at one of its
two condensate refineries in July 1993. The Company also consolidated the usage
of its North Louisiana facilities and was able to discontinue operations at one
of its two fractionating units in September 1993. The Company expects the
installation of cryogenic facilities in North Louisiana to significantly
increase cash flow in 1994 from its gas processing operations.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses have
declined $823,000 (20%) in 1993. This reflects specific management efforts to
reduce overhead costs through consolidation and eliminations of functions and
staff reductions. The Company significantly reduced its office space and has
reduced its use of outside professional services.
OTHER INCOME (EXPENSE). Interest expense decreased $2.4 million (47%) primarily
as a result of the debt that was retired as part of the reorganization. The
Company sold its interest in Three Rivers Pipeline Company and Allegheny Energy
Marketing Company (collectively referred to as "Three Rivers") in January 1993.
The Company's share of losses from its interest in Three Rivers was $555,000 in
1992. The Company recorded a gain from the sale of its interest in Three Rivers
of $611,000 in 1993.
REORGANIZATION ITEMS. The Company recorded a loss on the disposition and write
downs of property, plant and equipment of $20.3 million in 1993. This included
the assets transferred to the Noteholders and other assets that were considered
impaired to the reorganized Company. The professional fees of $4.5 million
incurred for the reorganization included primarily legal fees, consultant fees
and bankruptcy costs.
EXTRAORDINARY ITEM. The Company recorded a $9.1 million gain from the
extinguishment of debt in conjunction with the reorganization.
YEAR ENDED DECEMBER 31, 1992 COMPARED TO YEAR ENDED DECEMBER 31, 1991
GENERAL. The Company experienced a net loss applicable to common stockholders
of $7.5 million in 1992 compared to a net loss of $3.5 million in 1991. The
increase in net loss was primarily a result of decreased natural gas volumes on
the Company's facilities, decreased unit margins from gas processing and
refining, increased operating expenses (primarily repairs, maintenance and
treating chemicals) and increased costs related to the negotiations of debt
restructuring.
NATURAL GAS PIPELINE OPERATIONS. The natural gas operations segment contributed
49% of total revenues and 48% of total gross margin during 1992, as compared to
56% and 57% respectively in 1991. Earnings before depreciation declined $2.0
million (20%) in 1992. This was primarily the result of reduced gross margin on
the Company's Mississippi System and the disposition of its Hattiesburg Gas
Storage facilities. The Company recorded $1.8 million of gross margin and $1.5
million of operating earnings before depreciation from the Hattiesburg
facilities in 1991 before the disposition.
The Company moved an average of 208 MMCFD through its facilities during 1992
compared to 241 MMCFD in 1991. The decrease in volume was primarily
attributable to a 31 MMCFD decline on the Company's Mississippi System. Third
party transportation on the Mississippi System declined 11 MMCFD as reserves
were depleting without new drilling. The Company's volumes, bought for resale,
declined 20 MMCFD. This was partially a result of the Company's financial
difficulties which limited the supply of natural gas.
Gross margin decreased $1.4 million (10%) in 1992. The Company's unit margin
increased to $.16 per MCF from $.15 per MCF. The gross margin decline was
primarily a result of the decreased throughput on the Mississippi System.
Decreased third party gas transportation volumes resulted in a decline in gross
margin of $964,000 while the decreased volumes, bought for resale, resulted in a
decline of $1.1 million. These declines were partially offset by an increase in
gross margin on the Company's Ada System of $731,000. The Ada System increase
resulted from a greater average gross margin per unit in 1992. The Company's
Off-system volumes increased 15% to 68 MMCFD in 1992. The gross margin
increased 24% to $1.3 million in 1992.
NATURAL GAS PROCESSING OPERATIONS. Gross margin increased $2.4 million (20%) in
1992, primarily as a result of a full year of operations from the Claiborne
facilities compared to only five months in the previous year. Earnings from
operations declined $2.2 million (46%) primarily from the Company's Dubach and
Claiborne facilities. The decreased earnings reflect increased operating
expenses and a decline in margin per barrel sold. Operating expenses increased
due to (i) several major overhauls of compressors, (ii) repair of lightning
damage, (iii) repair of natural gas lines in order to return them to service and
(iv) repairs needed to meet environmental and safety standards.
-15-
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative costs decreased $1.3
million in 1992. This difference is primarily attributable to project
development costs that were written off in 1991 related to projects that did not
fit the Company's current strategic direction.
OTHER INCOME (EXPENSE). Interest expense decreased $1.4 million in 1991. This
was primarily a result of $10.2 million of principal payments made in 1991 and
the sale of the Hattiesburg facilities. The $643,000 decrease in equity
earnings (losses) of unconsolidated affiliates was largely the result of a
$454,000 decrease in earnings from the Company's interest in Three Rivers. The
Company sold its interest in Three Rivers in January 1993. In 1991, there was a
$3.7 million gain recorded on the sale of the Hattiesburg facilities. Also in
1991, there was a loss of $1.6 million recorded in relation to a sale and
leaseback on three of the Company's Texas pipeline systems. There were no sales
of significant assets in 1992.
OTHER MATTERS
ACCOUNTING FOR INCOME TAXES. Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," ("FAS 109"). The adoption of FAS 109 changed the Company's method of
accounting for income taxes from the deferred method (APB 11) to an asset and
liability approach. Under APB 11, the Company has deferred the tax effects of
timing differences between financial reporting and taxable income. The asset
and liability approach requires the recognition of deferred tax liabilities and
assets for the expected future tax consequence of temporary differences between
the carrying amounts and the tax bases of assets and liabilities. Adoption of
FAS 109 had no material impact on the Company's financial position at January 1,
1993, or the results of its operations for the year ended December 31, 1993.
The Omnibus Budget Reconciliation Act of 1993 signed into law by President
Clinton on August 10, 1993, contains several provisions affecting corporations.
The most notable to the Company is an increase in the top corporate income tax
rate from 34% to 35%. Although most provisions of the new law were effective
January 1, 1993, it had no impact in 1993 and it is not anticipated to have any
significant impact in 1994 due to the net operating loss position of the
Company.
EFFECTS OF CHANGING PRICES. Natural gas, NGLs and petroleum product prices have
fluctuated significantly over the last three years. The Company, however, earns
a margin which is the difference between the revenues from sales of products
over the purchase costs of such. The change in margin, although it has declined
over the three year period, is much less volatile than the change in product
prices. Inflation has not had a significant impact on operating expenses in the
last three years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
Report of Ernst & Young, Independent Auditors. . . . . . . . . . . . . 17
Consolidated Statements of Operations for the Years Ended
December 31, 1993, 1992, and 1991. . . . . . . . . . . . . . 18
Consolidated Balance Sheets at December 31, 1993 and 1992. . . . . . . 19
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992, and 1991. . . . . . . . . . . . . . 20
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1993, 1992, and 1991. . . . 21
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 22-33
-16-
<PAGE>
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Cornerstone Natural Gas, Inc.
We have audited the accompanying consolidated balance sheets of Cornerstone
Natural Gas, Inc. and Subsidiaries (the "Company") at December 31, 1993 and
1992, and the related consolidated statements of operations, cash flows and
changes in stockholders' equity for each of the three years in the period ended
December 31, 1993. Our audits included the financial statement schedules listed
in the Index at Item 14(a). These consolidated financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 1993 and 1992, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
ERNST & YOUNG
Dallas, Texas
March 7, l994
-17-
<PAGE>
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1992 1991
------------- ------------- ---------------
<S> <C> <C> <C>
Revenues (Note 9): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 215,625,000 $ 244,696,000 $ 209,272,000
Expenses:
Cost of sales (Note 9). . . . . . . . . . . . . . . . . . . . . . . . . . . . 194,349,000 216,236,000 180,550,000
Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,956,000 17,801,000 13,669,000
Depreciation and amortization (Note 3). . . . . . . . . . . . . . . . . . . . 6,451,000 7,494,000 8,329,000
General and administrative (Note 3) . . . . . . . . . . . . . . . . . . . . . 3,341,000 4,164,000 5,446,000
----------- ----------- -----------
220,097,000 245,695,000 207,994,000
----------- ----------- -----------
Operating earnings (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,472,000) (999,000) 1,278,000
----------- ----------- -----------
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,000 242,000 475,000
Interest expense (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . (2,764,000) (5,191,000) (6,553,000)
Equity in net earnings (losses) of
unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . (52,000) (407,000) 236,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,000 186,000 512,000
Gain (loss) on sale of assets, net. . . . . . . . . . . . . . . . . . . . . . 611,000 (258,000) 2,098,000
----------- ----------- -----------
(2,040,000) (5,428,000) (3,232,000)
----------- ----------- -----------
Loss before reorganization items income taxes,
and extraordinary item. . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,512,000) (6,427,000) (1,954,000)
Reorganization items (Note 2):
Loss on disposition and write downs of
property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . 20,274,000 - -
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,545,000 704,000 292,000
----------- ----------- -----------
24,819,000 704,000 292,000
----------- ----------- -----------
Loss before income taxes and
extraordinary item. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31,331,000) (7,131,000) (2,246,000)
Provision (benefit) for income taxes (Note 5):
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,000 181,000 168,000
Deferred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (1,682,000) (832,000)
----------- ----------- -----------
45,000 (1,501,000) (664,000)
----------- ----------- -----------
Net loss before extraordinary item . . . . . . . . . . . . . . . . . . . . . . . (31,376,000) (5,630,000) (1,582,000)
Extraordinary item-gain on
extinguishment of debt (Note 2) . . . . . . . . . . . . . . . . . . . . . . . 9,085,000 - -
----------- ----------- -----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,291,000) (5,630,000) (1,582,000)
Preferred stock dividend requirements. . . . . . . . . . . . . . . . . . . . . . (791,000) (1,900,000) (1,900,000)
----------- ----------- -----------
Net loss applicable to common stock. . . . . . . . . . . . . . . . . . . . . . . $ (23,082,000) $ (7,530,000) $ (3,482,000)
----------- ----------- -----------
----------- ----------- -----------
Income (loss) per common and common
equivalent share:
Loss before extraordinary item. . . . . . . . . . . . . . . . . . . . . . . . $ (3.71) $ (.97) $ (.46)
Extraordinary item. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.05 - -
----------- ----------- -----------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2.66) $ (.97) $ (.46)
----------- ----------- -----------
----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . 8,691,000 7,758,000 7,602,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-18-
<PAGE>
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
1993 1992
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,416,000 $ 6,882,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,101,000 19,861,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,711,000 3,683,000
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 655,000 645,000
------------- -------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,883,000 31,071,000
Property, plant and equipment, at cost (Note 3). . . . . . . . . . . . . . . . . . . 54,457,000 123,897,000
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . (31,805,000) (45,511,000)
------------- -------------
Net property, plant and equipment. . . . . . . . . . . . . . . . . . . . . 22,652,000 78,386,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,793,000 3,910,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,000 1,182,000
------------- -------------
$ 46,446,000 $ 114,549,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (Note 4) . . . . . . . . . . . . . . . . $ 2,501,000 $ 3,153,000
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,097,000 24,448,000
Accrued interest payable (Note 4) . . . . . . . . . . . . . . . . . . . . . . . 45,000 5,646,000
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,000 175,000
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 206,000 608,000
Long-term debt subject to Standstill
Agreement (Notes 2 and 4). . . . . . . . . . . . . . . . . . . . . . . . . . - 36,965,000
------------- -------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 25,034,000 70,995,000
Long-term debt (Notes 2 and 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,768,000 5,659,000
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,090,000 -
Commitments and contingent liabilities (Notes 4 and 6) . . . . . . . . . . . . . . .
Series A Cumulative Convertible Exchangeable
Preferred Stock, $.10 par value; 200,000
shares authorized; 200,000 shares issued and
outstanding in 1992 (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . - 25,736,000
Stockholders' equity (Notes 2, 4, 7 and 8):
Common stock, $.10 par value; 25,000,000 shares
authorized; 12,515,959 and 7,889,470
shares issued and outstanding in 1993 and
1992, respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,252,000 789,000
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . 51,298,000 29,284,000
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,996,000) (17,914,000)
------------- -------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 11,554,000 12,159,000
------------- -------------
$ 46,446,000 $ 114,549,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-19-
<PAGE>
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss before extraordinary item. . . . . . . . . . . . . . . . . . . . . . . . . . $ (31,376,000) $ (5,630,000) $ (1,582,000)
Noncash items included in loss before
extraordinary item:
Loss on disposition and write downs of
property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . 20,274,000 - -
Interest compromised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,605,000 - -
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . 6,451,000 7,494,000 8,329,000
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (1,682,000) (830,000)
Write off of project development costs . . . . . . . . . . . . . . . . . . . . - 95,000 1,367,000
Equity in net (income) losses of
unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 52,000 407,000 (236,000)
Loss (gain) on sale of assets, net . . . . . . . . . . . . . . . . . . . . . . (611,000) 258,000 (2,098,000)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,000 221,000 211,000
Reorganization items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,545,000 - -
------------ ------------ ------------
Working capital provided by operations
before reorganization items. . . . . . . . . . . . . . . . . . . . . . . . . . 1,342,000 1,163,000 5,161,000
Changes in operating assets or liabilities
which provided (used) cash during the period:
Decrease in accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . 4,760,000 2,881,000 3,803,000
(Increase) decrease in inventory. . . . . . . . . . . . . . . . . . . . . . . . . 1,940,000 501,000 (1,885,000)
(Increase) decrease in other current assets . . . . . . . . . . . . . . . . . . . (10,000) 7,000 348,000
Increase (decrease) in accounts payable . . . . . . . . . . . . . . . . . . . . . (3,152,000) 54,000 (5,511,000)
Increase (decrease) in accrued interest payable . . . . . . . . . . . . . . . . . (55,000) 3,828,000 (223,000)
Increase (decrease) in current taxes and other
current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (481,000) (368,000) 142,000
Increase in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 848,000 - -
------------ ------------ ------------
Cash provided by operations before
reorganization items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,192,000 8,066,000 1,835,000
Cash used by reorganization items - professional fees. . . . . . . . . . . . . . . . (2,165,000) - -
------------ ------------ ------------
Cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . 3,027,000 8,066,000 1,835,000
Cash flows from investing activities:
Proceeds from sale of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 851,000 181,000 7,524,000
Additions to property, plant, and equipment . . . . . . . . . . . . . . . . . . . (3,742,000) (3,160,000) (7,339,000)
(Increase) decrease in investment
in unconsolidated affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000 291,000 (208,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,000 (279,000) 3,000
------------ ------------ ------------
Cash used for investing activities. . . . . . . . . . . . . . . . . . . . . . . . (2,758,000) (2,967,000) (20,000)
Cash flows from financing activities:
Borrowings (reduction) of revolving debt. . . . . . . . . . . . . . . . . . . . . (1,625,000) - 2,000,000
Additional borrowings under long-term debt. . . . . . . . . . . . . . . . . . . . 5,800,000 - 4,450,000
Reduction of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,071,000) (2,865,000) (10,152,000)
Reorganization items:
Issuance of common stock and warrants . . . . . . . . . . . . . . . . . . . . . . 3,000,000 - -
Retirement of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . (6,731,000) - -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (108,000) 142,000 199,000
------------ ------------ ------------
Cash used by financing activities. . . . . . . . . . . . . . . . . . . . . . . (4,735,000) (2,723,000) (3,503,000)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . (4,466,000) 2,376,000 (1,688,000)
Cash and cash equivalents:
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,882,000 4,506,000 6,194,000
------------ ------------ ------------
End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,416,000 $ 6,882,000 $ 4,506,000
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,042,000 $ 1,151,000 $ 6,743,000
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,000 $ 197,000 $ 170,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-20-
<PAGE>
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1990 . . . . . . . . . . . . . . . . . . . . . $ 757,000 $ 28,930,000 $ (6,902,000) $ 22,785,000
Issuance of common stock upon
acquisition of minority ownership
in subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 44,000 - 46,000
Proceeds from issuance of common
stock to employee benefit plan. . . . . . . . . . . . . . . . . . . 10,000 189,000 - 199,000
Preferred stock dividend requirements. . . . . . . . . . . . . . . . . - - (1,900,000) (1,900,000)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - (1,582,000) (1,582,000)
----------- ----------- ------------ -----------
Balance at December 31, l991 . . . . . . . . . . . . . . . . . . . . . 769,000 29,163,000 (10,384,000) 19,548,000
----------- ----------- ------------ -----------
Proceeds from issuance of common
stock to employee benefit plan. . . . . . . . . . . . . . . . . . . 20,000 121,000 - 141,000
Preferred stock dividend requirements. . . . . . . . . . . . . . . . . - - (1,900,000) (1,900,000)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - (5,630,000) (5,630,000)
----------- ----------- ------------ -----------
Balance at December 31, l992 . . . . . . . . . . . . . . . . . . . . . 789,000 29,284,000 (17,914,000) 12,159,000
----------- ----------- ------------ -----------
Reorganization items (Note 2):
Redemption of Series A Cumulative
Convertible Exchangeable
Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . - 19,448,000 - 19,448,000
Issuance of common stock and
warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458,000 2,543,000 - 3,001,000
Proceeds from issuance of common stock
to employee benefit plan. . . . . . . . . . . . . . . . . . . . . . 5,000 23,000 - 28,000
Preferred stock dividend requirements. . . . . . . . . . . . . . . . - - (791,000) (791,000)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - (22,291,000) (22,291,000)
----------- ----------- ------------ -----------
Balance at December 31, 1993 . . . . . . . . . . . . . . . . . . . . . $ 1,252,000 $ 51,298,000 $ (40,996,000) $ 11,554,000
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-21-
<PAGE>
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL AND SIGNIFICANT ACCOUNTING POLICIES
(a) General and Principles of Consolidation
Cornerstone Natural Gas, Inc. (formerly Endevco, Inc.), a Delaware
corporation ("Cornerstone"), is engaged in the business of natural gas
pipeline and natural gas processing operations. Natural gas pipeline
operations include purchasing, gathering, transporting and marketing
of natural gas. Natural gas processing operations include recovering
and marketing of natural gas liquids ("NGLs") from natural gas and
treating natural gas by removing noncommercial components. Natural
gas processing operations also include refining condensate and crude
oil into various petroleum products.
The consolidated financial statements include the accounts of
Cornerstone and its wholly owned and majority-owned subsidiaries
(referred to collectively as the "Company") - Cornerstone Gas
Processing, Inc. (formerly Endevco Natural Gas Company); Cornerstone
Pipeline Company (formerly Endevco Pipeline Company); Endevco
Producing Company; Cornerstone Gas Resources, Inc. (formerly Endevco
Oil and Gas Company); Endevco Taft Company; Cornerstone Gas Gathering
Company (formerly Cornerstone Pipeline Company); Pentex Petroleum,
Inc.; Pentex Pipeline, Inc.; Endevco Three Rivers Company; Dubach Gas
Company ("Dubach") and Cengaz Company. On September 30, 1993, ANGIC,
Inc. (formerly known as Cornerstone Natural Gas Company) and
Mississippi Fuel Company, both wholly owned subsidiaries, were merged
into Cornerstone. The consolidated financial statements of the
Company also include its proportionate share of the assets,
liabilities, revenues and expenses of affiliated companies,
partnerships and joint ventures if the Company owns at least a 50%
interest. Affiliates in which the Company owns less than a 50%
interest are accounted for using the equity method. The consolidated
financial statements also include Endevco Industrial Gas Sales Company
through 1991.
Certain reclassifications of prior years' financial information have
been made to conform to the current year presentation.
(b) Cash Equivalents
The Company considers all highly liquid investments with insignificant
interest rate risk and original maturities of three months or less to
be cash equivalents.
(c) Inventory
Inventory is stated at the lower of cost or market, determined by the
first in, first out method.
(d) Property, Plant and Equipment
Depreciation of property, plant and equipment is provided using the
straight-line method over the following estimated useful lives:
Years
-----
Pipelines and pipeline rights-of-way 5-20
Gas liquids recovery, treating and refining plants 10-20
Gas storage facilities 22
Equipment and other 3-15
Most of the Company's gas liquids recovery and gas treating plants are
skid-mounted and moveable from one service location to another. The
cost of moving the plants between service locations is capitalized and
-22-
<PAGE>
amortized using the straight-line method over the life of the related
service contract.
(e) Goodwill
Goodwill represents the excess of the cost over the net assets of
businesses acquired and is amortized on a straight-line basis over
periods of twenty to forty years. Goodwill is presented net of
accumulated amortization of $496,419 and $379,606 at December 31, 1993
and 1992, respectively.
(f) Income Taxes
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (FAS 109) changing the method of accounting for income
taxes. As permitted under the new rules, prior years' financial
statements have not been restated to reflect the change. The adoption
of FAS 109 changed the Company's method of accounting for income taxes
from the deferred method (APB 11) to an asset and liability approach.
Under APB 11, deferred income taxes are provided for income and
expense items that are reported for income tax purposes in different
years than for financial reporting purposes, whereas under FAS 109
deferred tax liabilities and assets are recognized for the expected
future tax consequence of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. The measurement
of deferred income tax assets is adjusted by a valuation allowance, if
necessary, to recognize future tax benefit only to the extent, based
on available evidence, it is more likely than not, it will be
realized. The effect on deferred taxes of a change in income tax
rates is recognized in the period that includes the enactment date.
Adoption of FAS 109 had no effect on the Company's financial position
at January 1, 1993 or the results of its operations for the year ended
December 31, 1993.
(g) Earnings (Loss) per Common and Common Equivalent Share
Earnings (loss) per common and common equivalent share are based on
the weighted average number of shares outstanding during each year as
adjusted for outstanding stock options and warrants, if dilutive,
using the treasury stock method. Fully-diluted earnings per share for
all years are not presented, because the effects of the assumed
conversion of the 11.5% Subordinated Convertible Debentures or the
Series A Cumulative Convertible Exchangeable Preferred Stock are
antidilutive.
(h) Concentrations of Credit Risk
The Company markets natural gas and refined products to utilities,
local distribution companies and industrial end-users. The Company
performs ongoing credit evaluations of its customers and if deemed
necessary, requires purchasers of the Company's products to prepay or
issue standby letters of credit as collateral. Credit losses are
provided for in the consolidated financial statements and consistently
have been within management's expectations.
The Company has cash deposits with various banks consisting
principally of demand deposits and time deposits. These deposits
generally have maturities of one year or less and bear minimal risk.
The Company has not experienced any losses on its cash deposits.
2. Plan of Reorganization
On June 4, 1993, Endevco, Inc. and its subsidiaries ANGIC, Inc.,
Mississippi Fuel Company and Endevco Taft Company (collectively, the
"Debtors") filed voluntary petitions for reorganization under Chapter 11 of
the Bankruptcy Code with the United States Bankruptcy Court for the Eastern
District of Texas, Sherman Division (the "Bankruptcy Court"). No other
subsidiary of the Company was included in the bankruptcy filing.
-23-
<PAGE>
On September 29, 1993, the Bankruptcy Court issued an order confirming the
Debtor's First Amended Joint Plan of Reorganization (the "Plan"). On
November 2, 1993, the following transactions resulted from the consummation of
the Plan:
(1) The Debtors paid approximately $2.1 million in cash and transferred
their Mississippi Fuel, Ada, Chalybeate Springs and Leaf River
gathering and pipeline systems along with certain contractual rights
owned by the Debtors to the holders (the "Noteholders") of the
Debtor's 9% Senior Notes, 11.7% Senior Notes and 11.5% Subordinated
Convertible Debentures. The cash payments and transfer of assets is
in full satisfaction of all allowed claims of the Noteholders
(approximately $44.1 million of debt and accrued interest on the
financial records of the Debtors). The Company paid in full all other
creditors.
(2) The Debtors paid approximately $4.6 million in cash and issued
promissory notes in the aggregate of $2.5 million (the "Note") to the
holders (the "Preferred Stockholders") of the Company's $9.50 Series A
Cumulative Convertable Exchangeable Preferred Stock (the "Preferred
Stock") in satisfaction of all allowed claims (approximately $27.0
million on the financial records of the Debtors, which includes the
liquidation value of the Preferred Stock and all accrued and unpaid
dividends thereon). The Note is secured by a lien on the stock of all
the subsidiaries of Cornerstone and is guaranteed by its subsidiary,
Cornerstone Pipeline Company, which holds an interest in the Mountain
Creek Joint Venture and also owns the Excelsior gathering system.
Pursuant to the terms of the Note, the Company is prohibited from
paying dividends or repurchasing shares of its capital stock.
(3) All outstanding common stock, par value $.10 per share (the "Former
Common Stock"), of Endevco, Inc. was canceled and each holder thereof
was issued one share of the common stock of Cornerstone (the "New
Common Stock") for each share of Former Common Stock held. Holders of
the Former Common Stock constitute approximately 63% of the shares of
New Common Stock. All outstanding stock options were canceled.
(4) Pursuant to the First Amended Stock Purchase Agreement by and between
Ray Davis, Trustee (the "Purchaser") and Cornerstone dated May 28,
1993, Ray Davis and his assigns acquired 4,576,659 shares of New
Common Stock and warrants to acquire an additional 2,564,103 shares of
New Common Stock with an exercise price of $.78 per share. The
aggregate purchase price of such shares of New Common Stock and
warrants was $3.0 million. The purchased shares constitute
approximately 37% of the Company's issued and outstanding shares of
New Common Stock. The purchased shares and the warrants, if
exercised, would constitute approximately 47% of the fully diluted
capital stock of the Company.
(5) The Company entered into a term loan and revolving credit facility
(the "Senior Loan") with a financial institution. The term portion of
the Senior Loan was for $5.8 million and provides for monthly
principal and interest payments. The interest is to be calculated at
the applicable prime rate plus two percent. The revolving credit
facility allows for working capital loans and standby letters of
credit up to an aggregate of $6.0 million. A portion of the proceeds
from the Senior Loan were used to retire the remaining debt associated
with the purchase of the original assets of Dubach as well as the debt
incurred when the assets of Claiborne Gasoline Company were acquired.
(6) The Company amended its Certificate of Incorporation to (1) change the
Company's name to Cornerstone Natural Gas, Inc. from Endevco, Inc. and
(2) provide for certain restrictions on the transfer of New Common
Stock.
The Company has accounted for all transactions related to the Chapter 11
proceedings in accordance with the Statement of Position 90-7 ("SOP 90-7") of
the American Institute of Certified Public Accountants entitled, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code." In
addition, certain other property and equipment was written down as a result of
the reorganization. These transactions resulted in a loss on
-24-
<PAGE>
disposition and write downs of property, plant and equipment of approximately
$20.3 million and an extraordinary gain from the forgiveness of debt of
approximately $9.1 million.
As a result of the reorganization, the Company believes that cash flows from its
remaining operations combined with amounts available under its $6.0 million
revolving credit facility will be sufficient to meet its projected cash
requirements during 1994.
-25-
<PAGE>
3. PROPERTY, PLANT, AND EQUIPMENT
A summary of property, plant, and equipment follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1993 1992
---- ----
<S> <C> <C>
Pipelines and pipeline rights-of-way . . . . $ 19,737,000 $ 86,416,000
Gas liquids recovery, treating and refining. 30,677,000 29,503,000
Equipment. . . . . . . . . . . . . . . . . . 1,744,000 5,548,000
Other. . . . . . . . . . . . . . . . . . . . 2,299,000 2,430,000
----------- ------------
$ 54,457,000 $ 123,897,000
----------- ------------
----------- ------------
</TABLE>
Interest cost capitalized during the construction of projects was $8,000 in
1993, $26,000 in 1992, and $69,000 in 1991.
As part of the Plan, the Mississippi Fuel, Ada, Chalybeate Springs, and
Leaf River pipeline gathering systems were transferred to the Noteholders
during 1993. The carrying value of these assets was approximately $47.8
million at the time of the transfer. In addition, certain other property
and equipment was written down as a result of the reorganization. These
transactions resulted in a loss on disposition and write downs of property,
plant, and equipment of approximately $20.3 million. See Note 2.
The Company wrote off $131,000 of project development costs during 1992.
These costs related to projects that no longer fit the Company's strategic
plans.
4. LONG-TERM DEBT
A summary of debt follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1992
---- ----
<S> <C> <C>
Term portion of Senior Loan (a). . . . . . . $ 5,506,000 $ -
Notes payable to former Preferred
Stockholders (b) . . . . . . . . . . . . . 2,500,000 -
9% Senior Notes (Note 2) . . . . . . . . . . - 17,475,000
11.7% Senior Notes (Note 2). . . . . . . . . - 8,740,000
11.5% Subordinated Convertible
Debentures (Note 2). . . . . . . . . . . . - 10,750,000
Subordinated secured notes payable (c). . . 2,213,000 2,448,000
Secured notes payable, non-recourse (d). . . - 5,079,000
Secured notes payable, non-recourse (e). . . - 1,195,000
Other. . . . . . . . . . . . . . . . . . . . 50,000 90,000
----------- ------------
10,269,000 45,777,000
Less: Current installments. . . . . . . . . 2,501,000 3,153,000
Long-term debt subject to Standstill
Agreement (f). . . . . . . . . . . . . . . - 36,965,000
----------- ------------
Long-term debt . . . . . . . . . . . . . . . $ 7,768,000 $ 5,659,000
----------- ------------
----------- ------------
</TABLE>
(a) In November 1993, the Company entered into the Senior Loan with a
financial institution. The $5.8 million term portion of the Senior Loan
provides for monthly principal and interest payments. Interest is
payable monthly at the applicable prime rate plus two percent. The
revolving credit facility allows for working capital loans and standby
letters of credit up to an aggregate of $6.0 million subject to a
borrowing base as defined. As of December 31, 1993, $5.9 million was
available from this line. As of December 31, 1993, there were no
working capital loans outstanding
-26-
<PAGE>
and the financial institution had issued, for the Company's benefit,
approximately $3.7 million in standby letters of credit for natural gas
purchases. The revolving credit facility expires October 31, 1995 unless
extended. The Senior Loan is secured by essentially all the assets of the
Company and includes provisions for mandatory prepayments of principal if
certain financial results are achieved. The Senior Loan requires the
Company to maintain certain financial ratios, prohibits the Company from
paying dividends and restricts capital expenditures. A portion of the
proceeds from the Senior Loan were used to retire the remaining debt
associated with the purchase of the original assets of Dubach as well as
the debt incurred when the assets of Claiborne Gasoline Company were
acquired.
(b) In conjunction with the reorganization, the Debtors issued promissory notes
in the aggregate of $2.5 million to the Preferred Stockholders in
satisfaction of all allowed claims (approximately $27.0 million on the
financial records of the Debtors, which included the liquidation value of
the Preferred Stock and all accrued and unpaid dividends thereon). The
Note bears interest at prime rate plus two percent and is secured by a lien
on the stock of all the subsidiaries of Cornerstone and is guaranteed by
its subsidiary, Cornerstone Pipeline Company, which holds an interest in
the Mountain Creek Joint Venture and also owns the Excelsior gathering
system. The note is due in varying annual installments through December
31, 1997, and requires monthly payments of interest during the term of the
note. Pursuant to the terms of the Note, the Company is prohibited from
paying dividends or repurchasing shares of its capital stock.
(c) In September, 1989, the Company's 50% owned Mountain Creek Joint Venture
("MCJV") borrowed $6.0 million from a financial institution. The debt is
secured by MCJV pipeline facilities, and bears interest at prime rate plus
two percent. The loan is due in varying quarterly installments which began
January 1, 1990, with a balloon payment due October 1, 1996. The net book
value of assets encumbered by the aforementioned debt at December 31, 1993,
was approximately $4.7 million ($2.4 million relating to the Company's 50%
ownership interest).
(d) In connection with the acquisition of certain refining and processing
facilities, Dubach entered into a Term Loan and Revolving Credit Agreement
("Agreement") with a financial institution. The Agreement originally
provided for an acquisition loan and a revolving line of credit. Under the
revolving line of credit, working capital loans and standby letters of
credit were permitted. A portion of the proceeds from the Senior Loan were
used to retire the acquisition loan and the working capital loan. The
current line of credit permits standby letters of credit only. As of
December 31, 1993, the financial institution had issued for the Company's
benefit, approximately $10.0 million in standby letters of credit with the
maximum available being $10.0 million, subject to a borrowing base. The
maturity date of this revolving line of credit is March 31, 1994. Fees
related to this revolving line of credit are 2% on letters of credit and a
.5% fee on the unused portion of the line. This line is secured by the
cash, accounts receivable, and inventory of Dubach.
The Company has arranged for a revolving line of credit whereby standby
letters of credit are permitted from a financial institution for March 1994
production. The agreement is secured by a second lien through
subordination up to $2.6 million on the cash, inventory, and accounts
receivable of Dubach. As of March 1, 1994, there were $2.6 million
standby letters of credit issued and outstanding under this line of credit
with the maximum being $2.6 million. The maturity date of this line of
credit is April 30, 1994. Fees related to this agreement are 1 1/2% per
annum.
(e) Effective August 1, 1991, Dubach acquired the assets of Claiborne Gasoline
Company in exchange for a $1.25 million note due to the seller in 120
monthly installments of approximately $25,000, including interest. These
assets included approximately 190 miles of gas gathering pipeline
facilities and related gas liquid recovery and refining facilities. A
portion of the proceeds from the Senior Loan were used to retire the
remainder of this debt.
(f) In 1992, the Company was operating under a standstill and forbearance
agreement (the "Standstill Agreement") with the Noteholders. This
obligation was satisfied as part of the Plan (Note 2).
-27-
<PAGE>
Aggregate maturities of long-term debt, for each of the five subsequent fiscal
years are as follows:
<TABLE>
<S> <C>
1994. . . . . . . . . . . . . . $2,501,000
1995. . . . . . . . . . . . . . 2,120,000
1996. . . . . . . . . . . . . . 3,431,000
1997 . . . . . . . . . . . . . 1,550,000
1998 . . . . . . . . . . . . . 667,000
-----------
$10,269,000
-----------
-----------
</TABLE>
5. INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109)
changing the method of accounting for income taxes. As permitted under the new
rules, prior years' financial statements have not been restated to reflect the
change. There is no cumulative effect from the adoption of FAS 109 as of
January 1, 1993, and no deferred tax provision for the year ended December 31,
1993.
The significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
Liability Method Deferred Method
1993 1992 1991
-------- --------------------------
<S> <C> <C> <C>
Current . . . . . . $ 45,000 $ 181,000 $ 168,000
Deferred. . . . . . - (1,682,000) (832,000)
------- ---------- --------
$ 45,000 $(1,501,000) $(664,000)
------- ---------- --------
------- ---------- --------
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the financial reporting carrying amounts of assets and liabilities and
income tax carrying amounts. The components of the Company's deferred tax
liabilities and assets at December 31, 1993 and January 1, 1993 are as follows:
<TABLE>
<CAPTION>
December 31, January 1,
1993 1993
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment . . . . . $ (2,240,000) $ (7,121,000)
Deferred tax assets:
NOL carryforwards . . . . . . . . . . . 9,842,000 7,260,000
Investment tax credit carryforwards . . 1,618,000 1,618,000
Alternative minimum tax credit
carryforwards . . . . . . . . . . . . 104,000 104,000
Accrued liabilities and other . . . . . 289,000 205,000
----------- ----------
11,853,000 9,187,000
Less valuation allowance . . . . . . . . . . (9,613,000) (2,066,000)
----------- ----------
$ - $ -
----------- ----------
----------- ----------
</TABLE>
-28-
<PAGE>
The sources of deferred income taxes and the tax effect of each for the years
ended December 31, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1992 1991
-------- --------
<S> <C> <C>
Excess tax depreciation over financial. $ 598,000 $ 777,000
Utilization of NOL carryforward . . . . (2,096,000) (1,172,000)
Gain on asset sales . . . . . . . . . . (124,000) (336,000)
Deferred state income tax benefit . . . (146,000) (98,000)
Other . . . . . . . . . . . . . . . . . 86,000 (3,000)
---------- ----------
$(1,682,000) $ (832,000)
---------- ----------
---------- ----------
</TABLE>
The provision (benefit) for income taxes differed from amounts computed at the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Tax benefit at statutory rate . . . . . . . . . . . . . $ (10,653,000) $ (2,425,000) $ (764,000)
State income taxes, net of federal benefit. . . . . . . 29,000 48,000 51,000
Utilization of NOL not assured. . . . . . . . . . . . . 10,491,000 820,000 -
Other . . . . . . . . . . . . . . . . . . . . . . . . . 178,000 56,000 49,000
------------ ------------ ----------
$ 45,000 $ (1,501,000) $ (664,000)
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
The Company has NOL carryforwards for income tax purposes of approximately $28.9
million which, if not previously utilized, will expire at various times from
2001 through 2008. In addition, the Company has unused investment tax credits
of approximately $1.6 million available to offset future federal income tax
liabilities. In general, the credits expire at various times from 1996 through
2001, unless previously utilized. The respective carryforwards are available to
the Company in their full amounts unless a "change of ownership", as defined in
Internal Revenue Code Section 382, occurs. If a change of ownership occurs
utilization of the NOL carryforwards could be severely limited.
6. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases office space, equipment and automobiles under lease
obligations classified as operating leases. Rental expense under these leases
was approximately $1.7 million in 1993, $2.1 million in 1992, and $1.8 million
in 1991. At December 31, 1993, minimum future rental payments due under
operating leases were as follows:
<TABLE>
<S> <C>
1994. . . . . . . . . . . . . . . . $ 375,000
1995. . . . . . . . . . . . . . . . 134,000
1996. . . . . . . . . . . . . . . . 8,000
</TABLE>
The Company is involved in certain other legal actions and claims arising in the
ordinary course of business. It is the opinion of management (based on advice
of legal counsel) that such litigation and claims will be resolved without
material effect on the Company's financial position.
-29-
<PAGE>
7. TRANSACTIONS WITH RELATED PARTIES
On May 28, 1993, the Company entered into the First Amended Stock Purchase
Agreement (the "Stock Purchase Agreement") with Ray Davis, Trustee. Under the
Stock Purchase Agreement, the Purchaser agreed to purchase 4,576,659 shares of
New Common Stock and warrants to acquire 2,564,103 shares of New Common Stock
(with an exercise price of $.78 per share) for $3.0 million. On June 4, 1993 in
connection with the Plan, Mr. Ray C. Davis became the Chairman of the Board of
Directors and the Chief Executive Officer of the Company. At the same time, Mr.
Kelcy L. Warren returned to the Company in his prior role of President and Chief
Operating Officer. The Company felt that it was important that this management
team was in place in order for the Company to complete its reorganization and
recapitalization.
In connection with the Company's emergence from bankruptcy on November 2, 1993,
Mr. Davis purchased 381,388 shares of New Common Stock, Mr. Ben H. Cook
purchased 1,618,612 shares of New Common Stock and Endevco Investors Joint
Venture (the "Joint Venture") purchased 2,576,659 shares of New Common Stock.
Mr. Davis is the managing partner of the Joint Venture and Mr. Cook and Mr.
Warren each have an interest in the Joint Venture. Pursuant to the Stock
Purchase Agreement, a warrant to purchase 769,231 shares of New Common Stock was
issued to Mr. Davis, a warrant to purchase 512,821 shares of New Common Stock
was issued to Mr. Cook, a warrant to purchase 769,231 shares of New Common Stock
was issued to Mr. Warren. Each of the warrants entitle the holder to purchase
shares of New Common Stock for $.78 per share. At the same time, the Company
elected Mr. Cook, Mr. Ted Collins, Jr. and Mr. Richard D. Brannon to the Board
of Directors of the Company pursuant to the terms of the Stock Purchase
Agreement. Affiliates of Mr. Collins and Mr. Brannon are each indirectly
partners in the Joint Venture. The shares of New Common Stock held by the
Joint Venture are to be voted by Mr. Davis pro rata based on the instructions of
the partners of the Joint Venture. Mr. David S. Hunt (a director of the
Company) is a beneficiary of a trust that is a partner in the Joint Venture.
Mr. Hunt has disclaimed beneficial ownership of such shares of New Common Stock.
At December 31, 1993, the Company had approximately $120,000 of payables to
Capstone Capital Corporation for expenses incurred that are to be reimbursed
pursuant to the Plan. Mr. Davis and Mr. Cook own shares of the corporation.
The Company is a party to an agreement with Energy Transfer I, Ltd. ("Energy
Transfer"). Mr. Warren is the sole shareholder of the general partner of Energy
Transfer and Messrs. Davis, Warren and Cook are indirect limited partners in
Energy Transfer. Under such agreement, the Company receives a fixed fee to
market natural gas and operate a natural gas pipeline for Energy Transfer. The
Company received $35,000 from Energy Transfer in the year ended December 31,
1993.
Mr. James W. Bryant (a director of the Company) is a party to a consulting
agreement with the Company. Under the consulting agreement, which has a three
year term, Mr. Bryant is to receive no less than $200,000 per year. Mr. Bryant
is obligated under the consulting agreement to present certain projects to the
Company which has a right of first refusal. If the Company elects to pursue a
project originated by Mr. Bryant, then he is entitled to additional
compensation.
The Company is also a party to a joint venture agreement with an affiliate of
Mr. Collins. Under such joint venture agreement, the Company and the affiliate
of Mr. Collins each bear a portion of the costs for developing projects in the
natural gas business and have a right of first refusal on such projects.
8. EMPLOYEE BENEFIT PLANS
Under the Plan (Note 2) all outstanding stock options were canceled. An
incentive stock option plan the ("Stock Plan") was approved by the Board of
Directors on December 16, 1993, subject to Stockholders' approval. Under the
Stock Plan, options to purchase up to 1,250,000 shares of the Company's
authorized but unissued stock could be granted to key employees through 2003.
Options under the Stock Plan were granted at an exercise price equal to 100% of
the fair market value of the stock on the date of the grant. The options, of
which 727,500 were outstanding at December 31, 1993, are exercisable at a rate
not to exceed 20% for each year of employment completed (however 100% may be
exercised under a change of control, as defined) after the date of grant and
expire 10 years after the date of grant.
The following is a summary of activity under the Stock Plan and all former stock
option plans for the years ended December 31:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Outstanding at beginning of year. . . . . . . . . . . . . . . . . . . . . . 601,713 790,018 654,346
</TABLE>
-30-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Granted during year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 727,500 75,000 374,500
Exercised or terminated during year . . . . . . . . . . . . . . . . . . . . 601,713 263,305 238,828
--------- ----------- -----------
Outstanding at end of year. . . . . . . . . . . . . . . . . . . . . . . . . 727,500 601,713 790,018
--------- ----------- -----------
--------- ----------- -----------
Exercisable at end of year. . . . . . . . . . . . . . . . . . . . . . . . . - 389,473 502,308
--------- ----------- -----------
--------- ----------- -----------
Per share price of exercisable options. . . . . . . . . . . . . . . . . . . $ - $1.63-$6.75 $0.83-$6.75
--------- ----------- -----------
--------- ----------- -----------
Per share price of grants during year . . . . . . . . . . . . . . . . . . . $ 1.125 $ 1.63 $2.13-$3.00
--------- ----------- -----------
--------- ----------- -----------
Per share price of options exercised
during year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ none $ none $ none
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
The Company maintains an incentive savings plan "Savings Plan" under Section
401(k) of the Internal Revenue Code, which is available to all employees who
meet certain requirements. Under the Savings Plan, the Company matched
participants' contributions up to 5% of the participant's compensation through
1993.
Beginning in 1994, the Company will match 20% of the employees' contributions to
the Savings Plan up to a maximum of five percent (5%) of the participant's
compensation. The Company may, at its discretion, increase the matching
percentage at year end and may match in New Common Stock or cash. The Company
recorded expense of $250,000, $193,000, and $174,000 for 1993, 1992 and 1991,
respectively, for its matching contribution.
The Company currently provides no other post-employment benefits.
-31-
<PAGE>
9. SEGMENT INFORMATION
Segment data as of and for the years ended December 31, 1993, 1992 and 1991,
follows:
<TABLE>
<CAPTION>
Gas Corporate
Gas Pipeline Processing General and
Operations Operations Administrative Combined
---------- ---------- -------------- --------
<S> <C> <C> <C> <C>
1993:
Revenue from unaffiliated sources . . . . . . . . . . . . . $ 114,722,000 $ 100,903,000 $ - $ 215,625,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . 105,400,000 88,949,000 - 194,349,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Depreciation and amortization . . . . . . . . . . . . . . . 4,281,000 1,976,000 194,000 6,451,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Operating earnings (loss) . . . . . . . . . . . . . . . . . 196,000 (1,134,000) (3,534,000) (4,472,000)
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Identifiable assets . . . . . . . . . . . . . . . . . . . . 16,554,000 25,383,000 4,509,000 46,446,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Capital expenditures. . . . . . . . . . . . . . . . . . . . 1,913,000 1,800,000 29,000 3,742,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
1992:
Revenue from unaffiliated sources . . . . . . . . . . . . . $ 120,978,000 $ 123,718,000 $ - $ 244,696,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . 107,045,000 109,191,000 - 216,236,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Depreciation and amortization . . . . . . . . . . . . . . . 5,231,000 1,953,000 310,000 7,494,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Operating earnings (loss) . . . . . . . . . . . . . . . . . 3,165,000 313,000 (4,477,000) (999,000)
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Identifiable assets . . . . . . . . . . . . . . . . . . . . 75,649,000 30,294,000 8,606,000 114,549,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Capital expenditures. . . . . . . . . . . . . . . . . . . . 1,529,000 1,566,000 65,000 3,160,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
1991:
Revenue from unaffiliated sources . . . . . . . . . . . . . $ 117,826,000 $ 91,446,000 $ - $ 209,272,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . 101,086,000 79,464,000 - 180,550,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Depreciation and amortization . . . . . . . . . . . . . . . 6,037,000 1,918,000 374,000 8,329,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Operating earnings (loss) . . . . . . . . . . . . . . . . . 4,440,000 2,456,000 (5,618,000) 1,278,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Identifiable assets . . . . . . . . . . . . . . . . . . . . 73,729,000 32,265,000 14,966,000 120,960,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Capital expenditures. . . . . . . . . . . . . . . . . . . . 5,054,000 2,208,000 77,000 7,339,000
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
-32-
<PAGE>
The Company believes that the loss of any single customer would not have a
material effect on the financial condition of the Company. There were no
customers in 1992 that accounted for over 10% of consolidated revenues.
Information regarding sales to major customers by segment for the years ended
December 31, 1993 and 1991 is as follows:
<TABLE>
<CAPTION>
Percentage of
Gas Pipeline Gas Processing Consolidated
Operations Operations Revenues
----------- ------------- -------------
<S> <C> <C> <C>
1993 Georgia Pacific . . . . . . . . . . . . . . . . . . . . . . $ 24,810,000 - 12%
1991 Continental Ozark . . . . . . . . . . . . . . . . . . . . . $ - $ 30,280,000 14%
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
The information required in response to Items 10, 11, 12, and 13 is included in
the Company's definitive Proxy Statement to be filed with the Commission on or
before April 30, 1994, pursuant to Regulation 14A and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Consolidated Financial Statements
<TABLE>
<CAPTION>
Cornerstone Natural Gas, Inc. and Subsidiaries.
Page
----
<S> <C>
Report of Ernst & Young, Independent Auditors. . . . . . . . . . . . . . . . . . 17
Consolidated Statements of Operations for the Years Ended
December 31, 1993, 1992, and 1991 . . . . . . . . . . . . . . . . . . . . . 18
Consolidated Balance Sheets at December 31, 1993 and 1992. . . . . . . . . . . . 19
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992, and 1991 . . . . . . . . . . . . . . . . . . . . . 20
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1993, 1992, and 1991 . . . . . . . . . . . 21
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . .22-33
</TABLE>
(2) Consolidated Financial Statement Schedules.
The consolidated financial statement schedules filed as a part of this
report on Form 10-K follow the signature page. The following is a
list of those schedules:
Schedule V Property, Plant and Equipment
Schedule VI Accumulated Depreciation and Amortization of Property,
Plant, and Equipment
Schedule X Supplementary Income Statement Information
Schedules not included have been omitted because they are not
applicable or the required information is shown in the consolidated
financial statements or notes thereto.
-33-
<PAGE>
(3) Exhibits.
Exhibit No. Document
- ----------- --------
* 3.1 By-Laws, as Amended and Restated March 21, 1994, currently in
effect.
3.2 Restated Certificate of Incorporation of Cornerstone Natural Gas,
Inc. (incorporated by reference to Exhibit 2 filed January 10,
1994, Form 8-A).
* 10.1 Cornerstone Natural Gas, Inc. 1993 Long-Term Incentive Plan.
* 10.2 Amended and Restated Endevco, Inc. Employee Savings Plan
effective July 1, 1991.
10.3 Endevco, Inc. Employee Savings Trust (incorporated by reference
to 10.3 to Registration Statement No. 2-85830).
10.4 Amendment Number 1 to the Endevco, Inc. Employee Savings Trust
(incorporated by reference to Exhibit 10.6 to December 31, 1991,
Form 10-K).
10.5 Amendment Number 2 to the Endevco, Inc. Employee Savings Trust
(incorporated by reference to Exhibit 10.7 to December 31, 1991,
Form 10-K).
10.6 Lease Agreement by and between Endevco, Inc. as Tenant and 8080
Central, Ltd. as Landlord, dated January 11, l985, (incorporated
by reference to Exhibit 10.65 to March 31, 1985 Form 10-Q).
10.7 Amendment to the Lease Agreement by and between Endevco, Inc. as
Tenant and 8080 Central, Ltd. as Landlord, dated April 24, l985,
(incorporated by reference to Exhibit 10.14 to December 31, 1991,
Form 10-K).
10.8 Amendment to Lease Agreement by and between Endevco, Inc. as
Tenant and 8080 Central, Ltd. as Landlord, dated October 7, l985,
(incorporated by reference to Exhibit 10.15 to December 31, 1991,
Form 10-K).
10.9 Amendment to Lease Agreement by and between Endevco, Inc. as
Tenant and 8080 Central, Ltd. as Landlord, dated
October 13, l987, (incorporated by reference to Exhibit 10.16 to
December 31, 1991, Form 10-K).
10.10 Amendment to Lease Agreement by and between Endevco, Inc. as
Tenant and 8080 Central, Ltd. as Landlord, dated
October 22, l988, (incorporated by reference to Exhibit 10.17 to
December 31, 1991, Form 10-K).
10.11 Modification and Ratification of Lease Agreement by and between
Endevco, Inc. as Tenant and The Prudential Insurance Company of
America, as Landlord, dated February 24, l993, (incorporated by
reference to Exhibit 10.18 to December 31, 1992, Form 10-K).
10.12 Amended and Restated Term Loan and Revolving Credit Agreement
between Dubach Gas Company and Union Bank dated July 26, l991,
(incorporated by reference to Exhibit 10.51 to December 31, 1991,
Form 10-K).
10.13 First Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated August 28, l991, (incorporated by reference to Exhibit
10.52 to December 31, 1991, Form 10-K).
10.14 Amendment to the Amended and Restated Term Loan and Revolving
Credit Agreement between
-34-
<PAGE>
Dubach Gas Company and Union Bank dated December 20, 1991,
(incorporated by reference to Exhibit 10.53 to December 31, 1991,
Form 10-K).
10.15 Second Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated July 23, l992, (incorporated by reference to Exhibit
10.54 to December 31, 1992, Form 10-K).
10.16 Third Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated September 21, l992, (incorporated by reference to
Exhibit 10.55 to December 31, 1992, Form 10-K).
10.17 Fourth Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated October 22, l992, (incorporated by reference to
Exhibit 10.56 to December 31, 1992, Form 10-K).
10.18 Fifth Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated November 30, l992, (incorporated by reference to
Exhibit 10.57 to December 31, 1992, Form 10-K).
10.19 Sixth Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated January 29, l993, (incorporated by reference to
Exhibit 10.58 to December 31, 1992, Form 10-K).
10.20 Seventh Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated February 22, l993, (incorporated by reference to
Exhibit 10.59 to December 31, 1992, Form 10-K).
10.21 Eighth Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated March 22, l993, (incorporated by reference to Exhibit
10.60 to December 31, 1992, Form 10-K).
* 10.22 Ninth Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated April 26, 1993.
* 10.23 Tenth Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated May 24, 1993.
* 10.24 Eleventh Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated June 21, 1993.
* 10.25 Twelfth Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated July 19, 1993.
* 10.26 Thirteenth Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated August 23, 1993.
* 10.27 Fourteenth Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated September 21, 1993.
* 10.28 Fifteenth Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated October 28, 1993.
-35-
<PAGE>
* 10.29 Sixteenth Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union
Bank dated December 21, 1993.
10.30 Subordination Agreement dated December 15, l988, (incorporated by
reference to Exhibit 10.54 to December 31, 1991, Form 10-K).
10.31 Amendment dated March 27, l989, to Subordination Agreement dated
December 15, l988, between Endevco, Inc. and Dubach Gas Company
(incorporated by reference to Exhibit 10.55 to December 31, 1991,
Form 10-K).
10.32 Second Amendment dated August 29, l990, to Subordination
Agreement dated December 15, l988, between Endevco, Inc. and
Dubach Gas Company (incorporated by reference to Exhibit 10.56 to
December 31, 1991, Form 10-K).
10.33 Third Amendment dated September 21, 1990, to Subordination
Agreement dated December 15, l988, between Endevco, Inc. and
Dubach Gas Company (incorporated by reference to Exhibit 10.96 to
December 31, 1990, Form 10-K).
10.34 Loan Agreement dated as of December 16, l988, by and between
Dubach Gas Company and Endevco, Inc. (incorporated by reference
to Exhibit 2 to December 16, 1988, Form 8-K).
10.35 General Partnership Agreement of Mountain Creek Joint Venture
dated as of March 7, l989, by and between Western Natural Gas
Company and Cornerstone Natural Gas Company (incorporated by
reference to Exhibit 10.79 to December 31, 1989, Form 10-K).
10.36 Pipeline Construction and Operating Agreement dated March 7,
l989, by and between Cornerstone Natural Gas Company and Mountain
Creek Joint Venture (incorporated by reference to Exhibit 10.80
to December 31, 1989, Form 10-K).
10.37 Loan Agreement dated September 28, l989, by and between Mountain
Creek Joint Venture and Chrysler Capital Corporation
(incorporated by reference to Exhibit 10.82 to December 31, 1989,
Form 10-K).
10.38 Participation Agreement dated July 17, l991, by and between
Endevco and First Reserve Gas Storage Inc. (incorporated by
reference to Exhibit 10.88 to December 31,1991, Form 10-K).
* 10.39 Letter Agreement effective May 17, 1993, by and between Energy
Transfer Corporation and Cornerstone Natural Gas, Inc.
10.40 Stock Purchase Agreement dated March 20, l993, by and between
Endevco, Inc., and Ray Davis, Trustee (incorporated by reference
to Exhibit 10.136 to December 31, 1992, Form 10-K).
10.41 First Amendment Stock Purchase Agreement dated May 28, 1993, by
and between Endevco, Inc., and Ray Davis, Trustee (incorporated
by reference to Exhibit 10.1 to June 17, 1993, to Form 8-K).
* 10.42 Form and Schedule of Warrants to Purchase Common Stock of
Cornerstone Natural Gas, Inc.
* 10.43 Form and Schedule of Promissory Note dated November 2, 1993,
between Cornerstone Natural Gas, Inc. and Preferred Stockholders.
10.44 Revolving Credit and Term Loan Agreement between Cornerstone
Natural Gas, Inc. et al, and Bank of Oklahoma, National
Association dated November 2, 1993, (incorporated by reference to
Exhibit 10.3 to November 2, 1993, Form 8-K).
* 10.45 Joint Venture Agreement between Cornerstone Natural Gas, Inc. and
Merit Natural Gas Company
-36-
<PAGE>
dated October 28, 1993.
* 10.46 First Amended and Restated Intercreditor Agreement dated December
31, 1993, between Union Bank and Bank of Oklahoma, National
Association.
* 10.47 Subordination Agreement dated February 24, 1994, between Bank of
Oklahoma, National Association and Premier Bank.
* 10.48 Consulting Agreement between Endevco, Inc. and James W. Bryant
dated June 4, 1993.
* 22.1 List of Subsidiaries.
* 23.1 Consent of Independent Auditors.
- --------------------------------------
* Filed Herewith
(b) Reports on Form 8-K
(1) "Item 3. Bankruptcy." and "Item 7. Exhibits." were reported in a
Current Report on Form 8-K filed October 14, 1993.
(2) "Item 1. Change of Control of Registrant", "Item 2. Disposition of
Assets", "Item 3. Bankruptcy" and "Item 7. Exhibits" were reported
in a current report on Form 8-K filed November 15, 1993.
-37-
<PAGE>
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.
CORNERSTONE NATURAL GAS, INC.
By:/s/ RAY C. DAVIS
----------------------
Ray C. Davis
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
Date: MARCH 22, l994
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Capacity in
Signatures Which Signed
---------- ------------
/s/ RAY C. DAVIS Chairman of the Board of Directors March 22, 1994
- ----------------------- and Chief Executive Officer
(Ray C. Davis)
/s/ KELCY L. WARREN President, Chief Operating March 22, 1994
- ----------------------- Officer and Director
(Kelcy L. Warren)
/s/ ROBERT L. CAVNAR Senior Vice President and Chief March 22, 1994
- ----------------------- Financial Officer
(Robert L. Cavnar)
/s/ RICHARD W. PIACENTI Vice President and Controller March 22, 1994
- -----------------------
(Richard W. Piacenti)
/s/ RICHARD D. BRANNON Director March 22, 1994
- -----------------------
(Richard D. Brannon)
/s/ JAMES W. BRYANT Director March 22, 1994
- -----------------------
(James W. Bryant)
/s/ TED COLLINS, JR. Director March 22, 1994
- -----------------------
(Ted Collins, Jr.)
/s/ BEN H. COOK Director March 22, 1994
- -----------------------
(Ben H. Cook)
/s/ DAVID S. HUNT Director March 22, 1994
- -----------------------
(David S. Hunt)
/s/ C. ROBERT SLEDGE Director March 22, 1994
- -----------------------
(C. Robert Sledge)
-38-
<PAGE>
SCHEDULE V
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Balance at Transfers Balance at
Beginning Retirements & End
Classification of Period Additions or Sales Other of Periodd
-------------- ---------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
December 31, l993:
Pipelines and Pipeline
Rights-of-Way. . . . . . . . . . . $ 86,416,000 $ 1,686,000 $ 68,365,000 (a) $ - $ 19,737,000
Gas Storage . . . . . . . . . . . . . - - - - -
Gas Liquids Recovery Plants . . . . . 21,312,000 1,362,000 - - 22,674,000
Gas Treating Plants . . . . . . . . . 8,191,000 163,000 351,000 - 8,003,000
Equipment . . . . . . . . . . . . . . 5,548,000 403,000 4,207,000 (a) - 1,744,000
Furniture and Fixtures. . . . . . . . 1,622,000 67,000 109,000 (a) - 1,580,000
Leasehold Improvements. . . . . . . . 424,000 - 60,000 (a) - 364,000
Buildings . . . . . . . . . . . . . . 139,000 21,000 77,000 (a) - 83,000
Land. . . . . . . . . . . . . . . . . 245,000 40,000 13,000 (a) - 272,000
----------- ---------- ----------- ---------- -----------
$123,897,000 $ 3,742,000 $ 73,182,000 $ - $ 54,457,000
----------- ---------- ----------- ---------- -----------
----------- ---------- ----------- ---------- -----------
December 31, l992:
Pipelines and Pipeline
Rights-of-Way. . . . . . . . . . . $ 85,347,000 $ 1,311,000 $ 213,000 $ (29,000) $ 86,416,000
Gas Storage . . . . . . . . . . . . . - - - - -
Gas Liquids Recovery Plants . . . . . 20,166,000 1,146,000 - - 21,312,000
Gas Treating Plants . . . . . . . . . 8,266,000 288,000 340,000 (23,000) 8,191,000
Equipment . . . . . . . . . . . . . . 5,867,000 372,000 743,000 52,000 5,548,000
Furniture and Fixtures. . . . . . . . 1,591,000 31,000 - - 1,622,000
Leasehold Improvements. . . . . . . . 412,000 12,000 - - 424,000
Buildings . . . . . . . . . . . . . . 156,000 - 17,000 - 139,000
Land. . . . . . . . . . . . . . . . . 245,000 - - - 245,000
----------- ---------- ----------- ---------- -----------
$122,050,000 $ 3,160,000 $ 1,313,000 $ - $123,897,000
----------- ---------- ----------- ---------- -----------
----------- ---------- ----------- ---------- -----------
December 31, 1991:
Pipelines and Pipeline
Rights-of-Way. . . . . . . . . . . $ 87,309,000 $ 1,220,000 $ 3,322,000 $ 140,000 (b)(c) $ 85,347,000
Gas Storage . . . . . . . . . . . . . 14,746,000 3,181,000 18,153,000 226,000 (d) -
Gas Liquids Recovery Plants . . . . . 17,668,000 1,610,000 - 888,000 (b)(c) 20,166,000
Gas Treating Plants . . . . . . . . . 7,884,000 382,000 - - 8,266,000
Equipment . . . . . . . . . . . . . . 6,132,000 844,000 602,000 (507,000) (b)(c) 5,867,000
Furniture and Fixtures. . . . . . . . 1,554,000 55,000 33,000 15,000 (b) 1,591,000
Leasehold Improvements. . . . . . . . 411,000 1,000 - - 412,000
Buildings . . . . . . . . . . . . . . 121,000 45,000 10,000 - 156,000
Land. . . . . . . . . . . . . . . . . 231,000 1,000 - 13,000 (b) 245,000
----------- ---------- ----------- ---------- -----------
$136,056,000 $ 7,339,000 $ 22,120,000 $ 775,000 $ 122,050,000
----------- ---------- ----------- ---------- -----------
----------- ---------- ----------- ---------- -----------
<FN>
(a) Includes effect of transfer of assets to Noteholders in satisfaction of
debt.
(b) Includes effect of acquisition of 10% minority interest in subsidiary.
(c) Includes effect of transfer of assets to partnership at net book value.
(d) Reclassified from (to) other assets.
</TABLE>
-39-
<PAGE>
SCHEDULE VI
CORNERSTONE NATURAL GAS INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Balance at Transfers Balance at
Beginning Retirements & End
Classification of Period Additions or Sales Other of Period
-------------- ---------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
December 31, l993:
Pipelines and Pipeline
Rights-of-Way . . . . . . . . . . . . $ 28,154,000 $ 4,120,000 $ 23,200,000 (a) $ 4,217,000 (b) $ 13,291,000
Gas Storage . . . . . . . . . . . . . - - - - -
Gas Liquids Recovery Plants . . . . . 7,725,000 1,263,000 - 117,000 (b) 9,105,000
Gas Treating Plants . . . . . . . . . 5,406,000 507,000 - 657,000 (b) 6,570,000
Equipment . . . . . . . . . . . . . . 2,274,000 358,000 1,743,000 (a) 97,000 (b) 986,000
Furniture and Fixtures. . . . . . . . 1,495,000 62,000 109,000 (a) - 1,448,000
Leasehold Improvements. . . . . . . . 400,000 17,000 61,000 (a) - 356,000
Buildings . . . . . . . . . . . . . . 57,000 7,000 19,000 (a) 4,000 (b) 49,000
----------- ---------- ----------- ---------- -----------
$ 45,511,000 $ 6,334,000 $ 25,132,000 $ 5,092,000 $ 31,805,000
----------- ---------- ----------- ---------- -----------
----------- ---------- ----------- ---------- -----------
December 31, l992:
Pipelines and Pipeline
Rights-of-Way . . . . . . . . . . . . $ 23,348,000 $ 5,003,000 $ 207,000 $ 10,000 $ 28,154,000
Gas Storage . . . . . . . . . . . . . - - - - -
Gas Liquids Recovery Plants . . . . . 6,585,000 1,140,000 - - 7,725,000
Gas Treating Plants . . . . . . . . . 4,994,000 612,000 186,000 (14,000) 5,406,000
Equipment . . . . . . . . . . . . . . 2,320,000 413,000 463,000 4,000 2,274,000
Furniture and Fixtures. . . . . . . . 1,346,000 149,000 - - 1,495,000
Leasehold Improvements. . . . . . . . 347,000 53,000 - - 400,000
Buildings . . . . . . . . . . . . . . 66,000 8,000 17,000 - 57,000
----------- ---------- ----------- ---------- -----------
$ 39,006,000 $ 7,378,000 $ 873,000 $ - $ 45,511,000
----------- ---------- ----------- ---------- -----------
----------- ---------- ----------- ---------- -----------
December 31, 1991:
Pipelines and Pipeline
Rights-of-Way . . . . . . . . . . . . $ 19,132,000 $ 5,184,000 $ 986,000 $ 18,000 (c) $ 23,348,000
Gas Storage . . . . . . . . . . . . . 100,000 218,000 318,000 - -
Gas Liquids Recovery Plants . . . . . 5,628,000 933,000 - 24,000 (c)(d) 6,585,000
Gas Treating Plants . . . . . . . . . 4,494,000 500,000 - - 4,994,000
Equipment . . . . . . . . . . . . . . 2,425,000 470,000 338,000 (237,000) (c)(d) 2,320,000
Furniture and Fixtures. . . . . . . . 1,109,000 241,000 7,000 3,000 (c) 1,346,000
Leasehold Improvements. . . . . . . . 286,000 61,000 - - 347,000
Buildings . . . . . . . . . . . . . . 71,000 6,000 11,000 - 66,000
----------- ---------- ----------- ---------- -----------
$ 33,245,000 $ 7,613,000 $ 1,660,000 $ (192,000) $ 39,006,000
----------- ---------- ----------- ---------- -----------
----------- ---------- ----------- ---------- -----------
<FN>
(a) Includes effect of transfer of assets to Noteholders in satisfaction of
debt.
(b) Includes effect of write downs associated with the reorganization.
(c) Includes effect of acquisition of 10% minority interest in subsidiary.
(d) Includes effect of transfer of assets to partnership at net book value.
</TABLE>
-40-
<PAGE>
SCHEDULE X
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Maintenance and repairs $ 2,455,000 $ 3,379,000 $ (a)
Depreciation and amortization of intangible assets (a) (a) (a)
Taxes, other than payroll and income taxes (a) (a) (a)
Royalties (a) (a) (a)
Advertising costs (a) (a) (a)
<FN>
(a) less than 1% of total revenues.
</TABLE>
-41-
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Document
- ----------- --------
* 3.1 By-Laws, as Amended and Restated March 21, 1994, currently in effect.
3.2 Restated Certificate of Incorporation of Cornerstone Natural Gas,
Inc. (incorporated by reference to Exhibit 2 filed January 10, 1994,
Form 8-A).
* 10.1 Cornerstone Natural Gas, Inc. 1993 Long-Term Incentive Plan.
* 10.2 Amended and Restated Endevco, Inc. Employee Savings Plan effective
July 1, 1991.
10.3 Endevco, Inc. Employee Savings Trust (incorporated by reference to
10.3 to Registration Statement No. 2-85830).
10.4 Amendment Number 1 to the Endevco, Inc. Employee Savings Trust
(incorporated by reference to Exhibit 10.6 to December 31, 1991, Form
10-K).
10.5 Amendment Number 2 to the Endevco, Inc. Employee Savings Trust
(incorporated by reference to Exhibit 10.7 to December 31, 1991, Form
10-K).
10.6 Lease Agreement by and between Endevco, Inc. as Tenant and 8080
Central, Ltd. as Landlord, dated January 11, l985, (incorporated by
reference to Exhibit 10.65 to March 31, 1985 Form 10-Q).
10.7 Amendment to the Lease Agreement by and between Endevco, Inc. as
Tenant and 8080 Central, Ltd. as Landlord, dated April 24, l985,
(incorporated by reference to Exhibit 10.14 to December 31, 1991,
Form 10-K).
10.8 Amendment to Lease Agreement by and between Endevco, Inc. as Tenant
and 8080 Central, Ltd. as Landlord, dated October 7, l985,
(incorporated by reference to Exhibit 10.15 to December 31, 1991,
Form 10-K).
10.9 Amendment to Lease Agreement by and between Endevco, Inc. as Tenant
and 8080 Central, Ltd. as Landlord, dated October 13, l987,
(incorporated by reference to Exhibit 10.16 to December 31, 1991,
Form 10-K).
10.10 Amendment to Lease Agreement by and between Endevco, Inc. as Tenant
and 8080 Central, Ltd. as Landlord, dated October 22, l988,
(incorporated by reference to Exhibit 10.17 to December 31, 1991,
Form 10-K).
10.11 Modification and Ratification of Lease Agreement by and between
Endevco, Inc. as Tenant and The Prudential Insurance Company of
America, as Landlord, dated February 24, l993, (incorporated by
reference to Exhibit 10.18 to December 31, 1992, Form 10-K).
10.12 Amended and Restated Term Loan and Revolving Credit Agreement between
Dubach Gas Company and Union Bank dated July 26, l991, (incorporated
by reference to Exhibit 10.51 to December 31, 1991, Form 10-K).
10.13 First Amendment to the Amended and Restated Term Loan and Revolving
Credit Agreement between Dubach Gas Company and Union Bank dated
August 28, l991, (incorporated by reference to Exhibit 10.52 to
December 31, 1991, Form 10-K).
<PAGE>
10.14 Amendment to the Amended and Restated Term Loan and Revolving Credit
Agreement between Dubach Gas Company and Union Bank dated December
20, 1991, (incorporated by reference to Exhibit 10.53 to December 31,
1991, Form 10-K).
10.15 Second Amendment to the Amended and Restated Term Loan and Revolving
Credit Agreement between Dubach Gas Company and Union Bank dated July
23, l992, (incorporated by reference to Exhibit 10.54 to December 31,
1992, Form 10-K).
10.16 Third Amendment to the Amended and Restated Term Loan and Revolving
Credit Agreement between Dubach Gas Company and Union Bank dated
September 21, l992, (incorporated by reference to Exhibit 10.55 to
December 31, 1992, Form 10-K).
10.17 Fourth Amendment to the Amended and Restated Term Loan and Revolving
Credit Agreement between Dubach Gas Company and Union Bank dated
October 22, l992, (incorporated by reference to Exhibit 10.56 to
December 31, 1992, Form 10-K).
10.18 Fifth Amendment to the Amended and Restated Term Loan and Revolving
Credit Agreement between Dubach Gas Company and Union Bank dated
November 30, l992, (incorporated by reference to Exhibit 10.57 to
December 31, 1992, Form 10-K).
10.19 Sixth Amendment to the Amended and Restated Term Loan and Revolving
Credit Agreement between Dubach Gas Company and Union Bank dated
January 29, l993, (incorporated by reference to Exhibit 10.58 to
December 31, 1992, Form 10-K).
10.20 Seventh Amendment to the Amended and Restated Term Loan and Revolving
Credit Agreement between Dubach Gas Company and Union Bank dated
February 22, l993, (incorporated by reference to Exhibit 10.59 to
December 31, 1992, Form 10-K).
10.21 Eighth Amendment to the Amended and Restated Term Loan and Revolving
Credit Agreement between Dubach Gas Company and Union Bank dated
March 22, l993, (incorporated by reference to Exhibit 10.60 to
December 31, 1992, Form 10-K).
* 10.22 Ninth Amendment to the Amended and Restated Term Loan and Revolving
Credit Agreement between Dubach Gas Company and Union Bank dated
April 26, 1993.
* 10.23 Tenth Amendment to the Amended and Restated Term Loan and Revolving
Credit Agreement between Dubach Gas Company and Union Bank dated May
24, 1993.
* 10.24 Eleventh Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union Bank
dated June 21, 1993.
* 10.25 Twelfth Amendment to the Amended and Restated Term Loan and Revolving
Credit Agreement between Dubach Gas Company and Union Bank dated July
19, 1993.
* 10.26 Thirteenth Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union Bank
dated August 23, 1993.
* 10.27 Fourteenth Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union Bank
dated September 21, 1993.
* 10.28 Fifteenth Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union Bank
dated October 28, 1993.
<PAGE>
* 10.29 Sixteenth Amendment to the Amended and Restated Term Loan and
Revolving Credit Agreement between Dubach Gas Company and Union Bank
dated December 21, 1993.
10.30 Subordination Agreement dated December 15, l988, (incorporated by
reference to Exhibit 10.54 to December 31, 1991, Form 10-K).
10.31 Amendment dated March 27, l989, to Subordination Agreement dated
December 15, l988, between Endevco, Inc. and Dubach Gas Company
(incorporated by reference to Exhibit 10.55 to December 31, 1991,
Form 10-K).
10.32 Second Amendment dated August 29, l990, to Subordination Agreement
dated December 15, l988, between Endevco, Inc. and Dubach Gas Company
(incorporated by reference to Exhibit 10.56 to December 31, 1991,
Form 10-K).
10.33 Third Amendment dated September 21, 1990, to Subordination Agreement
dated December 15, l988, between Endevco, Inc. and Dubach Gas Company
(incorporated by reference to Exhibit 10.96 to December 31, 1990,
Form 10-K).
10.34 Loan Agreement dated as of December 16, l988, by and between Dubach
Gas Company and Endevco, Inc. (incorporated by reference to Exhibit 2
to December 16, 1988, Form 8-K).
10.35 General Partnership Agreement of Mountain Creek Joint Venture dated
as of March 7, l989, by and between Western Natural Gas Company and
Cornerstone Natural Gas Company (incorporated by reference to Exhibit
10.79 to December 31, 1989, Form 10-K).
10.36 Pipeline Construction and Operating Agreement dated March 7, l989, by
and between Cornerstone Natural Gas Company and Mountain Creek Joint
Venture (incorporated by reference to Exhibit 10.80 to December 31,
1989, Form 10-K).
10.37 Loan Agreement dated September 28, l989, by and between Mountain
Creek Joint Venture and Chrysler Capital Corporation (incorporated by
reference to Exhibit 10.82 to December 31, 1989, Form 10-K).
10.38 Participation Agreement dated July 17, l991, by and between Endevco
and First Reserve Gas Storage Inc. (incorporated by reference to
Exhibit 10.88 to December 31,1991, Form 10-K).
* 10.39 Letter Agreement effective May 17, 1993, by and between Energy
Transfer Corporation and Cornerstone Natural Gas, Inc.
10.40 Stock Purchase Agreement dated March 20, l993, by and between
Endevco, Inc., and Ray Davis, Trustee (incorporated by reference to
Exhibit 10.136 to December 31, 1992, Form 10-K).
10.41 First Amendment Stock Purchase Agreement dated May 28, 1993, by and
between Endevco, Inc., and Ray Davis, Trustee (incorporated by
reference to Exhibit 10.1 to June 17, 1993, to Form 8-K).
* 10.42 Form and Schedule of Warrants to Purchase Common Stock of Cornerstone
Natural Gas, Inc.
* 10.43 Form and Schedule of Promissory Note dated November 2, 1993, between
Cornerstone Natural Gas, Inc. and Preferred Stockholders.
10.44 Revolving Credit and Term Loan Agreement between Cornerstone Natural
Gas, Inc. et al, and Bank of Oklahoma, National Association dated
November 2, 1993, (incorporated by reference to Exhibit 10.3 to
November 2, 1993, Form 8-K).
<PAGE>
* 10.45 Joint Venture Agreement between Cornerstone Natural Gas, Inc. and
Merit Natural Gas Company dated October 28, 1993.
* 10.46 First Amended and Restated Intercreditor Agreement dated December 31,
1993, between Union Bank and Bank of Oklahoma, National Association.
* 10.47 Subordination Agreement dated February 24, 1994, between Bank of
Oklahoma, National Association and Premier Bank.
* 10.48 Consulting Agreement between Endevco, Inc. and James W. Bryant dated
June 4, 1993.
* 22.1 List of Subsidiaries.
* 23.1 Consent of Independent Auditors.
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* Filed Herewith
<PAGE>
CORNERSTONE NATURAL GAS, INC. EXHIBIT 3.1
BY-LAWS, AS AMENDED
RESTATED: MARCH 21, 1994
ARTICLE 1: Offices
1.01 REGISTERED OFFICE. The registered office of the Corporation in the
State of Delaware and the Corporation's registered agent at such office shall be
such place and person as may from time to time be determined by the Board of
Directors of the Corporation and reflected in an appropriate filing with the
Secretary of State of Delaware.
1.02 OTHER OFFICES. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the Corporation may require.
ARTICLE 2: Shareholders
2.01 PLACE OF MEETINGS. All meetings of the Shareholders shall be held
at such time and place, within or without the State of Delaware, as may be
designated for that purpose from time to time by the Board of Directors or the
President.
2.02 ANNUAL MEETING. An Annual Meeting of the Shareholders shall be
held each year at 10:00 a.m. on a day during the month of May, to be selected by
the Board of Directors. At the meeting, the Shareholders shall elect directors
and transact such other business as may be properly brought before the meeting.
2.03 VOTING LIST. At least ten days before each meeting of
Shareholders, a complete list of the Shareholders entitled to vote at the
meeting, arranged in alphabetical order, with the address of each and the number
of voting shares held by each, shall be prepared by the officer or agent having
charge of the stock transfer books. The list, for a period of ten days prior to
the meeting, shall be kept on file at the registered office of the Corporation
and shall be subject to inspection by any Shareholder at any time during usual
business hours. The list shall also be produced and kept open at the time and
place of the meeting during the whole time thereof, and shall be subject to the
inspection of any Shareholder during the whole time of the meeting.
2.04 SPECIAL MEETINGS. Special meetings of the Shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, the Certificate of
Incorporation, any resolution adopted by the Board of Directors providing for
the issuance of any class or series of stock having a preference over the Common
Stock of the Corporation as to dividends or redemption or upon liquidation or
winding up of the Corporation or these By-Laws, may be called by the President
or the Board of Directors. Business transacted at a special meeting shall be
confined to the subjects stated in the notice of the meeting.
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2.05 NOTICE. Written or printed notice stating the place, day and hour
of the meeting and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either personally or by
mail, by or at the direction of the president, the secretary or the office or
person calling the meeting, to each Shareholder of record entitled to vote at
the meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the Shareholder at his address
as it appears on the stock transfer books of the Corporation, with postage
thereon prepaid.
2.06 QUORUM. The holders of a majority of the shares issued and
outstanding entitled to vote therein, present in person or represented by proxy,
shall be requisite and shall constitute a quorum at all meetings of the
Shareholders for the transaction of business except as otherwise provided by
statute, the Certificate of Incorporation, any resolution adopted by the Board
of Directors providing for the issuance of any cash or series of stock having a
preference over the Common Stock of the Corporation as to dividends or
redemption or upon liquidation or winding up of the Corporation or these By-
Laws. If, however, such quorum shall not be present or represented at any
meeting of the Shareholders, the Shareholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time until a quorum shall be present or represented.
Notice of adjournment of a meeting of Shareholders need not be given if the time
and place to which it is adjourned are announced at such meeting, unless the
adjournment is for more than 30 days or, after adjournment, a new record date is
fixed for the adjourned meeting. At any such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
2.07 MAJORITY VOTE; WITHDRAWAL OF QUORUM. When a quorum is present at
any meeting, the vote of the holders of a majority of the shares having voting
power present in person or represented by proxy, shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of the statutes, the Certificate of Incorporation, any resolution or
resolutions adopted by the Board of Directors providing for the issuance of any
class or series of stock having a preference over the Common Stock of the
Corporation as to dividends or redemption or upon liquidation or winding up of
the Corporation or these By-Laws, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
The Shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
Shareholders to leave less than a quorum.
2.08 METHOD OF VOTING. Except as otherwise provided by law or by the
Certificate of Incorporation of the Corporation, or the resolution or
resolutions adopted by the Board of Directors providing for the issuance of any
class or series of stock having a preference over the Common Stock of the
Corporation as to dividends or redemption or upon liquidation or winding up of
the Corporation, each Shareholder of record of any class or series of stock
having a preference over the Common Stock of the Corporation as to dividends or
redemption or upon liquidation or winding up of the Corporation, each
Shareholder of record of any class or series of stock having a preference over
the Common Stock of the Corporation as to dividends or redemption or upon the
liquidation or winding up of the Corporation shall be entitled at each meeting
of Shareholders to such number of votes for
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each share of such stock as may be fixed in the Certificate of Incorporation or
in the resolution or resolutions adopted by the Board of Directors providing for
the issuance of such stock, and each Shareholder of record Shareholders to one
vote for each share of such stock, in each case, registered in such
Shareholder's name on the books of the Corporation:
(A) on the date fixed pursuant to Section 2.09 of Article 2 of
these By-Laws as a record date for the determination of Shareholders
entitled to notice of and to vote at meeting; or
(B) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the date on which notice of
such meeting is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held.
At any meeting of the Shareholders, every Shareholder having the right to
vote may vote either in person, or by proxy executed in writing by the
Shareholder or by his duly authorized attorney-in-fact. No proxy shall be valid
after three (3) years from the date of its execution, unless otherwise made
irrevocable by law. Each proxy shall be filed with the secretary of the
Corporation prior to or at the time of the meeting. Voting for directors shall
be in accordance with Section 2.06 of these By-Laws.
2.09 FIXING DATE FOR DETERMINATION OF SHAREHOLDERS OF RECORD. In order
that the Corporation may determine the Shareholders entitled to notice of or to
vote at any meeting of Shareholders or any adjournment thereof, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than 60 nor less than 10 days
before the date of such meeting. A determination of Shareholders entitled to
notice of or to vote at a meeting provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
2.10 WAIVER OF NOTICE. Any notice required by law or these By-Laws may
be waived by the person entitled to the notice by the execution of a written
waiver of such notice or by appearing at any meeting of Shareholders without
protest of or objection to the lack of notice to such person.
2.11 CONDUCT OF MEETING. At every meeting of the Shareholders, the
Chairman of the Board of Directors, the president, or in their absence, the vice
president designated by the Chairman of the Board or the president or, in the
absence of such designation, a chairman (who shall be one of the vice
presidents, if any is present) chosen by a majority in interest of the
Shareholders of the Corporation present in person or by proxy and entitled to
vote, shall act as chairman. The secretary of the Corporation, or in his
absence, an assistant secretary, shall act as secretary of all meetings of the
Shareholders. In the absence at such meeting of the secretary or assistant
secretary, the chairman of the meeting may appoint another person to act as
secretary of the meeting. The chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts and things as are necessary or desirable for the proper conduct of the
meeting, including, without limitation, the establishment of procedures for the
maintenance of order and safety, limitations and the time allotted to questions
or comments on the affairs of the
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Corporation, restrictions on entry to such meeting after the time prescribed for
the commencement thereof, and the opening and closing of the voting polls.
2.12 INSPECTORS. Either the Board of Directors or, in the absence of a
designation of inspectors by the Board, the chairman of any meeting of
Shareholders may, in its or such person's discretion, appoint two or more
inspectors to act at any meeting of Shareholders. Such inspectors shall perform
such duties as shall be specified by the Board or the chairman of the meeting.
Inspectors need not be the Shareholders. No director or nominee for the office
of director shall be appointed such inspector.
ARTICLE 3: Directors
3.01 MANAGEMENT. The business and affairs of the Corporation shall be
managed by the Board of Directors who may exercise all such powers of the
Corporation and do all such lawful acts and things as are not (by statute or by
the Certificate of Incorporation or by these By-Laws) directed or required to be
exercised or done by the Shareholders. The directors shall act only as a
Board and an individual director shall have no power as such.
3.02 NUMBER; QUALIFICATION. Subject to any increases in the number of
Directors constituting the whole Board of Directors necessary to permit the
election of any directors by the holders of any class or series of stock having
a preference over the Common Stock of the Corporation as to dividends or
redemption or upon liquidation or winding up of the Corporation upon the
happening of any specified event described in the resolution or resolutions
adopted by the Board of Directors providing for the issuance of such class or
series, the Board of Directors shall consist of not less than seven (7) and not
more than nine (9) Directors, none of whom need be Shareholders or residents of
any particular state. Subject to the foregoing, the exact number of Directors
sitting on the Board of Directors at any particular time shall be established by
a resolution of the Board of Directors.
3.03 CHANGES IN NUMBER. The number of Directors may be increased to a
number greater than nine (9) or decreased to a number less than seven (7) from
time to time by amendment to the By-Laws but no decrease shall have the effect
of shortening the term of any incumbent Director. A Directorship to be filled
by reason of an increase in the number of Directors may be filled by the Board
of Directors for a term of office continuing until the next election of one or
more Directors by the Stockholders, or may be filled by election at any annual
or special meeting of the Stockholders called for that purpose. Notwithstanding
the foregoing provisions of this Section 3.03, if, at any time, the holders of
any class or series of stock having a preference over the Common Stock of the
Corporation as to dividends or redemption or upon liquidation or winding up of
the Corporation shall have a right to elect one or more Directors of the
Corporation as a result of the Corporation's failure to pay any required divided
or redemption payment or for any other reason, the number of Directors
constituting the whole Board of Directors shall be, without further action by
the Board, increased by such number of Directors which such holders shall be
entitled to elect and the terms and conditions under which such Directors shall
be elected shall, subject to the provisions of the Certificate of Incorporation
of the Corporation, be as set forth in the resolution or resolutions adopted by
the Board of Directors providing for the issuance of such stock.
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<PAGE>
3.04 ELECTION AND TERM OF OFFICE. Subject to the rights of the holders
of any class or series of stock having a preference over the Common Stock of the
Corporation as to dividends or redemption or upon liquidation or winding up of
the Corporation to elect one or more Directors of the Corporation in the manner
set forth in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such stock, Directors shall be elected annually by
the Shareholders, except as provided in these By-Laws at Section 3.03 and
Section 3.05. Except for Directors elected by a class or series of stock having
a preference over the Common Stock of the Corporation as to dividends or
redemption or upon liquidation or winding up of the Corporation, who shall have
such terms of office as are provided in the resolution or resolutions adopted by
the Board of Directors providing for the issuance of such stock, each Director
shall hold office until his respective successor is elected, or until his death,
resignation or removal.
3.05 REMOVAL. Except for the removal of Directors who are elected by
the holders of a class or series of stock having a preference over the Common
Stock of the Corporation as to dividends or redemption or upon liquidation or
winding up of the Corporation, who shall, except as provided by law, only be
removed from office in the manner and for the reasons set forth in the
resolution or resolutions adopted by the Board of Directors providing for the
issuance of such class or series of stock, any or all of the Directors may be
removed, either for or without cause, at any meeting of Shareholders called
expressly for that purpose, by the affirmative vote, in person or by proxy, of
the holders of a majority of the shares then entitled to vote at an election of
the Directors.
3.06 VACANCIES. Except for the filling of a vacancy of a Director
elected by the holders of shares of a class or series of stock having a
preference over the Common Stock of the Corporation as to dividends or
redemption or upon liquidation or winding up of the Corporation, which vacancy
shall be filled in the manner set forth in the resolution or resolutions adopted
by the Board of Directors providing for the issuance of such stock, any vacancy
occurring in the Board of Directors (by death, resignation, removal or
otherwise) may be filled by an affirmative vote of a majority of the remaining
Directors though less than a quorum of the Board of Directors. Such Director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office.
3.07 NOMINATION AND ELECTION OF DIRECTORS. Nominations for the election
of Directors may be made by the Board of Directors or by any Shareholder
entitled to vote for the election of Directors at a meeting may nominate persons
for election as Directors only if written notice as such Shareholder's intent to
make such nomination as given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation not later than (i)
with respect to an election to be held at an annual meeting of Shareholders,
forty-five days in advance of such meeting, and (ii) with respect to an election
to be held at a special meeting of Shareholders for the election of Directors,
at the close of business on the fifth day following the day on which notice of
such meeting is first given to Shareholders. Each such notice shall set forth:
(a) the name and address of the Shareholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that the
Shareholder is a holder of record of stock of the Corporation and entitled to
vote at such meeting and intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the notice; (c) a description of
all arrangements or understanding between the Shareholder and each
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nominee and any other person or persons (naming such person or persons) pursuant
to which the nomination or nominations are to be made by the Shareholder; (d)
such other information regarding each nominee proposed by such shareholder as
would have been required to be included in a Proxy Statement filed pursuant to
the proxy rules of the Securities and Exchange Commission had each nominee been
nominated, or intended to be nominated, by the Board of Directors; and (e) the
consent of each nominee to serve as a Director of the Corporation if so
elected. The Chairman of the meeting may refuse to acknowledge the nomination
of any person not made in accordance with the foregoing procedure. Directors
shall be elected by plurality vote. Notwithstanding the provisions of this
Section 3.07, if, at any time, the holders of any class or series of stock
having a preference over the Common Stock of the Corporation as to dividends or
redemption or upon liquidation or winding up of the Corporation shall have a
right to elect one or more Directors of the Corporation as a result of the
Corporation's failure to pay any required dividend or redemption payment or for
any other reason, the terms and conditions under which such Directors shall be
nominated and elected shall, subject to the provisions of the Certificate of
Incorporation of the Corporation, be as set forth in the resolution or
resolutions adopted by the Board of Directors providing for the issuance of
such stock. If such resolution or resolutions does not provide for a mechanism
for the nomination or election of Directors by the holders of such a class or
series of stock, such Directors shall be nominated and elected in the manner
provided in these By-Laws at Section 3.07.
3.08 PLACE OF MEETING. All meetings of the Board of Directors may be
held at the principal offices of the Corporation or at such place either within
or without the State of Delaware as may be designated from time to time by the
Board of Directors.
3.09 REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held without notice immediately following each annual meeting of Shareholders
of this Corporation and at such time and place as shall from time to time be
determined by the Board of Directors.
3.10 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called at any time by the President or any Director on three (3) days notice
to each Director, either personally or by mail or by telegram. Except as
otherwise expressly provided by statute, or by the Certificate of Incorporation,
or by these By-Laws, neither the business to be transacted at, nor the purpose
of, any special meeting need be specified in a notice or waiver of notice.
3.11 QUORUM; MAJORITY VOTE. At all meetings of the Board of Directors,
a majority of the number of directors fixed by these By-Laws shall constitute a
quorum for the transaction of business. The act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors, except as otherwise specifically provided by statute or by
the Certificate of Incorporation or by these By-Laws. If a quorum is not
present at a meeting of the Board of Directors, the directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present.
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3.12 COMPENSATION. By resolution of the Board of Directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director.
3.13 CONDUCT OF MEETINGS. The Board of Directors shall keep regular
minutes of its proceedings. The Chairman of the Board, or in his absence, any
director selected by the Directors present, shall preside at meetings of the
Board of Directors. The secretary of the Corporation, or in his absence, any
director selected by the directors present, shall act as secretary at meetings
of the Board of Directors. The minutes shall be placed in the minute book of
the Corporation.
3.14 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at a meeting of the Board of Directors or any committee thereof may be
taken without a meeting if a consent in writing, setting forth the action so
taken, is signed by all the members of the Board of Directors or of any such
committee. Such consent shall have the same force and effect as a unanimous
vote at a meeting. The signed consent, or a signed copy, shall be placed in the
minute book.
3.15 PARTICIPATION IN MEETING BY MEANS OF COMMUNICATION EQUIPMENT. Any
one or more members of the Board of Directors or any committee thereof may
participate in any meeting of the Board or of any such committee by means of
conference, telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in the meeting shall constitute presence in person at such meeting.
ARTICLE 4: Notice
4.01 METHOD. Whenever the statute or the Certificate of Incorporation
or these By-Laws, notice is required to be given to a director or Shareholder,
and no provision is made as to how the notice shall be given, it shall not be
construed to mean personal notice, but any such notice may be given (a) in
writing, by mail, postage prepaid, addressed to the director or Shareholder at
the address appearing on the books of the Corporation, or (b) in any other
method permitted by law. Any notice required or permitted to be given by mail
shall be deemed given at the time when the same is thus deposited in the United
States mail.
4.02 WAIVER. Whenever, by statute or the Certificate of Incorporation
or these By-Laws, notice is required to be given to a Shareholder or director, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated in such notice, shall be
equivalent to the giving of such notice. Attendance of a director or
Shareholder at a meeting shall constitute a waiver of notice of such meeting,
except where a director or Shareholder attends for the express purpose of
objection to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
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ARTICLE 5: Officers and Agents
5.01 NUMBER; QUALIFICATION; ELECTION; TERM.
(A) The Corporation shall have:
(1) A president, a vice president, a secretary and treasurer.
(2) Such other officers (including a Chairman of the Board
and additional vice presidents) and assistant officers and
agents as the Board of Directors may deem necessary.
(B) No officer or agent need be a Shareholder, a director or a
resident of Delaware.
(C) Officers shall be elected by the Board of Directors on the
expiration of an officer's term or whenever a vacancy exists.
Officers may be elected by the Board at any meeting.
(D) Unless otherwise specified by the Board at the time of
election or appointment, or in an employment contract
approved by the Board, each officer's and agent's term shall
end at the first meeting of the Board of Directors after the
next annual meeting of Shareholders. He shall serve until
the end of his term or, if earlier, his death, resignation or
removal.
(E) Any two or more offices may be held by the same person.
5.02 REMOVAL. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever, in its judgment,
the best interests of the Corporation will be served thereby or by any committee
or superior officer upon whom such power may be conferred by the Board. Such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
5.03 VACANCIES. If the office of the president, vice president,
secretary, treasurer, assistant secretary (if any), or assistant treasurer (if
any) become vacant by reason of death, resignation, removal, or otherwise, the
Board of Directors shall elect a successor who shall hold office for the
unexpired term, and until his successor is elected.
5.04 AUTHORITY. Officers and agents shall have such authority and
perform such duties in the management of the Corporation as are generally
ascribed to the respective offices provided in these By-Laws, or as may be
determined by resolution of the Board of Directors not inconsistent with these
By-Laws.
5.05 COMPENSATION. The compensation of officers and agents shall be
fixed from time to time by resolution of the Board of Directors.
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5.06 PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the president shall be the chief executive officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and officers of the
Corporation, and shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed by the Board of Directors or the By-Laws.
5.07 VICE PRESIDENT. The vice presidents, in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the president, perform the duties and have the
authority and exercise the powers of the president. They shall perform such
other duties and have such other authority and powers as the Board of Directors
may from time to time prescribe or as the president may from time to time
delegate.
5.08 SECRETARY. The secretary shall:
(A) Attend all meetings of the Board of Directors and all meetings
of the Shareholders and record all votes and the minutes of all proceedings
in a book to be kept for that purpose.
(B) Give, or cause to be given, notice of all meetings of the
Shareholders and special meetings of the Board of Directors.
(C) Keep in safe custody the seal of the Corporation (if any) and,
when authorized by the Board of Directors, affix the same to any instrument
requiring it and, when so affixed, it shall be attested by his signature or
by the signature of the treasurer or an assistant secretary.
(D) Be under the supervision of the president and perform such
other duties and have such other authority and powers as the Board of
Directors may from time to time prescribe or as the president may from time
to time delegate.
(E) Keep, or cause to be kept, a share register showing the names
of the Shareholders and their addresses, the number, date of issue and
class of shares represented by each outstanding share certificate; and the
number and date of cancellation of each certificate surrendered for
cancellation.
5.09 ASSISTANT SECRETARY. The assistant secretaries in the order of
their seniority, unless otherwise determined by the Board of Directors, shall,
in the absence or disability of the secretary, perform the duties and have the
authority and exercise the powers of the secretary. They shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe or as the president may from time to time delegate.
5.10 TREASURER. The treasurer shall:
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(A) Have the custody of the corporate funds and securities and
shall keep full and accurate account of receipts and disbursements of the
Corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors.
(B) Disburse the funds of the Corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, and
shall render to the president and directors, at the regular meetings of the
Board, or whenever they may require it, an account of all his transactions
as treasurer and of the financial condition of the Corporation.
(C) If required by the Board of Directors, give the Corporation a
bond in such form, in such sum, and with surety or sureties as shall be
satisfactory to the Board for the faithful performance of the duties of his
office and for the restoration to the Corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or
under his control belonging to the Corporation.
(D) Perform such other duties and have such other authority and
powers as the Board of Directors may from time to time prescribe or as the
president may from time to time delegate.
5.11 ASSISTANT TREASURER. The assistant treasurers in the order of
their seniority, unless otherwise determined by the Board of Directors, shall,
in the absence or disability of the treasurer, perform the duties and have the
authority and exercise the powers of the treasurer. They shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe or the president may from time to time delegate.
ARTICLE 6: Execution of Instruments
6.01 EXECUTION OF INSTRUMENTS. The Board of Directors may, in its
discretion, determine the method and designate the signatory officer or
officers, or other person or persons, to execute any corporate instrument or
document, or to sign the corporate name without limitation, except where
otherwise provided by law, and such execution or signature shall be binding upon
the Corporation.
ARTICLE 7: Certificates and Shareholders
7.01 CERTIFICATES. Certificates in the form determined by the Board of
Directors shall be delivered representing all shares to which Shareholders are
entitled. Such certificates shall be consecutively numbered and shall be entered
in the books of the Corporation as they are issued. Each certificate shall
state on the face thereof the holder's name, the number and class of shares, the
par value of shares, or a statement that such shares are without par value, and
such other matters as may be required by law. Each certificate shall be
signed by the Chairman, Vice Chairman, President or any Vice President and the
Secretary, Assistant Secretary, Treasurer or Assistant Treasurer, and may be
sealed with the seal of the Corporation or a facsimile thereof. Any or all such
signatures may be facsimiles
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if countersigned by a transfer agent or registrar. Although any officer,
transfer agent or registrar whose manual or facsimile signature is affixed to
such a certificate ceases to be such officer, transfer agent or registrar before
such certificate has been issued, it may nevertheless be issued by the
Corporation with the same affect as if such officer, transfer agent or registrar
were still such at the date of its issue.
7.02 ISSUANCE. Shares (both treasury and authorized but unissued) may
be issued for such consideration (not less than par value) and to such persons
as the Board of Directors may determine from time to time. Shares may not be
issued until the full amount of the consideration, fixed as provided by law, has
been received by the Corporation.
7.03 PAYMENT FOR SHARES.
(A) KIND. The consideration for the issuance of shares shall
consist of money paid, labor done (including services actually performed
for the Corporation), or property (tangible or intangible) actually
received. Neither promissory notes nor the promise of future services
shall constitute payment for shares.
(B) VALUATION. In the absence of fraud in the transaction, the
judgment of the Board of Directors as to the value of consideration
received shall be conclusive.
(C) EFFECT. When consideration, fixed as provided by law, has been
paid, the shares shall be deemed to have been issued and shall be
considered fully paid and nonassessable.
(D) ALLOCATION OF CONSIDERATION. The consideration received for
shares shall be allocated by the Board of Directors, in accordance with
law, between stated capital and capital surplus accounts.
7.04 SUBSCRIPTIONS. Unless otherwise provided in the subscription
agreement, subscriptions of shares, whether made before or after organization of
the Corporation, shall be paid in full at such time or in such installments and
at such times as shall be determined by the Board of Directors. Any call made
by the Board of Directors for payments on subscriptions shall be uniform as to
all shares of the same series, as the case may be in case of default in the
payment on any installment or call when payment is due as provided by law.
7.05 LIEN. For any indebtedness of a Shareholder to the Corporation,
the Corporation shall have a first and prior lien on all shares of its stock
owned by him and on all dividends or other distributions declared thereon.
7.06 LOST, STOLEN OR DESTROYED CERTIFICATES. Except as may otherwise be
agreed upon by the Corporation with any particular holder of shares of any class
or series of stock of the Corporation, the Corporation shall issue a new
certificate in place of any certificate for shares previously issued if the
registered owner of the certificate:
(A) CLAIM. Makes proof in affidavit form that it has been
lost, destroyed or wrongfully taken; and
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(B) TIMELY REQUEST. Requests for the issuance of a new certificate
before the Corporation has notice that the certificate has been acquired by
a purchaser for value in good faith and without notice of an adverse claim;
and
(C) BOND. Gives a bond in such form, and with such surety or
sureties, with fixed or open penalty, as the Corporation may direct, to
indemnify the Corporation (and its transfer agent and registrar, if any)
against any claim that may be made on account of the alleged loss,
destruction, or theft of the certificate; and
(D) OTHER REQUIREMENTS. Satisfies any other reasonable
requirements imposed by the Board of Directors.
When a certificate has been lost, apparently destroyed or wrongfully taken,
and the holder of record fails to notify the Corporation within a reasonable
time after he has notice of it, and the Corporation registers a transfer of the
shares represented by the certificates before receiving such notification, the
holder of record is precluded from making any claim against the Corporation for
the transfer or for a new certificate.
7.07 REGISTRATION OF TRANSFER. The Corporation shall register the
transfer of the certificate for shares presented to it for transfer if:
(A) ENDORSEMENT. The certificate is properly endorsed by the
registered owner or by his duly authorized attorney; and
(B) GUARANTY AND EFFECTIVENESS OF SIGNATURE. The signature of such
person has been guaranteed by a national banking association or member of
the New York Stock Exchange, and reasonable assurance is given that such
endorsement is effective; and
(C) ADVERSE CLAIMS. The Corporation has no notice of an adverse
claim or has discharged any duty to inquire into such a claim; and
(D) COLLECTION OF TAXES. Any applicable law relating to the
collection of taxes has been complied with.
7.08 REGISTERED OWNER. Prior to due presentment for registration of
transfer of a certificate for shares, the Corporation may treat the registered
owner as the person exclusively entitled to vote, to receive notices and
otherwise to exercise all the rights and powers of a Shareholder.
7.09 RESTRICTION ON TRANSFER. Any restrictions imposed by the
Corporation on the sale or other disposition of its shares and on the transfer
thereof must be copies at length or in summary form on the face, or so copied on
the back and referred to on the face, on each certificate representing shares to
which the restriction applies.
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ARTICLE 8. Indemnification
8.01 THIRD PARTY ACTIONS. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation), by reason of the fact that such person is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceedings, had reasonable cause to believe that his or her
conduct was unlawful.
8.02 DERIVATIVE ACTIONS. The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suite by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of Delaware
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery of Delaware or such
other court shall deem proper.
8.03 DETERMINATION OF INDEMNIFICATION. Any indemnification under
Section 8.01 or 8.02 hereof (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in Section 8.01 or 8.02 hereof. Such determination shall be made (i) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or (ii) if such a
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or
(iii) by the Shareholders.
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<PAGE>
8.04 RIGHT OF INDEMNIFICATION. Notwithstanding the other provisions of
this Article 8, to the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 8.01 or 8.02 hereof, or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorney's fees) actually and reasonably incurred by
such person in connection therewith.
8.05 RIGHT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE OF APPLICATION;
ETC. Except as otherwise provided in the proviso to Section 8.02 hereof:
(A) Any indemnification under Section 8.01 or 8.02 hereof shall be
made no later than 45 days after receipt by the Corporation of the written
request of the director, officer, employee or agent or former director,
officer, employee or agent unless a determination is made within said 45-
day period in accordance with Section 8.03 hereof that such person has not
met the applicable standard of conduct set forth in Section 8.01 or 8.02
hereof.
(B) The right to indemnification under Section 8.01 or 8.02 hereof
or advances under Section 8.06 hereof shall be enforceable by the director,
officer, employee or agent or former director, officer, employee or agent
in any court of competent jurisdiction. The burden of proving that
indemnification is not appropriate shall be on the Corporation. Neither
the absence of any prior determination that indemnification is proper in
the circumstances, nor a prior determination that indemnification is not
proper in the circumstances, shall be a defense to the action or create a
presumption that the director, officer, employee or agent or former
director, officer, employee or agent has not met the applicable standard of
conduct. The expenses (including attorney's fees and expenses) incurred by
the director, officer, employee or agent or former director, officer,
employee or agent in connection with successfully establishing his right to
indemnification, in whole or in part, in any such action (or in any action
or claim brought by him to recover under any insurance policy or policies
referred to in Section 8.09 hereof) shall also be indemnified by the
Corporation.
(C) If any person is entitled under any provision of this Article 8
to indemnification by the Corporation for some or a portion of expenses,
judgments, fines, penalties or amounts paid in settlement incurred by him,
but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify such person for the portion of such expenses,
judgments, fines, penalties and amounts to which he is entitled.
8.06. ADVANCEMENT OF EXPENSES. Expenses (including attorney's fees)
incurred in defending any civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding within 15 days after
request for such advance upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay all amounts advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal that such person is not entitled to be indemnified by
the Corporation as authorized in this Article 8 or otherwise.
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<PAGE>
8.07 INDEMNIFICATION AND ADVANCEMENT OF EXPENSES NOT EXCLUSIVE. The
indemnification and advancement of expenses provided by, or granted pursuant to
the other Sections of this Article 8 shall not be deemed exclusive of any other
rights to which any person seeking indemnification may be entitled under any
law, agreement, vote of Shareholders or disinterested directors or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding such office. All rights to indemnification under this
Article 8 shall be deemed to be provided by a contract between the Corporation
and the director, officer, employee or agent who served in such capacity at any
time while these By-Laws and other relevant provisions of the Delaware General
Corporation Law and other applicable law, if any, are in effect. Any repeal or
modification thereof shall not affect any rights or obligations then existing.
8.08 INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the applicable provisions of
the Delaware General Corporation Law.
8.09 DEFINITIONS OF CERTAIN TERMS. For purposes of this Article 8,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article 8 with
respect to the resulting or surviving corporation as such person would have with
respect to such constituent corporation if its separate existence had continued.
For purposes of this Article 8, references to "other enterprise" shall
include employee benefit plans; references to "fines" shall include any excise
tax assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation that
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
8.
For purposes of this Article 8, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
other enterprise, or on information supplied to
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him by the officers of the Corporation or other enterprise in the course of
their duties, or on the advice of legal counsel for the Corporation or other
enterprise or on information or records given or reports made to the Corporation
or other enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
other enterprise. The provisions of this Section 8.09 shall not be deemed to
be exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in Sections 8.01
or 8.02 hereof, as the case may be.
8.10. CONTINUATION AND SUCCESSORS. The indemnification and advancement
of expenses provided by, or granted pursuant to, this Article 8 shall continue
as to any person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
ARTICLE 9: General Provisions
9.01 DIVIDENDS AND RESERVES.
(A) DECLARATION AND PAVEMENT. Subject to statute and the
Certificate of Incorporation, dividends may be declared by the Board of
Directors in cash, in property, or in shares of the Corporation. The
declaration and payment shall be at the discretion of the Board of
Directors.
(B) RECORD DATE. In order that the Corporation may determine the
Shareholders entitled to receive payment of any dividend or other
distribution, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors, and which record date shall not
be more than 60 days prior to such dividend or other distribution.
(C) RESERVES. By resolution, the Board of Directors may create
such reserve or reserves out of the surplus of the Corporation as the
directors, from time to time, in their discretion, think proper to provide
for contingencies, or to equalize dividends, or to repair or maintain any
property of the Corporation, or for any other purpose they think beneficial
to the Corporation. The directors may modify or abolish any such reserve
in the manner in which it was created.
9.02 BOOKS AND RECORDS. The corporation shall keep correct and complete
books and records of account and shall keep minutes of the proceedings of its
Shareholders and Board of Directors, and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its Shareholders, giving the names and addresses of all
Shareholders and the number and class of the shares held by each.
9.03 SEAL. The Corporation seal (if required) shall be in the style and
form impressed at the end of these By-Laws.
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<PAGE>
9.04 RESIGNATION. Any director, officer or agent may resign by giving
written notice to the Board of Directors, or the president, or the secretary.
The resignation shall take effect at the time specified therein, or immediately
upon receipt if no time is specified therein. Unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
9.05 AMENDMENT OF BY-LAWS. These By-Laws may be altered, amended, or
repealed at any meeting of the Board of Directors at which a quorum is present,
by the affirmative vote of a majority of the directors present at such meeting,
provided notice of the proposed alteration, amendment or repeal is contained in
the notice of such meeting.
9.06 RECORD DATE. Order that the Corporation may determine the
Shareholders entitled to receive any allotment of any rights or the Shareholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall
not be more than 60 days prior to such action.
ARTICLE 10: Committees
10.01 COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, Designate
two (2) or more of the directors of the Corporation to constitute a committee or
committees for any purpose or purposes, which, to the extent provided in such
resolution or resolutions, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the Corporation
and may authorize the seal of the Corporation to be affixed to all papers that
may require it; provided, however, that the designation of any such committee
and the delegation thereto of authority shall not operate to relieve the Board
of Directors, or any member thereof, of any responsibility imposed upon it or
him by the Business Corporation Act of the State of Texas. Such committee or
committees shall have such name or names and conduct business in such areas and
under such rules and regulations as may be determined from time to time by
resolution passed by a majority of the whole Board of Directors. Each such
committee shall keep regular minutes of its meetings and shall report the same
to the Board of Directors when required. A majority of the members of any
Committee or committees shall constitute a quorum for the transaction of
business, and the act of majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
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EXHIBIT 10.1
CORNERSTONE NATURAL GAS, INC.
1993 LONG-TERM INCENTIVE PLAN
Section 1. Purpose
The purposes of the Cornerstone Natural Gas, Inc. 1993 Long-Term Incentive Plan
(the "Plan") are to promote the interests of the Company and its stockholders
by (i) attracting and retaining executive personnel and other key employees of
outstanding ability; (ii) motivating executive personnel and other key
employees, by means of performance-related incentives, to achieve longer-range
performance goals; and (iii) enabling such employees to participate in the
long-term growth and financial success of the Company.
Section 2. Definitions
"Act" shall mean the Securities Exchange Act of 1934, as amended.
"Affiliates" shall mean (a) any corporation, other than the Company, in an
unbroken chain of corporations ending with the Company if each of the
corporations, other than the Company, owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain and (b) any corporation, other
than the Company, in an unbroken chain of corporations beginning with the
Company if each of the corporations, other than the last corporation in the
unbroken chain, owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain
"Agreement" shall mean the written agreement between the Company and a
Participant evidencing the Option granted by the Company and the understanding
of the parties with respect thereto.
"Award" shall mean a grant or award under Section 6 through 10, inclusive, of
the Plan, as evidenced in a written document delivered to a Participant as
provided on Section 11(b).
"Board of Directors" shall mean the Board of Directors of the Company.
"Change in Control" shall be deemed to have occurred if (i) any person(s) (as
such term is used in Sections 13(d) and 14(d)2 of the Act) or parties other
than the current stockholders as of the date the Plan is approved becomes the
beneficial owner (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities, or (ii)
the stockholders of the Company approve a merger, consolidation, sale or
disposition of all or substantially all of the Company's assets or plan of
liquidation.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Compensation Committee of the Board of Directors.
The committee shall be made up of at least two outside directors, and only
outside directors may serve on the Committee. The outside director cannot be
a former officer of the Company or a former employee receiving deferred
compensation. The director cannot be an employee or 5% stockholder of another
company that receives more than 5% of its gross receipts or $60,000 worth of
business from the Company, whichever is less.
"Common Stock" or "Stock" shall mean the common stock $0.10 par value per
share of the Company.
<PAGE>
"Company" shall mean Cornerstone Natural Gas, Inc., a Delaware corporation.
"Designated Beneficiary" shall mean the beneficiary designated by the
Participant, in a manner determined by the Committee, to receive amounts due
the Participant in the event of the Participant's death. In the absence of an
effective designation by the Participant, Designated Beneficiary shall mean
the Participant's estate.
"Eligible Individuals" shall mean (a) key employees, including officers and
directors who are also employees of the Company or of any of its Affiliates,
(b) nonemployee directors or officers of the Company or of any of its
Affiliates and (c) non-employee consultants and advisors who, in the opinion
of the Committee, have the capacity for contributing in a substantial measure
to the successful performance of the Company. Notwithstanding the foregoing
provisions of this paragraph, to ensure that the requirements of Section
3(a)(i) are satisfied, the Board of Directors may from time to time specify
individuals who shall not be eligible for the grant of Options or options or
stock appreciation rights or allocations of stock under any plan of the
Company or its Affiliates (as such terms are used in subsection (d)(3) of Rule
16b-3 promulgated under the Act); provided, however, that the Board of
Directors may at any time determine that any individual who has been so
excluded from eligibility shall become eligible for grants of Options and
grants of such options or stock appreciation rights or allocations of stock
under any plans of the Company and its Affiliates.
"Employee" shall mean any key employee of the Employer.
"Employer" shall mean the Company and any Subsidiary or Affiliate.
"Fair Market Value" shall mean the closing price of the Common Stock on the
date in question, or, if the Common Stock has not been traded on such date,
the closing price on the first day prior thereto on which the Common Stock was
so traded.
"Fiscal Year" shall mean the fiscal year of the Company.
"Incentive Stock Option" shall mean a stock option granted under Section 6
which is intended to meet the requirements of Section 422 of the Code.
"Non-Stock Based Incentive Compensation" refers to incentive compensation
whose value is not based in whole or in part on the value of Common Stock.
"Nonqualified Stock Option" shall mean a stock option granted under Section 6
which is not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Nonqualified Stock Option.
"Participant" shall mean an individual who is selected by the Committee to
receive an Award under the Plan.
"Payment Value" shall mean the dollar amount assigned to a Performance Share
which shall be equal to the Fair Market Value of the Common Stock on the day
of the Committee's determination under Section 8 (c)(1) with respect to the
applicable Performance Cycle.
"Performance Cycle" or "Cycle" shall mean the period of years selected by the
Committee during which the performance is measured for the purpose of
determining the extent to which an award of Performance Shares has been
earned.
"Performance Goals" shall mean the objectives established by the Committee for
a Performance Cycle, for the purpose of determining the extent to which
Performance Shares which have been contingently
<PAGE>
awarded for such Cycle are earned.
"Performance Share" shall mean an award granted pursuant to Section 8 of the
Plan expressed as a share of Common Stock.
"Restricted Period" shall mean the period of years selected by the Committee
during which a grant of Restricted Stock or Restricted Stock Units may be
forfeited to the Company.
"Restricted Stock" shall mean shares of Common Stock contingently granted to a
Participant under Section 9 of the Plan.
"Restricted Stock Unit" shall mean a fixed or variable dollar denominated unit
contingently awarded under Section 9 of the Plan.
"Stock Appreciation Right" shall mean a right granted under Section 7.
"Stock Unit Award" shall mean an award of Common Stock or units granted under
Section 10.
"Subsidiary" shall mean any business entity in which the Company possesses
directly or indirectly fifty percent (50%) or more of the total combined
voting power.
Section 3. Administration
(a) Committee
The Plan shall be administered by the Committee. The Committee shall consist
of not less than two individuals. All members of the Committee shall be
(1) directors of the Company; and
(2) "disinterested persons," as defined in Rule 16b-3(c)(2)(i)
promulgated under the Act; and in such event members of the
Committee shall not be eligible to receive Options or any equity
securities under any plan of the Company or its Affiliates (except
as specifically allowed by Rules 16(b)-3(c)(2)(i)(A)-(D)
promulgated under the Act) within one (1) year prior to their
appointment to the Committee or while they are serving as members
of the Committee; provided, however, that this subparagraph
incorporates and its restrictions shall be deemed to be modified
according to any changes to Rule 16b-3 promulgated under the Act.
(b) Duration, Removal, Etc.
The members of the Committee shall serve at the pleasure of the Board of
Directors, which shall have the power, at any time and from time to time, to
remove members from the Committee or to add members thereto. Vacancies on the
Committee, however caused, shall be filled by action of the Board of
Directors.
(c) Meetings and Actions of Committee
The Committee shall elect one of its members as its Chairman and shall hold
its meetings at such times and places as it may determine. All decisions and
determinations of the Committee shall be made by the majority vote or decision
of all of its members present at a meeting; provided, however, that any
decision or determination reduced to writing and signed by all of the members
of the Committee shall be as fully effective as if it had been made at a
meeting duly called and held. The Committee may make any rules and
regulations for the conduct of its business that are not inconsistent with the
provisions hereof and with the bylaws of the Company as it may deem advisable.
<PAGE>
(d) Committee's Powers
Subject to the express provisions hereof, the Committee shall have the
authority, in its sole and absolute discretion, (1) to adopt, amend, and
rescind administrative and interpretive rules and regulations relating to the
Plan; (2) to determine the terms and provisions of the respective Agreements
and Awards (which need not be identical), including provisions defining or
otherwise relating to (i) subject to Section 6 of the Plan, the term and the
period or periods and extent of exercisability of the Options, (ii) the extent
to which the transferability of shares of Common Stock issued upon exercise of
Options is restricted, (iii) the effect of termination of employment upon the
exercisability of the Options, and (iv) the effect of approved leaves of
absence (consistent with any applicable regulations of the Internal Revenue
Service); (3) to accelerate the time of exercisability of any Option that has
been granted; (4) to construe the terms of any Agreement and Award and the
Plan; and (5) to make all other determinations and perform all other acts
necessary or advisable for administering the Plan, including the delegation of
such ministerial acts and responsibilities as the Committee deems appropriate.
The Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Agreement or Award in the manner and to
the extent it shall deem expedient to carry it into effect, and it shall be
the sole and final judge of such expediency. The Committee shall have full
discretion to make all determinations on the matters referred to in this
Paragraph 3(d); such determinations shall be final, binding and conclusive.
(e) No Liability for Good Faith Determinations
Neither the members of the Board of Directors nor any member of the Committee
shall be liable for any act, omission, or determination taken or made in good
faith with respect to the Plan or any Option granted under it, and members of
the Board of Directors and the Committee shall be entitled to indemnification
and reimbursement by the Company in respect of any claim, loss, damage, or
expense (including attorneys' fees, the costs of settling any suit, provided
such settlement is approved by independent legal counsel selected by the
Company, and amounts paid in satisfaction of a judgment, except a judgment
based on a finding of bad faith) arising therefrom to the full extent
permitted by law and under any directors and officers liability or similar
insurance coverage that may from time to time be in effect.
Section 4. Eligibility
All Eligible Individuals are eligible to be Participants in the Plan.
Notwithstanding any provision contained herein to the contrary, a person shall
not be eligible to receive an Incentive Stock Option hereunder unless he is an
employee of the Company or an Affiliate, nor shall a person be eligible to
receive an Incentive Stock Option hereunder if he, at the time such Option is
granted, would own (within the meaning of Sections 422 and 424 of the Code)
stock possessing more than ten percent (10%) of the total combined voting
power or value of all classes of stock of the Company or of an Affiliate
unless at the time such Incentive Stock Option is granted the exercise price
per share of Stock is at least one hundred and ten percent (110%) of the Fair
Market Value of each share of Stock to which the Incentive Stock Option
relates and the Incentive Stock Option is not exercisable after the expiration
of five (5) years from the date it is granted.
Section 5. Maximum Amount Available for Awards
(a) The maximum number of shares of Stock in respect of which Awards may be
made under the Plan shall be a total of 1,250,000 shares of Common Stock. In
addition, no Employee may receive an Award of Options, Restricted Stock or
other Award in any calendar year which combined would equal more than 25% of
all shares issued for Awards in that same year. Also, no Employee may receive
Awards that in aggregate equal more than 25% of all shares issued over the
life of this Plan. Shares of Common Stock may be made available from the
authorized but unissued shares of the Company or from shares reacquired by the
Company, including shares purchased in the open market. In the event that (i)
an Option or Stock Appreciation Right is settled for cash or expires or is
terminated unexercised
<PAGE>
as to any shares of Common Stock covered thereby, or (ii) any Award in respect
of shares is cancelled or forfeited for any reason under the Plan without the
delivery of shares of Common Stock, such shares shall thereafter be again
available for award pursuant to the Plan. In the event that any Option or
other Award granted hereunder is exercised through the delivery of shares of
Common Stock, the number of shares of Common Stock available for Awards under
the Plan shall be increased by the number of shares so surrendered, to the
extent permissible under Rule 16b-3, as promulgated under the Act and as
interpreted from time to time by the Securities and Exchange Commission or its
staff.
(b) In the event that the Committee shall determine that any stock dividend,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination, exchange of shares, warrants
or rights offering to purchase Common Stock at a price substantially below
fair market value, or other similar corporate event affects the Common Stock
such that an adjustment is required in order to preserve the benefits or
potential benefits intended to be made available under this Plan, then the
Committee shall, in its sole discretion, and in such manner as the Committee
may deem equitable, adjust any or all of (1) the number and kind of shares
which thereafter may be awarded or optioned and sold or made the subject of
Stock Appreciation Rights under the Plan, (2) the number and kind of shares
subject of Stock Options and other Awards, and (3) the grant, exercise or
conversion price with respect to any of the foregoing and/or, if deemed
appropriate, make provision for cash payment to a Participant or a person who
has an outstanding Option or other Award provided, however, that the number of
shares subject to any Option or other Award shall always be a whole number.
Section 6. Stock Options
(a) Grant.
Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the Eligible Individuals to whom Options shall
be granted, the number of shares to be covered by each Option, the option
price therefor and the conditions and limitations applicable to the exercise
of the Option. The Committee shall have the authority to grant Incentive
Stock Options, or to grant Nonstatutory Stock Options, or to grant both types
of options. In the case of Incentive Stock Options, the terms and conditions
of such grants shall be subject to and comply with such rules as may be
prescribed by Section 422 of the Code, as from time to time amended, and any
implementing regulations.
(b) Option Price.
The Committee shall establish the option price at the time each Option is
granted, which price shall not be less than 100% of the Fair Market Value of
the Common Stock on the date of grant.
(c) Exercise.
(1) Each Option shall be exercisable at such times and subject to such terms
and conditions as the Committee may, in its sole discretion, specify in the
applicable Award or thereafter, provided, however, that in no event may any
Option granted hereunder be exercisable after the expiration of ten years from
the date of such grant. The Committee may impose such conditions with respect
to the exercise of Options, including without limitation, any relating to the
application of federal or state securities laws, as it may deem necessary or
advisable.
(2) No shares shall be delivered pursuant to any exercise of an Option until
payment in full of the option price has been received by the Company. Such
payment may be made in cash, or its equivalent, or, if and to the extent
permitted by the Committee, by exchanging shares of Common Stock owned by the
optionee (which are not the subject of any pledge or other security interest),
or by a combination of the foregoing, provided that the combined value of all
cash and cash equivalents and the Fair Market Value of any such Common Stock
so tendered to the Company, valued as of the date of such tender,
<PAGE>
is at least equal to such option price.
Section 7. Stock Appreciation Rights
(a) The Committee may, with sole and complete authority, grant Stock
Appreciation Rights ("SARs") in tandem with an Option, in addition to an
Option, or freestanding and unrelated to an Option. Stock Appreciation Rights
granted in tandem with or in addition to an Option may be granted either at
the same time as the Option or at a later time. Stock Appreciation Rights
shall not be exercisable earlier than six months after grant, or be
exercisable after the expiration of ten years from the date of grant and shall
have an exercise price of not less than 100% of the Fair Market Value of the
Common Stock on the date of grant.
(b) An SAR shall entitle the Participant to receive from the Company the
difference between the Fair Market Value of one share of Common Stock on the
date of the exercise of the SAR and (i) in the case of a SAR identified with a
share of stock subject to an option, the option price of such option, unless
the Committee in the grant specifies a higher price or (ii) in the case of any
SAR, the Fair Market Value of one share of Common Stock on the grant date.
SARs that are not subject to an option and can only be exercised during
limited periods of time in order to comply with certain Securities and
Exchange Rules, the Committee may determine at its discretion, that the
exercise of the SAR during such limited period, shall be deemed to occur on
the day which the Fair Market Value of the Common Stock is the highest during
the limited period. Any such determination by the Committee may be changed by
the Committee from time to time and may govern the exercise of Stock
Appreciation Rights granted prior to such determination as well as Stock
Appreciation Rights thereafter granted. The Committee shall determine upon the
exercise of a Stock Appreciation Right whether such Stock Appreciation Right
shall be settled in cash, shares of Common Stock, Stock Options, or a
combination thereof.
(c) A Limited SAR related to an Option which can only be exercised during
limited periods following a Change in Control of the Company, may entitle the
Participant to receive an amount based upon the highest price paid or offered
for Common Stock in any transaction relating to the Change in Control or paid
during the thirty-day period immediately preceding the occurrence of the
Change in Control in any transaction reported on the American Stock Exchange.
Section 8. Performance Shares
(a) The Committee shall have sole and complete authority to determine the
Employees who shall receive Performance Shares and the number of such shares
for each Performance Cycle, and to determine the duration of each Performance
Cycle and the value of each Performance Share. There may be more than one
Performance Cycle in existence at any one time, and the duration of
Performance Cycle may differ from each other.
(b) The Committee shall establish Performance Goals for each Cycle on the
basis of such criteria and to accomplish such objectives as the Committee may
from time to time select. During any Cycle, the Committee may adjust the
Performance Goals for such Cycle as it deems equitable in recognition of
unusual or non-recurring events affecting the Company, changes in applicable
tax laws or accounting principles, or such other factors as the Committee may
determine.
(c) (1) As soon as practicable after the end of a Performance Cycle, the
Committee shall determine the number of Performance Shares which have been
earned on the basis of performance in relation to the established Performance
Goals.
(2) Payment Values of earned Performance Shares shall be distributed to the
Participant or, if the Participant has died, to the Participant's Designated
Beneficiary, as soon as practicable after the expiration of the Performance
Cycle and the Committee's determination under paragraph (1), above. The
Committee shall determine whether Payment Values are to be distributed in the
form of cash or shares of Common Stock.
<PAGE>
Section 9. Restricted Stock and Restricted Stock Units
(a) Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the Employees to whom shares of Restricted
Stock and Restricted Stock Units shall be granted, the number of shares of
Restricted Stock and the number of Restricted Stock Units to be granted to
each Participant, the duration of the Restricted Period during which, and the
conditions under which, the Restricted Stock and Restricted Stock Units may be
forfeited to the Company, and the other terms and conditions of such awards.
The Restricted Period may be shortened, lengthened or waived by the Committee
at any time in its discretion with respect to one or more Participants or
Awards outstanding.
(b) Shares of Restricted Stock and Restricted Stock Units may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as herein
provided, during the Restricted Period. Certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the Participant
and deposited by such Participant, together with a stock power endorsed in
blank, with the Company. At the expiration of the Restricted Period, the
Company shall deliver such certificates to the Participant or the
Participant's legal representative. Payment for Restricted Stock Units shall
be made to the Company in cash/or shares of Common Stock, as determined at the
sole discretion of the Committee.
Section 10. Other Stock Based Awards
(a) In addition to granting Options, Stock Appreciation Rights, Performance
Shares, Restricted Stock and Restricted Stock Units, the Committee shall have
authority to grant to Participants Stock Unit Awards which can be in the form
of Common Stock or units, the value of which is based, in whole or in part, on
the value of Common Stock. Subject to the provisions of the Plan, including
Section 11 (b) below, Stock Unit Awards shall be subject to such terms,
restrictions, conditions, vesting requirements and payment rules (all of which
are sometimes hereinafter collectively referred to as "rules") as the
Committee may determine in its sole and complete discretion at the time of
grant. The rules need not be identical for each Stock Unit Award.
(b) In the sole and complete discretion of the Committee, a Stock Unit Award
may be granted subject to the following rules:
(1) Any shares of Common Stock which are part of a Stock Unit Award may not
be assigned, sold, transferred, pledged or otherwise encumbered prior to the
date on which the shares are issued or, if later, the date provided by the
Committee at the time of grant of the Stock Unit Award.
(2) Stock Unit Awards may provide for the payment of cash consideration by
the person to whom such Award is granted or provide that the Award, and any
Common Stock to be issued in connection therewith, if applicable, shall be
delivered without the payment of cash consideration, provided that for any
Common Stock to be purchased in connection with a Stock Unit Award the
purchase price shall be at least 50% of the Fair Market Value of such Common
Stock on the date such Award is granted.
(3) Stock Unit Awards may relate in whole or in part to certain performance
criteria established by the Committee at the time of grant.
(4) Stock Unit Awards may provide for deferred payment schedules and/or
vesting over a specified period of employment.
(5) In such circumstances as the Committee may deem advisable, the Committee
may waive or otherwise remove, in whole or in part, any restriction or
limitation to which a Stock Unit Award was made subject at the time of grant.
(c) In the sole and complete discretion of the Committee, an Award, whether
made as a Stock Unit Award under this Section 10 or as an Award granted
pursuant to Sections 6 through 9, may provide
<PAGE>
the Participant with (i) dividends or dividend equivalents (payable on a
current or deferred basis) and (ii) cash payments in lieu of or in addition to
an Award.
Section 11. General Provisions
(a) Withholding.
The Employer shall have the right to deduct from all amounts paid to a
Participant in cash (whether under this Plan or otherwise) any taxes required
by law to be withheld in respect of Awards under this Plan. In the case of
payments of incentive awards in the form of Common Stock, at the Committee's
discretion the Participant may be required to pay to the Employer the amount
of any taxes required to be withheld with respect to such Common Stock, or, in
lieu thereof, the Employer shall have the right to retain (or the Participant
may be offered the opportunity to elect to tender) the number of shares of
Common Stock whose Fair Market Value equals the amount required to be
withheld.
(b) Awards.
Each Award hereunder shall be evidenced in writing, delivered to the
Participant and shall specify the terms and conditions thereof and any rules
applicable thereto, including but not limited to the effect on such Award of
the death, retirement or other termination of employment of the Participant
and the effect thereon, if any, of a Change in Control of the Company.
(c) Nontransferability.
No Award shall be assignable or transferable except by will or the laws of
descent and distribution, and no right or interest of any Participant shall be
subject to any lien, obligation or liability of the Participant.
Notwithstanding the above, in the discretion of the Committee, awards may be
transferable pursuant to a Qualified Domestic Relations Order ("QDRO"), as
determined by the Committee or its designee.
(d) No Right to Employment.
No person shall have any claim or right to be granted an Award, and the grant
of an Award shall not be construed as giving a Participant the right to be
retained in the employ of the Employer. Further, the Employer expressly
reserves the right at any time to dismiss a Participant free from any
liability, or any claim under the Plan, except as provided herein or in any
agreement entered into with respect to an Award.
(e) No Rights as Stockholder.
Subject to the provisions of the applicable Award, no Participant or
Designated Beneficiary shall have any rights as a stockholder with respect to
any shares of Common Stock to be distributed under the Plan until he or she
has become the holder thereof. Notwithstanding the foregoing, in connection
with each grant of Restricted Stock hereunder, the applicable Award shall
specify if and to what extent the Participant shall not be entitled to the
rights of a stockholder in respect of such Restricted Stock.
(f) Construction of the Plan.
The validity, construction, interpretation, administration and effect of the
Plan and of its rules and regulations, and rights relating to the Plan, shall
be determined solely in accordance with the laws of Delaware.
(g) Effective Date.
Subject to the approval of the stockholders of the Company, the Plan shall be
effective on December 16, 1993. No Options or Awards may be granted under the
Plan after December 15, 2003; however,
<PAGE>
all previous awards made that have not expired under their original terms at
the time the Plan expires will remain outstanding.
(h) Amendment of Plan.
The Board may suspend, terminate or amend the Plan at it's discretion. The
Board will not be required to obtain stockholder approval of any amendment
to the Plan except for increases in total shares under the Plan, or where such
approval is necessary to assure the Plan's continued qualification under Rule
16b-3 of the Act, or compliance with the American Stock Exchange rules or the
Code.
(i) Amendment of Award.
The Committee may amend, modify or terminate any outstanding Award without the
Participant's consent at any time prior to payment or exercise in any manner
not inconsistent with the terms of the Plan, including without limitation, i)
to change the date or dates as of which (A) an Option or Stock Appreciation
Right becomes exercisable; (B) a Performance Share is deemed earned; (C)
Restricted Stock becomes nonforfeitable; or (ii) to cancel and reissue an
Award under such different terms and conditions as it determines appropriate.
(j) Change in Control
In order to preserve a Participant's rights under an Award in the event of a
Change in Control of the Company, the Committee in its discretion may, at the
time an Award is made or any time thereafter, take one or more of the
following actions: (i) provide for the acceleration of any time period
relating to the exercise of the Award, (ii) provide for the purchase of the
Award upon the Participant's request for an amount of cash or other property
that could have been received upon the exercise or realization of the Award
had the Award been currently exercisable or payable, (iii) adjust the terms of
the Award in a manner determined by the Committee to reflect the Change in
Control, (iv) cause the Award to be assumed, or new rights substituted
therefor, by another entity, or (v) make such other provision as the Committee
may consider equitable and in the best interests of the Company.
(k) Information Confidential
As partial consideration for the granting of each Option hereunder, the Award
may, in the Committee's sole and absolute discretion, provide that the
Participant shall agree with the Company that he will keep confidential all
information and knowledge that he or she has relating to the manner and amount
of his or her participation in the Plan; provided, however, that such
information may be disclosed as required by law and may be given in confidence
to the Participant's spouse, tax and financial advisors, or to a financial
institution to the extent that such information is necessary to secure a loan.
In the event any breach of this promise comes to the attention of the
Committee, it shall take into consideration such breach, in determining
whether to recommend the grant of any future Option to such Participant, as a
factor militating against the advisability of granting any such future Option
to such individual.
(l) Other Benefits
Participation in the Plan shall not preclude the Participant from eligibility
in any other stock option plan of the Company or any Affiliate or any old age
benefit, insurance, pension, profit sharing, retirement, bonus, or other extra
compensation plans which the Company or any Affiliate has adopted, or may, at
any time, adopt for the benefit of its employees.
(m) Execution of Receipts and Releases
Any payment of cash or any issuance or transfer of shares of Stock to a
Participant, or to his legal representative, heir, legatee, or distributee, in
accordance with the provisions hereof, shall, to the
<PAGE>
extent thereof, be in full satisfaction of all claims of such persons
hereunder. The Committee may require any Participant, legal representative,
heir, legatee, or distributee, as a condition precedent to such payment, to
execute a release and receipt therefor in such form as it shall determine.
(n) Severability
If any provision of this Plan is held to be illegal or invalid for any
reason, the illegality or invalidity shall not affect the remaining provisions
hereof, but such provision shall be fully severable and the Plan shall be
construed and enforced as if the illegal or invalid provision had never been
included herein.
(o) Notices
Whenever any notice is required or permitted hereunder, such notice must be in
writing and personally delivered or sent by mail or by a nationally recognized
courier service. Any notice required or permitted to be delivered hereunder
shall be deemed to be delivered on the date on which it is personally
delivered, or, if mailed, whether actually received or not, on the third
business day after it is deposited in the United States mail, certified or
registered, postage prepaid, addressed to the person who is to receive it at
the address which such person has previously specified by written notice
delivered in accordance herewith or, if by courier, 24 hours after it is sent,
addressed as described in this Section, or, if by facsimile machine, the time
mechanically recorded on the document by the facsimile process. The Company
or a Participant may change, at any time and from time to time, by written
notice to the other, the address which it or he had previously specified for
receiving notices. Until changed in accordance herewith, the Company and each
Participant shall specify as its and his address for receiving notices the
address set forth in the Agreement or Award pertaining to the shares to which
such notice relates.
(p) Waiver of Notice
Any person entitled to notice hereunder may waive such notice.
(q) Successors
The Plan shall be binding upon each Participant, his legal representatives,
heirs, legatees, and distributees, upon the Company, its successors, and
assigns, and upon the Committee and its successors.
(r) Headings
The titles and headings of Sections and Paragraphs are included for
convenience of reference only and are not to be considered in construction of
the provisions hereof.
<PAGE>
EXHIBIT 10.2
ENDEVCO, INC. EMPLOYEE SAVINGS PLAN
IMPORTANT NOTE
Neither Connecticut General Life Insurance Company nor any of its employees
can provide you with legal advice in connection with the execution of this
document. Prior to execution of this document, you should consult your
attorney on whether this document is appropriate for you.
<PAGE>
Table Of Contents
ARTICLE I Definitions.................................. 1
ARTICLE II Service......................................18
ARTICLE III Eligibility, Enrollment and Participation....22
ARTICLE IV Contributions................................23
ARTICLE V Limitations on Allocations...................40
ARTICLE VI Distribution of Benefits.....................48
ARTICLE VI-A Direct Rollovers.............................52
ARTICLE VII Retirement Benefits..........................54
ARTICLE VIII Joint and Survivor Requirements..............55
ARTICLE IX Termination of Employment....................57
ARTICLE X Withdrawals..................................59
ARTICLE X-A Loans........................................62
ARTICLE XI Fiduciary Duties and Responsibilities........64
ARTICLE XII The Administrator............................65
ARTICLE XIII Participants' Rights.........................68
ARTICLE XIV Amendment or Termination of the Plan.........72
ARTICLE XV Miscellaneous................................74
ARTICLE XVI Top Heavy Provisions.........................76
ARTICLE XVII Trust Agreement..............................62
<PAGE>
ENDEVCO, INC.
EMPLOYEE SAVINGS PLAN
THIS EMPLOYEE SAVINGS PLAN, made and executed at Dallas, Texas, by
Endevco, Inc., a Delaware corporation (the "Company"),
WITNESSETH THAT:
WHEREAS, effective as of January 1, 1983, the Company established a
qualified profit sharing plan known as the Endevco, Inc. Employee Savings
Plan; and
WHEREAS, effective as of January 1, 1987, the Company amended and
restated said profit sharing plan to add a cash or deferred arrangement
qualifying under the provisions of Section 401(k) of the Internal Revenue
Code; and
WHEREAS, effective as of January 1, 1989, the Company amended and
restated said profit sharing plan to incorporate recent plan amendments and to
make certain other changes; and
WHEREAS, the Company now desires to continue said profit sharing plan
with its cash or deferred arrangement by restating its plan document in its
entirety to shorten its vesting schedule, to provide for plan loans, to
discontinue the investment of participants, future pre-tax and after-tax
contributions in Endevco, Inc. common stock, to otherwise modify the
investment alternatives and procedures for such contributions and
to make certain other changes;
NOW, THEREFORE, pursuant to the authority reserved to the Company under
Section 8.1 thereof, the Endevco, Inc. Employee Savings Plan is hereby amended
and restated in its entirety, effective as of July 1, 1991, to read as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1 ACCRUED BENEFIT. The term Accrued Benefit means the value on any
applicable date of the Participant's Account.
1.2 ACTIVE PARTICIPANT. The term Active Participant means any Participant
who (a) performs duties as an Employee for the Employer, and (b) is
not an inactive Participant.
1.3 ACTUAL CONTRIBUTION PERCENTAGE. The term Actual Contribution
Percentage means the average of the Actual Contribution Ratios of a
specified group computed to the nearest one-hundredth of one percent.
1.4 ACTUAL CONTRIBUTION PERCENTAGE TEST.
(A) For each Plan Year, the Plan shall satisfy the contribution
percentage requirement described in section 401(m)(2) of the
Code and the regulations thereunder, which are incorporated
herein by reference.
The Plan satisfies the Actual Contribution Percentage Test if:
(1) The Actual Contribution Percentage for the group of
eligible Highly Compensated Employees is not more than the
Actual Contribution Percentage for the group of all other
eligible Employees multiplied by 1.25; or
(2) The excess of the Actual Contribution Percentage for the
group of eligible Highly Compensated Employees over the
Actual Contribution Percentage for the group of all other
eligible Employees is not more than two percentage points
and the Actual Contribution Percentage for the group of
eligible Highly Compensated Employees is not more than the
Actual Contribution Percentage for the group of all other
eligible Employees multiplied by two.
(B) Special Rules.
(1) For purposes of determining the Actual Contribution
Percentage Test, Employee Contributions are considered to
have been made in the Plan Year in which contributed to
the Plan. Matching Contributions and Qualified
Nonelective Contributions will be considered for a Plan
Year only if allocated to the Employee's Account as of any
date within the Plan Year being tested and only if made
before the last day of the twelve-
1
<PAGE>
month period immediately following he Plan Year to which
such contributions relate.
(2) A Matching Contribution that is forfeited to correct
Excess Aggregate Contributions, or because the
contribution to which it relates is treated as an Excess
Contribution, Excess Deferral, or Excess Aggregate
Contribution shall not be taken into account for purposes
of the Actual Contribution Percentage Test.
(3) The Employer shall maintain records sufficient to
demonstrate satisfaction of the Actual Contribution
Percentage Test, including records showing the extent to
which Qualified Nonelective Contributions and Elective
Deferral Contributions are taken into account.
1.5 ACTUAL CONTRIBUTION RATIO.
(A) An Employee's Actual Contribution Ratio is the sum of the
Contribution Percentage Amounts allocated to the Employee's
Account for the Plan Year (including any amounts required to be
taken into account under subparagraphs (b)(1) and (b)(2) of this
section) divided by the Employee's Compensation for the Plan
Year. If no Matching Contributions, Employee Contributions,
Qualified Nonelective Contributions, or Elective Deferral
Contributions are taken into account with respect to an eligible
Employee, the Actual Contribution Ratio of the Employee is zero.
(B) Special Rules.
(1) In the event that this Plan is aggregated with one or more
plans for purposes of section 410(b) of the Code (other
than for purposes of the average benefit percentage test),
or if one or more other plans satisfy the requirements of
section 410(b) of the Code (other than the average benefit
percentage test) only if aggregated with this Plan, then
this section shall be applied by determining the Actual
Contribution Ratios of Employees as if all such plans were
a single plan. Plans may be aggregated only if they have
the same Plan Year.
(2) The Actual Contribution Ratio of a Highly Compensated
Employee who is eligible to participate in more than one
plan of the Employer to which Employee Contributions or
Matching Contributions are made shall be calculated by
treating all such plans in which the Employee is eligible
to participate as one plan. For Plan Years beginning
after December 31, 1988, if a Highly Compensated Employee
participates in two or more plans that have different plan
years, all plans ending with or within the same calendar
year shall be treated
2
<PAGE>
as a single plan. However, plans that are not permitted
to be aggregated under Treasury Regulation section
1.401(m)-1(b) (3) (ii) shall not be aggregated for
purposes of this section.
(3) For purposes of determining the Actual Contribution Ratio of a
Participant who is a 5-percent owner or one of the ten most
highly-paid Highly Compensated Employees, the Contribution
Percentage Amounts and Compensation of such Participant shall
include the Contribution Percentage Amounts (including any
amounts required to be taken into account under subparagraphs
(b)(1) and (b)(2) of this section) and Compensation for the Plan
Year of all Family Members.
If the Participant is required to be aggregated as a member of
more than one family group under the Plan, all eligible
Employees who are members of those family groups that include
that Employee are aggregated as one family group.
Family Members, with respect to Highly Compensated Employees,
shall be disregarded as separate Employees in determining the
Actual Contribution Ratio both for Participants who are
Non-highly Compensated Employees and for Participants who are
Highly Compensated Employees.
(4) The determination and treatment of the Actual Contribution Ratio
amounts of any Participant shall satisfy such other requirements
as may be prescribed by the Secretary of the Treasury.
1.6 ACTUAL DEFERRAL PERCENTAGE. The term Actual Deferral Percentage means
the average of the Actual Deferral Ratios of a specified group,
computed to the nearest one-hundredth of one percent.
1.7 ACTUAL DEFERRAL PERCENTAGE TEST.
(A) For each Plan Year, the Plan shall satisfy the Actual Deferral
Percentage Test described in section 401(k)(3) and the
regulations thereunder, which are herein incorporated by
reference.
The Plan satisfies the Actual Deferral Percentage Test for a
Plan Year only if:
(1) The Actual Deferral Percentage for the group of eligible
Highly Compensated Employees is not more than the Actual
Deferral Percentage for the group of all other eligible
Employees multiplied by 1.25; or
(2) The excess of the Actual Deferral Percentage for the group
of eligible Highly Compensated Employees over the Actual
Deferral Percentage for the group of all other eligible
Employees is not more than two percentage points, and the
Actual Deferral Percentage for the
3
<PAGE>
group of eligible Highly Compensated Employees is not more
than the Actual Deferral Percentage for the group of all
other eligible Employees multiplied by two.
4
<PAGE>
(B) Special Rules.
(1) For purposes of determining the Actual Deferral Percentage
Test, Elective Deferral Contributions, Qualified
Nonelective Contributions, and Qualified Matching
Contributions must be allocated to the Employee's Account
as of a date within the Plan Year being tested and must be
made before the last day of the twelve-month period
immediately following the Plan Year to which such
contributions relate.
(2) The Excess Deferrals of a Highly Compensated Employee
shall be taken into account for purposes of the Actual
Deferral Percentage Test. Conversely, the Excess
Deferrals of an Employee who is a Non-highly Compensated
Employee shall not be taken into account for purposes of
the Actual Deferral Percentage Test.
(3) The Employer shall maintain records sufficient to
demonstrate satisfaction of the Actual Deferral Percentage
Test, including the extent to which Qualified Nonelective
Contributions and Qualified Matching Contributions are
taken into account.
1.8 ACTUAL DEFERRAL RATIO.
(A) An Employee's Actual Deferral Ratio for the Plan Year is the sum
of the Employee's Deferral Percentage Amounts allocated to the
Employee's Account for the Plan Year (including any amounts
required to be taken into account under subparagraphs(b)(1) and
(b)(2) of this section), divided by the Employee's Compensation
taken into account for the Plan Year. If an eligible Employee
makes no Elective Deferral Contributions, and no Qualified
Matching Contributions or Qualified Nonelective Contributions
are taken into account with respect to the Employee, the Actual
Deferral Ratio of the Employee is zero.
(B) Special Rules.
(1) In the event that this Plan is aggregated with one or more
plans for purposes of section 410(b) of the Code (other
than for purposes of the average benefit percentage test),
or if one or more other plans satisfy the requirements of
section 410(b) of the Code (other than the average benefit
percentage test) only if aggregated with this Plan, then
this section shall be applied by determining the Actual
Deferral Ratio of Employees as if all such plans were a
single plan. Plans may be aggregated only if they have
the same Plan Year.
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(2) The Actual Deferral Ratio of a Highly Compensated Employee
who is eligible to participate in more than one cash or
deferred arrangement (as described in section 401 (k) of
the Code) of the same Employer shall be calculated by
treating all the cash or deferred arrangements in which
the Employee is eligible to participate as one
arrangement. If the cash or deferred arrangements that are
treated as a single arrangement under the preceding
sentence are parts of plans that have different plan
years, the cash or deferred arrangements are treated as a
single arrangement with respect to the plan years ending
with or within the same calendar year. However, plans
that are not permitted to be aggregated under Treasury
Regulation section 1.401(k)-1(b)(3)(ii)(B) are not
aggregated for purposes of this section.
(3) For purposes of determining the Actual Deferral Ratio of a
participant who is a 5-percent owner or one of the ten
most highly-paid Highly Compensated Employees, the
Deferral Percentage Amounts and Compensation of such
Participant shall include the Deferral Percentage Amounts
(including any amounts required to be taken into account
under subparagraphs (b)(1) and (b)(2) of this section) and
Compensation for the Plan Year of Family Members.
If an Employee is required to be aggregated as a member of
more than one family group under the Plan, all eligible
employees who are members of those family groups that
include that Employee are aggregated as one family group.
Family Members, with respect to such Highly Compensated
Employees, shall be disregarded as separate Employees in
determining the Actual Deferral Percentage both for
Participants who are Non-highly Compensated Employees and
for Participants who are Highly Compensated Employees.
(4) The determination and treatment of the Actual Deferral
Ratio amounts of any Participant shall satisfy such other
requirements as may be prescribed by the Secretary of the
Treasury.
1.9 BENEFICIARY. The Participant's spouse is the designated Beneficiary
of the Participant's entire Vested Interest. However, each
Participant shall have the right to designate another Beneficiary,
subject to the requirements of the "Qualified Election" provisions of
Article VIII, Joint and Survivor Requirements. The Participant may
change the Beneficiary at any time, subject to the requirements of the
"Qualified Election" provisions of Article VIII, Joint and Survivor
Requirements.
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If a Beneficiary has not been designated, or if a Beneficiary
designation or change of Beneficiary designation does not meet the
requirements of the "Qualified Election" provisions of Article VIII,
Joint and Survivor Requirements, (including any designation made prior
to August 23, 1984 by a married Participant who has an Hour of Service
on or after August 23, 1984), or if no designated Beneficiary survives
the Participant, the Participant's entire Vested Interest shall be
distributed to the Participant's spouse, if living; otherwise to the
executor or administrator of the Participant's estate.
1.10 BOARD OF DIRECTORS. The term Board of Directors means the Plan
Sponsor's board of directors or other comparable governing body.
1.11 CODE. The term Code means the internal Revenue Code of 1986, as
amended from time to time.
1.11a COMPANY STOCK. The term Company Stock means the common stock of
Cornerstone Natural Gas, Inc.
1.12 COMPENSATION.
(A) Except as otherwise provided in the Plan, the term Compensation
means wages within the meaning of section 3401(a) of the Code
for the purposes of income tax withholding at the source but
determined without regard to any rules that limit the
remuneration included in wages based on the nature or location
of the employment or the services performed (such as the
exception for agricultural labor in section 3401(a)(2) of the
Code).
(B) Compensation shall include only that Compensation which is
actually paid to the Participant during the determination
period. Except as provided elsewhere in the Plan, the
determination period shall be the Plan Year.
(C) Compensation shall include any amount which is contributed by
the Employer pursuant to a salary reduction agreement and which
is not includible in the gross income of the employee under
sections 125, 402(a)(8), 402(h), or 403(b) of the Code;
Compensation deferred under an eligible deferred compensation
plan within the meaning of section 457(d) of the Code; and
employee contributions described in section 414(h)(2) of the
Code that are picked up by the employing unit and, thus, are
treated as employer contributions.
(D) The annual Compensation of each Participant taken into account
or determining all benefits provided under the Plan for any
determination period shall not exceed $200,000. This limitation
shall be adjusted by the Secretary at the time and in the same
manner as under section 415(d) of the Code, except that the
dollar increase in effect on January 1 of any calendar year is
effective for years beginning in such calendar year and the
first adjustment to the $200,000 limitation is effected on
January 1, 1990. If the period
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for determining Compensation used in calculating an Employee's
allocation for a determination period is a short Plan Year
(i.e., shorter than 12 months), the annual Compensation limit is
an amount equal to the otherwise applicable annual Compensation
limit multiplied by a fraction, the numerator of which is the
number of months in the short Plan Year, and the denominator of
which is 12.
In determining the Compensation of a Participant for purposes of
this limitation, the rules of section 414(q)(6) of the Code
shall apply, except in applying such rules, the term "family"
shall include only the shall include only the spouse
of the Participant and any lineal descendants of the Participant
who have not attained age 19 before the close of the year. if,
as a result of the application of such rules, the adjusted
$200,000 limitation is exceeded, then either the limitation
shall be prorated among the affected individuals in proportion
to each such individual's Compensation as determined under this
section prior to the application of this limitation, or the
limitation shall )De allocated among the affected individuals in
an objective and nondiscriminatory manner based on a reasonable,
good faith interpretation of section 401(a)(17) of the Code.
The method chosen in the preceding sentence shall be uniformly
applied to all affected individuals in a Plan Year Sod shall be
applied consistently from year to year.
If Compensation for any prior determination period is taken into
account in determining an Employee's allocations or benefits for
the current determination period, the Compensation for such
prior determination period is subject to the applicable annual
Compensation limit in effect for that prior year. For this
purpose, for years beginning before January 1, 1990, the
applicable annual Compensation limit is $200,000.
1.13 CONSIDERED NET PROFITS. The term Considered Net Profits means the
entire amount of the accumulated or current operating profits
(excluding capital gains from the sale or involuntary conversion of
capital or business assets) of the Employer after all expenses and
charges other than (i) the contributions made by the Employer to the
Plan, and (ii) federal or state or local taxes based upon or measured
by income, as determined by the Employer, either on an estimated basis
or a final basis, in accordance with the generally accepted accounting
principles used by the Employer. When the amount of Considered Net
Profits has been determined by the Employer, and the contributions
made by the Employer on the basis of such determination, for any Plan
Year, such determination and contribution shall be final and
conclusive and shall not be subject to change because of any
adjustments in income or expense which may be required by the internal
Revenue Service or otherwise. Such determination and contribution
shall
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not be open to question by any Participant either before or after the
contributions by the Employer have been made.
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1.14 CONTRIBUTION PERCENTAGE AMOUNTS. The term Contribution Percentage
Amounts means the sum of the Employee Contributions, Matching
Contributions, and Qualified Matching Contributions (to the extent not
taken into account for purposes of the Actual Deferral Percentage
Test) made under the Plan on behalf of the Employee for the Plan Year.
The term Contribution Percentage Amounts also includes Qualified
Nonelective Contributions and Elective Deferral Contributions treated
as Matching Contributions and taken into account in determining the
Employee's Actual Contribution Ratio for the Plan Year.
1.15 CONTRIBUTION PERIOD. The term Contribution Period means the
Employer's pay period.
1.16 DEFERRAL PERCENTAGE AMOUNTS. The term Deferral Percentage Amounts
means an Employee's Elective Deferral Contributions for the Plan Year.
The term Deferral Percentage Amounts also includes Qualified
Nonelective Contributions and Qualified matching Contributions treated
as Elective Deferral Contributions and taken into account in
determining the Employee's Actual Deferral Ratio for the Plan Year.
1.17 DISABILITY. The term Disability means a Participant's incapacity to
engage in any substantial gainful activity because of a medically
determinable physical or mental impairment which can be expected to
result in death, or to be of long, continued and indefinite duration.
Such determination of Disability shall be made by the Administrator
with the advice of competent medical authority. All Participants in
similar circumstances will be treated alike.
1.18 DISABILITY RETIREMENT DATE. The term Disability !Retirement Date
means the first day of the month after the Plan Administrator has
determined that a Participant's incapacity is a Disability.
1.19 EARLY RETIREMENT DATE. The term Early Retirement Date means the first
day of the month coinciding with or next following the date a
Participant is separated from Service with the Employer on or after
the date he attains age 59 1/2 and has six Years of Service for any
reason other than death or Disability, provided that on such date the
Participant has not attained his Normal Retirement Age.
1.20 EFFECTIVE DATE. The term Effective Date means July 1, 1991.
1.21 ELECTIVE DEFERRAL CONTRIBUTION. The term Elective Deferral
Contribution means any Employer Contribution made to the Plan at the
election of the Participant, in lieu of cash compensation, and
includes contributions made pursuant to a Salary Deferral Agreement or
other deferral mechanism.
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Solely for purposes of the dollar limitation specified in section
402(g) of the Code, with respect to any taxable year, a Participant's
Elective Deferral Contributions are the sum of all employer
contributions made on behalf of such Participant pursuant to an
election to defer under any qualified cash or deferred arrangement as
described in section 401(k) of the Code, any simplified employee
pension cash or deferred arrangement described in section 402(h)(1)(B)
of the Code, any plan as described under section 501(c)(18) of the
Code, and any employer contributions made on behalf of a Participant
for the purchase of a tax sheltered annuity contract under section
403(b) of the Code pursuant to a salary reduction agreement.
The term Elective Deferral Contribution shall not include any
deferrals properly distributed as excess annual additions.
1.22 EMPLOYEE. The term Employee means an individual who performs services
for the Employer and who is either a common law employee of the Employer
or a self-employed individual/owner employee treated as an Employee
pursuant to Code section 401(c)(1). The term Employee also includes a
Leased Employee who is treated as an Employee of the Employer-recipient
pursuant to the provisions of Code section 414(n)(2) or 414(o)(2) (other
than individuals covered by a plan described in Code section 414(n)(5)).
For purposes of determining the Highly Compensated Employees, the
Employer may elect, on a reasonable and consistent basis, to treat such
Leased Employees covered by a plan described in Code section 414(n)(5)
as Employees.
1.23 EMPLOYEE CONTRIBUTIONS. The term Employee Contributions means any
contributions to the Plan after December 31, 1986 or any other plan
that are designated or treated at the time of contribution as
after-tax Employee Contributions and are allocated to a separate
account to which the attributable earnings and losses are allocated.
Such term includes Employee Contributions applied to the purchase of
life insurance policies.
Such term does not include repayment of loans or buy-back of benefits
described in Code section 411(a)(7)(C) or employee contributions
transferred to this Plan.
1.24 EMPLOYER. The term Employer means the Plan Sponsor and any other
incorporated or unincorporated trade or business that may subsequently
adopt the Plan with the consent of the Plan Sponsor. in the case of a
group of employers which constitutes a controlled group of
corporations (as defined in Code section 414(b)), or which constitutes
trades or businesses (whether or not incorporated) which are under
common control (as defined in Code section 414(c)) , or which
constitutes an affiliated service group (as defined in Code section
414(m)), all such employers shall be considered a single employer for
purposes of participation, vesting, Top-Heavy; provisions and
determination of Highly Compensated Employees.
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1.25 EMPLOYER CONTRIBUTION. The term Employer Contribution means any
contribution made to the Plan by the Employer on behalf of a Participant,
other than an Employee Contribution or Rollover Contribution.
1.26 ENTRY DATE. The term Entry Date means either the Effective Date or the
first day of the month thereafter when an Employee who has fulfilled the
eligibility requirements commences participation in the Plan.
If an Employee is not in the active Service of the Employer as of his
initial Entry Date, his subsequent Entry Date shall be the date he
returns to the active Service of the Employer, provided he still meets
the eligibility requirements. if an Employee does not enroll as a
Participant as of his initial Entry Date, his subsequent Entry Date
shall be the applicable Entry Date as specified above when the
Employee actually enrolls as a Participant.
1.27 ERISA. The term ERISA means the Employee Retirement income Security
Act of 1974 (PL 93-406) as it may be amended from time to time, and
any regulations issued pursuant thereto as such Act and such
regulations affect this Plan and Trust.
1.28 EXCESS AGGREGATE CONTRIBUTIONS.
(A) The term Excess Aggregate Contributions means, with respect to
any Plan Year, the excess of the aggregate amount of the
Contribution Percentage Amounts actually made on behalf of
Highly Compensated Employees for the Plan Year (including any
amounts required to be taken into account under subparagraphs
(b)(1) and (b)(2) of Section 1.5 of the Plan), over the maximum
amount of contributions permitted under the Actual Contribution
Percentage Test. The amount of Excess Aggregate Contributions
for each Highly Compensated Employee is determined by using the
method described in paragraph (b) of this section.
(B) The amount of Excess Aggregate Contributions for a Highly
Compensated Employee for a Plan Year is the amount (if any) by
which the Employee's Employee Contributions and matching
Contributions must be reduced for the Employee's Actual
Contribution Ratio to equal the highest permitted Actual
Contribution Ratio under the Plan.
To calculate the highest permitted Actual Contribution Ratio
under the Plan, the Actual Contribution Ratio of the Highly
Compensated Employee with the highest Actual Contribution Ratio
is reduced by the amount required to cause the Employee's Actual
Contribution Ratio to equal the ratio of the Highly Compensated
Employee with the next highest Actual Contribution Ratio. if a
lesser reduction would enable the Plan to satisfy the Actual
Contribution Percentage Test, only this lesser reduction may be
made. This process shall be repeated until the Plan satisfies
the Actual Contribution
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Percentage Test. The highest Actual Contribution Percentage
Ratio remaining under the Plan after leveling is the highest
permitted Actual Contribution Ratio.
For each Highly Compensated Employee, the amount of Excess
Aggregate Contributions for a Plan Year is equal no the total
Contribution Percentage Amounts (including any amounts required
to be taken into account under subparagraphs (b)(1) and (b)(2)
of Section 1.5 of the Plan), minus the amount determined by
multiplying the Employees's highest permitted Actual
Contribution Ratio (determined after application of this
section) by the compensation used in determining the ratio.
1.29 EXCESS CONTRIBUTION.
(A) The term Excess Contribution means, with respect to a Plan Year,
the excess of Deferral Percentage Amounts made on behalf of
eligible Highly Compensated Employees for the Plan Year
(including any amounts required to be taken into account under
subparagraphs (b)(1) and (b)(2) of Section 1.8 of the Plan) over
the maximum amount of such contributions permitted under the
Actual Deferral Percentage Test for the Plan Year. The amount
of Excess Contributions for each Highly Compensated Employee is
determined by using the method described in paragraph (b) of
this section.
(B) The amount of Excess Contributions for a Highly Compensated
Employee for a Plan year is the amount (if any) by Which the
Employee's Elective Deferral Contributions must be reduced for
the Employee's Actual Deferral Ratio to equal the highest
permitted Actual Deferral Ratio under the Plan.
To calculate the highest permitted Actual Deferral Ratio under
the Plan, the Actual Deferral Ratio of the Highly Compensated
Employee with the highest Actual Deferral Ratio is reduced by
the amount required to cause the Employee's Actual Deferral
Ratio to equal the ratio of the Highly Compensated Employee with
the next highest Actual Deferral Ratio. If a lesser reduction
would enable the arrangement to satisfy the Actual Deferral
Percentage Test, only this lesser reduction shall be made. This
process shall be repeated until the cash or deferred arrangement
satisfies the Actual Deferral Percentage Test. The highest
Actual Deferral Ratio remaining under the Plan after leveling is
the highest permitted Actual Deferral Ratio.
1.30 EXCESS DEFERRALS. The term Excess Deferrals means those Elective
Deferral Contributions that are includible in a Participant's gross
income under section 402(g) of the Code to the extent such
Participant's Elective Deferral Contributions for a taxable year
exceed the dollar limitation under such Code section.
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1.31 FAIL-SAFE CONTRIBUTION. The term Fail-Safe Contribution means a
Nonelective Contribution, designated by the Employer at the time of
contribution as an Qualified Nonelective Contribution, which is
contributed to the Plan solely for the purposes of satisfying either
the Actual Deferral Percentage Test or the Actual Contribution
Percentage Test and is made in accordance with the provisions of
Article IV of this Plan.
1.32 FAMILY MEMBER. The term Family Member means, with respect to any
Employee, such Employee's spouse and lineal ascendants and descendants
and the spouses of such lineal ascendants and descendants.
1.33 FIDUCIARY. The term Fiduciary means any, or all, of the following, as
applicable:
(A) Any Person who exercises any discretionary authority or
control respecting the management of the Plan or its assets; or
(B) Person who renders investment advice for a fee or ocher
compensation, direct or indirect, respecting any monies or other
property of the Plan or has authority or responsibility to do
so; or
(C) Any Person who has discretionary authority or responsibility in
the administration of the Plan; or
(D) Any Person who has been designated by a Named Fiduciary pursuant
to authority granted by the Plan, who acts to carry out a
fiduciary responsibility, subject to any exceptions granted
directly or indirectly by ERISA.
1.34 FORFEITURE. The term Forfeiture means the amount, if any, by which
the value of a Participant's Account exceeds his Vested Interest
following such Participant's Termination of Employment, and at the
time specified in Section 9.1.
1.35 HIGHLY COMPENSATED EMPLOYEE. The term Highly Compensated Employee
means any Highly Compensated Active Employee or Highly Compensated
Former Employee as further defined herein.
For purposes of the determination of Highly Compensated Employees, the
term Compensation means Compensation as defined in Article V of the
Plan, but includes the amount of any elective contributions made by
the Employer on the Employee's behalf to a cafeteria plan established
in accordance with the provisions of Code section 125, a qualified
cash or deferred arrangement in accordance with the provisions of Code
section 402(a)(8), a simplified employee pension plan in accordance
with the provisions of Code section 402(h), or a tax sheltered annuity
plan maintained in accordance with the provisions of Code section
403(b).
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A "Highly Compensated Active Employee" is any Employee who performs
services for the Employer during the current Plan Year and who, during
the current Plan Year or the 12-month period immediately preceding
such Plan Year:
(A) Owns (or is considered to own within the meaning of section 318
of the Code, as modified by section 416(i)(1)(B)(iii) of the
Code) more than 5% of the outstanding stock of the Employer or
stock possessing more than 5% of the total combined voting power
of all stock of the Employer, or, if the Employer is other than
a corporation, owns more than 5% of the capital (or profits
interest in the Employer. The determination of 5% ownership
shall be made separately for each member of a controlled group
of corporations (as defined in Code section 414(b)), or of a
group of trades or businesses (whether of not incorporated) that
are under common control (as defined in Code section 414(c)), or
of an affiliated service group (as defined in Code section
414(m)); or
(B) Receives Compensation in excess of $75,000 multiplied by the
applicable cost-of-living adjustment factor prescribed under
Code section 415(d) and then prorated in the case of a short
Plan Year; or
(C) Receives Compensation in excess of $50, 000, as adjusted for
cost-of-living increases in accordance with Code section 415 (d)
and then prorated in the case of a short Plan Year, and is in
the top 20% of Employees ranked by Compensation; or
(D) Is, at any time, an officer of the Employer and receives
Compensation in excess of 50% of the amount in effect under Code
section 415(b)(1)(A) for the applicable period.
If no officer receives Compensation in excess of the amount
specified above, the highest paid officer for the applicable
period shall be a Highly Compensated Employee.
In no event if there are more than 500 Employees, shall more
than 50 Employees or, if there are less than 500 Employees,
shall the greater of three Employees or 10% of all Employees, be
taken into account as officers.
In determining both the top 20% of Employees ranked ba Compensation
for purposes of paragraph (C) above, and officers of the Employer for
purposes of paragraph (D) above; Employees who have not completed six
months of Service by the end of the applicable period, Employees who
normally work less than 17-1/2 hours per week, Employees who normally
work less than six months during a year, Employees who have not
attained 21, and nonresident aliens who receive no earned income from
U.S. sources shall be excluded.
Also excluded under the above paragraph are Employees who are covered
by an agreement which the Secretary of Labor finds to he
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a collective bargaining agreement. Such Employees will be excluded
only if retirement benefits were the subject of good faith bargaining,
90% of the Employees of the Employer are covered by the agreement, and
the Plan covers only Employees who are not covered by the agreement.
Notwithstanding the above provisions, an Employee, other than a 5%
owner as described in paragraph .(a) above who was not highly
compensated during the 12-month period immediately preceding the
current Plan Year will not be considered to be a Highly Compensated
Employee in the current Plan Year unless such Employee is one of the
top 100 Employees ranked by Compensation for the current Plan Year.
A "Highly Compensated Former Employee" is any former Employee who
separated from Service with the Employer in a Plan Year preceding the
current Plan Year and was a Highly Compensated Active Employee in
either:
(A) The Plan Year in which his separation from Service occurred;
or
(B) any Plan Year ending on or after such former Employee's 55th
birthday.
A former Employee is an Employee who performs no services for the
Employer during a Plan Year (for example, by reason of a leave of
absence).
1.36 INACTIVE PARTICIPANT. The term Inactive Participant means any
Participant who does not currently meet the requirements to be an
Active Participant due to a suspension of the performance of duties
for the Employer.
1.37 LATE RETIREMENT DATE. The term Late Retirement Date means the first
day of the month coinciding with or next following the date a
Participant is separated from Service with the Employer after his
Normal Retirement Age, for any reason other than death.
1.38 LEASED EMPLOYEE. The term Leased Employee means any person (other
than an Employee of the recipient) who, pursuant to an agreement
between the recipient and any other person ("leasing organization"),
has performed services for the recipient (or for the Employer and
related persons determined in accordance with Code section 414 (n) (6))
on a substantially full-time basis for a period of at least one
year, and such services are of a type historically performed by
employees in the business field of the recipient Employer.
1.39 MATCHING CONTRIBUTIONS. The term Matching Contributions means
contributions node by the Employer to the Plan, on behalf of a
Participant on account of either Elective Deferral Contributions, if
any, or Employee Contributions, if any.
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1.40 NAMED FIDUCIARY. The term Named Fiduciary means the Plan
Administrator, the Trustee and any other Fiduciary designated in
writing by the Employer, and any successor thereto.
1.41 NONHIGHLY COMPENSATED EMPLOYEE. The term Nonhighly Compensated
Employee means an Employee who is not a Highly Compensated Employee.
1.42 NONELECTIVE CONTRIBUTIONS. The term Nonelective Contributions means
contributions made by the Employer (other than Matching Contributions)
than the Participant may not elect to have paid in cash or other
benefits instead of being contributed no the Plan.
1.43 NORMAL RETIREMENT AGE. The term Normal Retirement Age means the daze
the Participant attains age 65.
1.44 NORMAL RETIREMENT DATE. The term Normal Retirement Date means the
first day of the month coinciding with or next following the date a
Participant attains his Normal Retirement Age.
1.45 PARTICIPANT. The term Participant means any Employee of the Employer,
who is or becomes eligible to participant under this Plan in
accordance with its provisions and shall include an Active Participant
and an Inactive Participant.
1.46 PARTICIPANT'S ACCOUNT. The term Participant's Account means the sum
of the following sub-accounts held on behalf of each Participant:
* Elective Deferral Contributions, if any, and earnings thereon.
* Matching Contributions, if any, and earnings thereon.
* Qualified Matching Contributions, if any, and earnings thereon.
* Nonelective Contributions, if any, and earnings thereon.
* Qualified Nonelective Contributions, if any, and earnings
thereon.
* Employee Contributions, if any, and earnings thereon.
* Participant Contributions, if any, and earnings thereon.
* Rollover Contributions, if any, and earnings thereon.
A Participant's Account shall be invested in accordance with the rules
established by the Plan Administrator, which shall be applied in a
consistent and nondiscriminatory manner.
1.47 PARTICIPANT CONTRIBUTIONS. The term Participant Contributions means
any contributions to the Plan before January 1, 1987 that are
designated or treated at the time of contribution as after-
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tax Participant Contributions and are allocated to a separate account to
which the attributable earnings and losses are allocated.
Such term does not include repayment of loans or buy-back of benefits
described in Code section 411(a)(7)(C) or employee contributions
transferred to this Plan.
1.48 PERSON. The term Person means any natural person, partnership,
corporation, trust or estate.
1.49 PLAN. The term Plan means this Cornerstone Natural Gas, Inc.
Employee Savings Plan, effective as of January 1, 1983, and as from
time to time in effect thereafter.
1.50 PLAN ADMINISTRATOR. The terms Plan Administrator and Administrator
are used interchangeably throughout the Plan and Trust and shall mean
the Plan Sponsor.
1.51 PLAN SPONSOR. The term Plan Sponsor means Cornerstone Natural Gas,
Inc.
1.52 PLAN YEAR. The term Plan Year means the 12-month period commencing on
January 1 and ending on the following December 31.
1.53 QUALIFIED MATCHING CONTRIBUTIONS. The term Qualified Matching
Contributions means Matching Contributions which are designated as
Qualified Matching Contributions, and are immediately vested and
nonforfeitable at all times and satisfy the Code section 401(k)
withdrawal restrictions.
1.54 QUALIFIED NONELECTIVE CONTRIBUTIONS. The term Qualified Nonelective
Contributions means Nonelective Contributions made by the Employer
which are designated as Qualified Nonelective Contributions, are
immediately vested and nonforfeitable at all times and satisfy the
Code section 401(k) withdrawal restrictions.
1.55 ROLLOVER CONTRIBUTIONS. The term Rollover Contributions means
contributions representing all or part of the entire amount of any
distribution from a terminated pension (or profit sharing plan meeting
the requirements of Code section 401(a) or any lump sum distribution
received by an Employee from a pension or profit sharing plan meeting
the requirements of Code section 401(a).
1.56 SALARY DEFERRAL AGREEMENT. The term Salary Deferral Agreement means
an agreement between a Participant and the Employer to defer the
Participant's Compensation for the purpose of making Elective Deferral
Contributions to the Plan.
1.57 TERMINATION OF EMPLOYMENT. The term Termination of Employment means a
severance of the Employer-Employee relationship which occurs prior to
a Participant's Normal Retirement Age for any reason other than Early
Retirement, Disability or death.
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1.58 TRUST. The term Trust means the trust agreement entered into by the
Employer and the Trustee, which trust agreement forms a part of, and
implements the provisions of this Plan.
1.59 TRUSTEE. The term Trustee means one or more individuals collectively
appointed and acting under the trust agreement, and any successor
thereto.
1.60 VESTED INTEREST. The term Vested interest on any date means the
nonforfeitable right to an immediate or deferred benefit in the amount
which is equal to the following:
(A) the value on that date of that portion of the Participant's
Account that is attributable to the following contributions:
* Elective Deferral Contributions, if any
* Employee Contributions, if any
* Participant Contributions, if any
* Rollover Contributions, if any
* Qualified Matching Contributions, if any
* Qualified Nonelective Contributions, if any
(B) plus the value on that date of that portion of the Participant's
Account that is attributable to and derived from:
* Matching Contributions, if any
* Nonelective Contributions, if any
Such contributions pursuant to Subsection (B) above shall be
multiplied by the Vesting Percentage below to determine the
Participant's Vested interest determined on the date applicable.
1.61 VESTING PERCENTAGE. The term Vesting Percentage means the
Participant's nonforfeitable interest in contributions made by the
Employer credited to his account that are not 100% immediately vested,
plus the earnings thereon, computed as of the date of determining such
percentage because of the occurrence of some event in accordance with
the following schedules based on Years of Service with the Employer:
For a Participant credited with an Hour of Service (as defined in
Section 2.3) after June 30, 1991:
YEARS OF SERVICE VESTING PERCENTAGE
Less than 1 0%
1 but less than 2 20%
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2 but less than 3 40%
3 but less than 4 60%
4 but less then 5 80%
5 or more 100%
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For a Participant not credited with an Hour of Service after
June 30, 1991:
YEARS OF SERVICE VESTING PERCENTAGE
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
However, if an Active Participant dies prior to attaining his Normal
Retirement Age his Vesting Percentage shall be 100%.
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ARTICLE II
SERVICE
2.1 SERVICE. The term Service means active employment with the Employer
as an Employee. For purposes of determining Service, employment with
any company which is under common control with the Employer as
specified in section 414 of the Internal Revenue Code shall be treated
as employment with the Employer.
2.2 ABSENCE FROM EMPLOYMENT. Absence from employment on account of a
leave of absence authorized by the Employer pursuant to the Employer's
established leave policy will be counted as employment with the
Employer provided that such leave of absence is of not more than two
years duration. Absence from employment on account of active duty
with the Armed Forces of the United States will be counted as
employment with the Employer. if the Employee does not return to
active employment with the Employer, his Service will be deemed to
have ceased on the date the Administrator receives notice that such
Employee will not return to the active Service of the Employer. The
Employer's leave policy shall be applied in a uniform and
nondiscriminatory manner to all Participants under similar
circumstances.
2.3 HOUR OF SERVICE. The term Hour of Service means a period of Service
during which an Employee shall be credited with one Hour of Service as
described in (A), (B), (C), and (D) below:
(A) Each hour for which an Employee is directly or indirectly paid,
or entitled to payment, by the Employer for the performance of
duties. These hours shall be credited to the Employee for the
computation period or periods in which the duties are performed;
and
(B) Each hour for which an Employee is directly or indirectly paid,
or entitled to payment, by the Employer for reasons (such as
vacation, sickness or Disability) other than for the performance
of duties. Hours under this Subsection shall be calculated and
credited pursuant to section 2530.200b-2 of the Department of
Labor Regulations which are incorporated herein by this
reference; and
(C) Each hour for which back pay, irrespective of mitigation of
damages, has been either awarded or agreed to by the Employer.
These hours shall be credited to the Employee for the
computation period or periods to which the award or agreement
pertains rather than the computation period in which the award,
agreement or payment is made; and
(D) Each hour for which an Employee is on an authorized unpaid leave
(such as service with the Armed Forces, jury duty, educational
leave) These hours shall be credited to the Employee for the
computation period or periods in which such authorized leave
takes place. However, no more than 501 hours shall be credited
under this subparagraph (D).
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Hours of Service will be credited for employment with other members
of an affiliated service group (under Internal Revenue Code section
414(m)), a controlled group of corporations (under Internal Revenue
Code section 414(b)) , or a group of trades or businesses under common
control (under internal Revenue Code section 414(c)), of which the
adopting employer is a member. Hours of Service will also be credited
for any individual considered an Employee under internal Revenue Code
section 414(n).
In lieu of maintaining daily detailed records of the Hours of Service
to be credited to Employees for the purposes of the Plan, each
Employee shall be credited with 190 Hours of Service for each month
during which such Employee would otherwise be required to be credited
with. at least one Hour of Service under the foregoing provisions of
this definition.
Solely for purposes of determining whether a One-Year Break in
Service, as defined in Section 2.4, for participation and vesting
purposes has occurred in a computation period, an individual who is
absent from work for maternity or paternity reasons shall receive
credit for the Hours of Service which would otherwise have been
credited to such individual but for such absence, or in any case in
which such hours cannot be determined, eight Hours-of Service per day
of such absence. For purposes of this paragraph, an absence from work
for maternity or paternity reasons means an absence (1) by reason of
the pregnancy of the individual, (2) by reason of a birth of a child
of the individual, (3) by reason of the placement of a child with the
individual in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a period
beginning immediately following such birth or placement. The Hours of
Service credited under this paragraph shall be credited (1) in the
computation period in which the absence begins if the crediting is
necessary to prevent a One-Year Break in Service in that period, or
(2) in all other cases, in the following computation period.
2.4 ONE-YEAR BREAK IN SERVICE. Except as provided below regarding
eligibility, the term One-Year Break in Service means any Plan Year
during which an Employee fails to complete more than 500 Hours of
Service.
2.5 DETERMINING VESTING PERCENTAGE. Vesting credit shall be given for
each Year of Service except those periods specified in Section 2.7.
If a Participant completes less than 1,000 Hours of Service during a
Plan Year while remaining in the Service of the Employer, his Vesting
Percentage shall not be increased for such Plan Year.
If an individual who ceases co be an Employee and is subsequently
rehired as an Employee enrolls (or re-enrolls) in the Plan, upon his
participation (or subsequent participation) his Vesting
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Percentage shall then take into account all Year(s) of Service except
those specified in Section 2.7.
2.6 YEAR(S) OF SERVICE. The term Year(s) of Service means a
12-consecutive-month period during which an Employee has completed at
least 1,000 hours of service.
(A) Eligibility Computation Period.
For purposes of determining Years of Service and One-Year Breaks
in Service for eligibility, the 12-consecutive-month period
shall begin with the date on which an Employee's employment
commenced and, where additional periods are necessary,
succeeding anniversaries of his employment commencement date.
The employment commencement date is the date on which the
Employee first performs an Hour of Service for the Employer
maintaining the Plan.
The eligibility requirement specified in Article III is one or
more full Years of Service. Such requirement shall be met upon
completion of at least 1,000 Hours of Service for each Year of
Service specified.
(B) Vesting Computation Period.
In computing Years of Service and One-Year Breaks in Service for
vesting, the 12-consecutive-month period shall be the Plan Year.
However, active participation as of the last day of the Plan
Year is riot required in order for a Participant to be credited
with a Year of Service for vesting purposes.
For purposes of the Vesting Computation Period, if any Plan Year
is less than 12-consecutive months, and if a Participant would
have been credited with a Year of Service during the
12-consecutive-month period beginning on the first day of the
short Plan Year, then the Participant will receive a Year of
Service for the short Plan Year. The Participant receives
credit for an additional Year of Service if the Participant
would have been credited with a Year of Service for the Plan
Year immediately following the short Plan Year.
2.7 EXCLUDED YEARS OF SERVICE. in determining the Vesting Percentage of an
Employee, all Years of Service with the Employer shall be taken into
account, except:
* Plan Years during which a Participant did not complete at least
1,000 Hours of Service.
* Years of Service excluded under the terms of the Plan as in
effect on June 30, 1991.
* If an Employee incurs a One-Year Break in Service prior to
completing the number of Years of Service required no have a
Vesting Percentage greater than 0%, Years of Service prior
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to such break shall be excluded unless he completes an
additional Year of Service before the number of such Employee's
consecutive One-Year Breaks in Service equals or exceeds five.
If an Employee incurred a One-Year Break in Service prior to
January 1, 1985 and prior to completing two Years of Service,
Years of Service prior to such break shall be excluded unless he
completed an additional Year of Service before the number of his
consecutive One-Year Breaks in Service prior to and including
such break equals or exceeds the number of Years of Service he
completed prior to such break.
2.8 PREDECESSOR ORGANIZATION SERVICE. For purposes of this Article,
Service with a predecessor organization of the Employer shall be
treated as Service with the Employer in any case in, which the
Employer maintains the Plan of such predecessor organization.
2.9 PAST SERVICE CREDIT. if an Employee became employed by the Employer by
reason of the acquisition by the Employer of the business known as
Mississippi Fuel Company or the business known as Dubach Gas Company,
such Employee's Years of Service, as determined under the foregoing
provisions of this Article, shall be increased by one-half (rounded
downward to the nearest whole year) of the length of such Employee's
last continuous period of full-time employment with such business
immediately before such acquisition.
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ARTICLE III
ELIGIBILITY, ENROLLMENT AND PARTICIPATION
3.1 ELIGIBILITY. Each Employee who was a Participant prior to the
Effective Date and who is in the Service of the Employer on the
Effective Date shall continue as a Participant in the Plan. Each
other Employee, excluding a Leased Employee, shall be eligible to
become a Participant as of the Effective Date or the Entry Date when
he first meets the following requirements:
* One Year of Service
3.2 ENROLLMENT AND PARTICIPATION. Each eligible Employee may enroll as of
his Entry Date by completing and delivering to the Administrator an
enrollment form and, if applicable, a Salary Deferral Agreement. He
will then become a Participant as of his Entry Date.
3.3 RE-EMPLOYED EMPLOYEE. in the case of an individual who ceases to be an
Employee and is subsequently rehired as an Employee, the following
provisions shall apply in determining his eligibility to again
participate in the Plan:
(A) If the Employee had met the eligibility requirements specified
in Section 3.1 prior to his separation from employment, he shall
become an Active Participant in the Plan as of the date he is
re-employed, after completing the applicable form(s), in
accordance with Section 3.2.
(B) If the Employee had not met the eligibility requirements
specified in Section 3.1 prior to his separation from
employment, he shall be eligible to participate in the Plan on
the first Entry Date following his fulfillment of such
eligibility requirements.
For purposes of this Section, all Years of Service with the Employer,
including any Years of Service prior to any One-Year Breaks in
Service, shall be taken into account.
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ARTICLE IV
CONTRIBUTIONS
4.1 ELECTIVE DEFERRAL CONTRIBUTIONS. Each Active Participant may enter
into a written Salary Deferral Agreement with the Employer in an
amount equal to not less than 1% nor more than 15% of his Compensation
for the Contribution Period. In consideration of such agreement, the
Employer will make a contribution, for each Contribution Period on
behalf of the Participant in an amount equal no the total amount by
which the Participant's Compensation from the Employer was deferred
during the Contribution Period pursuant to the Salary Deferral
Agreement then in effect. Elective Deferral Contributions shall be
paid by the Employer to the Trust not less frequently than monthly,
but in no event later than 90 days following the date the amounts were
deferred.
Salary Deferral Agreements shall be governed by the following
provisions:
(A) Amounts contributed pursuant to a Salary Deferral Agreement
shall be 100% vested and non-forfeitable at all times.
(B) No Participant shall be permitted to have Elective Deferral
contributions made under this Plan, or any other qualified plan
maintained by the Employer, during any taxable year, in excess
of the dollar limitation contained in section 402(g) of the Code
in effect at the beginning of the taxable year. However, this
$7,000 limit shall not apply to certain amounts deferred in 1987
that were attributable to Service performed in 1986.
(C) Amounts contributed pursuant to a Salary Deferral Agreement,
which are not in excess of the limit described in Subsection
(B) above, shall be subject to the Limitations on Allocations in
accordance with Article V. Unless distributed pursuant to
Section 4.18, Elective !Deferral Contributions that are in
excess of the limit described in Subsection (B) shall also be
subject to the Limitations on Allocations in accordance with
Article V.
(D) A Salary Deferral Agreement may be changed by a Participant
twice during the Plan Year, on January I and July 1, or on
August 1, 1992, by filing written notice thereof with the
Administrator. Such notice shall be effective, and the Salary
Deferral Agreement shall be changed on the date specified in
such notice, which date must be at least 15 days after such
notice is filed.
(E) Elective Deferral Contributions shall be subject to the Actual
Deferral Percentage Test limitations.
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(F) Correction of Excess Contributions.
(1) If the Plan Sponsor determines prior to the end of the
Plan Year that the Actual Deferral Percentage Test may not
be satisfied, the Plan Sponsor may take the corrective
action specified in Section 4.14 of the Plan.
(2) If, after the end of the Plan Year, the Plan Sponsor
determines that the Plan will fail the Actual Deferral
Percentage Test, the Plan Sponsor shall take the
corrective action specified in Section 4.l6 or Section
4.19 of the Plan, or a combination of such corrective
actions, in order to ensure than the Plan does not fail
the Actual Deferral Percentage Test for the Plan Year
being tested.
4.2 MATCHING CONTRIBUTIONS. For each Contribution Period, the Employer
shall make a Matching Contribution in an amount equal to $1.00 for
each $1.00 by which a Participant either defers his Compensation
pursuant to a Salary Deferral Agreement or makes Employee
Contributions pursuant to a payroll deduction order up to a maximum of
5% of his Compensation for the Contribution Period, subject to the
Limitations on Allocations specified in Article V.
One contribution as described above, for any Plan Year, shall be paid
to the Trust at the end of the Plan Year, or as soon as possible on or
after the last day of such Plan Year, but in any event not later than
the date which is prescribed by law for filing the Employer's income
tax return, including any extension thereof. The Matching
Contribution shall be paid to the Trust not less frequently than
monthly. Matching Contributions shall be subject to the Actual
Contribution Percentage Test. The Plan Sponsor may designate at the
time of contribution that all or a portion of such Matching
Contributions be treated as Qualified Matching Contributions.
If the Plan Sponsor determines prior to the end of the Plan Year that
the Actual Contribution Percentage Test may not be satisfied, the Plan
Sponsor may take the corrective action specified in Section 4.15 of
the Plan.
If, after the end of the Plan Year, the Plan Sponsor determines that
the Plan will fail the Actual Contribution Percentage Test, the Plan
Sponsor shall take the corrective action specified in Section 4.17 or
Section 4.19 of the Plan, or a combination of such corrective actions,
in order to ensure that the Plan does not fail the Actual Contribution
Percentage Test for the Plan Year being tested.
Such Matching Contribution shall be allocated as of the last day of
the Contribution Period for which such contribution is made to each
Participant who:
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* is an Active Participant as of any day of the Contribution
Period.
Notwithstanding the above provision, an allocation will be made on
behalf of a Participant who dies, retires, or becomes disabled during
the Contribution Period.
4.3 NONELECTIVE CONTRIBUTIONS. The Employer may make a contribution under
the Plan for any Plan Year of an amount that the Board of Directors
shall determine by resolution. Such resolution shall either specify a
fixed amount or specify a (definite formula by which a fixed amount
can be determined. The contribution may be made in cash or in kind
(including contributions in the form of Company Stock) or any
combination thereof, at the discretion of the Board of Directors.
The Plan Sponsor may designate at the time of contribution that all or
a portion of such Nonelective Contribution be treated as a Qualified
Nonelective Contribution.
Such Nonelective Contribution shall be allocated as of the last day of
the Plan Year for which such contribution is made to each Participant
who:
* is an Active Participant as of the last day of the Plan Year.
Notwithstanding the above provision, an allocation will be made on
behalf of a Participant who dies, retires, or becomes disabled during
the Plan Year.
For each Plan Year the contribution shall be allocated to each
Participant eligible for an allocation thereof in the proportion that
the sum of the Elective Deferral Contributions and Employee
Contributions, up to 5% of such Participant's Compensation for the
applicable Contribution Period, made to the Plan by or on behalf of
each such Participant during that year bears to the sum of the
Elective Deferral Contributions and Employee Contributions, up to 5%
of all such Participants, Compensation for the applicable Contribution
Period, made to the Plan by or on behalf of all such Participants
during that year, subject to the Limitations on Allocations specified
in Article V.
The contribution as described above, for any Plan Year, shall be paid
no the Plan and Trust at the end of the Plan Year, or as soon as
possible on or after the last day of such Plan Year, but in any event
not later than the date which is prescribed by law for filing the
Employer's tax return, including any extension thereof.
4.4 FAIL-SAFE CONTRIBUTION. The Employer reserves the right to make a
discretionary Nonelective Contribution to the Plan for any Plan Year,
if the Plan Sponsor determines that such a contribution is necessary
to ensure that either the Actual Deferral Percentage
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Test or the Actual Contribution Percentage Test will be satisfied for
that Plan Year. Such amount shall be designated by the Plan Sponsor
at the time of contribution as a Qualified Nonelective Contribution
and shall be known as a Fail-Safe Contribution.
The Fail-Safe Contribution shall be made on behalf of all eligible
non-Highly Compensated Employees who are Participants and who are
considered under the Actual Deferral Percentage Test or the Actual
Contribution Percentage Test. This contribution shall be allocated to
the Participant's Account of each such Participant in an amount equal
to a fixed percentage of such Participant's Compensation. The fixed
percentage shall be equal to the minimum fixed percentage necessary
tic be contributed by the Employer on behalf of each eligible
non-Highly Compensated Employee who is a Participant so that the
Actual Deferral Percentage Test or the Actual Contribution Percentage
Test is satisfied.
The Fail-Safe Contribution for any Plan Year as determined above shall
be paid to the Trust at the end of the Plan Year, or as soon as
possible on or after the last day of such Plan Year, but in no event
later than the date which is prescribed by law for filing the
Employer's income tax return, including any extensions thereof.
4.5 PROFITS NOT REQUIRED. Contributions to this Plan shall not be
precluded because the Employer does not have Considered Net Profits.
Notwithstanding the existence of Considered Net Profits, the Employer
may determine in its sole discretion that it will make no
contributions for such Plan Year.
4.6 PAYMENT OF EXPENSES. The Employer may contribute to the Plan the
amount necessary to pay any applicable expense charges and
administration charges. in lieu of the Employer contributing the
amount necessary to pay such charges, these expenses may be paid from
the Trust fund.
4.7 ALLOCATION OF FORFEITURES. The contributions made by the Employer
shall be reduced by any Forfeitures available as an Employer credit in
accordance with Section 9.3.
4.8 CREDITING OF ELECTIVE DEFERRAL OTHER CONTRIBUTIONS. Elective Deferral
Contributions and other contributions made by the Employer shall be
credited to the Participant Account of each Participant accordance
with the provisions of Article XIII.
4.9 ROLLOVER CONTRIBUTIONS. Without regard to the Limitations on
Allocations imposed under Article V, the Trustee may receive, on
behalf of an Employee with the consent of the Administrative
Committee, Rollover Contributions representing all or part of the
entire amount of:
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(A) any distribution from a terminated pension or profit sharing
plan meeting the requirements of internal Revenue Code section
401(a); or
(B) any lump sum distribution received by an Employee with the
consent of the Administrative Committee from a pension or profit
sharing plan meeting the requirements of Internal
Revenue Code section 401(a).
Rollover Contributions must be received from the Employee within 60
days of his receipt of the funds either directly from the pension or
profit sharing plan described above or through the medium of an
individual retirement account.
In addition, Rollover Contributions may only include amounts
attributable to employer contributions and earnings thereon, earnings
on employee contributions, and employee contributions which were
eligible for a tax deduction under Internal Revenue Code section 219
and earnings thereon.
A Participant's Account shall be maintained on behalf of each Employee
from whom Rollover Contributions are received, regardless of such
Employee's eligibility to participate in the Plan in accordance with
the requirements of Article III, and Rollover Contributions may be
invested in any manner authorized under the provisions of this Plan.
Rollover Contributions shall be credited to the Participant's Account
and may be invested in any manner authorized under the provisions of
this Plan.
4.10 EMPLOYEE CONTRIBUTIONS. As of his Entry Date each Active Participant
may elect to make periodic Employee Contributions under the Plan in an
amount equal to not less than it nor more than 51 of his Compensation
by completing and delivering to the Administrator a payroll deduction
order. Each Active Participant may redesignate a new permissible
amount as an Employee Contribution twice each Plan Year, on January 1
and July 1, by notifying the Plan Administrator 15 days before such
date. Such redesignation shall be made as if it were an original
designation and shall be effective as of such date. Employee
Contributions shall be subject to the terms of Article V.
Employee Contributions shall be deducted by the Employer from the
Participant's earnings while he has a payroll deduction order in
effect and shall be paid by the Employer to the Trust not less
frequently than monthly.
Employee Contributions shall be subject to the Actual Contribution
Percentage Test.
If the Plan Sponsor determines prior to the end of the Plan Year that
the Actual Contribution Percentage Test may not be
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satisfied, the Employer may take the corrective action specified in
Section 4.15 of the Plan.
If, after the end of the Plan Year, the Plan Sponsor determines that
the Plan will fail the Actual Contribution Percentage Test, the
Employer shall take the corrective action specified in Section 4.17
or Section 4.19 of the Plan, or a combination of such corrective
actions, in order to ensure that the Plan does not fail the Actual
Contribution Percentage Test for the Plan Year being tested.
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4.11 CREDITING OF EMPLOYEE CONTRIBUTIONS. Each Participant's Employee
Contributions, if any, shall be credited to his Participant's Account.
4.12 SUSPENSION OF ELECTIVE DEFERRAL AND EMPLOYEE CONTRIBUTIONS. The
following provisions shall apply with respect to suspension of
Elective Deferral and Employee Contributions.
(A) Elective Suspension. An Active Participant may elect to
suspend his Salary Deferral Agreement for Elective Deferral
Contributions or payroll deduction order for Employee
Contributions by filing a written notice thereof with the
Administrator at any time. The Salary Deferral Agreement or
payroll deduction order, as the case may be, shall be suspended
on the date specified in such notice, which date must be at
least 15 days after such notice is filed. The notice shall
specify the period for which such suspension shall be effective.
Such period may extend indefinitely.
If a Participant elects to suspend his Salary Deferral Agreement
for Elective Deferral Contributions, his Salary Deferral
Agreement shall be suspended for a period of at least six
months. If a Participant elects to suspend his payroll
deduction order for Employee Contributions and such Participant
does not concurrently enter into, and does not have in effect at
such time, a Salary Deferral Agreement for Elective Deferral
Contributions, his payroll deduction order shall be suspended
for a period of at least six months.
(B) Suspension for Leave. A Participant who is absent from
employment on account of an authorized leave of absence or
military leave shall have his Salary Deferral Agreement and
payroll deduction order suspended during such leave. Such
suspension of contributions shall be effective on the date
payment of Compensation by the Employer to him ceases, and shall
remain in effect until payment of Compensation is resumed.
(C) Withdrawal Suspension. An Active Participant who elects a
withdrawal in accordance with Article X may have his Salary
Deferral Agreement or payroll deduction order, as applicable,
suspended on the date such election becomes effective. Such
suspension shall remain in effect for the number of months
specified therein.
The Participant may elect to reactivate his Salary Deferral Agreement
for Elective Deferral Contributions or payroll deduction order for
Employee Contributions by filing a written notice thereof with the
Plan Administrator. The Salary Deferral Agreement or payroll
deduction order, as the case may be, shall be reactivated on the
following January 1 or July 1 following the expiration of the
suspension period described above.
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4.13 DEDUCTIBILITY OF CONTRIBUTIONS. All contributions made to the Plan by
the Employer are conditioned upon being currently deductible under
Code section 404.
4.14 LIMITATION OF ELECTIVE DEFERRAL CONTRIBUTIONS. If the Plan Sponsor
determines prior to the end of the Plan Year that the Plan may not
satisfy the Actual Deferral Percentage Test for the Plan Year, the
Plan Sponsor may require that the amount of Elective Deferral
Contributions being allocated to the accounts of Highly Compensated
Employees be reduced to the extent necessary to prevent Excess
Contributions from being made to the Plan.
Although the Employer may reduce the amount of Elective-Deferral
Contributions that may be allocated to the Participant's Account of
Highly Compensated Employees, the affected Employees shall continue to
participate in the Plan. when the situation that resulted in the
reduction of Elective Deferral Contributions ceases to exist, the
Employer shall reinstate the amount of Elective Deferral Contributions
elected by the Participant in the Salary Deferral Agreement to the
fullest extent possible for all affected Participants in a
nondiscriminatory manner.
4.15 LIMITATION OF MATCHING CONTRIBUTIONS AND EMPLOYEE CONTRIBUTIONS. if
the Plan Sponsor determines prior to the end of the Plan Year that the
Plan may not satisfy the Actual Contribution Percentage Test for the
Plan Year, the Plan Sponsor may require that the amount of Matching
Contributions or Employee Contributions, or both, being allocated to
the Accounts of Highly Compensated Employees be reduced to the extent
necessary to prevent Excess Aggregate Contributions from being made to
the Plan.
4.16 CORRECTIVE DISTRIBUTION OF EXCESS CONTRIBUTIONS.
(A) The Plan Sponsor may direct the Trustee to distribute Excess
Contributions (and income allocable thereto) to the appropriate
Highly Compensated Employee after the close of the Plan Year in
which the Excess Contribution arose and within 12 months after
the close of that Plan Year.
(B) The income allocable to Excess Contributions is equal to the sun
of the allocable gain or loss for the Plan Year and shall be
determined as follows:
(1) The income allocable to Excess Contributions is determined
by multiplying the income for the Plan Year allocable to
Deferral Percentage Amounts by a fraction. The numerator
of the fraction is the Excess Contributions attributable
to the Employee for the Plan Year. The denominator of the
fraction is equal to the sum of: (A) The total account
balance of the Employee attributable to Deferral
Percentage Amounts as of the beginning of :he Plan Year;
plus (B) The Employee's Deferral Percentage Amounts for
the Plan Year.
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(2) The allocable gain or loss for the period between the end
of the Plan Year and the date of distribution shall not be
taken into consideration when determining the income
allocable to Excess Contributions.
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(C) The amount of Excess Contributions to be distributed with
respect to an Employee for a Plan Year shall be reduced by
Excess Deferrals previously distributed to the Employee for the
Employee's taxable year ending with or within the Plan Year.
(D) The distribution of Excess Contributions made to the Family
Members of a family group that was combined for purposes of
determining a Highly Compensated Employee's Actual Deferral
Ratio shall be allocated among the Family Members in proportion
to the Elective Deferral Contribution (including any amounts
required to be taken into account under subparagraphs (b)(1) and
(b) (2) of Section 1.8 of the Plan) of each Family Member that
is combined to determine the Actual Deferral Ratio.
(E) A corrective distribution of Excess Contributions (and income)
shall be made without regard to any Participant or spousal
consent or any notice otherwise required under sections
411(a)(11) and 417 of the Code.
(F) Any Matching Contributions or Qualified Matching Contributions
that relate to the Excess Contribution being distributed shall
be forfeited. The Matching Contribution so forfeited shall be
in proportion to the applicable Employee's vested and nonvested
interest in Matching Contributions under the Plan for the Plan
!?ear in which the Excess Contribution arose. Forfeitures of
!latching Contributions or Qualified Matching Contributions that
relate to Excess Contributions shall be:
(1) Applied to reduce Employer Contributions for the Plan Year
in which the excess arose, but allocated as in (2) below,
to the extent the excess exceeds Employer Contributions or
the Employer has already contributed for such Plan Year.
(2) Allocated, after all other Forfeitures under the Plan, to
the Participant's Account of each Nonhighly Compensated
Employee who made Elective Deferral Contributions during
the Plan Year in which the excess arose in the ratio which
each such Employee's Compensation for the Plan Year bears
to the total Compensation of all such Employees for the
Plan Year. The allocation shall be treated as a Matching
Contribution for the purposes of the Plan.
(G) In no case may the amount of Excess Contributions to be
distributed for a Plan Year with respect to any Highly
Compensated Employee exceed the amount of Elective Deferral
Contributions made on behalf of the Highly Compensated
Employee for the Plan Year.
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(H) In the event of a complete termination of the Plan during the
Plan Year in which an Excess Contribution arose, the corrective
distribution must be made as soon as administratively feasible
after the date of the termination of the Plan, but in no event
later than 12 months after the date of termination.
(I) Any distribution of less than the entire amount of Excess
Contributions with respect to any Highly Compensated Employee
shall be treated as a pro--rata distribution of Excess
Contributions and allocable income or loss.
4.17 CORRECTION OF EXCESS AGGREGATE CONTRIBUTIONS.
(A) Excess Aggregate Contributions may be corrected using one of the
methods described in subparagraphs (1) and (2) below. The Plan
Sponsor shall elect the method of correction to be used and
shall apply such method to the correction of the Excess Annual
Contribution for the Plan Year.
(1) Method 1:
(a) Any unmatched Employee Contributions (and income)
allocated to the Plan for the Plan Year in which the
Excess Aggregate Contribution arose shall be
distributed to the appropriate Employee after the
close of the Plan Year in which the Excess Aggregate
Contribution arose and within 12 months after the
close of that Plan Year.
(b) If, after the application of subparagraph U) (A)
above, an Excess Aggregate Contribution still
exists, the remaining Excess Aggregate Contribution
(and income) shall be forfeited, if forfeitable, or
distributed on a pro--rata basis from the Employee's
Account attributable to Contribution Percentage
Amounts. The distribution or forfeiture shall be
made after the close of the Plan Year in which the
Excess Aggregate Contribution arose and within 12
months after the close of that Plan Year. Whether
an amount is distributed or forfeited under this
subparagraph (B) shall be determined based on the
rules set forth in paragraph (b) of this section.
(2) Method 2:
(a) Any Matching Contributions (and Qualified Matching
Contributions, to the extent not taken into account
for purposes of the Actual Deferral Percentage
Test), and income allocable thereto, shall be
forfeited, if forfeitable, or distributed to the
appropriate Highly Compensated Employee. The
distribution or forfeiture shall be made after the
close of the Plan Year in which
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the Excess Aggregate Contribution arose and within
12 months after the close of that Plan Year.
Whether an amount is forfeited or distributed shall
be determined under the rules set forth in paragraph
(b) of this section.
(B) Determination of Distributable and Forfeitable Amounts. For
purposes of paragraph (a) of this section:
(1) An Excess Aggregate Contribution attributable to Employee
Contributions, vested Matching Contributions, Qualified
Matching Contributions (and, if: applicable, Qualified
Nonelective Contributions and Elective Deferral
Contributions) shall be distributed to the appropriate
Highly Compensated Employee in accordance with the terms
of this section.
(2) An Excess Aggregate Contribution attributable to an
Employee's nonvested Matching Contributions shall be
forfeited in accordance with the terms of this section.
(3) A Highly Compensated Employee's vested and nonvested
interest in Matching Contributions (and income allocable
thereto) attributable to Excess Aggregate Contributions
shall be based on the proportion that represents the
Employee's 'Vested interest in Matching Contributions
under the Plan for the Plan Year in which the Excess
Aggregate Contribution arose.
(C) Forfeited Excess Aggregate Contributions. in accordance with
paragraph (b) of this section, the amount that represents the
Employee's nonvested interest in Matching Contributions (and
income), and is attributable to Excess Aggregate Contributions,
shall be forfeited. Forfeitures of Excess Aggregate
Contributions shall be:
(1) Applied to reduce Employer Contributions for the Plan Year
in which the excess arose, but allocated as in (2) below,
to the extent the excess exceeds Employer Contributions or
the Employer has already contributed for such Plan Year.
(2) Allocated, after all other Forfeitures under the Plan, to
the Participant's Account of each Nonhighly Compensated
Employee who made elective Deferral Contributions or
Employee Contributions during the Plan Year in which the
excess arose in the ratio which each such Employee's
Compensation for the Plan Year bears to the total
Compensation of all such Employees for the Plan Year. The
allocation shall be treated as a Matching Contributions
for the purposes of the Plan.
(D) Income Allocable to Excess Aggregate Contributions. For
purposes of this section, the income allocable to Excess
Aggregate Contributions is equal to the sum of the allocable
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gain or loss for the Plan Year, and shall be determined as
follows:
(1) The income allocable to Excess Aggregate Contributions is
determined by multiplying the income for the Plan Year
allocable to Contribution Percentage Amounts by a
fraction. The numerator of the fraction is the Excess
Aggregate Contributions for the Employee for the Plan
Year. The denominator of the fraction is equal to the sum
of: (A) the total account balance of the Employee
attributable to Contribution Percentage Amounts as of the
beginning of the Plan Year, plus (B) the Contribution
Percentage Amounts for the Plan Year.
(2) The allocable gain or loss for the period between the end
of the Plan Year and the date of correction shall not be
taken into consideration when determining the income
allocable to Excess Aggregate Contributions.
(E) The distribution of Excess Aggregate Contributions (and income)
made to Family Members of a family group that was combined for
purposes of determining a Highly Compensated Employee's Actual
Contribution Ratio shall be allocated among Family Members in
proportion to the Contribution Percentage Amounts (including any
amounts required to be taken into account under subparagraphs
(b)(1) and (b)(2) of Section 1.5 of the Plan) of each Family
Member that are combined to determine the Actual Contribution
Ratio.
(F) In the event of a complete termination of the Plan during the
Plan Year in which an Excess Aggregate Contribution arose, the
corrective distribution or forfeiture shall be made as soon as
administratively feasible after the date of termination of the
Plan, but in no event later than 12 months after the date of
termination.
(G) If the entire account balance of a Highly Compensated Employee
is distributed during the Plan Year in which the Excess
Aggregate Contribution arose, the distribution shall be deemed
to have been a corrective distribution of Excess Aggregate
Contributions (and income) to the extent that a corrective
distribution would otherwise have been required.
(H) Any distribution of less than the entire amount of Excess
Aggregate Contributions (and income) shall be treated as a
pro--rate distribution of Excess Aggregate Contributions and
allocable income or loss.
(I) In no case may the amount of Excess Aggregate Contributions
distributed to a Highly Compensated Employee exceed the amount
of Employee Contributions and matching Contribution made on
behalf of the Highly Compensated Employee for the Plan Year.
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(J) A distribution of Excess Aggregate Contributions (and income)
shall be made under this section without regard to any notice or
consent otherwise required under sections 411 (a) (11) and 417
of the Code.
4.18 CORRECTIVE DISTRIBUTION OF EXCESS DEFERRALS. Notwithstanding any
other provision of the Plan, Excess Deferrals, plus any income and
minus any loss allocable thereto, may be distributed to any
Participant to whose account Excess Deferrals were allocated for the
individuals taxable year. Such a corrective (distribution shall be
made in accordance with this section.
(A) Correction of Excess Deferrals After Taxable Year.
(1) Not later than the March 15 following the close of a
Participant's taxable year, the Participant may notify the
Plan of the amount of Excess Deferrals received by the
Plan during that taxable year. The notification shall be
in writing, shall specify the Participant's Excess
Deferrals, and shall be accompanied by the Participant's
written statement that if such amounts are not
distributed, these amounts, when added to all other
Elective Deferral Contributions made on behalf of the
Participant during the taxable year, shall exceed the
dollar limitation specified in section 402(g) of the Code.
(2) The Participant is deemed to have notified the Plan of
Excess Deferrals if, not later than the March 15 following
the close of a Participant's taxable year, the Employer
notifies the Plan on behalf of the Participant of the
Excess Deferrals. Such Excess Deferrals shall be
calculated by taking into account only Elective Deferral
Contributions under the Plan and any other plans of the
Employer.
(3) Not later than the April 15 following the close of the
taxable year, the Plan shall distribute to the Participant
the amount of Excess Deferrals designated under
subparagraphs (1) or (2) above.
(B) Correction of Excess Deferrals During the Taxable Year. A
Participant who has an Excess Deferral during a taxable year may
receive a corrective distribution during the same year. Such a
corrective distribution shall be made if:
(1) The Participant designates the distribution as an Excess
Deferral. The designation shall be made in the same
manner as the notification described in subparagraph
(a)(1) of this section. The Participant will be deemed to
have designated the distribution as an Excess Deferral if
the Employer makes the designation on behalf of the
Participant to the extent that the Participant has Excess
Deferrals for the
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taxable year calculated by taking into account only
Elective Deferral Contributions to the Plan
and other plans of the Employer.
(2) The corrective distribution is made after the date on
which the Plan received the Excess Deferral.
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(3) The Plan designates the distribution as a distribution of
Excess Deferrals.
(C) If the Participant provides the Employer with satisfactory
evidence and written notice to demonstrate that all Elective
Deferral Contributions by the participant in this Plan and any
other qualified plan exceed the applicable limit under section
402 (g) of the Code for such individual's taxable year, then the
Plan Administrator may (but is not required to) distribute
sufficient Elective Deferral Contributions (not to exceed the
amount of Elective Deferral Contributions actually contributed
on behalf of the Participant to this Plan during the
Participant's taxable year) from this Plan to allow the
Participant to comply with the applicable limit. The evidence
provided by the Participant must establish clearly the amount of
Excess Deferrals. The Participant must present this evidence to
the Plan Administrator by the March 1 following the end of the
calendar year in which the Excess Deferrals occurred.
(D) Income Allocable to Excess Deferrals. The income allocable to
Excess Deferrals is equal to the sum of allocable gain or loss
for the taxable year of the individual and shall be determined
as follows:
(1) The gain or loss allocable to Excess Deferrals is
determined by multiplying the income for the taxable year
allocable to Elective Deferral Contributions by a
fraction. The numerator of the fraction is the Excess
Deferrals by the Employee for the taxable year. The
denominator of the fraction is equal to the sum of:
(a) The total account balance of the Employee
attributable to Elective Deferral Contributions as
of the beginning of the tax year, plus
(b) The Employee's Elective Deferral Contributions for
the taxable year.
(2) The income allocable to Excess Deferrals shall not include
the allocable gain or loss for the period between the end
of the taxable year and the date of distribution.
(E) No Employee or Spousal Consent Required. A corrective
distribution of Excess Deferrals (and income) shall be made
without regard to any notice or consent otherwise required under
sections 411(a)(11) and 417 of the Code.
(F) Any Matching Contributions or Qualified Matching Contributions
that relate to the Excess Deferral being distributed shall be
forfeited. The Matching Contribution so forfeited shall be in
proportion to the applicable Employee's vested and nonvested
interest in matching Contributions under the Plan for the Plan
Year in which the
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Excess Deferral arose. Forfeitures of Matching Contributions
or Qualified Matching Contributions that relate to Excess
Deferrals shall be:
(1) Applied to reduce Employer Contributions for the Plan Year
in which the excess arose, but allocated as in (2) below,
to the extent the excess exceeds Employer Contributions or
the Employer has already contributed for such Plan Year.
(2) Allocated, after all other Forfeitures under the Plan, to
the Participant's Account of each Nonhighly Compensated
Employee who made Elective Deferral Contributions during
the Plan !Year in which the excess arose in the ratio
which each such Employee's Compensation for the Plan Year
bears to the total Compensation of all such Employees for
the Plan Year. The allocation shall be treated as a
Matching Contribution for the purposes of the Plan.
4.19 QUALIFIED CONTRIBUTIONS. In lieu of distributing Excess Contributions
as provided in Section 4.16 of the Plan, or Excess Aggregate
Contributions as provided in Section 4.17 of the Plan, the Employer
may take the actions specified below in order to satisfy the Actual
Deferral Percentage Test or the Actual Contribution Percentage Test,
or both, pursuant to the regulations under the Code.
(A) At the election of the Plan Sponsor, Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, may
be taken into account as Elective Deferral Contributions for
purposes of calculating the Actual Deferral Ratio of a
Participant.
The amount of Qualified Nonelective Contributions or Qualified
Matching Contributions made under the terms of this Plan and
taken into account as Elective Deferral Contributions for
purposes of calculating the Actual Deferral Ratio, subject to
such other requirements as may be prescribed by the Secretary of
the Treasury, shall be such Qualified Nonelective Contributions
or Qualified Matching Contributions, or both, that are needed to
meet the Actual Deferral Percentage Test.
(B) At the election of the Plan Sponsor, Qualified Nonelective
Contributions or Elective Deferral Contributions, or both, may
be taken into account as Matching Contributions for purposes of
calculating the Actual Contribution Ratio of a Participant.
The amount of Qualified Nonelective Contributions or Elective
Deferral Contributions made under the terms of this Plan and
taken into account for purposes of calculating the Actual
Contribution Ratio, subject to such other requirements as may be
prescribed by the Secretary of the
43
<PAGE>
Treasury, shall be such Qualified Nonelective Contributions or
Elective Deferral Contributions, or both, that are needed to
meet the Actual Contribution Percentage Test.
(C) Any Qualified Nonelective Contribution, Qualified Matching
Contribution, and Elective Deferral Contributions taken into
account under paragraphs (a) or (b) must be allocated to the
Employee's Account as of a date within the Plan Year in which
the Excess Contribution or Excess Aggregate Contribution arose
and must be paid to the Plan no later than the 12-month period
immediately following the Plan Year to which the contribution
relates.
4.20 MULTIPLE USE OF ALTERNATIVE LIMITATION.
(A) Multiple use of the alternative limitation occurs if all of the
conditions of this paragraph (a) are satisfied:
(1) One or more Highly Compensated Employee of the Employer
are eligible employees in both a cash or deferred
arrangement subject to section 401(k) and a plan
maintained by the Employer subject to section 401(m).
(2) The sum of the Actual Deferral Percentage of the entire
group of eligible Highly Compensated Employees under the
arrangement: subject to section 401(k) and the actual
Contribution Percentage of the entire group of eligible
Highly Compensated Employees under the Plan subject to
section 401(m) exceeds the aggregate limit of paragraph
(c) of this section.
(3) Actual Deferral Percentage of the entire group of eligible
Highly Compensated Employees under -the arrangement
subject to section 401(k) exceeds the amount described in
section 401(k)(3)(A)(ii)(I).
(4) The Actual Contribution Percentage of the entire group of
eligible Highly Compensated Employees under the
arrangement subject to section 401(m) exceeds the amount
described in section 401(m)(2)(A)(i).
(B) For purposes of this section, the aggregate limit is the greater
of:
(1) The sum of -
(a) 1.25 times the greater of the relevant Actual
Deferral Percentage, and
(b) Two percentage points plus the lesser of the
relevant Actual Deferral Percentage or the relevant
Actual Contribution Percentage. in no event,
however, may this amount exceed twice the lesser of
the relevant Actual Deferral Percentage or the
Actual Contribution Percentage; or
44
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(2) The sum of-
(a) 1.25 times the lesser of the relevant Actual
Deferral Percentage (Dr the relevant Actual
Contribution Percentage, and
(b) Two percentage points plus the greater of the
relevant Actual Deferral Percentage or the relevant
Actual Contribution Percentage. In no event,
however, may this amount exceed twice the greater of
the relevant Actual Deferral Percentage or the
relevant Actual Contribution Percentage.
(C) For purposes of paragraph (b) of this section, the term
"relevant Actual Deferral Percentage, means the Actual Deferral
Percentage of the group of Nonhighly Compensated Employees under
the arrangement subject to section 401(k) for the Plan Year, and
the term "relevant Actual Contribution Percentage" means the
Actual Contribution Percentage of the group of Nonhighly
Compensated Employees eligible under the Plan subject to section
401(m) for the Plan Year beginning with or within the Plan Year
of the arrangement subject to section 401(k).
(D) The Actual Deferral Percentage and Actual Contribution
Percentage of the group of eligible Highly Compensated Employees
are determined after use of Qualified Nonelective Contributions
and Qualified Matching Contributions to meet the requirements of
the Actual Deferral Percentage Test and after use of Qualified
Nonelective Contributions and Elective Deferral Contributions to
meet the requirements of the Actual Contribution Percentage
Test. The Actual Deferral Percentage and Actual Contribution
Percentage of the group of Highly Compensated Employees are
determined after any corrective distribution or forfeiture of
Excess Deferrals, Excess Contributions, or Excess Aggregate
Contributions and after recharacterization of Excess
Contributions required without regard to this section. Only
plans and arrangements maintained by the Employer are taken into
account under paragraph (b). If the Employer maintains two or
more cash or deferred arrangements subject to section 401(k)
that must be mandatorily disaggregated pursuant to section
401(k)-1(g)(11)(iii) multiple use is tested separately with
respect to each plan.
(E) If multiple use of the alternative limit occurs with respect to
two or more plans or arrangements maintained by the Employer, it
shall be corrected by reducing the Actual Contribution
Percentage of Highly Compensated Employees in the manner
described in paragraph (f) of this section. instead of making
this reduction, the Employer may eliminate the multiple use of
the alternative limitation by making Qualified Nonelective
Contributions to the Plan.
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(F) The amount of the reduction by which each Highly Compensated
Employee's Actual Contribution Ratio is reduced shall be treated
as an Excess Aggregate Contribution. The Actual Contribution
Percentage of all Highly Compensated Employees under the plan
subject to reduction shall be reduced so that there is no
multiple use of the alternative limitation.
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ARTICLE V
LIMITATIONS ON ALLOCATIONS
5.1 LIMITATIONS ON ALLOCATIONS. Definitions - The following
definitions are atypical terms which refer only to terms used in the
Limitations on Allocations Sections of this Article V.
(A) Annual Additions. The term Annual Additions shall mean the
sum of the following amounts allocated on behalf of a
Participant for a Limitation Year:
(1) all contributions made by the Employer which shall
include:
* Elective Deferral Contributions, if any;
* Matching Contributions, if any;
* Qualified Matching Contributions, if any;
* Nonelective Contributions, if any;
* Qualified Nonelective Contributions, if any;
(2) all Forfeitures, if any;
(3) all Employee Contributions, if any.
For the purposes of this Article, Excess Amounts reapplied under
Section 5.2 (D) shall also be included as Annual Additions.
Also, for the purposes of this Article, Employee Contributions
are determined without regard to deductible employee
contributions within the meaning of section 72(o) (5) of the
Code.
Amounts allocated, after March 31, 1984, to an individual
medical account, as defined in Internal Revenue Code section
415(1) (2), which is part of a defined benefit plan maintained
by the Employer, are treated as Annual Additions to a defined
contribution plan. Also, amounts derived from contributions
paid or accrued attributable to post-retirement medical benefits
allocated to the separate account of a key employee, as defined
in Internal Revenue Code section 419A(d) (3), under a welfare
benefit fund, as defined in internal Revenue Code section
419(e), maintained by the Employer, are treated as Annual
Additions to a defined contribution plan.
Contributions do not fail to be Annual Additions merely because
they are Excess Deferrals, Excess Contributions or Excess
Aggregate Contributions or merely because Excess Contributions
or Excess Aggregate Contributions are corrected through
distribution or recharacterization.
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Excess Deferrals that are distributed in accordance with Section
4.18 of the Plan are not Annual Additions.
Forfeited matching Contributions that are forfeited because the
contributions to which they relate are treated as Excess
Aggregate Contributions, Excess Contributions, or Excess
Deferrals and that are reallocated to the Participant Accounts
of other Participants for the Plan Year in which the forfeiture
occurs, are treated as Annual Additions for the Participants to
whose accounts they are reallocated and for the Participants
from whose accounts they are forfeited.
(B) Compensation. The term Compensation means wages within the
meaning of section 3401(a) of the Code for the purposes of
income tax withholding at the source but determined without
regard to any rules that limit the remuneration included in
wages based on the nature or location of the employment or the
services performed (such as the exception for agricultural labor
in section 3401(a) (2) of the Code).
For Limitation Years beginning after December 31, 1991, for
purposes of applying the limitations of this article,
Compensation for a Limitation Year is the Compensation actually
paid or made available during such Limitation Year.
(C) Defined Contribution Dollar limitation. The term Defined
Contribution Dollar Limitation shall mean $30,000 or, if
greater, one-fourth of the defined benefit dollar limitation set
forth in internal Revenue Code section 415(b) (1) as in effect
for the Limitation Year.
(D) Employer. The term Employer shall mean the Employer that adopts
this Plan. in the case of a group of employers which constitutes
a controlled group of corporations (as defined in internal
Revenue Code section 414(b) as modified by section 415(h)), or
which constitutes trades or business (whether or not
incorporated) which are under common control (as defined in
section 414(c) as modified by section 415(h)), or affiliated
service groups (as defined in section 414(m)) of which the
adopting Employer is a part, all such employers shall be
considered a single Employer for purposes of applying the
limitations of this Article.
(E) Excess Amount. The term Excess Amount shall mean the excess of
the Participant's Annual Additions for the Limitation Year over
the Maximum Permissible Amount.
(F) Limitation Year. The term Limitation Year shall mean the
calendar year.
(G) Maximum Permissible Amount. The term Maximum Permissible Amount
shall mean the lesser of (1) the Defined Contribution Dollar
Limitation, or (2) 25 % of the Participant's Compensation for
the Limitation Year.
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If a short Limitation Year is created because of an amendment
changing the Limitation Year to a different period of 12
consecutive months, the Maximum Permissible Amount for the short
Limitation Year will be the lesser of (1) the ]Defined
Contribution Dollar Limitation multiplied by a fraction, the
numerator of which is the number of months in the short
Limitation Year, and the denominator of which is 12, or (2) 25%
of the Participant's Compensation for the short Limitation Year.
5.2 LIMITATIONS ON ALLOCATIONS. If the Employer does not maintain any
qualified plan in addition to this Plan:
(A) The amount of Annual Additions which may be allocated under this
Plan on a Participant's behalf for a Limitation Year shall not
exceed the lesser of the Maximum Permissible Amount or any other
limitation contained in this Plan.
(B) Prior to the determination of the Participant's actual
Compensation for a Limitation Year, the Maximum Permissible
Amount may be determined on the basis of the Participant's
estimated annual Compensation. Such Compensation shall be
determined on a reasonable basis and shall be uniformly
determined for all Participants similarly situated. Any
employer contributions based on estimated annual Compensation
shall be reduced by any Excess Amounts carried over from prior
years.
(C) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for such
Limitation Year shall be determined on the basis of the
Participant's actual Compensation for such Limitation Year. in
the event a Participant separates from the Service of the
Employer prior to the end of the Limitation Year, the Maximum
Permissible Amount for such Participant shall hie determined
prior to any distribution of his Participant's Account on the
basis of his actual Compensation. Any Excess Amounts shall be
disposed of in accordance with Section 5.2 (D).
(D) If there is an Excess Amount with respect to a Participant for
a; Limitation Year as a result (of a reasonable error in
estimating the Participants annual compensation, an allocation
of forfeitures, a reasonable error in determining the amount of
elective deferrals (within the meaning of section 402(g) (3) of
the Code) that may be made with respect to any individual under
the limits of section 415 of the Code, or under other limited
facts and circumstances which the Commissioner finds justified,
such Excess Amount shall be disposed of as follows:
(1) Any Employee Contributions (including earnings and losses
thereon) shall be returned to the Participant, to the
extent chat the return would reduce the Excess Amount.
This distribution shall be made as soon as
49
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administratively feasible after the Excess Amount is
determined. Employee Contributions so returned shall be
disregarded for purposes of the Actual Contribution
Percentage Test.
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(2) If, after the application of subparagraph (1) , an Excess
Amount still exists, (excluding Elective Deferral
Contributions) such Excess Amount shall be held
unallocated in a suspense account for the Limitation Year
and allocated and reallocated in the next Limitation Year
to all Participants in the Plan. The excess amount must
be used to reduce Employer Contributions for the next
Limitation Year (and succeeding Limitation Years, as
necessary) for all of the Participants in the Plan. For
purposes of this subparagraph, the Excess Amount may not
be distributed to Participants or former Participants.
(3) If, after the application of subparagraph (2) an Excess
Amount still exists, then the Participant's Elective
Deferral Contributions (including earnings and losses
thereon) allocated for the Limitation Year shall be
returned to the Participant to the extent that an Excess
Amount exists. This distribution shall be made as soon as
administratively feasible after the Excess Amount is
determined. Any Elective Deferral Contributions returned
under this paragraph shall be disregarded for purposes of
the Actual Deferral Percentage Test.
(4) Alternatively, if after the application subparagraph (1)
an Excess Amount still exists, the Plan Administrator may
elect to dispose of the Excess Amount by applying the
procedure in subparagraph (3) before applying the
procedure in subparagraph (2) if the Plan Administrator
makes this election, the Plan Administrator must apply it
uniformly to all Participants in a Limitation Year.
(5) If a suspense account is in existence at any time during a
Limitation Year pursuant to this section, it will not
participate in the allocation (of investment gains or
losses. If a suspense account is in existence at any time
during a particular Limitation Year, all amounts in the
suspense account must be allocated and reallocated to
Participants' Accounts before any Employer Contributions
or Employee Contributions which would constitute Annual
Additions any be made to the Plan for that Limitation
Year.
5.3 LIMITATIONS ON ALLOCATIONS. If the Employer maintains one or more
defined contribution plans in addition to this Plan:
(A) The amount of Annual Additions which may be allocated under this
Plan on a Participant's behalf for a Limitation Year, shall not
exceed the lesser of:
(1) The Maximum Permissible Amount, reduced by the sum of any
Annual Additions allocated to the Participant's
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Account for the same Limitation Year under this Plan and
such other defined contribution plan; or
(2) Any other limitation contained in this Plan.
Prior to the determination of the Participant's actual
Compensation for the Limitation Year, the amounts referred to in
Subsection (1) above may be determined on the basis of the
Participant's estimated annual Compensation for such Limitation
Year. Such estimated annual Compensation-shall be determined
for all Participants similarly situated.
Any contribution made by the Employer based on estimated annual
Compensation shall be reduced by any Excess Amounts carried over
from prior years, if applicable.
(B) As soon as is administratively feasible after the end of the
Limitation Year, the amounts referred to in Section 5.3 (A)
shall be determined on the basis of the Participant's actual
Compensation for such Limitation Year.
(C) If amounts are contributed to a Participant's Account under this
Plan on an allocation date which does not coincide with the
allocation date(s) for all such other plans, and if a
Participant's Annual Additions under this Plan and all such
other plans result in an Excess Amount, such Excess Amount shall
be deemed to have derived from those contributions last
allocated.
(D) If an Excess Amount was allocated to a Participant: on an
allocation date of this Plan which coincides with an allocation
date of another plan, the Excess Amount attributable to this
Plan will be the product of (1) and (2) below:
(1) The total Excess Amount allocated as of such date
(including any amount which would have been allocated but
for the limitations of internal Revenue Code section 415).
(2) The ratio of (1) the amount allocated to the Participant
as of such date under this Plan, divided by (2) the total
amount allocated as of such date under all qualified
defined contribution plans (determined without regard to
the limitations of Internal Revenue Code section 415).
(E) Any Excess Amounts attributed to this Plan shall be disposed of
as provided in Section 5.2 (D).
5.4 LIMITATIONS ON ALLOCATIONS. If the Employer maintains a defined
benefit plan in addition to this Plan:
(A) If an individual is a Participant at any time in both this Plan
and a defined benefit plan maintained by the Employer,
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the sum of the Defined Benefit Plan Fraction and the Defined
Contribution plan Fraction for any year may not exceed 1.O. in
the event that the sum of the Defined Contribution Plan Fraction
and the Defined Benefit Plan Fraction exceeds 1.0, the Defined
Contribution Plan Fraction will be reduced until the sum of the
Defined Contribution Plan Fraction and the Defined Benefit Plan
Fraction does not exceed 1.O.
If an individual was a Participant in this Plan or in any other
defined contribution plan maintained by the Employer which was
in existence on July 1, 1982, the numerator of the Defined
Contribution Plan Fraction will be adjusted if the sum of the
Defined Contribution Plan Fraction and the Defined Benefit Plan
Fraction would otherwise exceed 1.0 under the terms of this
Plan. Under the adjustment, an amount equal to the product of
(1) the excess of the sum of the Fractions over 1.0 times (2)
the denominator of the Defined Contribution Plan Fraction, will
be permanently subtracted from the numerator of the Defined
Contribution Plan Fraction. The adjustment is calculated using
the Fractions as they would be computed as of the later of the
end of the last Limitation Year beginning before January 1, 1983
or June 30, 1983. This adjustment also will be made if at the
end of the last Limitation Year beginning before January 1, 1984
the sum of the Fractions exceeds 1.0 because of accruals or
additions that were made before the limitations of this Article
became effective to any plans of the Employer in existence on
July 1, 1982.
In addition, if an individual was a Participant in this Plan or
in any other defined contribution plan maintained by the
Employer which was in existence on May 6, 1986, the numerator of
the Defined Contribution Plan Fraction will be adjusted if the
Employer's defined benefit plan was also in existence on May 6,
1986 and the sum of the Defined Contribution Plan Fraction and
the Defined Benefit Plan Fraction would otherwise exceed 1.0
under the terms of this Plan. Under the adjustment, an amount
equal to the product of (1) the excess of the sum of the
Fractions over 1.0 times (2) the denominator of the Defined
Contribution Plan Fraction, will be permanently subtracted from
the numerator of the Defined Contribution Plan Fraction. This
adjustment is calculated using the Fractions as they would be
computed as of the end of the last Limitation Year beginning
before January 1, 1987. In the event that a Participant's
accrued benefit as of December 31, 1986 under the defined
benefit plan exceeds the defined benefit dollar limitation set
forth in Internal Revenue Code section 415(b) (1) , the amount
of that accrued benefit shall be used in both the numerator and
the denominator of the Defined Benefit Plan Fraction in making
this adjustment.
For purposes of this Section 5.4, all defined benefit plans of
the Employer, whether or not terminated, will be treated as one
defined benefit plan and all defined contribution
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plans of the Employer, whether or not terminated, will be one
defined contribution plan.
(B) The Defined Benefit Plan Fraction for any year is a fraction,
the numerator of which is the Participant's Projected Annual
Benefit under the defined benefit plan (determined as of the
close of the Limitation Year), and the denominator of which is
the lesser of (1) or (2) below:
(1) 1.25 times the dollar limitation in effect under Internal
Revenue Code section 415(b) (1) (A) on the last day of the
Limitation Year; or
(2) 1.4 times the amount which may be taken into account under
Internal Revenue Code section 415(b) (l) (B) with respect
to such Participant for the Limitation year.
Notwithstanding the above, if the Participant was a participant
in one or more defined benefit plans maintained by the Employer
which were in existence on July 1, 1982, the denominator of the
Defined Benefit Plan Fraction will not be less than 125% of the
sum of the annual benefits under such plans which the
Participant had accrued as of the later of the end of the last
Limitation Year beginning before January 1, 1983 or June 30,
1983. The preceding sentence applies only if the defined
benefit plans individually and in the aggregate satisfied the
requirements of Internal Revenue Code section 415 as in effect
at the end of the 1982 Limitation Year.
(C) A Participant's Projected Annual Benefit is equal to the annual
benefit to which the Participant would be entitled under the
terms of the defined benefit plan based upon the following
assumptions:
(1) The Participant will continue employment until reaching
Normal Retirement Age as determined under the terms of the
plan (or current age, if that is later);
(2) The Participant's Compensation for the Limitation Year
under consideration will remain the same until the date
the Participant attains the age described in sub-division
(1) of this subparagraph; and
(3) All other relevant factors used to determine benefits
under the plan for the Limitation Year under consideration
will remain constant for all future Limitation Years.
(D) The Defined Contribution Plan Fraction for any Limitation Year
is a fraction, the numerator of which is the sum of the Annual
Additions to the Participant's Accounts in such Limitation Year
and for all prior Limitation Years, and the denominator of which
is the lesser of (1) or (2) below for such Limitation Year and
for all prior Limitation Years of
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such Participant's employment (assuming for this purpose, that
Internal Revenue Code section 415(c) had been in effect during
such prior Limitation Years):
(1) 1.25 times the dollar limitation in effect under Internal
Revenue Code section 415(c) (1) (A) on the last day of the
Limitation Year; or
(2) 1.4 times the amount which may be taken into account under
Internal Revenue Code section 415(c) (1) (B) with respect
to such Participant for the Limitation Year.
For the purposes of determining these Limitations on
Allocations, any non-deductible employee contributions made
under a defined benefit plan will be considered to be a separate
defined contribution plan and will be considered to be part of
the Annual Additions for the appropriate Limitation Year.
Annual Additions for any Limitation Year beginning before
January 1, 1987 shall not be recomputed to treat all Employee
Contributions as Annual Additions.
(E) Notwithstanding the foregoing, at the election of the Plan
Administrator, in computing the Defined Contribution Plan
Fraction with respect to any Plan Year ending after December 31,
1982, the denominator shall be an amount equal to the product
of:
(1) The denominator of the Defined Contribution Plan Fraction,
computed in accordance with the rules in effect for the
Plan Year ending in 1982; and
(2) the transition fraction, which is a fraction:
(a) the numerator of which is the lesser of:
(i) $51,875, or
(ii) 1.4 times 25% of the Compensation of the
Participant for the Plan Year ending in
1981, and
(b) the denominator of which is the lesser of:
(i) $41,500, or
(ii) 25% of the Compensation of the Participant
for the Plan Year ending in 1981.
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ARTICLE VI
DISTRIBUTION OF BENEFITS
6.1 DISTRIBUTIONS IN GENERAL. Distributions from the Plan shall be made
in the form of at single stun payment. The portion of a Participant's
Vested Interest invested in whole shares of Company Stock shall be
distributed in the form of such stock. The remainder of the
Participant's Vested Interest (including fractional shares of Company
Stock) shall be distributed in cash. Distributions and withdrawals
from the Plan shall be made on the basis of the balance of the
Participant's Account as of the valuation date prescribed in Section
13.8 preceding the event giving rise to the distribution or
withdrawal, plus the amount of any subsequently, credited
contributions. All distributions are subject to the provisions of
Article VIII, Joint and Survivor Requirements.
6.2 TIMING OF DISTRIBUTIONS. if the value of a Participant's Vested
interest exceeds (or at the time of any prior distribution exceeded)
$3,500 and is immediately distributable (as defined in Section 8.5),
the Participant must consent to the distribution before it is made.
Instead of consenting to a distribution, the Participant may rake a
written election to defer the distribution for a specified period of
time ending no later than the Participant's Normal Retirement Age.
Such election to defer shall be irrevocable.
If the Participant does not consent to a distribution (Dr if no
election to defer is made by the end of the second Plan Year following
the Plan Year of the Participant's Termination of Employment pursuant
to income Tax Regulation 1.411(a)-ll, all benefits shall be deferred
to, and distribution shall be made as of the Participant's Normal
Retirement Age.
A Participant whose actual retirement date is on or after his Normal
Retirement Age may not elect to defer distribution of his benefit
beyond the date of his actual retirement.
If the value of a Participant's Vested interest is $3,500 or less at
the time it becomes payable, the distribution shall be made as soon as
practicable following such Participant's Termination of Employment.
Such a distribution may not be deferred.
Unless the Participant elects otherwise, the payment of benefits under
this Plan to the Participant shall begin not later than the 60th day
after the close of the Plan Year in which the later of (a) or (b),
below, occurs:
(A) the date on which the Participant attains his Normal
Retirement Age or age 62, if later; or
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(B) the date on which the Participant terminates his Service
(including Termination of Employment, death or Disability) with
the Employer.
Notwithstanding the foregoing, the failure of a Participant and
spouse, if required, to consent to a distribution while a benefit is
immediately distributable within the meaning of Section 8.5 shall be
deemed to be an election to defer commencement of payment of any
benefit sufficient to satisfy the above paragraph.
6.3 DISTRIBUTION LIMITATION. Elective Deferral Contributions, Qualified
Nonelective Contributions and Qualified Matching Contributions, and
income allocable to each, are not distributable to a Participant or a
Beneficiary, in accordance with such Participant's or Beneficiary's
election, (earlier than upon the Participant's Termination of
Employment, death, or disability.
Such amounts may also be distributed upon:
(A) Termination of the Plan without the establishment or maintenance
of a successor plan.
For purposes of this paragraph, a successor plan is any other
defined contribution plan maintained by the same employer.
However, if fewer than two percent of the Employees who are
eligible under the Plan at the time of its termination are or
were eligible under another defined contribution plan at any
time during the 24 month period beginning 12 months before the
time of the termination, the other plan is not a successor plan.
The term "defined contribution plan" means a plan that is a
defined contribution plan as defined in section 414(i) of the
Code, but does not include an employee stock ownership plan as
defined in section 4975(e) or 409 of the Code or a simplified
employee pension as defined in section 408(k) of the Code. A
plan is a successor plan only if it exists at the time the Plan
is terminated or within the period ending 12 months after
distribution of all assets from the Plan.
After March 31, 1988, a distribution may be made under this
paragraph only if it is a lump sum distribution. The term "lump
sum distribution" has the same meaning provided in section
402(e) (4) of the Code, without regard to subparagraphs (A)(i)
through (iv), (B), and (H) of that section.
(B) The disposition by the Employer to an unrelated corporation of
substantially all the assets (within the meaning of section
409(b) (2) of the Code) used in the trade or business of the
Employer if the Employer continues to maintain this Plan after
the disposition. However, a distribution may be made under this
paragraph only to an Employee who continues employment with the
corporation acquiring such assets.
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In addition, this requirement is satisfied only if the purchaser
does not maintain the Plan after the disposition. A purchaser
maintains the plan of the seller if it adopts the plan or
otherwise becomes an employer whose employees accrue benefits
under the Plan. A purchaser also maintains the Plan if the Plan
is merged or consolidated with, or any assets or liabilities are
transferred from the Plan to a plan maintained by the purchaser
in a transaction subject to section 414 (1) (1) of the Code. A
purchaser is not treated as maintaining the Plan merely because
the Plan that it maintains accepts rollover contributions of
amounts distributed by the Plan.
For purposes of this paragraph, the sale of "substantially all"
the assets used in a trade or business means the sale of at
least 85 percent of the assets.
After March 31, 1988, a distribution may be made under this
paragraph only if it is a lump sum distribution. The term
"lump sum distribution" has the same meaning provided in section
402(e) (4) of the Code, without regard to subparagraphs (A)(i)
through (iv), (B), and (H) of that section.
(C) The disposition by the Employer to an unrelated entity or
individual of the Employer's interest in a subsidiary (within
the meaning of section 409(d) (3) of the Code) if the Employer
continues to maintain this Plan. However, a distribution may be
made under this paragraph only to an Employee who continues
employment with such subsidiary.
In addition, this requirement is satisfied only if the purchaser
does not maintain the Plan after the disposition. A purchaser
maintains the plan of the seller if it adopts the plan or
otherwise becomes an employer whose employees accrue benefits
under the Plan. A purchaser also maintains the Plan if the Plan
is merged or consolidated with, or any assets or liabilities are
transferred from the Plan to a plan maintained by the purchaser
in a transaction subject to section 414(1) (1) of the Code. A
purchaser is not treated as maintaining the Plan merely because
the Plan that it maintains accepts rollover contributions of
amounts distributed by the Plan.
After March 31, 1988, a distribution may be made under this
paragraph only, if it is a lump sum distribution. The term
"lump sum distribution" has the same meaning provided in section
402(e) (4) of the Code, without regard to subparagraphs (A)(i)
through (iv), (B), and (H) of that section.
(D) In the case of Elective Deferral Contributions only, the
attainment of age 59-1/2, as described in Section 10.1 of the
Plan.
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(E) In the case of Elective Deferral Contributions only, the
hardship of the Participant, as described in Section 10.2 of the
Plan.
6.4 COMMENCEMENT OF DISTRIBUTIONS. Notwithstanding the provisions of the
preceding Timing of Distributions Section, distribution to a
Participant will commence no later than the date determined in
accordance with the provisions of this Section.
Distribution to a Participant must be made no later than the first day
of April following the calendar year in which he attains age 70-1/2
unless the Participant attains age 70-1/2 before January 1, 1988 and
was not a 5% owner in the Plan Year ending in the year in which the
Participant attained age 66-1/2 or any later Plan Year. Distribution
to such Participant must be made no later than the first day of April
following the calendar year in which the Participant's Termination of
Employment occurs.
6.5 DISTRIBUTION REQUIREMENTS.
(A) Except as otherwise provided in Article VIII, the requirements
of this Section shall apply on any distribution of a
Participant's Accrued Benefit.
(B) Limits on Settlement Options. Distributions will be made in a
lump-sum.
6.6 NON-TRANSFERABLE. The Participant's right to any payments, benefits
and refunds is not transferable and shall be free from the claims of
all creditors to the fullest extent permitted by law.
6.7 DEATH DISTRIBUTION PROVISIONS. if a Participant dies prior to his
commencement of benefits, his entire interest will be distributed no
later than five years after such Participant's death.
6.8 ALTERNATE PAYEE SPECIAL DISTRIBUTION. Distributions pursuant to
Section 16.8 may be made without regard to the age or employment
status of the Participant.
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ARTICLE VI-A
DIRECT ROLLOVERS
6A.1 This Article applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a Distributee's election under this Article, a
Distributee may elect, at the time and in the manner prescribed by the
Plan Administrator, to have any portion of an Eligible Rollover
Distribution paid directly to an Eligible Retirement Plan specified by
the Distributee in a Direct Rollover, except as otherwise provided by
the Employer's administrative procedures as permitted by regulations.
In addition, a Distributee's election of a Direct Rollover shall be
subject to the following requirements:
(A) If the Distributee elects to have only a portion of an Eligible
Rollover Distribution paid to an Eligible Retirement Plan in a
Direct Rollover, that portion must be equal to at least $500.
(B) If the entire amount of a Distributee's Eligible Rollover
Distribution is $500 or less, the distribution may not be
divided. Instead, the entire amount must either be paid to the
Distributee or to an Eligible Retirement Plan in a Direct
Rollover.
(C) A Distributee may not elect a Direct Rollover if the
Distributee's Eligible Rollover Distributions during a year are
reasonably expected by the Plan Administrator to total less than
$200 (or any lower minimum amount specified by the Plan
Administrator).
(D) A Distributee may not elect a Direct Rollover of an Offset
Amount.
(E) A Distributee's election to make or not make a Direct Rollover
with respect to one payment in a series of periodic payments
shall apply to all subsequent payments in the series, except
that a Distributee shall be permitted at any time to change,
with respect to subsequent payments in the series of periodic
payments, a previous election to make or not make a Direct
Rollover. A change of election shall be accomplished by the
Distributee notifying the Plan Administrator of the change.
Such notice must be in the form and manner prescribed by the
Plan Administrator.
6A.2 Definitions.
(A) Direct Rollover: A Direct Rollover is a payment by the plan to
the Eligible Retirement Plan specified by the Distributee.
(B) Distributee: A Distributee includes an employee or former
employee. In addition, the employee's or former employee's
surviving spouse and the employee's or former employee's
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spouse who is the alternate payee under a qualified domestic
relations order, as defined in section 414(p) of the Code, are
Distributees with regard to the interest of the spouse or former
spouse.
(C) Eligible Retirement Plan: An Eligible Retirement Plan is an
individual retirement account described in section 408(a) of the
code, an individual retirement annuity described in section
408(b) of the Code, an annuity plan described in section 403(a)
of the Code, or a qualified trust described in section 401(a) of
the Code, that accepts the Distributee's Eligible Rollover
Distribution. However, in the case of an Eligible Rollover
Distribution to the surviving spouse, an Eligible Retirement
Plan is an individual retirement account or an individual
retirement annuity.
(D) Eligible Rollover Distribution: An Eligible Rollover
Distribution is any distribution of all or any portion of the
balance to the credit of the Distributee, except that an
Eligible Rollover Distribution does not include: any
distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the Distributee or the joint
lives (or joint life expectancies) of the Distributee and the
Distributee's designated beneficiary, or for a specified period
of ten years or more; any distribution to the extent such
distribution is required under section 401 (a) (9) of the Code;
and the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(E) Offset Amount: An Offset Amount is the amount by which a
Participant' s Account is reduced to repay a loan from the Plan
(including the enforcement of the Plan's security interest in
the Participant's Account).
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ARTICLE VII
RETIREMENT BENEFITS
7.1 NORMAL RETIREMENT. An Active Participant who attains his Normal
Retirement Age shall have a Vesting Percentage of 100%. If a
Participant retires from the active Service of the Employer on his
Normal Retirement Date, he shall be entitled to receive a distribution
of the entire value of his Participant's Account.
7.2 EARLY RETIREMENT. A Participant who retires from the Service of the
Employer on his Early Retirement Date shall have a Vesting Percentage
of 100% and shall be entitled to receive a distribution of the entire
value of his Participant's Account.
7.3 LATE RETIREMENT. A Participant may continue in the Service of the
Employer after his Normal Retirement Age, and in such event he shall
retire on his Late Retirement Date. Such Participant shall continue
as a Participant under this Plan until such Late Retirement Date. The
Participant shall have a Vesting Percentage of 100% and shall be
entitled to receive a distribution of the entire value of his
Participant's Account.
7.4 DISABILITY RETIREMENT. A Participant who retires from the Service of
the Employer on account of Disability shall have a Vesting Percentage
of 100% and shall be entitled to receive a distribution of the entire
value of his Participant's Account.
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ARTICLE VIII
JOINT AND SURVIVOR REQUIREMENTS
8.1 GENERAL. The provisions of this Article shall take precedence over
any conflicting provision in this Plan.
8.2 SPECIAL RULE FOR PROFIT SHARING PLANS. This Plan meets the following
two conditions: (1) the Participant cannot elect payments in the form
of a life annuity, and (2) on the death of the Participant, the
Participant's vested interest will be paid to the Participant's
surviving spouse, but if there is no surviving spouse, or, if the
surviving spouse has already consented in a manner conforming to a
Qualified Election, then to the Participant's designated Beneficiary.
In addition, with the exception of Rollover Contributions as permitted
under the terms of Article IV, assets which are not attributable to
contributions made under !:he terms of this Plan may not be held
hereunder and therefore this Plan will not be a direct or indirect
transferee of a defined benefit plan, money purchase pension plan
(including a target benefit plan), stock bonus, or profit sharing plan
which would otherwise provide for a life Annuity form of payment to
the Participant.
8.3 QUALIFIED ELECTION. A Participant may designate a Beneficiary other
than his spouse if the spouse consents in a manner conforming to a
Qualified Election. The waiver must be in writing and must be
consented to by the Participant's spouse. The spouse's consent to a
waiver must be in writing, must acknowledge the financial effect of
the waiver, and must be witnessed by a member of the Administrative
Committee or notary public. If the spouse's consent specifically
acknowledges a nonspouse Beneficiary designated by the Participant and
does not grant the Participant the right to make future changes to
this designation without spousal consent, then the Participant may not
subsequently designate another nonspouse Beneficiary without the
further written consent of the spouse. Alternatively, the spouse's
consent may expressly allow the Participant to change his-designation
of a nonspouse Beneficiary without additional spousal consent.
Notwithstanding this consent requirement, if the Participant
establishes to the satisfaction of the Administrative Committee that
such written consent may not be obtained because there is no spouse or
the spouse cannot be located, a waiver will be deemed a Qualified
Election. Any consent necessary under this provision will be valid
only with respect to the spouse who signs the consent, or in the event
of a deemed Qualified Election, The designated spouse. Additionally,
a revocation of a prior waiver may be made by a Participant without
the consent of The spouse at any time before the commencement of
benefits. The number of revocations shall not be limited.
8.4 SPOUSE (SURVIVING SPOUSE). A former spouse may be treated as the
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spouse or surviving spouse to the extent provided under a Qualified
Domestic Relations Order as described in Internal Revenue Code section
414(p).
8.5 CONSENT REQUIREMENTS. The Participant's consent shall not be required
to the extent that a distribution is required to satisfy section
401(a) (9) or section 415 of the Code. An account balance is
immediately distributable if any part of the account balance could be
distributed to the Participant (or surviving spouse) before the
Participant attains (or would have attained, if not deceased) the
later of the Normal Retirement Date or age 62.
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ARTICLE IX
TERMINATION OF EMPLOYMENT
9.1 DISTRIBUTION. As of a Participant's Termination of Employment, he
shall be entitled to receive a distribution of his entire Vested
Interest. Such distribution shall be further subject to the terms and
conditions of Article VI.
If at the time of his Termination of Employment the Participant is not
100% vested and does not take a distribution from the portion of his
Vested interest that is attributable to employer contributions, the
non-vested portion of his Participant's Account shall be placed in a
separate account and will become a Forfeiture upon the date such
terminated Participant incurs five consecutive One-Year Breaks in
Service.
If at the time of his Termination of Employment the Participant is not
100% vested and does take a distribution from the portion of his
Vested Interest that is attributable to employer contributions, or if
the Participant is 0% vested, the non-vested portion of his
Participant's Account shall be placed in a separate account and will
become a Forfeiture immediately.
If a terminated Participant, whose separate account became a
Forfeiture in accordance with the terms of the preceding paragraph, is
later rehired by the Employer and re-enrolls in the Plan before
incurring five consecutive One-Year Breaks in Service, then the amount
of the Forfeiture shall be restored by the Employer.
In addition, such rehired Participant shall be entitled to repay the
distribution that was made at his Termination of Employment
attributable to employer contributions. Such repayment must be made
before the Participant has incurred five consecutive One-Year Breaks
in Service following the date he received the distribution or five
years after the Participant is re-employed by the Employer, whichever
date is earlier. If at the time of his previous Termination of
Employment the Participant was more than 0% vested, a Forfeiture shall
be restored by the Employer for the Participant pursuant to the
foregoing provisions of this Section 9.1 only if the Participant first
repays the entire portion of his distribution attributable to employer
contributions.
Until the time a re-employed Participant repays the distribution made
at his Termination of Employment in accordance with the preceding
terms of this Section, or if the Participant does not repay such
distribution or had not, taken a distribution, the Participant's
vested or nonforfeitable portion of the separate account established
in accordance with this Section shall, an any relevant time, be equal
to an amount ("X") determined by the
following formula:
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X = P {AB + (R x D) - (R x D)
For the purposes of applying this formula:
P = The Participant's Vesting Percentage
at the relevant time.
AB = The account balance at the relevant time.
R = The ratio of the account balance
at the relevant time to the account balance
after the distribution.
D = The amount of the distribution.
9.2 NO FURTHER RIGHTS OR INTEREST. A Participant shall have no further
interest in or any rights to any portion of his Participant's Account
that becomes a Forfeiture due to his Termination of Employment once
the Participant incurs five consecutive One-Year Breaks in Service in
accordance with Article II.
9.3 APPLICATION OF FORFEITURES. Any Forfeiture arising in accordance with
the provisions of Section 9.1 shall be used by the Employer to reduce
and in lieu of the contributions made by the Employer next due under
Article IV, or to pay Plan expenses, at the earliest opportunity after
such Forfeiture becomes available.
The provisions of the preceding sentence notwithstanding, in the event
that a former Participant is rehired by the Employer and the Employer
is required by the provisions of Section 9.1 of this Plan to restore
the amount of a separate account that had been created upon such
Participant's prior Termination of Employment and later forfeited,
Forfeitures, if any, will first be used to restore such separate
account to its value as of such Participant's prior Termination of
Employment date. in the event that the available Forfeitures are not
sufficient to make such restoration, the Employer will make an
additional contribution sufficient to make such restoration.
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ARTICLE X
WITHDRAWALS
10.1 WITHDRAWAL AFTER AGE 59-1/2. A Participant who has attained age
59-1/2, may elect to withdraw from his Participant's Account as of any
June 30 or December 31, an amount which is equal to any whole
percentage (not exceeding 100%) of his Vested interest in his
Participant's Account attributable to:
* Elective Deferral Contributions, including earnings
10.2 WITHDRAWAL FOR SERIOUS FINANCIAL HARDSHIP. In the event a Participant
suffers a Serious Financial Hardship, to meet such need such
Participant may withdraw a portion of his Vested interest attributable
to the following and in the following order:
* Participant Contributions, excluding earnings
* Employee Contributions, including earnings
* Earnings on Participant Contributions
* If such Participant has the number of Years of Service required
to have a Vesting Percentage of 100%, Matching Contributions,
including earnings, and Nonelective Contributions, including
earnings
* Elective Deferral Contributions, excluding earnings accrued
after December 31, 1988,
provided that the withdrawal is necessary to satisfy an immediate and
heavy financial need in accordance with the following provisions:
(A) The following are the only financial needs considered
immediate and heavy for purposes of this section:
(1) Expenses for medical care described in section 213(d) of
the Code previously incurred by the Employee, the
Employee's spouse, or any dependents of the Employee (as
defined in section 152 of the Code) or necessary for these
persons to obtain medical care described in section 213(d)
of the Code;
(2) Payment of tuition and related educational fees for the
next 12 months of post-secondary, education for :he
Employee, his or her spouse, children, or dependents (as
defined in section 152 of the Code);
(3) Costs directly related to the purchase of a principal
residence for the Employee (excluding mortgage payments);
or
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(4) Payments necessary to prevent the eviction of the Employee
from the Employee's principal residence or foreclosure on
the mortgage on that residence.
(B) A withdrawal will be considered as necessary to satisfy an
immediate and heavy financial need of the Employee only if all
of the following requirements are satisfied:
(1) The hardship withdrawal is not in excess of the amount of
the immediate and heavy financial need of the Employee.
The amount of an immediate and heavy financial need may
include the amounts necessary to apply any federal, state,
or local income taxes or penalties reasonably anticipated
to result from the distribution.
(2) The Employee had obtained all distributions, other than
hardship withdrawals, and all nontaxable (at the time of
the loan) loans currently available under all plans
maintained by the Employer.
(3) The Employee is suspended from making Elective Deferral
Contributions and Employee Contributions to the Plan for
at least 12 months after receipt of the hardship
withdrawal. In addition, the Employee must be prohibited
under the terms of the plan or an otherwise enforceable
agreement from making Elective Deferral Contributions and
Employee Contributions to all other plans maintained by
the Employer for at least 12 months after receipt of the
hardship withdrawal.
For this purpose, the phrase ,all other plans of the
Employer means all qualified and nonqualified plans of
deferred compensation maintained by the Employer. The
phrase includes a stock option, stock purchase, or similar
plan, or a cash or deferred arrangement that is part of a
cafeteria plan within the meaning of section 125 of the
Code. However, it does not include the mandatory employee
contribution part of a defined benefit plan. It also does
not include a health or welfare benefit plan, including
one that is part of a cafeteria plan within the meaning of
section 125 of the Code.
(4) The Employee may not make Elective Deferral Contributions
no the Plan for the Employee's taxable year immediately
following the taxable year of the hardship withdrawal in
excess of the applicable limit under section 402(g) of the
Code for such taxable year less the amount of such
Employee's Elective Deferral Contributions for the taxable
year of the hardship withdrawal. In addition, all other
plans maintained by the Employer must limit the Employee's
Elective Deferral Contributions for the next taxable year
to the applicable limit under section 402 (g) of the Code
for
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that year minus the Employee's Elective Deferral
Contributions for the year of the hardship withdrawal.
(C) The distributable amount is equal to the Employee's total
Elective Deferral Contribution as of the date of withdrawal,
reduced by the amount of previous withdrawals of Elective
Deferral Contributions on account of hardship. The Employee's
total Elective Deferral Contributions shall be increased by
income allocable to Elective Deferral Contributions. in the case
of income allocable to Elective Deferral Contributions, the
distributable amount may only include amounts that were credited
to the Employee's Account as of December 31, 1988.
10.3 WITHDRAWAL OF EMPLOYEE CONTRIBUTIONS. A Participant may elect to
withdraw from his Participant's Account, as of any June 30 or December
31, an amount equal to any whole percentage (not exceeding 100%) of
his Vested Interest in his Participant's Account attributable to the
value of his Employee Contributions, including earnings.
10.4 WITHDRAWAL OF PARTICIPANT CONTRIBUTIONS. A Participant may elect to
withdraw from his Participant's Account, as of any June 30 or December
31, an amount equal to any whole percentage (not exceeding 100%) of
his Vested Interest in his Participant's Account attributable to the
value of his Participant Contributions, including earnings. Any
partial withdrawal from a Participant's Account attributable to the
value of his Participant Contributions shall be made first from the
Participant Contributions and then from any earnings on such
contributions.
10.5 NOTIFICATION. The Participant shall notify the Administrator in
writing of his election to make a withdrawal under the preceding
provisions of this Article X. Any such election shall be effective as
of the date specified in such notice, which date must be at least 15
days after such notice is filed. Payment of the withdrawal shall be
subject to the terms and conditions of Article VI.
10.6 NON-REPAYMENT. Withdrawals made in accordance with this Article X may
not be repaid.
10.7 SUSPENSION OF CONTRIBUTIONS. if a Participant makes a withdrawal under
the preceding provisions of this Article X no Employee Contributions
or Elective Deferral Contributions shall be made by or on behalf of
such Participant until the January 1 or July 1 coinciding with or next
following the end of a period of 12 months commencing on the effective
date of such withdrawal.
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ARTICLE X-A
LOANS
10A.1 LOANS TO PARTICIPANTS. The Plan Administrator may make a bonafide
loan to a Participant, in an amount which, when added to the
outstanding balance of all other loans to the Participant from all
qualified plans of the Employer, does not exceed the least of: (1)
$50,000 reduced by the excess of the Participant's highest outstanding
loan balance during the 12 months preceding the date on which the loan
is made over the outstanding loan balance on the date the new loan is
made, (2) 50% of the Participant's Vested interest in his
Participant's Account, or (3) the portion of the Participant's Vested
interest not invested in Company Stock.
The loan shall be made under such terms, security interest, and
conditions as the' Plan Administrator deems appropriate,
provided; however, that all loans granted hereunder:
(A) are available to all Participants and Beneficiaries, who
are parties in interest pursuant to section 3 (14) of
ERISA, on a reasonably equivalent basis;
(B) are not made available to Highly Compensated Employees on
a basis greater than the basis made available to other
Employees;
(C) bear a reasonable rate of interest;
(D) are adequately secured;
(E) are made in accordance with and subject to all of the
provisions of this Article.
Any loan made to a Participant shall be allocated as an
investment of such Participant's Account..
10A.2 LOAN PROCEDURES. The Plan Administrator shall establish a written
set of procedures, set forth in the summary plan description, by which
all loans will be administered. Such rules, which are incorporated
herein by reference, will include, but not be limited to, the
following:
(A) the person or persons authorized to administer the loan
program, identified by name or position;
(B) the loan application procedure;
(C) the basis for approving or denying loans;
(D) any limits on the types of loans permitted;
(E) the procedure for determining a "reasonable" interest
rate;
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(F) acceptable collateral;
(G) default conditions; and
(H) steps which will be taken to preserve Plan assets in the
event of default.
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ARTICLE XI
FIDUCIARY DUTIES AND RESPONSIBILITIES
11.1 GENERAL FIDUCIARY STANDARD OF CONDUCT. Each Fiduciary of the Plan
shall discharge his duties hereunder solely in the interest of the
Participants and their Beneficiaries and for the exclusive purpose of
providing benefits to Participants and their Beneficiaries and
defraying reasonable expenses of administering the Plan. Each
Fiduciary shall act with the care, skill, prudence and diligence under
the circumstances that a prudent man acting in a like capacity and
familiar with such matters would use in conducting an enterprise of
like character and with like aims, in accordance with the documents
and instruments governing this Plan, insofar as such documents and
instruments are consistent with this standard.
11.2 SERVICE IN MULTIPLE CAPACITIES. Any Person or group of persons may
serve in more than one Fiduciary capacity with respect to this Plan.
11.3 LIMITATIONS ON FIDUCIARY LIABILITY. Nothing in this Plan shall be
construed to prevent any Fiduciary from receiving any benefit to which
he may be entitled as a Participant or Beneficiary in this Plan, so
long as the benefit is computed and paid on a basis which is
consistent with the terms of this Plan as applied to all other
Participants and Beneficiaries. Nor shall this Plan be interpreted to
prevent any Fiduciary from receiving any reasonable compensation for
services rendered, or for the reimbursement of expenses properly and
actually incurred in the performance of his duties with the Plan;
except that no Person so serving who already receives full-time pay
from-an Employer shall receive compensation from this Plan, except for
reimbursement of expenses properly and actually incurred.
11.4 INVESTMENT MANAGER. When an Investment Manager has been appointed he
is required to acknowledge in writing that he has undertaken a
Fiduciary responsibility with respect to the Plan.
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ARTICLE XII
THE ADMINISTRATOR
12.1 DESIGNATION OF ADMINISTRATIVE COMMITTEE. An Administrative Committee
composed of at least three individuals appointed by the Plan Sponsor
shall act on behalf of the Administrator to administer the Plan. Each
member of the Administrative Committee so appointed shall serve in
such office until his death, resignation-or removal by the Plan
Sponsor. The Plan Sponsor may remove any member of the Administrative
Committee at any time by giving written notice thereof to the members
of the Administrative Committee. Vacancies shall likewise be filled
from time to time by the Plan Sponsor. The members of the
Administrative Committee shall receive no remuneration from the Plan
for their services as Administrative Committee members.
12.2 DUTIES AND AUTHORITY. The Administrator shall administer the Plan in
a nondiscriminatory manner for the exclusive benefit of Participants
and their Beneficiaries.
The Administrator shall perform all such duties as are necessary to
operate, administer, and manage the Plan in accordance with the terms
thereof, including but not limited to the following:
(A) To determine all questions relating to a Participant's coverage
under the Plan;
(B) To maintain all necessary records for the administration of the
Plan;
(C) To compute and authorize the payment of retirement income and
other benefit payments to eligible Participants and
Beneficiaries;
(D) To interpret and construe the provisions of the Plan and to make
regulations which are not inconsistent with the terms thereof;
and
(E) To advise or assist Participants regarding any rights, benefits,
or elections available under the Plan.
The Administrator shall take all such actions as are necessary to
operate, administer, and manage the Plan as a retirement program which
is at all times in full compliance with any law or regulation
affecting this Plan.
The Administrator may allocate certain specified duties of plan
administration co an individual or group of individuals who, with
respect to such duties, shall have all reasonable powers necessary or
appropriate to accomplish them.
12.3 EXPENSES AND COMPENSATION. All expenses of administration may be paid
out of the Trust fund unless paid by the Employer in the sole
discretion of the Plan Sponsor. Such expenses shall include
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any expenses incident to the functioning of the Administrator,
including, but not limited to, fees of accountants, counsel, and other
specialists and their agents, and other costs of administering the
Plan. Until paid, the expenses shall constitute a liability of the
Trust fund. However, the Employer may reimburse the Trust fund for
any administration expense incurred. Any administration expense paid
to the Trust fund as a reimbursement shall not be considered an
employer contribution.
12.4 INFORMATION FROM EMPLOYER. To enable the Administrator to perform his
functions, the Employer shall supply full and timely information to
the Administrator on all matters relating to this Plan as the
Administrator may require.
12.5 ADMINISTRATIVE COMMITTEE; MULTIPLE SIGNATURES. in the event that more
than one person has been duly nominated to serve on the Administrative
Committee and has signified in writing the acceptance of such
designation, the signatures of one or more persons may be accepted by
an interested party as conclusive evidence that the Administrative
Committee has duly authorized the action therein set forth and as
representing the will of and binding upon the whole Administrative
Committee. No person receiving such documents or written instructions
and acting in good faith and in reliance thereon shall be obliged to
ascertain the validity of such action under the terms of this Plan and
Trust. The Administrative Committee shall act by a majority of its
members at the time in office and such action may be taken either by a
vote at a meeting or in writing without a meeting.
12.6 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. Any member of the
Administrative Committee, may resign at any time by delivering to the
Plan Sponsor a written notice of resignation, to take effect at a date
specified therein, which shall not be less than 30 days after the
delivery thereof, unless such notice shall be waived.
A member of the Administrative Committee may be removed with or
without cause by the Plan Sponsor by delivery of written notice of
removal, to take effect at a date specified therein, which shall be
not less than 30 days after delivery thereof, unless such notice shall
be waived.
The Plan Sponsor, upon receipt of or giving notice of the resignation
or removal of a member of the Administrative Committee, shall promptly
designate a successor member who must signify acceptance of this
position in writing. In the event no Administrative Committee is
serving, the Administrator will function as the Administrative
Committee until a new Administrative Committee has been appointed and
has accepted such appointment.
12.7 INVESTMENT MANAGER. The Administrative Committee may appoint, in
writing, an investment Manager or Managers to whom is delegated the
authority to manage, acquire, invest or dispose of all or any part of
the Trust assets. With regard to the assets entrusted to
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his care, the Investment Manager shall provide written instructions
and directions to the Trustee, who shall in turn be entitled to rely
upon such written direction. This appointment and delegation shall be
evidenced by a signed written agreement.
12.8 DELEGATION OF DUTIES. The Administrator shall have the power, to the
extent permitted by law, to delegate the performance-of such Fiduciary
and non-Fiduciary duties, responsibilities and functions as the
Administrator shall deem advisable for the proper management and
administration of the Plan in the best interests of the Participants
and their Beneficiaries.
12.9 INDEMNITY OF ADMINISTRATIVE COMMITTEE. The Employer shall indemnify
and hold harmless each member of the Administrative Committee against
any claim, cost, expense (including attorneys' fees), judgment or
liability (including any sum paid in settlement of a claim with the
approval of the Plan Sponsor) arising out of any act or omission to
act as a member of the Administrative Committee appointed under the
Plan, except in the case of willful misconduct.
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ARTICLE XIII
PARTICIPANTS' RIGHTS
13.1 GENERAL RIGHTS OF PARTICIPANTS AND BENEFICIARIES. The Plan is
established and the Trust assets are held for the exclusive purpose of
providing benefits for such employees and their Beneficiaries as have
qualified to participate under the terms of the Plan.
13.2 FILING A CLAIM FOR BENEFITS. A Participant or Beneficiary or the
Employer acting in his behalf, shall notify the Administrator of a
claim of benefits under the Plan. Such request shall be in writing to
the Administrator and shall set forth the basis of such claim and
shall authorize the Administrator to conduct such examinations as may
be necessary to determine the validity of the claim and to take such
steps as may be necessary to facilitate the payment of any benefits to
which the Participant or Beneficiary may be entitled under the terms
of the Plan.
A decision by the Administrator shall be made promptly and not later
than 90 days after the Administrator's receipt of the claim of
benefits under the Plan, unless special circumstances require an
extension of the time for processing, in which case a decision shall
be rendered as soon as possible, but not later than 180 days after the
initial receipt of the claim of benefits.
13.3 DENIAL OF CLAIM. Whenever a claim for benefits by any Participant or
Beneficiary has been denied it, a Plan Administrator, a written
notice, prepared in a manner calculated to be understood by the
Participant, must be provided, setting forth (1) the specific reasons
for the denial; (2) the specific reference to pertinent Plan
provisions on which the denial is based; (3) a description of any
additional material or information necessary for the claimant to
perfect the claim and an explanation of why such material or
information is necessary; and (4) an explanation of the Plan's claim
review procedure.
13.4 REMEDIES AVAILABLE TO PARTICIPANTS. A Participant or Beneficiary may
(1) request a review by a Named Fiduciary, other than the
Administrator, upon written application to the Plan; (2) review
pertinent Plan documents; and (3) submit issues and comments in
writing to a Named Fiduciary. A Participant or Beneficiary shall have
60 days after receipt by the claimant of written notification of a
denial of a claim to request review of a denied claim.
A decision by a Named Fiduciary shall be made promptly and not later
than 60 days after the Named Fiduciary's receipt of a request for
review, unless special circumstances require an extension of the time
for processing in which case a decision shall be rendered as soon as
possible, but not later than 120 days after receipt of a request for
review. The decision on review by a Named Fiduciary shall be in
writing and shall include specific reasons for the decision, written
in a manner calculated
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to be understood by the claimant, and specific references to the
pertinent Plan provisions on which the decision is based.
A Participant or Beneficiary shall be entitled, either in his own name
or in conjunction with any other interested parties, to bring such
actions in law or equity or to undertake such administrative actions
or to seek such relief as may be necessary or appropriate to compel
the disclosure of any required information, to enforce or protect his
rights, to recover present benefits due to him or to clarify his
rights to future benefits under the Plan.
13.5 LIMITATION OF RIGHTS. Participation hereunder shall not grant any
Participant the right to be retained in the Service of the Employer or
any other rights or interest in the Plan or Trust fund other than
those specifically herein set forth.
13.6 PARTICIPANT CONTRIBUTIONS. Each Participant, regardless of his length
of Service with the Employer, shall be fully vested (100%) at all
times in any portion of his Participant's Account attributable to the
following:
* Employee Contributions
* Participant Contributions
* Rollover Contributions.
13.7 MERGERS OR TRANSFERS. in the case of any merger or consolidation with
or transfer of assets or liabilities to any other qualified plan after
September 2, 1974, the following conditions must be met:
(A) The sum of the account balances in each plan shall equal the
fair market value (determined as of the date of the merger or
transfer as if the plans had then terminated) of the entire plan
assets.
(B) The assets of each plan shall be combined to form the assets of
the plan as merged (or transferred).
(C) Immediately after the merger (or transfer), each Participant in
the plan merged (or transferred) shall have an account balance
equal to the sum of the account balances the Participant had in
the plans immediately prior to the merger (or transfer).
(D) Immediately after the merger (or transfer) each Participant in
the plan merged (or transferred) shall be entitled to the same
optional benefit forms was entitled to immediately prior to the
merger (or transfer).
In the case of any merger or consolidation with or transfer of assets
or liabilities to any defined benefit plan after September 2, 1974,
one of the plans before such merger, consolidation, or transfer shall
be converted into the other type of plan and
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either the rules described above, applicable to the merger of two
defined contribution plans, or the rules applicable to the merger of
two defined benefit plans, as appropriate, shall be applied.
13.8 PARTICIPANT'S ACCOUNT AND VALUATION. A. Participant's Account shall
be maintained on behalf of each Participant until such account is
distributed in accordance with the terms of this Plan. As of the last
day of each calendar month, each Participant's Account shall be
adjusted for any earnings, gains, losses, contributions, withdrawals,
loans, and expenses, attributable to such Plan Year, in order to
obtain a new valuation of the Participant's Account.
The Trustee with respect to Company Stock previously credited to a
Participant's Account shall be credited to that account upon receipt
by the Trustee. As of each valuation date prescribed above, the
portion of each Participant's Account invested in Company Stock shall
be credited with its proportionate share of the Company Stock
(including fractional shares) purchased for the Trust during the
valuation period then ended and charged with its proportionate share
of the average cost of such Company Stock. The Trustee shall not be
required to allocate or designate particular certificates for Company
Stock to the respective Accounts but shall hold the certificates for
all Company Stock in trust for the appropriate Accounts in proportion
to their respective interests. in order to facilitate distributions
from the Plan, the Administrator in its discretion may direct the
Trustee at the end of any valuation period to purchase from or sell to
any Account, at a price equal to the average cost of Company Stock
purchased by the Trust during the valuation period then ended, such
Company Stock or fractional shares thereof as may be necessary to make
distributions. All Company Stock held in trust for the Plan shall be
voted by the Trustee only when and as directed by the Administrative
Committee.
13.9 INVESTMENT OF CONTRIBUTIONS. Each Participant shall have the
exclusive authority to direct the investment of the following:
* Elective Deferral Contributions
* Employee Contributions
* Rollover Contributions
* Cash dividends received by the Trustee after the Effective Date
with respect to Company Stock attributable to the investment of
Elective Deferral Contributions, Employee Contributions,
Participant Contributions and Rollover Contributions made to the
Plan as of a date prior to the Effective Date.
The Participant shall elect, by written notice to the Plan
Administrator, to have a specified percentage invested in one or more
investment fund(s) designated by the Administrative Committee, as long
as the designated percentage for each fund is
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a whole number, and the sum of the percentages allocated is equal to
100%. Such Investment Fund(s) shall not include Company Stock.
Four times during a Plan Year, on January 1, April 1, July 1 and
October 1, and on August 1, 1992, the Participant may change the
amount of the contributions pursuant to the above paragraph to be
invested in a particular investment fund, subject to the rules of the
investment funds in which the Participant's Account is invested or is
to be invested.
The Plan Administrator shall provide each Participant with a form
which the Participant may use to select among the investment funds
designated by the Administrative Committee.
All Employer Contributions allocated to Participants' Accounts (other
than Elective Deferral Contributions) for Plan Years ending before
January 1, 1993 and all cash dividends and other amounts attributable
to such contributions shall be used by the Trustee as soon as
practicable to purchase Company Stock from the Plan Sponsor at fair
market value or in the open market. The preceding sentence to the
contrary notwithstanding, unless the Board of Directors directs
otherwise, (i) no Employer Contributions for Plan Years commencing
after December 31, 1992 and no cash dividends or other amounts
attributable to Employer Contributions and paid after December 31,
1992 shall be invested in Company Stock, and (ii) all such
contributions, dividends and other amounts may be in-,rested by the
Trustee in short term investments.
13.10 TRANSFERS BETWEEN INVESTMENT FUNDS. A Participant may designate the
amount of the contributions pursuant to Section 13.9 above to be
transferred between the investment funds designated by he
Administrative Committee four times during the Plan Year, on January
1, April 1, July I and October 1, and on August 1, 1992. However, any
Company Stock allocated to a Participant's Account shall not be
subject to transfer to an investment fund.
Notwithstanding the above, the transfer of amounts between investment funds
shall be subject to the rules of the investment funds in which the
Participant's Account is invested or is to be invested.
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ARTICLE XIV
AMENDMENT OR TERMINATION OF THE PLAN
14.1 AMENDMENT OF PLAN. The Plan Sponsor shall have the right from time to
time to modify or amend, in whole or in part, any or all provisions of
the Plan, provided that a Board of Directors, resolution pursuant to
such modification or amendment shall first be adopted and provided
further that the modification or amendment is signed by the Plan
Sponsor and the Trustee. Upon any such modification or amendment the
Administrator and the Trustee shall be furnished a copy thereof. No
amendment shall deprive any Participant or Beneficiary of any Vested
Interest hereunder. Any Participant having not less than three Years
of Service shall be permitted to elect, in writing, to have his
Vesting Percentage computed under the Plan without regard to such
amendment.
The period during which the election must be made by the Participant
shall begin no later than the date the Plan Amendment is adopted and
end no later than after the latest of the following dates:
(A) The date which is 60 days after the day the amendment is
adopted; or
(B) The date which is 60 days after the day the amendment becomes
effective; or
(C) The date which is 60 days after the day the Participant is
issued written notice of the amendment by the Employer or
Administrator.
Such written election by a Participant shall be made to the
Administrator.
No amendment to the Plan shall decrease a Participant's Account
balance or eliminate an optional form of distribution. Notwithstanding
the preceding sentence, a Participant's Account balance may be reduced
T:C) the extent permitted under internal Revenue Code section
412(c)(8). Furthermore, no amendment to the Plan shall have he effect
of decreasing a Participant's Vested interest determined without
regard to such amendment as of the later of the date such amendment is
adopted or the date it becomes effective.
14.2 CONDITIONS OF AMENDMENT. The Plan Sponsor shall not make any
amendment which would cause the Plan to lose its status as a qualified
plan within the meaning of section 401(a) of the Code.
14.3 TERMINATION OF THE PLAN. The Plan Sponsor intends to continue the
Plan indefinitely for the benefit of its Employees, but reserves the
right to terminate the Plan at any time by resolution of its Board of
Directors. Upon such termination,
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the liability of the Employer to make contributions hereunder shall
terminate.
14.4 FULL VESTING. Upon the termination or partial termination of the
Plan, or upon complete discontinuance of Employer contributions, the
rights of all affected Participants in and to the amounts credited to
each such Participant's Account shall be 10()% vested and
nonforfeitable.
14.5 DISTRIBUTIONS UPON PLAN TERMINATION. If this Plan is terminated and
the Employer does not maintain or establish another defined
contribution plan, pursuant to Code section 401 (k) (10) (A) (i), each
Participant shall receive a total distribution, in the form of a
lump-sum distribution as defined in Code section 401 (k) (10) (B) (ii)
, of his Participant's Account in, accordance with the terms and
conditions of Article VI.
However, if this Plan is terminated and the Employer does maintain or
establish another defined contribution plan as discussed in the above
paragraph, or if the Plan is only partially terminated, each
Participant shall receive a total distribution of his Participant's
Account, excluding any amounts attributable to Elective Deferral
Contributions and contributions made by the Employer designated as
401(k) contributions in accordance with the terms and conditions of
Article VI. In such a situation, any amounts in a Participant's
Account attributable to Elective Deferral Contributions and
contributions made by the Employer designated as 401(k) contributions
may be distributed only upon the occurrence of an event described in
Article VI.
No Participant consent will be required for a distribution where no
successor plan exists. However, if the Employer does maintain a
successor plan, Participant consent is required for a distribution
exceeding $3,500. The Participant's Account will be transferred to
such successor plan if the required consents are not received.
14.6 APPLICATION OF FORFEITURES. Upon the termination of the Plan, any
Forfeitures which have not been applied as of such termination to
reduce the contribution made by the Employer shall be credited on a
pro rata basis to the Participant's Account of the then Active
Participants in the same manner as the last contribution made by the
Employer under the Plan.
14.7 SUBSEQUENT UNFAVORABLE DETERMINATION. if the Plan Sponsor is notified
subsequent to initial favorable qualification that the Plan is no
longer qualified within the meaning of section 401(a) of the internal
Revenue Code, or that the Trust is no longer entitled to exemption
under the provisions of section 501 (a), and if the Plan Sponsor shall
fail within a reasonable time to make any necessary changes in order
that the Plan and/or Trust shall so qualify, the Participants'
Accounts shall be fully vested and nonforfeitable and shall be
disposed of as if the Plan had terminated, in the manner set forth in
this Article XIV.
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ARTICLE XV
MISCELLANEOUS
15.1 NON-REVERSION. This Plan has been established by the Employer for the
exclusive benefit of the Participants and their Beneficiaries. Except
as otherwise provided in Sections 15.7 and 15.8, under no
circumstances shall any funds contributed hereunder, at any time,
revert to or be used by the Employer, nor shall any such funds or
assets of any kind be used other than for the benefit of the
Participants or their Beneficiaries.
15.2 GENDER AND NUMBER. When necessary to the meaning hereof, and except
when otherwise indicated by the context, either the masculine or the
neuter pronoun shall be deemed to include the masculine, the feminine,
and the neuter, and the singular shall be deemed to include the
plural.
15.3 REFERENCE TO THE CODE AND ERISA. Any reference to any section of the
Internal Revenue Code, ERISA or to any other statute or law shall be
deemed to include any successor law of similar import.
15.4 GOVERNING LAW. The Plan and Trust shall be governed and construed in
accordance with the laws of the State of Texas except where superseded
by law.
15.5 COMPLIANCE WITH THE CODE AND ERISA. This Plan is intended to comply
with all requirements for qualification under the internal Revenue
Code and ERISA, and if any provision hereof is subject to more than
one interpretation or any term used herein is subject to more than one
construction, such ambiguity shall be resolved in favor of that
interpretation or construction which is consistent with the Plan being
so qualified. If any provision of the Plan is held invalid or
unenforceable, such invalidity or unenforceability shall not affect
any other provisions, and this Plan shall be construed and enforced as
if such provision had not been included.
15.6 ON-ALIENATION. It is a condition of the Plan, and all rights of each
Participant shall be subject thereto, that no right or interest of any
Participant in the Plan shall be assignable or transferable in whole
or in part, either directly or by operation of law or otherwise,
including, but without limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner, and no right or
interest of any Participant in the Plan shall be liable for or subject
to any obligation or liability of such Participant. The preceding
sentence shall not preclude :he enforcement of a federal tax levy made
pursuant to section 6331 of the Code or the collection by the United
States on a judgement resulting from an unpaid tax assessment.
15.7 CONTRIBUTION RECAPTURE. Notwithstanding any other provisions of this
Plan, (1) in the case of a contribution which is made by an Employer
by a mistake of fact, Section 15.1 shall not prohibit the return of
such contribution to the Employer within one year
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after the payment of the contribution, and (2) if a contribution is
conditioned upon the deductibility of the contribution under section
404 of the Code, then, to the extent the deduction is disallowed,
Section 15.1 shall not prohibit the return to the Employer of such
contribution (to the extent disallowed) within one year after the
disallowance of the deduction. The amount which may be returned to
the Employer is the excess of (1) the amount contributed over
(2) the amount that would have been contributed had there not occurred
a mistake of fact or a mistake in determining the deduction. Earnings
attributable to the excess contribution may not be returned to the
Employer, but losses attributable thereto must reduce the
amount to be so returned. Furthermore, if the withdrawal of the
amount attributable to the mistaken contribution would cause the
balance of the individual account of any Participant to be reduced to
less than the balance which would have been in the account had the
mistaken amount not been contributed, then the amount to be returned
to the Employer would have to be limited so as to avoid such
reduction.
15.8 QUALIFIED DOMESTIC RELATIONS ORDERS. Notwithstanding any other
provisions of this Plan, the Participant's Account may be segregated
and distributed pursuant to a Qualified Domestic Relations order
within the meaning of Code section 414 (p). The Plan Administrator
shall establish procedures for determining if a Domestic Relations
Order is qualified within the meaning of section 414(p).
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ARTICLE XVI
TOP HEAVY PROVISIONS
16.1 DEFINITIONS. The following definitions are atypical terms used only
in this Article XVI.
(A) Compensation. The term Compensation, whenever used in this
Article XVI, means Compensation as defined in Article V of the
Plan, but includes the amount of any elective contributions made
by the Employer on the Employee's behalf to a cafeteria plan
established in accordance with the provisions of Code section
125, a qualified cash or deferred arrangement in accordance with
the provisions of Code section 402(a)(8) , a simplified employee
pension plan in accordance with the provisions of Code section
402(h), or a tax sheltered annuity plan maintained in accordance
with the provisions of Code section 403(b).
(B) Key Employee. The term Key Employee means any Employee or
former Employee (including deceased Employees) of the Employer
who at any time during the Plan Year or the four preceding Plan
Years was:
(1) An officer of the Employer, but in no event if there are
more than 500 Employees, shall more than 50 Employees be
considered Key Employees. If there are less than 500
Employees, in no event shall the greater of three
Employees or 10% of all Employees, be taken into account
under this Subsection as Key Employees. The number of
officers is limited by the terms of the preceding
sentence, the Employees with the highest Compensation will
be considered to be officers.
In no event shall an officer whose annual Compensation is
less than 50% of the dollar limitation in effect under
Code section 415(b)(1)(A) as adjusted from time to time,
be a Key Employee for any such Plan Year.
In making a determination under this Subsection, Employees
who have not completed six months of Service by the end of
the applicable Plan Year, Employees who normally work less
than 17-1/2 hours per week, Employees who normally work
less than six months during a year, Employees who have not
attained 21, and nonresident aliens who receive no earned
income from U.S. sources, shall be excluded.
Also excluded under the above paragraph are Employees who
are covered by an agreement which the Secretary of Labor
finds to be a collective bargaining agreement. Such
Employees will be excluded only if retirement benefits
were the subject of good faith bargaining, 90%
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of the Employees of the Employer are covered by the
agreement, and the Plan covers only Employees who are not
covered by the agreement.
(2) One of the 10 Employees who has annual Compensation
greater than the amount in effect under Code section
415(c)(1)(A) and who owns (or is considered to own within
the meaning of Code section 318, as modified by Code
section 416(i)(1)(B)(iii)) both more than 1/2% interest
and the largest interest in the Employer. If two or more
Employees own equal interests in the Employer, the ranking
of ownership share will be in descending order of such
Employees' Compensation. if the Employer is other than a
corporation, the term "interest" as used herein shall
refer to capital or profits interest.
(3) An Employee who owns (or is considered no own within the
meaning of Code section 318, as modified by Code section
416(i)(1)(B)(iii)) more than 5% of the outstanding stock
of the Employer or stock possessing more than 5% of the
total combined voting power of all stock of the Employer.
If the Employer is other than a corporation, an Employee
who owns, or is considered to own, more than 5% of the
capital or profits interest in the Employer. The
determination of 5% ownership shall be made separately for
each member of a controlled group of corporations (as
defined in Code section 414(b)), or of a group of trades
or businesses (whether or not incorporated) that are under
common control (as defined in Code section 414(c)), or of
an affiliated service group (as defined in Code section
414(m)).
(4) An Employee who owns (or is considered to own within the
meaning of Code section 318, as modified by Code section
416 (i) (1) (B) (iii) ) more than 1% of the outstanding
stock of the Employer or stock possessing more than 1% of
the total combined voting power of all stock of the
Employer, and whose annual Compensation is more than
$150,000. If the Employer is other than a corporation, an
Employee who owns, or is considered to own, more than 1%
of the capital or profits interest in the Employer, and
whose annual Compensation is more than $150,000.
For the purposes of paragraphs (2), (3) and (4) above, if an
Employee's ownership interest changes during a given Plan Year,
his ownership interest for that Plan Year is the largest
interest owned at any time during the Plan Year.
The Beneficiary of any deceased Employee who was a Key Employee
shall be considered a Key Employee for the same period as the
deceased Employee would have been so considered.
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(C) Non-Key Employee. The term Non-Key Employee means any Employee
or former Employee of the Employer who is not a Key Employee.
The Beneficiary of any deceased Employee who is a Non-Key
Employee shall be considered a Non-Key Employee for the same
period as the deceased Employee would have been so considered.
(D) Determination Date. The term Determination Date means, with
respect to a Plan Year, the last day of the preceding Plan Year,
or, in the case of the first Plan Year of a plan, the last day
of the first Plan Year.
(E) Valuation Date. The term Valuation Date means, with respect to
a Plan Year, the last day of the preceding Plan Year and is the
date on which Account Balances are valued for the purpose of
determining the Plan's Top Heavy status.
(F) Account Balance. The term Account Balance means the value of
the Participant's Account standing to the credit of a
Participant, a former Participant, or the Beneficiary of a
former Participant, as the case may be, as of the Valuation
Date. Such Account Balance shall include any contributions due
as of the Determination Date and all distributions made to the
Participant (or former Participant or Beneficiary, as the case
may be) during the Plan Year or the preceding four Plan Years,
except for distributions of Related Rollovers. However, the
Account Balance shall not include any deductible Employee
Contributions made pursuant to Code section 219 or Unrelated
Rollovers made to the Plan after December 31, 1983.
A Related Rollover is a Rollover Contribution or Transfer that
either was not initiated by the Employee or was made to a plan
maintained by the same Employer.
An Unrelated Rollover is a Rollover Contribution or Transfer
that was initiated by the Employee and was made from a plan
maintained by one employer to a plan maintained by another
employer.
For purposes of this Subsection (F), the term Employer shall
include all employers that are required to be aggregated in
accordance with Code sections 414(b), (c) or (m).
(G) Required Aggregation Group. The term Required Aggregation Group
means all of the plans of the Employer which cover a Key
Employee, including any such plan maintained by the Employer
pursuant to the terms of a collective bargaining agreement, and
each other plan of the Employer which enables any plan in which
a Key Employee participates to satisfy the requirements of Code
sections 401(a)(4) or 410.
(H) Permissive Aggregation Group. The term Permissive Aggregation
Group means all of the plans of the Employer which are included
in the Required Aggregation Group plus
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any plans of the Employer which provide comparable benefits to
the benefits provided by the Plans in the Required Aggregation
Group and are not included in the Required Aggregation Group,
but which satisfy the requirements of Code sections 401(a)(4)
and 410 when considered together with the Required Aggregation
Group, including any plan maintained by the Employer pursuant to
a collective bargaining agreement which does not include a Key
Employee.
(I) Top Heavy Plan. The Plan is Top Heavy if it meets the
requirements of Section 16.2.
(J) Super Top Heavy Plan. The Plan is Super Top Heavy if it meets
the requirements of Section 16.3.
(K) Terminated Plan. A plan shall be considered to be a Terminated
Plan if it:
(1) has been formally terminated;
(2) has ceased crediting service for benefit accruals and
vesting; or
(3) has been or is distributing all plan assets to
Participants (or Beneficiaries) as soon as
administratively possible.
With the exception of the Minimum Employer Contribution
Requirements and the Minimum, Vesting Requirements, the Top
Heavy provisions of this Article XVI will apply to any
Terminated Plan which was maintained at any time during the five
years ending on the Determination Daze.
(L) Frozen Plan. A plan shall be considered to be a Frozen Plan if
all benefit accruals have ceased but all assets have not been
distributed to Participants or Beneficiaries. The Top
Heavy provisions of this Article XVI will apply to any such
Frozen Plan.
16.2 TOP HEAVY PLAN STATUS. This Plan shall be determined to be Top Heavy
if, as of the Determination Date, the aggregate. of the Account
Balances of Key Employees exceeds 60% of the aggregate of the Account
Balances of all Employees covered by the Plan. The determination of
whether the Plan is Top Heavy shall be made after aggregating all
plans in the Required Aggregation Group, and after aggregating any
other plans which are in the Permissive Aggregation Group, if such
permissive aggregation thereby eliminates the Top Heavy status of any
plan within such Required Aggregation Group.
In determining whether this Plan is Top Heavy, the Account Balance of
a former Key Employee to is now a Non-Key Employee will be
disregarded. Likewise, for Plan Years beginning after December 31,
1984, the Account Balance of any Employee who has
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not performed an Hour of Service during the five-year period ending on
the Determination Date will be excluded.
16.3 SUPER TOP HEAVY PLAN STATUS. This Plan shall be determined to be
Super Top Heavy if, as of the Determination Date, the Plan would meet
the test specified in Section 16.2 above, if 90% were substituted for
60% in each place where it appears. The Plan may be permissively
aggregated in order to avoid being Super Top Heavy.
16.4 TOP HEAVY-REQUIREMENTS. Notwithstanding anything in the Plan to the
contrary, if the Plan is Top Heavy with respect to any Plan Year
beginning after December 31, 1983, then the Plan shall meet the
following requirements for such Plan Year:
(A) Compensation Limit. The annual Compensation of each Participant
taken into account under the Plan shall not exceed $200,000;
however, such dollar limitation shall be adjusted to take into
account any adjustments made by the Secretary of the Treasury or
his delegate pursuant to Code section 416(d)(2).
(B) Minimum Employer Contribution Requirements. A Minimum Employer
Contribution of 3% of each Eligible Employee's Compensation will
be made on behalf of each Eligible Employee in the Plan.
If the actual Employer Contribution made or required to be made for
Key Employees is less than 3%, the Minimum Employer Contribution
required hereunder shall not exceed the percentage contribution made
for the Key Employee for whom the percentage of Employer Contributions
and Forfeitures relative to the first $200,000 of Compensation is the
highest for the Plan Year after taking into account contributions or
benefits under ocher qualified plans in the Plan's Required
Aggregation Group.
However, if a Participant in this Plan is also a participant in a
defined benefit plan maintained by the Employer, such Participant
shall receive the Top Heavy minimum benefit under the defined benefit
plan in lieu of the Minimum Employer Contribution described herein.
Such minimum benefit will be equal to the Participant's average yearly
Compensation during his five highest-paid consecutive years,
multiplied by the lesser of 2% per Year of Service or 20%.
Compensation periods and Years of Service to be taken into account in
the calculation of this benefit shall be subject to any limitations
set forth in the defined benefit plan.
For any Limitation Year in which this Plan is Top Heavy but not Super
Top Heavy, the Minimum Employer Contribution shall be increased to 4%
of each Eligible Employee's Compensation in order to preserve the use
of the factor 1.25 in the denominators of the fractions described in
Section 5.4(B)(1) and Section 5.4(D)(1). A Participant who receives
the Top Heavy minimum benefit in lieu of the Minimum Employer
Contribution shall receive an increased
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minimum benefit equal to the Participant's average yearly Compensation
during his 5 highest-paid consecutive years, multiplied by the lesser
of 3% per Year of Service or 20% plus 1 percentage point (to a maximum
of 10 percentage points) for each year that this Plan is maintained.
Compensation periods and Years of Service to be taken into account in
the calculation of this increased minimum benefit shall be subject to
any limitations set forth in the defined benefit plan.
For any Limitation Year in which this Plan is Super Top Heavy, the
factor of 1.25 in the denominators of the fractions described in
Sections 5.4(B)(1) and 5.4(D)(1) shall be reduced to 1.0. The Minimum
Employer Contribution payable in such years shall be 3% of each
Eligible. Employee's Compensation and the defined benefit Top Heavy
minimum benefit shall be average Compensation multiplied by the lesser
of 2% per Year of Service or 20%.
Eligible Employees are all Non-Key Employees who are Participants in
the Plan as of the last day of the Plan Year regardless of whether
they had completed 1,000 Hours of Service during the Plan Year. Also
included are Non-Key Employees who would have been Participants as of
the last day of the Plan Year except:
* The Employee's Compensation was below a required minimum level &
semi or
* The Employee chose not to make Elective Deferral Contributions
when he was eligible to do so.
Elective Deferral Contributions and Matching Contributions made for
Key Employees shall be taken into account as Employer Contributions
allocated to such Key Employees when determining whether a lower
Minimum Employer Contribution is permissible for purposes of this
section. However, Elective Deferral Contributions made by Non-Key
Employees shall not be used towards satisfying the Minimum Employer
Contribution required to be allocated to Non-Key Employees pursuant to
this section.
Matching Contributions made on behalf of Non-Key Employees may, at the
option of the Employer, be used to satisfy the Minimum Employer
Contribution requirement. However, for Plan Years beginning after
December 31, 1988, to the extent that Matching Contributions are used
for this purpose, they shall not be used to satisfy the Actual
Contribution Percentage Test.
(C) Minimum Vesting Requirements. The vesting provisions set forth
in the definition of Vesting Percentage in Article I shall
continue to apply whether or not the Plan is a Top Heavy Plan.
Such vesting provisions satisfy the requirements of section
416(b) of the Code, as applicable to Top Heavy Plans.
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ARTICLE XVII
TRUST AGREEMENT
17.1 TRUST AND TRUSTEE. All of the contributions paid to the Trustee
pursuant to the Plan, together with the income therefrom and the
increments thereof, shall be held in trust by the Trustee under the
terms and provisions of the separate trust agreement executed December
30, 1985, and as amended from time to time thereafter, between the
Trustee and the Employer, a copy of which is incorporated herein by
this reference for all purposes, establishing a Trust fund known as
the Endevco, Inc. Employee Savings Trust for the exclusive benefit of
the Participants and their Beneficiaries in accordance with the Plan.
IN WITNESS WHEREOF, this amendment and restatement of the Plan has
been executed this ________________day of ______________ 1994, to be
effective as of July 1, 1991.
Endevco, Inc.
By:___________________________________________________
Title:________________________________________________
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EXHIBIT 10.22
[UNION BANK LETTERHEAD]
April 26, 1993
Dubach Gas Company
c/o Endevco, Inc.
8080 North Central Expressway
Dallas, Texas 75206
Attention: Mr. Jack W. Young
Executive Vice President
Re: Ninth Amendment to Amended and Restated
Term Loan and Revolving Credit Agreement
Gentlemen:
We refer to the Amended and Restated Term Loan and Revolving Credit
Agreement made as of July 26, 1991, as amended by the First Amendment to
Amended and Restated Term Loan and Revolving Credit Agreement dated as of
August 28, 1991, the Second Amendment to Amended and Restated Term Loan and
Revolving Credit Agreement dated July 23, 1992, the Third Amendment to Amended
and Restated Term Loan and Revolving Credit Agreement dated September 21,
1992, the Fourth Amendment to Amended and Restated Term Loan and Revolving
Credit Agreement dated October 22, 1992, the Fifth Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated as of November 30,
1992, the Sixth Amendment to Amended and Restated Term Loan and Revolving
Credit Agreement dated January 29, 1993, the Seventh Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated February 22, 1993 and
the Eighth Amendment to Amended and Restated Term Loan and Revolving Credit
Agreement dated March 22, 1993 (said Agreement, as so amended, herein called
the "CREDIT AGREEMENT"), between Dubach Gas Company (the "COMPANY") and
Union Bank (the "BANK"). Unless otherwise defined herein, terms defined in
the Credit Agreement are used herein as therein defined.
The Company and the Bank hereby agree that, effective as of the date
first written above, the definition of "Working Capital
<PAGE>
Dubach Gas Company
April 26, 1993
Page 2
Termination Date" in Section 1.1 of the Credit Agreement is amended in full to
read as follows:
"'WORKING CAPITAL TERMINATION DATE' means May 31, 1993 or any
subsequent date to which the Bank may agree, in its sole discretion, to
extend the Working Capital Commitment."
On and after the effective date of this letter amendment, each reference
in the Credit Agreement to "this Agreement," "hereunder," "hereof" or words of
like import referring to the Credit Agreement, and each reference in any Note,
Security Document or other agreement or instrument to "the Credit Agreement,"
"thereunder," "thereof" or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement as amended by
this letter amendment. The Credit Agreement, as amended by this letter
amendment, is and shall continue to be in full force and effect and is hereby
ratified and confirmed in all respects.
This letter amendment may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which counterparts
shall be an original and all of which taken together shall constitute one and
the same letter amendment.
If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning three counterparts of this letter
amendment to the Bank. This letter amendment shall become effective as of the
date first written above when and if the Bank receives (1) a fee of $10,416.75
and (2) consents hereto, in form and substance satisfactory to the Bank,
executed by Endevco, Inc. and M-K-P Operating Company, as subordinated
creditors.
The Bank's execution of this letter amendment does not constitute, and
shall not be deemed to be, a release or waiver of
<PAGE>
Dubach Gas Company
April 26, 1993
Page 3
any Default or Event of Default that now exists or that hereafter may exist,
and the Bank reserves all of its rights and remedies with respect to any such
Defaults and Events of Default.
Very truly yours,
UNION BANK
By: ________________________
Walter M. Roth
Vice President
By: ________________________
Name: ______________________
Title: _____________________
Agreed to on April 27, 1993:
DUBACH GAS COMPANY
By: ________________________
Jack W. Young
Executive Vice President
<PAGE>
EXHIBIT 10.23
TENTH AMENDMENT TO AMENDED AND RESTATED
TERM LOAN AND REVOLVING CREDIT AGREEMENT
This Amendment, dated as of May 24, 1993, is entered into by DUBACH GAS
COMPANY, a Texas corporation (the "COMPANY"), and UNION BANK, a California
banking corporation (the "BANK").
RECITALS
A. The Company and the Bank have entered into an Amended and Restated
Term Loan and Revolving Credit Agreement dated as of July 26, 1991, as amended
by a First Amendment to Amended and Restated Term Loan and Revolving Credit
Agreement dated as of August 28, 1991, a Second Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated July 23, 1992, a Third
Amendment to Amended and Restated Term Loan and Revolving Credit Agreement
dated September 21, 1992, a Fourth Amendment to Amended and Restated Term Loan
and Revolving Credit Agreement dated October 22, 1992, a Fifth Amendment to
Amended and Restated Term Loan and Revolving Credit Agreement dated as of
November 30, 1992, a Sixth Amendment to Amended and Restated Term Loan and
Revolving Credit Agreement dated January 29, 1993, a Seventh Amendment to
Amended and Restated Term Loan and Revolving Credit Agreement dated February
22, 1993, an Eighth Amendment to Amended and Restated Term Loan and Revolving
Credit Agreement dated March 22, 1993 and a Ninth Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated April 26, 1993 (said
Loan and Credit Agreement, as so amended, herein called the "CREDIT
AGREEMENT"). Terms defined in the Credit Agreement and not otherwise defined
herein have the same respective meanings when used herein, and the rules of
interpretation set forth in Section 1.3 of the Credit Agreement are
incorporated herein by reference.
B. The Company and the Bank have agreed to further amend the Credit
Agreement as hereinafter set forth.
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is,
effective as of the date hereof and subject to satisfaction of the conditions
precedent set forth in Section 2, hereby amended as follows:
(a) Section 1.1 of the Credit Agreement is amended by deleting the
definitions of "Alternate Borrowing Base" and "Alternate Borrowing Base
Certificate."
(b) The definition of "Borrowing Base" in Section 1.1 of the
Credit Agreement is amended in full to read as follows:
<PAGE>
"'BORROWING BASE' means the sum of (a) 100% of (i) all cash held
in bank accounts pledged to the Bank pursuant to the Security Agreement
and (ii) all Cash Equivalents held in the custody of, or otherwise
controlled by, the Bank; (b) 95% of Eligible Accounts that are backed by
letters of credit from banks acceptable to the Bank; (c) 85% of Eligible
Accounts other than Eligible Accounts described in (b) above; (d) 80% of
pre-sold Eligible Inventory, valued at the lower of cost and market value;
and (e) 70% of Eligible Inventory, valued at the lower of cost and market
value, other than Eligible Inventory described in (d) above; PROVIDED,
HOWEVER, that the sum of the amounts determined pursuant to (d) and (e)
above shall not exceed $4,000,000 for the purpose of calculating the
Borrowing Base."
(c) The definition of "Working Capital Termination Date" in
Section 1.1 of the Credit Agreement is amended in full to read as follows:
"'WORKING CAPITAL TERMINATION DATE' means June 30, 1993 or any
subsequent date to which the Bank may agree, in its sole discretion, to
extend the Working Capital Commitment."
(d) Section 3.4 of the Credit Agreement is amended in full to read
as follows:
"Section 3.4 BORROWING BASE FEE. Notwithstanding Section 2.10(c), if
the Company fails to prepay and/or pledge any amount required to be prepaid
and/or pledged pursuant to the first sentence of Section 2.14, the Company
shall pay a fee to the Bank on such amount from the date such amount is due
until such amount is paid in full, at the rate PER ANNUM equal at all times
to the sum of the Reference Rate in effect from time to time plus 2% PER
ANNUM, payable on demand; PROVIDED, HOWEVER, that any fee charged pursuant
to this section shall be for a minimum of 7 days. The acceptance by the
Bank of any fees paid pursuant to this section shall not be deemed to be a
waiver of, or to affect in any other way, the Bank's right to exercise, at
any time in its sole discretion, all of its rights and remedies under this
Agreement and the other Operative Agreements, including to declare an Event
of Default, to deny further extensions of credit under this Agreement, to
terminate the Commitment, to collect interest at the Default Rate, to
accelerate the Company's obligations under this Agreement and the other
Operative Agreements and/or to foreclose upon the collateral provided to the
Bank under the Security Documents. Any decision by the Bank to refrain
temporarily from exercising any of the above-mentioned rights and remedies
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<PAGE>
shall not constitute or be deemed to be a waiver of any of such rights and
remedies."
(e) Section 7.1(j) of the Credit Agreement is amended in full to
read as follows:
"(j) not later than Tuesday of every other week, commencing on May
25, 1993, a Borrowing Base Certificate covering the 14-day period ended on
the previous Thursday and, promptly upon request by the Bank from time to
time, additional Borrowing Base Certificates covering such periods as the
Bank may request in its sole discretion; PROVIDED, HOWEVER, that,
without any request by the Bank, the Company shall automatically deliver
to the Bank, not later than the Tuesday after the Company has delivered a
Borrowing Base Certificate showing that the Company is obligated to prepay
Working Capital Loans and/or pledge cash collateral pursuant to the first
sentence of Section 2.14, a Borrowing Base Certificate covering the 7-day
period ended on the previous Thursday;".
(f) Exhibit B to the Credit Agreement is amended in full by
substituting therefor Exhibit B hereto.
(g) Exhibit C to the Credit Agreement is deleted in its entirety.
SECTION 2. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective as of the date first set forth above when the Bank has received a
fee of $10,416.75 and all of the following documents, in form and substance
satisfactory to the Bank:
(a) a consent of Endevco and MKP with respect to this Amendment;
(b) resolutions of the Board of Directors of the Company evidencing
approval of this Amendment and the matters contemplated hereby, certified by
the Secretary or an Assistant Secretary of the Company to be correct and
complete and in full force and effect;
(c) a certificate of the Secretary or an Assistant Secretary of
the Company certifying the names, titles and true signatures of the officers
of the Company authorized to sign this Amendment;
(d) an amendment to the standstill agreement among Endevco and its
creditors evidencing an extension of such agreement to at least June 30, 1993,
certified by the Executive Vice President of the Company to be correct and
complete and in full force and effect; and
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(e) such other documents, instruments and opinions as the Bank may
reasonably request.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF COMPANY. The Company
represents and warrants as follows:
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Texas, is in good
standing as a foreign corporation under the laws of the State of Louisiana and
has all requisite power and authority, corporate or otherwise, to conduct its
business, to own its properties and to execute and deliver, and to perform all
of its obligations under, this Amendment and the other Operative Agreements,
as amended hereby.
(b) The execution, delivery and performance by the Company of this
Amendment and the other Operative Agreements, as amended hereby, have been
duly authorized by all necessary corporate action and do not and will not (i)
require any consent or approval of the stockholders of the Company, (ii)
violate any provision of any Governmental Rule currently in effect having
applicability to the Company or of the charter documents or bylaws of the
Company, (iii) result in a breach of or constitute a default under any
indenture, any loan or credit agreement or any other agreement, lease or
instrument to which the Company is a party or by which it or its properties
may be bound or affected or (iv) result in, or require, the creation or
imposition of any Lien upon or with respect to any of the properties now owned
or hereafter acquired by the Company (other than in favor of the Bank); and
the Company is not in default under any such Governmental Rule or any such
indenture, agreement, lease or instrument.
(c) No Governmental Action is required for the valid execution,
delivery or performance by the Company of this Amendment or any other
Operative Agreement, as amended hereby.
(d) This Amendment and each other Operative Agreement, as amended
hereby, constitute legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms.
(e) There are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or any
of the properties of the Company before any Governmental Person or arbitrator
that, if determined adversely to the Company, would be likely to have a
material adverse effect on the financial condition, properties or operations
of the Company.
(f) The Security Documents constitute valid and perfected
first-priority Liens on the Collateral covered
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thereby, enforceable against all third parties in all jurisdictions, and
secure the payment of all obligations of the Company under the Operative
Agreements, as amended hereby; and the execution, delivery and performance of
this Amendment do not adversely affect the Liens of the Security Documents.
(g) The audited balance sheet of the Company as of December 31,
1992 and the related statements of income and retained earnings of the Company
for the fiscal year then ended, and the unaudited balance sheet of the Company
as of March 31, 1993 and the related statements of income and retained
earnings and changes in financial position for the fiscal quarter then ended,
copies of all of which have been furnished to the Bank, fairly present the
financial condition of the Company as of such dates and the results of the
operations of the Company for the fiscal periods ended on such dates, all in
accordance with generally accepted accounting principles consistently applied,
and since March 31, 1993 there has been no material adverse change in such
condition or operations.
(h) No Default or Event of Default has occurred and is continuing
or would be caused by the execution of this Amendment.
SECTION 4. REFERENCE TO AND EFFECT ON OPERATIVE AGREEMENTS.
(a) On and after the date hereof, each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of
like import, and each reference in the other Operative Agreements to the
"Credit Agreement," "thereunder," "thereof," "therein" or words of like
import, shall mean and be a reference to the Credit Agreement as amended
hereby.
(b) Except as specifically amended in accordance with this
Amendment, the Credit Agreement and the other Operative Agreements shall
remain in full force and effect and are hereby ratified and confirmed.
Without limiting the generality of the foregoing, the Security Documents and
all collateral described therein do and shall continue to secure the payment
of all obligations of the Company under the Credit Agreement, as amended
hereby, and under the other Operative Agreements.
(c) The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of the Bank under
any of the Operative Agreements or constitute a waiver of any provision of any
of the Operative Agreements.
5
<PAGE>
SECTION 5. COSTS, EXPENSES AND TAXES. The Company agrees to pay on
demand all costs and expenses of the Bank in connection with the preparation
of this Amendment and the other instruments and documents to be delivered
hereunder, including the reasonable fees and out-of-pocket expenses of counsel
for the Bank with respect thereto. In addition, the Company shall pay any and
all stamp and other taxes and fees payable or determined to be payable in
connection with the execution of this Amendment and the other instruments and
documents to be delivered hereunder, and the Company agrees to save the Bank
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes, fees, costs or
expenses.
SECTION 6. EXECUTION IN COUNTERPARTS. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which taken together shall constitute one and the
same instrument.
SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.
DUBACH GAS COMPANY
By: ________________________
Jack W. Young
Executive Vice President
UNION BANK
By: ________________________
Walter M. Roth
Vice President
By: ________________________
Name: ______________________
Title: _____________________
6
<PAGE>
EXHIBIT 10.24
[UNION BANK LETTERHEAD]
June 21, 1993
Dubach Gas Company
c/o Endevco, Inc.
8080 North Central Expressway
Dallas, Texas 75206
Attention: Mr. Jack W. Young
Executive Vice President
Re: Eleventh Amendment to Amended and Restated
Term Loan and Revolving Credit Agreement
Gentlemen:
We refer to the Amended and Restated Term Loan and Revolving Credit
Agreement made as of July 26, 1991, as amended by the First Amendment to
Amended and Restated Term Loan and Revolving Credit Agreement dated as of
August 28, 1991, the Second Amendment to Amended and Restated Term Loan and
Revolving Credit Agreement dated July 23, 1992, the Third Amendment to Amended
and Restated Term Loan and Revolving Credit Agreement dated September 21,
1992, the Fourth Amendment to Amended and Restated Term Loan and Revolving
Credit Agreement dated October 22, 1992, the Fifth Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated as of November 30,
1992, the Sixth Amendment to Amended and Restated Term Loan and Revolving
Credit Agreement dated January 29, 1993, the Seventh Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated February 22, 1993 and
the Eighth Amendment to Amended and Restated Term Loan and Revolving Credit
Agreement dated March 22, 1993, the Ninth Amendment to Amended and Restated
Term Loan and Revolving Credit Agreement dated April 26, 1993 and the Tenth
Amendment to Amended and Restated Term Loan and Revolving Credit Agreement
dated as of May 24, 1993 (said Agreement, as so amended, herein called the
"CREDIT AGREEMENT"), between Dubach Gas Company (the "COMPANY") and Union
Bank (the "BANK"). Unless otherwise defined herein, terms defined in the
Credit Agreement are used herein as therein defined.
<PAGE>
Dubach Gas Company
June 21, 1993
Page 2
The Company and the Bank hereby agree that, effective as of the date
first written above (except as provided in paragraphs 1 and 3 below) and
subject to satisfaction of the conditions precedent set forth below, the
Credit Agreement is amended as follows:
1. Effective on July 1, 1993, the definitions of "Letter of Credit
Commitment," "Working Capital Commitment" and "Working Capital Loan
Commitment" in Section 1.1 of the Credit Agreement are amended by deleting the
figure "$25,000,000" wherever it appears therein and substituting the figure
$21,000,000" in each case.
2. The definition of "Working Capital Termination Date" in Section
1.1 of the Credit Agreement is amended in full to read as follows:
"'WORKING CAPITAL TERMINATION DATE' means July 31, 1993 or any
subsequent date to which the Bank may agree, in its sole discretion, to
extend the Working Capital Commitment."
3. Effective on July 1, 1993, Section 2.14 of the Credit Agreement is
amended by deleting the figure "$25,000,000" therein and substituting the
figure "$21,000,000."
4. Exhibit B to the Credit Agreement is deleted and replaced by
Exhibit B hereto.
On and after the effective date of this letter amendment, each reference
in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein"
or words of like import referring to the Credit Agreement, and each reference
in the other Operative Agreements to "the Credit Agreement," "thereunder,"
"thereof," "therein" or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement as amended by
this letter amendment. The Credit Agreement, as amended by this letter
amendment, is and shall continue to be in full force and effect and is hereby
ratified and confirmed in all respects.
This letter amendment may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which counterparts
shall be an original and all of which
<PAGE>
Dubach Gas Company
June 21, 1993
Page 3
taken together shall constitute one and the same letter amendment.
If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning three counterparts of this letter
amendment to the Bank. This letter amendment shall become effective as of the
date first written above (except as provided in paragraph 1 and 3 above) when
and if the Bank receives (1) a fee of $10,416.75 and (2) consents hereto, in
form and substance satisfactory to the Bank, executed by Endevco, Inc. and
M-K-P Operating Company, as subordinated creditors.
The Bank's execution of this letter amendment does not constitute, and
shall not be deemed to be, a release or waiver of any Default or Event of
Default that now exists or that hereafter may exist, and the Bank reserves all
of its rights and remedies with respect to any such Defaults and Events of
Default.
Very truly yours,
UNION BANK
By: ________________________
Walter M. Roth
Vice President
By: ________________________
Name: ______________________
Title: _____________________
<PAGE>
Dubach Gas Company
June 21, 1993
Page 4
Agreed to on June 21, 1993:
DUBACH GAS COMPANY
By: ________________________
Jack W. Young
Executive Vice President
<PAGE>
EXHIBIT 10.25
[UNION BANK LETTERHEAD]
July 19, 1993
Dubach Gas Company
c/o Endevco, Inc.
8080 North Central Expressway
Dallas, Texas 75206
Attention: Mr. Jack W. Young
Executive Vice President
Re: Twelfth Amendment to Amended and Restated
Term Loan and Revolving Credit Agreement
Gentlemen:
We refer to the Amended and Restated Term Loan and Revolving Credit
Agreement made as of July 26, 1991, as amended by the First Amendment to
Amended and Restated Term Loan and Revolving Credit Agreement dated as of
August 28, 1991, the Second Amendment to Amended and Restated Term Loan and
Revolving Credit Agreement dated July 23, 1992, the Third Amendment to Amended
and Restated Term Loan and Revolving Credit Agreement dated September 21,
1992, the Fourth Amendment to Amended and Restated Term Loan and Revolving
Credit Agreement dated October 22, 1992, the Fifth Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated as of November 30,
1992, the Sixth Amendment to Amended and Restated Term Loan and Revolving
Credit Agreement dated January 29, 1993, the Seventh Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated February 22, 1993, the
Eighth Amendment to Amended and Restated Term Loan and Revolving Credit
Agreement dated March 22, 1993, the Ninth Amendment to Amended and Restated
Term Loan and Revolving Credit Agreement dated April 26, 1993, the Tenth
Amendment to Amended and Restated Term Loan and Revolving Credit Agreement
dated as of May 24, 1993 and the Eleventh Amendment to Amended and Restated
Term Loan and Revolving Credit Agreement dated June 21, 1993 (said Agreement,
as so amended, herein called the "CREDIT AGREEMENT"), between Dubach Gas
Company (the "COMPANY") and Union Bank (the "BANK"). Unless otherwise
defined herein, terms defined in the Credit Agreement are used herein as
therein defined.
<PAGE>
Dubach Gas Company
July 19, 1993
Page 2
The Company and the Bank hereby agree that, effective as of August 1,
1993 (except as provided in paragraph 2 below) and subject to satisfaction of
the conditions precedent set forth below, the Credit Agreement is amended as
follows:
1. The definitions of "Letter of Credit Commitment," "Working Capital
Commitment" and "Working Capital Loan Commitment" in Section 1.1 of the Credit
Agreement are amended by deleting the figure "$21,000,000" wherever it appears
therein and substituting the figure "$19,000,000" in each case.
2. Effective as of the date first written above, the definition of
"Working Capital Termination Date" in Section 1.1 of the Credit Agreement is
amended in full to read as follows:
"'WORKING CAPITAL TERMINATION DATE' means August 31, 1993 or any
subsequent date to which the Bank may agree, in its sole discretion, to
extend the Working Capital Commitment."
3. Section 2.14 of the Credit Agreement is amended by deleting the
figure "$21,000,000" therein and substituting the figure "$19,000,000."
4. Exhibit B to the Credit Agreement is deleted and replaced by
Exhibit B hereto.
On and after the effective date of this letter amendment, each reference
in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein"
or words of like import referring to the Credit Agreement, and each reference
in the other Operative Agreements to "the Credit Agreement," "thereunder,"
"thereof," "therein" or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement as amended by
this letter amendment. The Credit Agreement, as amended by this letter
amendment, is and shall continue to be in full force and effect and is hereby
ratified and confirmed in all respects.
This letter amendment may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which counterparts
shall be an original and all of which taken together shall constitute one and
the same letter amendment.
<PAGE>
Dubach Gas Company
July 19, 1993
Page 3
If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning three counterparts of this letter
amendment to the Bank. This letter amendment shall become effective as of
August 1, 1993 (except as provided in paragraph 2 above) when and if the Bank
receives (1) a fee of $8,750 and (2) consents hereto, in form and substance
satisfactory to the Bank, executed by Endevco, Inc. and M-K-P Operating
Company, as subordinated creditors.
The Bank's execution of this letter amendment does not constitute, and
shall not be deemed to be, a release or waiver of any Default or Event of
Default that now exists or that hereafter may exist, and the Bank reserves all
of its rights and remedies with respect to any such Defaults and Events of
Default.
Very truly yours,
UNION BANK
By: ________________________
Walter M. Roth
Vice President
By: ________________________
Name: ______________________
Title: _____________________
Agreed to on July 19, 1993:
DUBACH GAS COMPANY
By: ________________________
Jack W. Young
Executive Vice President
<PAGE>
EXHIBIT 10.26
[UNION BANK LETTERHEAD]
August 23, 1993
Dubach Gas Company
c/o Endevco, Inc.
8080 North Central Expressway
Dallas, Texas 75206
Attention: Mr. Jack W. Young
Executive Vice President
Re: Thirteenth Amendment to Amended and Restated
Term Loan and Revolving Credit Agreement
Gentlemen:
We refer to the Amended and Restated Term Loan and Revolving Credit
Agreement made as of July 26, 1991, as amended by the First Amendment to
Amended and Restated Term Loan and Revolving Credit Agreement dated as of
August 28, 1991, the Second Amendment to Amended and Restated Term Loan and
Revolving Credit Agreement dated July 23, 1992, the Third Amendment to Amended
and Restated Term Loan and Revolving Credit Agreement dated September 21,
1992, the Fourth Amendment to Amended and Restated Term Loan and Revolving
Credit Agreement dated October 22, 1992, the Fifth Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated as of November 30,
1992, the Sixth Amendment to Amended and Restated Term Loan and Revolving
Credit Agreement dated January 29, 1993, the Seventh Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated February 22, 1993, the
Eighth Amendment to Amended and Restated Term Loan and Revolving Credit
Agreement dated March 22, 1993, the Ninth Amendment to Amended and Restated
Term Loan and Revolving Credit Agreement dated April 26, 1993, the Tenth
Amendment to Amended and Restated Term Loan and Revolving Credit Agreement
dated as of May 24, 1993, the Eleventh Amendment to Amended and Restated Term
Loan and Revolving Credit Agreement dated June 21, 1993 and the Twelfth
Amendment to Amended and Restated Term Loan and Revolving Credit Agreement
dated July 19, 1993 (said Agreement, as so amended, herein called the "CREDIT
AGREEMENT"), between Dubach Gas Company (the "COMPANY") and Union Bank (the
"BANK"). Unless otherwise defined herein, terms defined in the Credit
Agreement are used herein as therein defined.
<PAGE>
Dubach Gas Company
August 23, 1993
Page 2
The Company and the Bank hereby agree that, effective as of September 1,
1993 (except as provided in paragraph 2 below) and subject to satisfaction of
the conditions precedent set forth below, the Credit Agreement is amended as
follows:
1. The definitions of "Letter of Credit Commitment," "Working Capital
Commitment" and "Working Capital Loan Commitment" in Section 1.1 of the Credit
Agreement are amended by deleting the figure "$19,000,000" wherever it appears
therein and substituting the figure "$16,000,000" in each case.
2. Effective as of the date first written above, the definition of
"Working Capital Termination Date" in Section 1.1 of the Credit Agreement is
amended in full to read as follows:
"'WORKING CAPITAL TERMINATION DATE' means September 30, 1993 or
any subsequent date to which the Bank may agree, in its sole discretion,
to extend the Working Capital Commitment."
3. Section 2.14 of the Credit Agreement is amended by deleting the
figure "$19,000,000" therein and substituting the figure "$16,000,000."
4. Exhibit B to the Credit Agreement is deleted and replaced by
Exhibit B hereto.
On and after the effective date of this letter amendment, each reference
in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein"
or words of like import referring to the Credit Agreement, and each reference
in the other Operative Agreements to "the Credit Agreement," "thereunder,"
"thereof," "therein" or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement as amended by
this letter amendment. The Credit Agreement, as amended by this letter
amendment, is and shall continue to be in full force and effect and is hereby
ratified and confirmed in all respects.
This letter amendment may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which counterparts
shall be an original and all of which taken together shall constitute one and
the same letter amendment.
<PAGE>
Dubach Gas Company
August 23, 1993
Page 3
If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning three counterparts of this letter
amendment to the Bank. This letter amendment shall become effective as of
September 1, 1993 (except as provided in paragraph 2 above) when and if the
Bank receives (1) a fee of $7,917 and (2) consents hereto, in form and
substance satisfactory to the Bank, executed by Endevco, Inc. and M-K-P
Operating Company, as subordinated creditors.
The Bank's execution of this letter amendment does not constitute, and
shall not be deemed to be, a release or waiver of any Default or Event of
Default that now exists or that hereafter may exist, and the Bank reserves all
of its rights and remedies with respect to any such Defaults and Events of
Default.
Very truly yours,
UNION BANK
By: ________________________
Walter M. Roth
Vice President
By: ________________________
Name: ______________________
Title: _____________________
Agreed to on August 23, 1993:
DUBACH GAS COMPANY
By: ________________________
Jack W. Young
Executive Vice President
<PAGE>
EXHIBIT 10.27
[UNION BANK LETTERHEAD]
September 21, 1993
Dubach Gas Company
c/o Endevco, Inc.
8080 North Central Expressway
Dallas, Texas 75206
Attention: Mr. Jack W. Young
Executive Vice President
Re: Fourteenth Amendment to Amended and Restated
Term Loan and Revolving Credit Agreement
Gentlemen:
We refer to the Amended and Restated Term Loan and Revolving Credit
Agreement made as of July 26, 1991, as amended by the First Amendment to
Amended and Restated Term Loan and Revolving Credit Agreement dated as of
August 28, 1991, the Second Amendment to Amended and Restated Term Loan and
Revolving Credit Agreement dated July 23, 1992, the Third Amendment to Amended
and Restated Term Loan and Revolving Credit Agreement dated September 21,
1992, the Fourth Amendment to Amended and Restated Term Loan and Revolving
Credit Agreement dated October 22, 1992, the Fifth Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated as of November 30,
1992, the Sixth Amendment to Amended and Restated Term Loan and Revolving
Credit Agreement dated January 29, 1993, the Seventh Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated February 22, 1993, the
Eighth Amendment to Amended and Restated Term Loan and Revolving Credit
Agreement dated March 22, 1993, the Ninth Amendment to Amended and Restated
Term Loan and Revolving Credit Agreement dated April 26, 1993, the Tenth
Amendment to Amended and Restated Term Loan and Revolving Credit Agreement
dated as of May 24, 1993, the Eleventh Amendment to Amended and Restated Term
Loan and Revolving Credit Agreement dated June 21, 1993, the Twelfth Amendment
to Amended and Restated Term Loan and Revolving Credit Agreement dated July
19, 1993 and the Thirteenth Amendment to Amended and Restated Term Loan and
Revolving Credit Agreement dated August 23, 1993 (said Agreement, as so
amended, herein called the "CREDIT AGREEMENT"), between Dubach Gas Company
(the "COMPANY") and Union Bank (the "BANK"). Unless otherwise defined
<PAGE>
Dubach Gas Company
September 31, 1993
Page 2
herein, terms defined in the Credit Agreement are used herein as therein
defined.
The Borrower has informed the Bank that certain contracts for the sale
of natural gas by the Borrower's affiliate Endevco Oil & Gas Company may be
assigned or otherwise transferred to the Borrower and that, therefore, an
expected further reduction of the Borrower's working capital needs has not
occurred. Accordingly, the Borrower has requested that the Commitment not be
further reduced at this time, and the Bank has agreed to the Borrower's
request.
The Company and the Bank wish, however, to make certain other changes to
the Credit Agreement, and, accordingly, they hereby agree that, effective as
of the date first written above and subject to satisfaction of the conditions
precedent set forth below, the Credit Agreement is amended as follows:
1. The definitions of "Alternate Borrowing Base" and "Borrowing Base"
in Section 1.1 of the Credit Agreement are amended by deleting the figure
$4,000,000" wherever it appears theein and subtituting the figure "$3,000,000"
in each case.
2. Effective as of the date first written above, the definition of
"Working Capital Termination Date" in Section 1.1 of the Credit Agreement is
amended in full to read as follows:
"'WORKING CAPITAL TERMINATION DATE' means October 31, 1993 or
any subsequent date to which the Bank may agree, in its sole discretion,
to extend the Working Capital Commitment."
3. Exhibit B to the Credit Agreement is deleted and replaced by
Exhibit B hereto.
On and after the effective date of this letter amendment, each reference
in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein"
or words of like import referring to the Credit Agreement, and each reference
in the other Operative Agreements to "the Credit Agreement," "thereunder,"
"thereof," "therein" or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement as amended by
this letter amendment. The Credit Agreement, as amended by this letter
amendment, is and shall continue to be in full force and effect and is hereby
ratified and confirmed in all respects.
<PAGE>
Dubach Gas Company
September 31, 1993
Page 3
This letter amendment may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which counterparts
shall be an original and all of which taken together shall constitute one and
the same letter amendment.
If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning three counterparts of this letter
amendment to the Bank. This letter amendment shall become effective as of the
date first written above when and if the Bank receives (1) a fee of $6,667 and
(2) consents hereto, in form and substance satisfactory to the Bank, executed
by Endevco, Inc. and M-K-P Operating Company, as subordinated creditors.
The Bank's execution of this letter amendment does not constitute, and
shall not be deemed to be, a release or waiver of any Default or Event of
Default that now exists or that hereafter may exist, and the Bank reserves all
of its rights and remedies with respect to any such Defaults and Events of
Default.
Very truly yours,
UNION BANK
By: ________________________
Walter M. Roth
Vice President
By: ________________________
Name: ______________________
Title: _____________________
<PAGE>
Dubach Gas Company
September 31, 1993
Page 4
Agreed to on September 21, 1993:
DUBACH GAS COMPANY
By: ________________________
Jack W. Young
Executive Vice President
<PAGE>
EXHIBIT 10.28
[UNION BANK LETTERHEAD]
October 28, 1993
Dubach Gas Company
c/o Endevco, Inc.
8080 North Central Expressway
Dallas, Texas 75206
Attention: Mr. Jack W. Young
Executive Vice President
Re: Fifteenth Amendment to Amended and Restated
Term Loan and Revolving Credit Agreement
Gentlemen:
We refer to the Amended and Restated Term Loan and Revolving Credit
Agreement made as of July 26, 1991, as amended by the First Amendment to
Amended and Restated Term Loan and Revolving Credit Agreement dated as of
August 28, 1991, the Second Amendment to Amended and Restated Term Loan and
Revolving Credit Agreement dated July 23, 1992, the Third Amendment to Amended
and Restated Term Loan and Revolving Credit Agreement dated September 21,
1992, the Fourth Amendment to Amended and Restated Term Loan and Revolving
Credit Agreement dated October 22, 1992, the Fifth Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated as of November 30,
1992, the Sixth Amendment to Amended and Restated Term Loan and Revolving
Credit Agreement dated January 29, 1993, the Seventh Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated February 22, 1993, the
Eighth Amendment to Amended and Restated Term Loan and Revolving Credit
Agreement dated March 22, 1993, the Ninth Amendment to Amended and Restated
Term Loan and Revolving Credit Agreement dated April 26, 1993, the Tenth
Amendment to Amended and Restated Term Loan and Revolving Credit Agreement
dated as of May 24, 1993, the Eleventh Amendment to Amended and Restated Term
Loan and Revolving Credit Agreement dated June 21, 1993, the Twelfth Amendment
to Amended and Restated Term Loan and Revolving Credit Agreement dated July
19, 1993, the Thirteenth Amendment to Amended and Restated Term Loan and
Revolving Credit Agreement dated August 23, 1993 and the Fourteenth Amendment
to Amended and Restated Term Loan and Revolving Credit Agreement dated
September 21, 1993 (said Agreement, as so amended, herein called the
<PAGE>
Dubach Gas Company
October 28, 1993
Page 2
"CREDIT AGREEMENT"), between Dubach Gas Company (the "COMPANY") and Union
Bank (the "BANK"). Unless otherwise defined herein, terms defined in the
Credit Agreement are used herein as therein defined.
1. The Company and the Bank hereby agree that, effective as of the date
first written above and subject to satisfaction of the conditions precedent
set forth below, the Credit Agreement is amended as follows:
(a) The definitions of "Letter of Credit Commitment," "Working
Capital Commitment" and "Working Capital Loan Commitment" in Section 1.1 of
the Credit Agreement are amended by deleting the figure "$16,000,000" wherever
it appears therein and substituting the figure "$13,000,000" in each case.
(b) Section 1.1 of the Credit Agreement is amended by adding the
following new definition in appropriate alphabetical order:
"'EFFECTIVE DATE' means the date on which Endevco's plan of
reorganization in Case No. 93-40806A in the United States Bankruptcy
Court for the Eastern District of Texas, Sherman Division, becomes
effective."
(c) The definition of "Working Capital Loan Commitment" in Section
1.1 of the Credit Agreement is amended by adding the following new proviso at
the end thereof:
"; and FURTHER PROVIDED, HOWEVER, that the Working Capital Loan
Commitment shall automatically terminate on the Effective Date."
(d) The definition of "Working Capital Termination Date" in
Section 1.1 of the Credit Agreement is amended in full to read as follows:
"'WORKING CAPITAL TERMINATION DATE' means December 31, 1993 or
any subsequent date to which the Bank may agree, in its sole discretion,
to extend the Working Capital Commitment."
(e) Section 2.1(c) of the Credit Agreement is amended by deleting
the words "Working Capital Termination Date" therein
<PAGE>
Dubach Gas Company
October 28, 1993
Page 3
and substituting the words "Effective Date."
(f) Section 2.3 of the Credit Agreement is amended by (i) deleting
the words "Term Loan Termination Date" in Section 2.3(a) and substituting the
words "Effective Date," (ii) deleting the words "Term Loan Termination Date"
in Section 2.3(b) and substituting the date "November 29, 1993" and (iii)
deleting the words "Working Capital Termination Date" in Section 2.3(c) and
substituting the words "Effective Date."
(g) Section 2.14 of the Credit Agreement is amended by deleting
the figure "$16,000,000" therein and substituting the figure "$13,000,000."
(h) Section 8.1 of the Credit Agreement is amended by deleting the
word "or" at the end of subsection (j), adding the word "or" at the end of
subsection (k) and adding the following new subsection (l):
"(l) Endevco does not deliver to the Bank on the Effective Date a
guaranty of the Company's obligations under this Agreement and the other
Operative Agreements, in form and substance satisfactory to the Bank;".
(i) Exhibit B to the Credit Agreement is deleted and replaced by
Exhibit B-1 hereto.
2. The Company and the Bank hereby agree that, effective as of the date
first written above and subject to satisfaction of the conditions precedent
set forth below, the Notes are amended by (a) deleting the words "Term Loan
Termination Date" in the first sentence of the Acquisition Loan Note and
substituting the words "Effective Date," (b) deleting the words "Term Loan
Termination Date" in the first sentence of the Debt Reserve Loan Note and
substituting the date "November 29, 1993" and (c) deleting the words "Working
Capital Termination Date" in the first sentence of the Working Capital Loan
Note and substituting the words "Effective Date." Upon the effectiveness of
this paragraph 2, the Bank shall be authorized to endorse the following
legend (using the appropriate bracketed words) on each of the Notes:
"Pursuant to the Fifteenth Amendment to Amended and Restated Term Loan
and Revolving Credit Agreement dated October 28, 1993 between the Company
and the Bank, the
<PAGE>
Dubach Gas Company
October 28, 1993
Page 4
maturity date of this Note has been changed to [the 'Effective Date,' as
defined in said Amendment] [November 29, 1993]."
3. The Company and the Bank hereby agree that, effective as of the
Effective Date (as defined in paragraph 1(b) above), without any further
action by the Company or the Bank, the Credit Agreement shall be amended as
follows:
(a) The definitions of "Letter of Credit Commitment" and "Working
Capital Commitment" in Section 1.1 of the Credit Agreement shall be amended by
deleting the figure "$13,000,000" wherever it appears therein and substituting
the figure "$10,000,000" in each case.
(b) Section 2.14 of the Credit Agreement shall be amended by
deleting the figure "$13,000,000" therein and substituting the figure
"$10,000,000."
(c) Exhibit B to the Credit Agreement shall be deleted and
replaced by Exhibit B-2 hereto.
On and after the effective date of this letter amendment, each reference
in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein"
or words of like import referring to the Credit Agreement, and each reference
in the other Operative Agreements to "the Credit Agreement," "thereunder,"
"thereof," "therein" or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement as amended by
this letter amendment. The Credit Agreement, as amended by this letter
amendment, is and shall continue to be in full force and effect and is hereby
ratified and confirmed in all respects.
This letter amendment may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which counterparts
shall be an original and all of which taken together shall constitute one and
the same letter amendment.
If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning three counterparts of this letter
amendment to the Bank. This letter amendment shall become effective as of the
date first written above when and if the Bank receives (1) a fee of $9,583;
<PAGE>
Dubach Gas Company
October 28, 1993
Page 5
(2) consents hereto, in form and substance satisfactory to the Bank, executed
by Endevco and M-K-P Operating Company, as subordinated creditors; and (3) a
written agreement of Ray Davis, in form and substance satisfactory to the
Bank, to cause Endevco to deliver to the Bank on the Effective Date a guaranty
of the Company's obligations under the Credit Agreement and the other
Operative Agreements, in form and substance satisfactory to the Bank.
The Bank's execution of this letter amendment does not constitute, and
shall not be deemed to be, a release or waiver of any Default or Event of
Default that now exists or that hereafter may exist, and the Bank reserves all
of its rights and remedies with respect to any such Defaults and Events of
Default.
Very truly yours,
UNION BANK
By: ________________________
Walter M. Roth
Vice President
By: ________________________
Name: ______________________
Title: _____________________
Agreed to as of October 28, 1993:
DUBACH GAS COMPANY
By: ________________________
Jack W. Young
Executive Vice President
<PAGE>
EXHIBIT 10.29
[UNION BANK LETTERHEAD]
December 21, 1993
Dubach Gas Company
c/o Cornerstone Natural Gas, Inc.
8080 North Central Expressway
Dallas, Texas 75206
Attention: Mr. Jack W. Young
Executive Vice President
Re: Sixteenth Amendment to Amended and Restated
Term Loan and Revolving Credit Agreement
Gentlemen:
We refer to the Amended and Restated Term Loan and Revolving Credit
Agreement made as of July 26, 1991, as amended by the First Amendment to
Amended and Restated Term Loan and Revolving Credit Agreement dated as of
August 28, 1991, the Second Amendment to Amended and Restated Term Loan and
Revolving Credit Agreement dated July 23, 1992, the Third Amendment to Amended
and Restated Term Loan and Revolving Credit Agreement dated September 21,
1992, the Fourth Amendment to Amended and Restated Term Loan and Revolving
Credit Agreement dated October 22, 1992, the Fifth Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated as of November 30,
1992, the Sixth Amendment to Amended and Restated Term Loan and Revolving
Credit Agreement dated January 29, 1993, the Seventh Amendment to Amended and
Restated Term Loan and Revolving Credit Agreement dated February 22, 1993, the
Eighth Amendment to Amended and Restated Term Loan and Revolving Credit
Agreement dated March 22, 1993, the Ninth Amendment to Amended and Restated
Term Loan and Revolving Credit Agreement dated April 26, 1993, the Tenth
Amendment to Amended and Restated Term Loan and Revolving Credit Agreement
dated as of May 24, 1993, the Eleventh Amendment to Amended and Restated Term
Loan and Revolving Credit Agreement dated June 21, 1993, the Twelfth Amendment
to Amended and Restated Term Loan and Revolving Credit Agreement dated July
19, 1993, the Thirteenth Amendment to Amended and Restated Term Loan and
Revolving Credit Agreement dated August 23, 1993, the Fourteenth Amendment to
Amended and Restated Term Loan and Revolving Credit Agreement dated September
21, 1993 and the Fifteenth Amendment to Amended and Restated Term Loan and
Revolving Credit Agreement dated October 28, 1993 (said Agreement, as so
amended, herein called the "CREDIT AGREEMENT"),
<PAGE>
Dubach Gas Company
December 21, 1993
Page 2
between Dubach Gas Company (the "COMPANY") and Union Bank (the "BANK").
Unless otherwise defined herein, terms defined in the Credit Agreement are
used herein as therein defined.
The Company and the Bank hereby agree that, effective as of the date
first written above and subject to satisfaction of the conditions precedent
set forth below, the Credit Agreement is amended as follows:
1. The definition of "Working Capital Termination Date" in Section
1.1 of the Credit Agreement is amended in full to read as follows:
"'WORKING CAPITAL TERMINATION DATE' means February 28, 1994 or
any subsequent date to which the Bank may agree, in its sole discretion,
to extend the Working Capital Commitment."
2. Section 7.14 of the Credit Agreement is amended in full to read
as follows:
"Section 7.14 RESTRICTED PAYMENTS. The Company shall not make,
pay, prepay, declare or provide any sum for Restricted Payments,
including (a) any repayment to Cornerstone Natural Gas, Inc. (formerly
known as "Endevco, Inc."; herein called "Cornerstone") or any other
Affiliate of the Company of any loan, advance or other extension of
credit to the Company by Cornerstone or such Affiliate and (b) any
payment of any other amount owed by the Company to Cornerstone or any
other Affiliate of the Company; PROVIDED, HOWEVER, that the Company
may make any payments to Endevco Natural Gas required by the Operating
Agreement."
On and after the effective date of this letter amendment, each reference
in the Credit Agreement to "this Agreement," "hereunder," "hereof," "herein"
or words of like import referring to the Credit Agreement, and each reference
in the other Operative Agreements to "the Credit Agreement," "thereunder,"
"thereof," "therein" or words of like import referring to the Credit
Agreement, shall mean and be a reference to the Credit Agreement as amended
by this letter amendment. The Credit Agreement, as amended by this letter
amendment, is and shall continue to be in full force and effect and is hereby
ratified and confirmed in all respects.
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Dubach Gas Company
December 21, 1993
Page 3
This letter amendment may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which counterparts
shall be an original and all of which taken together shall constitute one and
the same letter amendment.
If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning three counterparts of this letter
amendment to the Bank. This letter amendment shall become effective as of the
date first written above when and if the Bank receives (1) a fee of $50,000;
(2) a consent hereto, in form and substance satisfactory to the Bank, executed
by Cornerstone Natural Gas, Inc., as guarantor and subordinated creditor; and
(3) an amendment to the Intercreditor Amendment dated as of November 2, 1993
between the Bank and Bank of Oklahoma, National Association ("BOK"), in form
and substance satisfactory to the Bank, duly executed by BOK.
The Bank's execution of this letter amendment does not constitute, and
shall not be deemed to be, a release or waiver of any Default or Event of
Default that now exists or that hereafter may exist, and the Bank reserves all
of its rights and remedies with respect to any such Defaults and Events of
Default.
Very truly yours,
UNION BANK
By: ________________________
Walter M. Roth
Vice President
By: ________________________
Name: ______________________
Title: _____________________
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Dubach Gas Company
December 21, 1993
Page 4
Agreed to as of December 21, 1993:
DUBACH GAS COMPANY
By: ________________________
Name: ______________________
Title: _____________________
<PAGE>
Exhibit 10.39
ENERGY TRANSFER CORPORATION
March 23, 1994
Cornerstone Natural Gas, Inc.
8080 N. Central Expressway, Suite 1200
Dallas, Texas 75206
Re: OPERATING AGREEMENT OF THE OLETHA GAS GATHERING SYSTEM LOCATED IN LIMESTONE
COUNTY, TEXAS
Gentlemen:
This letter will outline the Agreement between Cornerstone Natural Gas, Inc., a
Delaware corporation ("Cornerstone"), and Energy Transfer Corporation, a Texas
corporation ("ETC"), on the management and operations of the Oletha Gas
Gathering System ("System").
SCOPE: The scope of the day-to-day operations of the System shall include:
1) Measurement, calibration, and integration of all charts on the meters
that are located at or near the wellhead of the wells connected to
the System, in a manner that is customary to and consistent with
industry standards, including the frequency of changing charts and
the calibration of meters.
2) Lone Star Master Meter interconnect shall be maintained by
Cornerstone.
3) Marketing of the gas shall be done by Cornerstone as well as gas
control. Cornerstone shall not be liable for any imbalances that it
causes whether or not it could have prevented it. Cornerstone will
make its best effort to prevent any gas control penalties incurred
for under or over deliveries of gas, but shall have no risk. ETC
will approve or disapprove the marketing of the gas.
4) Scope does not include gas accounting, except gas imbalancing and
invoicing.
5) Scope includes oversight of operation of Compression or Dehydration
or other such equipment, or clearing of right-of-way but not the
physical or mechanical operation.
TERM: The term of this Agreement shall be one (1) year from June 1, 1993,
and shall continue in effect month-to-month thereafter. Either party
shall have thirty (30) days to give notice to cancel this Agreement at
any time.
P.O. BOX 1494, LONGVIEW TEXAS 75606
<PAGE>
Cornerstone-Oletha Agreement
March 23, 1994
Page two of two
FEE: The fee shall be $5,000.00 a month for the services outlined in the
Scope; Cornerstone shall bill ETC at the end of the month.
HOOK-UPS/ADDITIONAL WELLS:
Cornerstone will provide the necessary engineering and supervision for
hooking up additional wells or meter taps.
INSURANCE:
ETC acknowledges that it is responsible for providing the necessary and
customary property and casualty insurance on the System which
Cornerstone may, but is not obligated to, request.
REGULATORY MATTERS:
ETC acknowledges that it is responsible for all filings and reporting,
both Federal and State, regarding the operation of this System.
Sincerely Yours,
ENERGY TRANSFER CORPORATION,
GENERAL PARTNER
Kelcy L. Warren
President & Chief Executive Officer
Accepted and Agreed this 23rd day of March 1994
but effective as of June 1, 1993:
CORNERSTONE NATURAL GAS, INC.
By:_____________________________________
Name:__________________________________
Title:___________________________________
P.O. BOX 1494, LONGVIEW TEXAS 75606
<PAGE>
Exhibit 10.42
________________________________________________________________________________
________________________________________________________________________________
WARRANT
CORNERSTONE NATURAL GAS, INC.
(formerly Endevco, Inc.)
a Delaware Corporation
(the "Company")
To Purchase
Shares of the Company's Common Stock
granted to
___________________
November 2, 1993
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
EXERCISE OF WARRANT . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 MANNER OF EXERCISE. . . . . . . . . . . . . . . . . . . . . . 2
1.2 WHEN EXERCISE EFFECTIVE . . . . . . . . . . . . . . . . . . . 2
1.3 DELIVERY OF STOCK CERTIFICATES, ETC. . . . . . . . . . . . . 2
(a) CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . 2
(b) WARRANT. . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 COMPANY TO REAFFIRM OBLIGATIONS . . . . . . . . . . . . . . . 3
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE . . . . . . . . . . . 3
2.1 GENERAL; WARRANT PRICE. . . . . . . . . . . . . . . . . . . . 3
2.2 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK . . . . . . . . 3
2.3 EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS . . . . . . . . . . 4
2.4 TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES . . . . . . . 4
2.5 TREATMENT OF STOCK DIVIDENDS, STOCK SPLITS, ETC.. . . . . . . 5
2.6 COMPUTATION OF CONSIDERATION. . . . . . . . . . . . . . . . . 5
(a) SHARES ACTUALLY ISSUED. . . . . . . . . . . . . . . . . . 5
(b) SHARES DEEMED ISSUED . . . . . . . . . . . . . . . . . . 6
(c) STOCK DIVIDENDS, ETC.. . . . . . . . . . . . . . . . . . 7
(d) SERVICES . . . . . . . . . . . . . . . . . . . . . . . . 7
2.7 ADJUSTMENTS FOR COMBINATIONS, ETC . . . . . . . . . . . . . . 7
2.8 DILUTION IN CASE OF OTHER SECURITIES. . . . . . . . . . . . . 7
2.9 APPRECIATION RIGHTS . . . . . . . . . . . . . . . . . . . . . 7
(a) VALUE BASED ON DIVIDENDS . . . . . . . . . . . . . . . . 7
(b) VALUE BASED ON LIQUIDATING DISTRIBUTIONS . . . . . . . . 7
(c) VALUE BASED ON DIVIDENDS AND LIQUIDATING DISTRI-
BUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . 8
(d) OTHER PROFITS. . . . . . . . . . . . . . . . . . . . . . 8
Section 2.10 MINIMUM ADJUSTMENT OF WARRANT PRICE . . . . . . . . . . . 8
ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
CONSOLIDATION, MERGER, ETC. . . . . . . . . . . . . . . . . . . . . . . 8
3.1 CONSOLIDATION, MERGER, SALE OF ASSETS, REORGANIZATION, ETC. . 8
3.2 ASSUMPTION OF OBLIGATIONS . . . . . . . . . . . . . . . . . . 10
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
OTHER PROVISIONS CONCERNING DILUTION. . . . . . . . . . . . . . . . . . 10
4.1 OTHER DILUTIVE EVENTS . . . . . . . . . . . . . . . . . . . . 10
4.2 NO DILUTION OR IMPAIRMENT . . . . . . . . . . . . . . . . . . 11
4.3 ACCOUNTANT'S AND COMPANY'S REPORT AS TO ADJUSTMENTS . . . . . 11
4.4 NOTICES OF CORPORATE ACTION . . . . . . . . . . . . . . . . . 12
i
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4.5 AVAILABILITY OF INFORMATION . . . . . . . . . . . . . . . . . 13
4.6 RESERVATION OF STOCK, ETC . . . . . . . . . . . . . . . . . . 13
ARTICLE V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 RESTRICTIVE LEGENDS . . . . . . . . . . . . . . . . . . . . . 13
5.2 NOTICE OF PROPOSED TRANSFER; OPINIONS OF COUNSEL . . . . . . 14
5.3 TERMINATION OF RESTRICTIONS . . . . . . . . . . . . . . . . . 14
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS. . . . . . . . . . . . 14
6.1 OWNERSHIP OF WARRANTS . . . . . . . . . . . . . . . . . . . . 14
6.2 OFFICE, TRANSFER AND EXCHANGE OF WARRANTS . . . . . . . . . . 14
(a) OFFICE. . . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) NEW WARRANT . . . . . . . . . . . . . . . . . . . . . . . 15
6.3 REPLACEMENT OF WARRANTS . . . . . . . . . . . . . . . . . . . 15
ARTICLE VII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.1 REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.2 NO RIGHTS OR LIABILITIES AS STOCKHOLDER . . . . . . . . . . . 19
8.3 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.4 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 19
8.5 EXPIRATION. . . . . . . . . . . . . . . . . . . . . . . . . . 19
ii
<PAGE>
This Warrant and any Shares acquired upon the exercise of this Warrant
have not been registered under the Securities Act of 1933, as amended, and
may not be transferred, sold or otherwise disposed of in the absence of
such registration or an exemption therefrom under such Act. This Warrant
and such Shares may be transferred only in compliance with the conditions
specified in this Warrant, a copy of which is available from the Company to
holders of this Warrant.
CORNERSTONE NATURAL GAS, INC.
(formerly Endevco, Inc.)
Warrant
No. W-5 November 2, 1993
Cornerstone Natural Gas, Inc. (formerly Endevco, Inc.), (the "Company"), a
Delaware corporation, for value received, hereby certifies that
________________, or registered assigns, is entitled to purchase from the
Company ______________________________________ duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock, $0.10 par value (the
"Common Stock") at any time or from time to time prior to 5:00 p.m., Houston
time, on the Expiration Date, all subject to terms, conditions and adjustments
set forth in this Warrant.
This is one of the Warrants (the "Warrant") (such term to include any
warrants issued in substitution therefor) originally issued pursuant to the
Stock Purchase Agreement. The Warrants originally so issued evidence the right
to purchase an aggregate of _______________________________________ shares of
Common Stock subject to adjustment as provided herein. Certain capitalized
terms used in this Warrant are defined in Article VII; unless otherwise
specified, references to an "Exhibit" mean one of the exhibits attached to this
Warrant, references to an "Article" mean one of the articles in this Warrant,
and references to a "Section" mean one of the sections of this Warrant.
<PAGE>
ARTICLE I
EXERCISE OF WARRANT
Section 1.1 MANNER OF EXERCISE. This Warrant may be exercised by the
holder hereof, in whole or in part, during normal business hours on any Business
Day, by surrender of this Warrant to the Company at its office maintained
pursuant to subdivision (a) of Suction 6.2, accompanied by a subscription in
substantially the form attached to this Warrant (or a reasonable facsimile
thereof) duly executed by such holder and accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company in the
amount obtained by multiplying (a) the number of shares of Common Stock (without
giving effect to any adjustment thereof) designated in such subscription by (b)
the Initial Price, and such holder shall thereupon be entitled to receive the
number of duly authorized, validly issued, fully paid and nonassessable shares
of Common Stock (or Other Securities) determined as provided in Articles II
through IV.
Section 1.2 WHEN EXERCISE EFFECTIVE. Each exercise of this Warrant shall
be deemed to have been effected immediately prior to the close of business on
the Business Day on which this Warrant shall have been surrendered to the
Company as provided in Section 1.1, and at such time the Person or Persons in
whose name or names any certificate or certificates for shares of Common Stock
(or Other Securities) shall be issuable upon such exercise as provided in
Section 1.3 shall be deemed to have become the holder or holders of record
thereof.
Section 1.3 DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable
after each exercise of this Warrant, in whole or in part, and in any event
within five Business Days thereafter, the Company, at its expense (including the
payment by it of any applicable issue taxes), will cause to be issued in the
name of and delivered to the holder hereof, subject to Article V, as such holder
(upon payment by such holder of any applicable transfer taxes) may direct, the
following:
(a) CERTIFICATES. A certificate or certificates for the number of
duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such holder shall be entitled
upon such exercise plus, in lieu of any fractional share to which such
holder would otherwise be entitled, cash in an amount equal to the same
fraction of the Market Price per share on the Business Day next preceding
the date of such exercise.
(b) WARRANT. In case such exercise is in part only, unless this
Warrant has expired, a new Warrant or Warrants of like tenor dated the date
hereof, calling in the aggregate on the face or faces thereof for the
number of shares of Common
2
<PAGE>
Stock equal (without giving effect to any adjustment thereof) to the number
of such shares called for on the face of this Warrant minus the number of
such shares designated by the holder upon such exercise as provided in
Section 1.1.
Section 1.4 COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at the
time of each exercise of this Warrant, upon the request of the holder hereof,
acknowledge in writing its continuing obligation to afford to such holder all
rights of the Common Stock or Other Securities issued upon such exercise to
which such holder shall continue to be entitled after such exercise in
accordance with the terms of this Warrant; provided, that if the holder of this
Warrant shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford such rights to such holder.
ARTICLE II
ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE
Section 2.1 GENERAL; WARRANT PRICE. The number of shares of Common Stock
which the holder of this Warrant shall be entitled to receive upon each exercise
hereof shall be determined by multiplying the number of shares of Common Stock
which would otherwise (but for the provisions of this Article II) be issuable
upon such exercise, as designated by the holder hereof pursuant to Section 1.1,
by a fraction (the "Dilution Factor") (a) the numerator of which is the Initial
Price and (b) the denominator of which is the Warrant Price in effect at the
effective time of such exercise (as provided in Section 1.2). The "Warrant
Price" shall initially be the Initial Price, shall be adjusted and readjusted
from time to time as provided in this Article II and, as so adjusted or
readjusted, shall remain in effect until a further adjustment or readjustment
thereof is required by this Article II.
Section 2.2 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case the
Company at any time or from time to time after the date hereof shall issue or
sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to section 2.4 or 2.5) without consideration
or for a consideration per share less than the Dilutive Basis, then, and in each
such case, such Warrant Price shall be reduced, concurrently with such issue or
sale, to the lower of the prices (calculated to the nearest cent) determined as
follows:
(a) by multiplying the Warrant Price then in existence by a fraction,
the numerator of which shall be (i) the number of shares of Common Stock
outstanding immediately prior to such issue or sale plus (ii) the number of
shares of Common Stock which the aggregate consideration received by the
Company for the total number of such Additional Shares of Common Stock so
issued or sold would purchase at the Current Market Price, and
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<PAGE>
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such issue or sale, provided that, for the
purposes of this Section 2.2, (i) immediately after any Additional Shares
of Common Stock are deemed to have been issued pursuant to Section 2.4 or
2.5, such Additional Shares of Common Stock shall be deemed to be
outstanding, and (ii) treasury shares shall not be deemed to be outstand-
ing; and
(b) by dividing (i) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issuance or
sale multiplied times the then effective Warrant Price plus (2) the total
consideration, if any, received and deemed received by the company upon
such issue or sale, by (ii) the total number of shares of Common Stock
outstanding and deemed outstanding immediately after such issue or sale.
Section 2.3 EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. If the Company at
any time or from time to time after the date hereof shall declare, order, pay or
make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or Other Securities or property or
options by way of dividend or spin-off, reclassification, recapitalization or
similar corporate rearrangement) on the Common Stock, other than (a) a dividend
payable in Additional Shares of Common Stock or (b) a dividend payable in cash
or other property and declared out of the earned surplus of the Company as at
the date thereof as increased by any credits (other than credits resulting from
a revaluation of property) and decreased by any debits made thereto, then, and
in each such case, the Warrant Price in effect immediately prior to the close of
business on the record date fixed for the determination of holders of any class
of securities entitled to receive such dividend or distribution shall be
reduced, effective as of the close of business on such record date, to a price
(calculated to the nearest cent) determined by multiplying such Warrant Price by
a fraction:
(a) the numerator of which shall be the Current Market Price in effect
on such record date or, if the Common Stock trades on an ex-dividend basis,
on the date prior to the commencement of ex-dividend trading, less the
amount of such dividend or distribution (as determined in good faith by the
Board of Directors of the Company) applicable to one share of Common Stock,
and
(b) the denominator of which shall be the Current Market Price on such
record date, or if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading.
4
<PAGE>
Section 2.4 TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES. In case the
Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities, then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options thereof or, the conversion or
exchange of such Convertible Securities, or, in the case of Appreciation Rights,
the number computed in accordance with Section 2.9, shall be deemed to be the
number of Additional Shares of Common Stock issued as of the time of such issue,
sale, grant or assumption or, in case such a record date shall have been fixed,
as of the close of business on such record date (or, if the Common Stock trades
on an ex-dividend basis, on the date prior to the commencement of ex-dividend
trading); provided that such Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Section 2.6) of such shares would be less than the Dilutive Basis in
effect on the date of and immediately prior to such issue, sale, grant or
assumption or immediately prior to the close of business on such record date
(or, if the Common Stock trades on an ex-dividend basis, on the date prior to
the commencement of ex-dividend trading), as the case may be; and provided,
further, that no further adjustment of the Warrant Price shall be made upon the
subsequent issue or sale of Convertible Securities or Additional Shares of
Common Stock upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
Section 2.5 TREATMENT OF STOCK DIVIDENDS, STOCK SPLITS, ETC. In case the
Company at any time or from time to time after the date hereof shall declare or
pay any dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
Section 2.6 COMPUTATION OF CONSIDERATION. For the purpose of Article II,
the following shall be used to determine the consideration received or deemed
received by the Company:
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<PAGE>
(a) SHARES ACTUALLY ISSUED. The consideration for the issue or sale of
any Additional Shares of Common Stock shall, irrespective of the accounting
treatment of such consideration,
(i) insofar as it consists of cash, be computed at the net amount
of cash received by the Company, without deducting any expenses paid
or incurred by the Company or any commissions or compensations paid or
concessions or discounts allowed to underwriters, dealers or others
performing similar services in connection with such issue or sale,
(ii) insofar as it consists of property (including securities)
other than cash, be computed at the fair value thereof at the time of
such issue or sale, as determined in good faith by the Board of
Directors of the Company, and
(iii) in case Additional Shares of Common Stock are issued or
sold together with other stock or securities or other assets of the
Company for a consideration which covers both, be the portion of such
consideration so received, computed as provided in clauses (i) and
(ii) above, applicable to such Additional Shares of Common Stock, all
as determined in good faith by the Board of Directors of the Company.
(b) SHARES DEEMED ISSUED. Additional Shares of Common Stock deemed
to have been issued pursuant to Section 2.4 relating to Options and
Convertible Securities, shall be deemed to have been issued for a
consideration per share determined by dividing,
(i) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant, or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration)
payable to the Company upon the exercise in full of such Options or
the conversion or exchange of such Convertible Securities or, in the
case of Options for Convertible Securities, the exercise of such
Options for Convertible Securities and the conversion or exchange of
such Convertible Securities, in each case comprising such
consideration as provided in the foregoing subdivision (a),
By
(ii) the maximum number of Additional Shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any
provision contained therein
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for a subsequent adjustment of such number to protect against
dilution) issuable upon the exercise of such Options or the conversion
or exchange of such Convertible Securities.
(c) STOCK DIVIDENDS, ETC. Additional Shares of Common Stock issued
or deemed to have been issued pursuant to Section 2.5, relating to stock
dividends, stock splits, etc., shall be deemed to have been issued for no
consideration.
(d) SERVICES. Additional Shares of Common Stock issued or sold or
deemed issued or sold in exchange for services or the promise of future
services shall be deemed to have been issued for no consideration.
Section 2.7 ADJUSTMENTS FOR COMBINATIONS, ETC. In case the outstanding
shares of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Warrant Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
Section 2.8 DILUTION IN CASE OF OTHER SECURITIES. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Article III)
or to subscription, purchase or other acquisition pursuant to any options issued
or granted by the Company (or any such other issuer or Person) for a
consideration such as to dilute, on a basis consistent with the standards
established in the other provisions of this Article II, the purchase rights
granted by this Warrant, then, and in each such case, the computations,
adjustments and readjustments provided for in this Article II with respect to
the Warrant Price shall be made as nearly as possible in the manner so provided
and applied to determine the amount of Other Securities from time to time
receivable upon the exercise of the Warrants, so as to protect the holders of
the Warrants against the effect of such dilution.
Section 2.9 APPRECIATION RIGHTS. If the Company issues or sells
Appreciation Rights, a number of Additional Shares of Common Stock shall be
deemed issued for purposes of this Article II and shall be computed as follows:
(a) VALUE BASED ON DIVIDENDS. If the Appreciation Rights entitle the
holder thereof to distributions or payments based on or determined with
reference to dividends paid or payable on Common Stock, the number of
Additional Shares of Common Stock deemed issued will be the number of
shares of Common Stock that would be required to be issued such that the
holder thereof
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would receive distribution payments equal to those paid or payable with respect
to such Appreciation Rights.
(b) VALUE BASED ON LIQUIDATING DISTRIBUTIONS. If the Appreciation
Rights entitle the holder thereof to distributions or payments based on or
determined with reference to liquidation distributions paid or payable on,
or consideration received, in connection with the sale, exchange or
transfer of Common Stock, the number of Additional Shares of Common Stock
deemed issued will be the number of shares of Common Stock that would be
required to be issued such that the holder thereof would receive
distributions or payments equal to those paid or payable with respect to
such Appreciation rights.
(c) VALUE BASED ON DIVIDENDS AND LIQUIDATING DISTRIBUTIONS. If the
Appreciation Rights entitle the holder thereof to distributions based on or
determined with reference to either dividends paid or payable on Common
Stock and liquidating distributions paid or payable or on consolidation
received in connection with the sale, exchange or transfer of Common Stock,
the number of Additional Shares of Common Stock deemed issued will be the
greater of the amount computed under (a) or (b) above.
(d) OTHER PROFITS. If the Appreciation Rights entitle the holder
thereof to distributions based on or determined with reference to any other
measure of profit of the Company, the number of Additional Shares of Common
Stock deemed issued will be the value of the Appreciation Right, as
determined in the good faith judgment of the Board of Directors, divided by
the Current Market Price of the Common Stock on the date of issuance of the
Appreciation Right.
Section 2.10 MINIMUM ADJUSTMENT OF WARRANT PRICE. If the amount of any
adjustment or readjustment of the Warrant Price required pursuant to this
Article II would be less than 1% of the Warrant Price in effect at the time such
adjustment or readjustment is otherwise so required to be made, such amount
shall be carried forward and adjustment with respect thereto made at the time of
and together with any subsequent adjustment or readjustment which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
at least 1% of such Warrant Price; provided that, upon the exercise of this
Warrant, all adjustments and readjustments carried forward and not theretofore
made up to and including the date of such exercise shall, with respect to the
portion of this Warrant then exercised, be made to the nearest .01 of a cent.
ARTICLE III
CONSOLIDATION, MERGER, ETC.
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Section 3.1 CONSOLIDATION, MERGER, SALE OF ASSETS, REORGANIZATION, ETC.
(a) In case at any time the Company shall be a party to any
transaction (including, without limitation, a merger, consolidation, sale
of all or substantially all the Company's assets, liquidation, or
recapitalization of the Common Stock) in which the previously outstanding
Common Stock shall be changed into or exchanged for different securities of
the Company or common stock or other securities of another corporation or
interests in a noncorporate entity or other property (including cash) or
any combination of any of the foregoing or in which the Common Stock ceases
to be a publicly traded security either listed on the New York Stock
Exchange or the American Stock Exchange or quoted by the NASDAQ National
Market System or any successor thereto or comparable system (each such
transaction being herein called the "Transaction", the date of consummation
of the Transaction being herein called the "Consummation Date", the Company
(in the case of a recapitalization of the Common Stock or any other such
transaction in which the Company retains substantially all of its assets
and survives as a corporation) or such other corporation or entity (in each
other case) being herein called the "Acquiring Company"), then, as a
condition of the consummation of the Transaction, lawful and adequate
provisions shall be made so that the holder of this Warrant, upon the
exercise thereof at any time on or after the Consummation Date, shall be
entitled to receive, and this Warrant shall thereafter represent the right
to receive, in lieu of the Common Stock issuable upon such exercise prior
to the Consummation Date, the highest amount of securities or other
property to which such holder would actually have been entitled as a
shareholder upon the consummation of the Transaction if such holder had
exercised this Warrant immediately prior thereto (subject to adjustments
from and after the Consummation Date as nearly equivalent as possible to
the adjustments provided for in Article II of this Warrant).
(b) Notwithstanding the provisions of Section 3.1(a) hereof, if the
Common Stock is to be converted or changed into, in whole or in part,
securities of the Acquiring Company or any affiliate thereof and the issuer
of such securities does not meet the following requirements:
(i) it is a solvent corporation organized under the
laws of any state of the United States of America having its
common stock listed on the New York Stock Exchange or the
American Stock Exchange or quoted by the NASDAQ National Market
System or any successor thereto or comparable system, and such
common stock continues to meet such requirements for such listing
or quotation, and
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(ii) it is required to file, and in each of its three
fiscal years immediately preceding the Consummation Date has
filed, reports with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended,
then, at the election of the holder of this Warrant pursuant to notice given to
the Company on or before the later of (1) the 30th day following the
Consummation Date, and (2) the 60th day following the date of delivery or
mailing to such holder of the last proxy statement relating to the vote on the
Transaction by the holders of the Common Stock, the holder of this Warrant shall
be entitled to receive, within 30 days after such election or the Consummation
Date, whichever is later, in full satisfaction of the exercise rights and all
other rights afforded to such holder under this Warrant, an amount equal to the
fair market value of such exercise rights as determined by an independent
investment banker (with an established national reputation as a valuer of equity
securities) selected by the Company, such fair market value to be determined
with regard to all material relevant factors but without regard to the effects
on such value of the Transaction. In the event that the holder of this Warrant
elects to receive payment under this Section 3.1(b), the Company shall obtain,
and deliver to the holder of this Warrant a copy of the determination of an
independent investment banker (selected by the Company and reasonably
satisfactory to the holder of this Warrant) necessary for the valuation under
this Section 3.1(b) within 30 days after the Consummation Date of the
Transaction in question.
Section 3.2 ASSUMPTION OF OBLIGATIONS. Notwithstanding anything contained
in this Warrant to the contrary, the Company will not effect any of the
transactions described in paragraph 3.1(a) unless, prior to the consummation
thereof, each Person (other than the Company) which may be required to deliver
any stock, securities, cash or property upon the exercise of this warrant as
provided herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the holder of this Warrant, (a) the obligations of the Company
under this Warrant (and if the Company shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not release the
Company from, any continuing obligations of the Company under this Warrant), and
(b) the obligation to deliver to such holder such shares of stock, securities,
cash or property as, in accordance with the foregoing provisions of this Article
III, such holder may be entitled to receive.
ARTICLE IV
OTHER PROVISIONS CONCERNING DILUTION
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Section 4.1 OTHER DILUTIVE EVENTS. In case any event shall occur as to
which the provisions of Article II or III are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized national
standing (which may be the regular auditors of the Company), which shall give
their opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in Articles II and III, necessary to
preserve, without dilution, the purchase rights represented by this Warrant.
Upon receipt of such opinion, the Company will promptly mail a copy thereof to
the holder of this Warrant and shall make the adjustments described therein.
Section 4.2 NO DILUTION OR IMPAIRMENT. The Company will not, by amendment
of its certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) will not permit the par value of
any shares of stock receivable upon the exercise of this Warrant to exceed the
amount payable thereof or upon such exercise, (b) will take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock on the
exercise of the Warrant from time to time outstanding, and (c) will not take any
action which results in any adjustment of the Warrant Price if the total number
of shares of Common Stock (or Other Securities) issuable after the action upon
the exercise of the Warrant would exceed the total number of shares of Common
Stock (or Other Securities) then authorized by the Company's certificate of
incorporation and available for the purpose of issuance upon such exercise.
Section 4.3 ACCOUNTANT'S AND COMPANY'S REPORT AS TO ADJUSTMENTS. In each
case of any adjustment or readjustment in the shares of Common Stock (or Other
Securities) issuable upon the exercise of this Warrant, the Company at its
expense will promptly compute such adjustment or readjustment in accordance with
the terms of this Warrant and cause independent certified public accountants of
recognized national standing (which may be the regular auditors of the Company)
selected by the Company to verify such computation (other than any computation
of the fair value of property as determined in good faith by the Board of
Directors of the Company) and prepare a report setting forth such adjustment or
readjustment and showing in reasonable detail the method of calculation thereof
and the facts upon which such adjustment or readjustment is based,
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including a statement of (a) the consideration received or to be received by the
Company for any Additional Shares of Common Stock issued or sold or deemed to
have been issued, (b) the number of shares of Common Stock outstanding or deemed
to be outstanding, and (c) the Warrant Price in effect immediately prior to such
issue or sale and as adjusted and readjusted (if required by Article II) on
account thereof. The Company shall also prepare and certify a report stating
that any computation of the fair value of property by the Board of Directors was
done in good faith by the Board as required herein. The Company will forthwith
mail a copy of each such report to each holder of a Warrant and will, upon the
written request at any time of any holder of a Warrant, furnish to such holder a
like report setting forth the Warrant Price at the time in effect and showing in
reasonable detail the manner in which it was calculated. The Company will also
keep copies of all such reports at its office maintained pursuant to subdivision
(a) of Section 6.2 and will cause the same to be available for inspection at
such office during normal business hours by any holder of a Warrant or any
prospective purchaser of a Warrant designated by the holder thereof.
Section 4.4 NOTICES OF CORPORATE ACTION. In the event that any of the
following occurs,
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a regular periodic dividend
payable in cash out of earned surplus in an amount not exceeding the amount
of the immediately preceding cash dividend for such period) or other
distribution, or any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation
or merger involving the Company and any other Person or any transfer of all
or substantially all the assets of the company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date as of which any such record is to be taken for the purpose
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be
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entitled to exchange their shares of Common Stock (or Other Securities) for the
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 20
days prior to the date therein specified.
Section 4.5 AVAILABILITY OF INFORMATION. The Company will cooperate with
each holder of any Warrant or Restricted Security in supplying such information
as may be reasonably requested by such holder to complete and file any
information reporting forms presently or hereafter required by the Commission to
report such holders beneficial ownership of Common Stock or Other Securities or
as a condition to the availability of an exemption from the provisions of the
Securities Act for the sale of any Restricted Securities.
Section 4.6 RESERVATION OF STOCK, ETC. The Company will at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of the Warrant. All shares of Common Stock
(or other Securities) issuable upon exercise of the Warrant shall be duly
authorized and, when issued upon such exercise, shall be validly issued and, in
the case of shares, fully paid and non-assessable with no liability on the part
of the holders thereof.
ARTICLE V
RESTRICTIONS ON TRANSFER
Section 5.1 RESTRICTIVE LEGENDS. Except as otherwise permitted by this
Article V, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"This Warrant and any shares acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933, as
amended, and may not be transferred, sold or otherwise disposed of in
the absence of such registration or an exemption therefrom under such
Act. This Warrant and such Shares may be transferred only in compliance
with the conditions specified in this Warrant."
Except as otherwise permitted by this Article V, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
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"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be transferred
in the absence of such registration or an exemption therefrom under
such Act."
Section 5.2 NOTICE OF PROPOSED TRANSFER; OPINIONS OF COUNSEL. Prior to
any transfer of any Restricted Securities which are not registered under an
effective registration statement under the Securities Act, the holder thereof,
will give written notice to the Company of such holders intention to effect such
transfer and to comply in all other respects with this Section 5.2. Each such
notice (a) shall describe the manner and circumstances of the proposed transfer
and (b) shall include an opinion of legal counsel addressed to the Company, in
form and substance reasonably satisfactory to the Company, to the effect that
such transfer does not violate the Securities Act of 1933 and applicable state
securities laws.
Section 5.3 TERMINATION OF RESTRICTIONS. The restrictions imposed by this
Article V upon the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities when such securities shall
have been sold pursuant to an effective registration statement under the
Securities Act or otherwise become freely transferable by the holder thereof.
Whenever such restrictions shall cease and terminate as to any Restricted
Securities, the holder thereof shall be entitled to receive from the Company,
without expense (other than applicable transfer taxes, if any), new certificates
representing the securities not bearing the applicable legends required by
Section 5.1.
ARTICLE VI
OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS
Section 6.1 OWNERSHIP OF WARRANTS. The Company may treat the person in
whose name any Warrant is registered on the register kept at the office of the
Company maintained pursuant to subdivision (a) of Section 6.2 as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary,
except that, if and when any Warrant is properly assigned in blank, the Company
may (but shall not be obligated to) treat the bearer thereof as the owner of
such Warrant for all purposes, notwithstanding any notice to the contrary.
Subject to Article V, a Warrant, if properly assigned, may be exercised by a new
holder without a new Warrant first having been issued.
Section 6.2 OFFICE, TRANSFER AND EXCHANGE OF WARRANTS.
(a) OFFICE. The Company will maintain an office in where notices,
presentations and demands in respect of this Warrant may be made upon it.
Such office shall be maintained at until
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such time as the Company shall notify each holder of the Warrant of any
change of location of such office.
(b) NEW WARRANT. Upon the surrender of any Warrant, properly endorsed,
for registration of transfer or for exchange at the office of the Company
maintained pursuant to subdivision (a) of this Section 6.2, the Company at
its expense will (subject to compliance with Article V, if applicable)
execute and deliver to or upon the order of the holder thereof a new
Warrant or Warrants of like tenor, in the name of such holder or as such
holder (upon payment by such holder of any applicable transfer taxes) may
direct, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the
Warrant or Warrants so surrendered.
Section 6.3 REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant
held by a Person other than Purchaser or any institutional investor, upon
delivery of indemnity reasonably satisfactory to the Company in form and amount
or, in the case of any such mutilation, upon surrender of such Warrant for
cancellation at the office of the Company maintained pursuant to subdivision (a)
of Section 6.2 the Company at its expense will execute and deliver, in lieu
thereof, a new Warrant of like tenor.
ARTICLE VII
DEFINITIONS
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
ADDITIONAL SHARES OF COMMON STOCK: All shares (including treasury shares)
of Common Stock issued or sold (or pursuant to Section 2.4, 2.5 or 2.9, deemed
to be issued) by the Company after the date hereof, whether or not subsequently
reacquired or retired by the Company, other than
(a) shares issued upon the exercise of the Warrant,
(b) such additional number of shares as may become issuable upon the
exercise of any of the securities referred to in the foregoing clause (a)
by reason of adjustments required pursuant to anti-dilution provisions
applicable to such securities as in effect on the date hereof, but only if
and to the extent that such adjustments are required as the result of the
original issuance of the Warrants, and
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(c) such additional number of shares as may become issuable upon the
exercise of any of the securities referred to in the foregoing clause (a)
by reason of adjustments required pursuant to anti-dilution provisions
applicable to such securities as in effect on the date hereof, in order to
reflect any subdivision or combination of Common Stock, by reclassification
or otherwise, or any dividend on Common Stock payable in Common Stock; and
(d) shares of Common Stock issued pursuant to the options listed on
Schedule 2(d) of the Stock Purchase Agreement.
APPRECIATION RIGHTS: All stock appreciation rights, net profits interests
or other rights entitling the holder or owner thereof to receive payments based
upon or determined with reference to the distributions to holders of Common
Stock or the profits of the Company.
BUSINESS DAY: Any day other than a Saturday or a Sunday or a day on which
commercial banking institutions in the States of Texas or New York are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
COMMISSION: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act.
COMMON STOCK: As defined in the introduction to this Warrant, such term to
include (i) any stock into which such Common Stock shall have been changed or
any stock resulting from any reclassification of such Common Stock, (ii) all
other stock of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to
preference and (iii) all stock appreciation rights, phantom stock and similar
contract rights the holders-of which are entitled to payments based on or
determined by reference to the value of the Common Stock, dividends payable with
respect to Common Stock, or liquidating distributions payable with respect to
Common Stock.
COMPANY: As defined in the introduction to this Warrant, such term to
include any corporation which shall succeed to or assume the obligations of the
Company hereunder in compliance with Article III.
CONVERTIBLE SECURITIES: Any evidences of indebtedness, shares of stock
(other than Common Stock) or other securities directly or indirectly convertible
into or exchangeable for Additional Shares of Common Stock.
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CURRENT MARKET PRICE: On any date specified herein, the average daily
Market Price during the period of the most recent 20 days, ending on such date,
on which the national securities exchanges were open for trading, except that if
no Common Stock is then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, the Current Market Price
shall be the Market Price on such date.
DILUTION FACTOR: As defined in Section 2.1.
DILUTIVE BASIS: With respect to any issuance or sale or any deemed
issuance or sale of Additional Shares of Common Stock from and after the date
hereof, the greater of (i) the current Market Price on the day immediately
before issuance or deemed issuance and (ii) the Warrant Price on the day before
issuance or deemed issuance.
EXCHANGE ACT: The Securities Exchange Act of 1934, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
EXPIRATION DATE: November 2, 1997, unless extended as provided in Section
8.5.
GAAP: Generally accepted accounting principles set forth in the Opinions of
the Accounting Principles Board of the American Institute of Certified Public
Accountants and in statements by the Financial Accounting Standards Board or in
such other statement by such other entity as may be approved by a significant
segment of the accounting profession; and the requirement that such principles
be applied on a consistent basis shall mean that the accounting principles
observed in a current period are comparable in all material respects to those
applied in a preceding period.
INITIAL PRICE: $0.78 per share.
MARKET PRICE: On any date specified herein, the amount per share of the
Common Stock, equal to (a) the last sale price of such Common Stock, regular
way, on such date or, if no such sale takes place on such date, the average of
the closing bid and asked prices thereof on such date, in each case as
officially reported on the principal national securities exchange on which such
Common Stock is then listed or admitted to trading, or (b) if such Common Stock
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security by the NASD, the last
trading price of the Common Stock on such date, or (c) if there shall have been
no trading on such date or if the Common Stock is not so designated, the average
of the closing bid and asked prices of the Common Stock on such date as shown by
the NASD automated quotation system, or (d) if such Common Stock is not then
listed or admitted to trading on any national exchange or
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quoted in the over-the-counter market, the fair value thereof determined in good
faith by the Board of Directors of the Company as of a date which is within 20
days of the date as of which the determination is to be made.
NASD: The National Association of Securities Dealers, Inc.
OPTIONS: Rights, options or warrants to subscribe for, purchase or
otherwise acquire either Additional Shares of Common Stock or Convertible
Securities.
OTHER SECURITIES: Any stock (other than Common Stock) and other securities
of the Company or any other Person (corporate or otherwise) which the holder of
the Warrant at any time shall be entitled to receive, or shall have received
upon the exercise of the Warrant, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in exchange for or
in replacement of Common Stock or other securities pursuant to Article III or
otherwise.
PERSON: Any corporation, association, partnership, joint venture, trust,
estate, organization, business, individual, government or political subdivision
thereof or governmental agency.
RESTRICTED SECURITIES: All of the following: (a) any Warrants bearing the
applicable legend or legends referred to in Section 5.1, (b) any shares of
Common Stock (or Other Securities) which have been issued upon the exercise of
Warrants and which are evidenced by a certificate or certificates bearing the
applicable legend or legends referred to in such section and (c) unless the
context otherwise requires, any shares of Common Stock (or Other Securities)
which are at the time issuable upon the exercise of Warrants and which, when so
issued, will be evidenced by a certificate or certificates bearing the
applicable legend or legends referred to in such section.
SECURITIES ACT: The Securities Act of 1933, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
STOCK PURCHASE AGREEMENT: That certain First Amended Stock Purchase
Agreement dated May 28, 1993, by both the Company and Ray Davis, Trustee.
SUBSIDIARY: With respect to any Person, any corporation with respect to
which more than 50% of the outstanding shares of stock of each class having
ordinary voting power (other than stock having such power only by reason of the
happening of a contingency) is at the time owned, directly or indirectly, by
such Person or by one or more subsidiaries of such Person.
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TRANSFER: Any sale, assignment, pledge or other disposition of any
security, or of any interest therein, which could constitute a "sale" as that
term is defined in section 2(3) of the Securities Act.
WARRANT PRICE: As defined in Section 2.1 of this Warrant.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 REMEDIES. The Company stipulates that the remedies at law of
the holder of this Warrant in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
Section 8.2 NO RIGHTS OR LIABILITIES AS STOCKHOLDER. The holder of this
Warrant and all subsequent holders thereof hereby agree that except to the
extent set forth herein, no provision of this Warrant shall be construed as
conferring upon the holder hereof any rights as a stockholder of the Company or
as imposing any obligation on such holder to purchase any securities or as
imposing any liabilities on such holder as a stockholder of the Company, whether
such obligation or liabilities are asserted by the Company or by creditors of
the Company.
Section 8.3 NOTICES. All notices and other communications under this
Warrant shall be in writing and shall be mailed by registered or certified mail,
return receipt requested, addressed (a) if to any holder of any Warrant, to the
registered address of such holder as set forth in the register kept at the
principal office of the Company, or (b) if the Company, to the attention of its
President at its office maintained pursuant to subdivision (a) of Section 6.2,
provided that the exercise of any Warrant shall be effective in the manner
provided in Article I.
Section 8.4 MISCELLANEOUS.
(a) This Warrant may be amended, waived, discharged or terminated,
and the Company may take any action herein required to be performed by it,
only if the Company shall have obtained the written consent to such
amendment, Action or omission to act, of the holder or holders of Warrants
entitling such holders to purchase 51% or more by number of shares of the
total number of shares of Common Stock issuable under all Warrants at the
time outstanding.
19
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(b) This warrant shall be construed and enforced in accordance with
the laws of the State of Texas.
(c) The section headings in this Warrant are for purposes of
convenience only and shall not constitute a part hereof.
Section 8.5 EXPIRATION. The Company will give the holder of this Warrant
not less than six weeks nor more than five months prior notice of the expiration
of the right to exercise this Warrant. The right to exercise this Warrant shall
expire at 5:00 p.m., Houston, Texas time, on the Expiration Date. If the Company
shall fail to give such notice as aforesaid, the Expiration Date shall be
automatically extended until the date six weeks after the date on which the
Company shall give the holder hereof notice of the expiration of the right to
exercise this Warrant. In addition, if pursuant to Section 8.2 and 8.5 of the
Warrant Purchase Agreement, the Company has become obligated to purchase this
Warrant (or any portion thereof) but has not purchased this Warrant f or any
reason, including the provisions of Section 8.3 or 8.9 of the Warrant Purchase
Agreement or if the closing has not occurred as contemplated by Section 8.2 or
8.5 of the Warrant Purchase Agreement, the Expiration Date shall automatically
be extended (i) until the Company purchases the Warrant or (ii) until Purchaser
withdraws its right and option to cause the purchase (in which event, the
Expiration Date will be extended an additional 30 days) of all of the Warrant.
The Company shall notify Purchaser of any such extension of the Expiration Date,
but failure to deliver such notice will not effect the extension.
CORNERSTONE NATURAL GAS, INC.
(formerly Endevco, Inc.)
By: ______________________________
Robert L. Cavnar, Senior
Vice President
20
<PAGE>
FORM OF SUBSCRIPTION
To: Cornerstone Natural Gas, Inc.
(formerly Endevco, Inc.)
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases * shares of Common Stock of
Cornerstone Natural Gas, Inc. (formerly Endeveco, Inc.), and herewith makes
payment of $ therefor, and requests that the certificates for such
shares be issued in the name of, and delivered to ,
whose address is
.
Dated: (Signature must conform in all
respects to name of holder as
specified on the face or
Warrant)
(Street Address)
(City) (State) (Zip Code)
*Insert the number of shares called for on the face of this
Warrant (or, in the case of a partial exercise, the portion
thereof as to which this Warrant is being exercised), in either
case without making any adjustment for Additional Shares of
Common Stock or any other stock or other securities or property
or cash which, pursuant to the adjustment provisions of this
Warrant, may be delivered upon exercise. In the case of a partial
exercise, a new Warrant or Warrants will be issued and delivered,
representing the unexercised portion of the Warrant, to the
holder surrendering the Warrant.
21
<PAGE>
FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto the right
represented by such Warrant to purchase shares of Common Stock of to which such
Warrant relates, and appoints Attorney to make such transfer on the books of
maintained for such purpose, with full power of substitution in the premises.
Dated: (Signature must conform in all
respects to name of holder as
specified on the face or
Warrant)
________________________________
(Street Address)
________________________________
(City) (State) (Zip Code)
Signed in the presence of:
__________________________
22
<PAGE>
SCHEDULE OF STOCK WARRANTS
<TABLE>
<CAPTION>
NUMBER OF
NAME WARRANTS
---- --------
<S> <C>
Ben H. Cook 512,821
Ray C. Davis 769,231
Kelly J. Jameson 256,410
Clarency Mayer 256,410
Kelcy L. Warren 769,231
</TABLE>
<PAGE>
EXHIBIT 10.43
PROMISSORY NOTE
$___________ Houston, Texas November 2, 1993
FOR VALUE RECEIVED, the undersigned, Cornerstone Natural Gas, Inc.
(formerly known as Endevco, Inc.), a Delaware corporation (the "Maker"), whose
principal place of business is at 8080 North Central Expressway, Twelfth
Floor, Dallas, Texas 75206, promises to pay to the order of
__________________________ ("Payee"), at _____________________________________
_______ (or such other address as Payee may designate to Maker in writing), in
lawful money of the United States of America, and in installments as
hereinafter provided, the principal amount of [pro rata portion of $2,500,000]
Dollars ($_________) together with interest on the part of said principal
amount from time to time remaining unpaid hereunder from the date hereof until
maturity at the rate per annum equal to the Base Rate (as hereinafter
defined).
1. PAST DUE AMOUNTS. All past due principal and interest on this
Promissory Note shall bear interest from maturity thereof until paid at a per
annum rate equal to the lesser of (a) the maximum lawful non-usurious rate of
interest (if any) which under Applicable Law (as hereinafter defined) Payee is
permitted to charge Maker on this Promissory Note from time to time and (b) a
per annum rate of 3% plus the Base Rate from time to time in effect. Accrued
interest on past due principal and interest shall be payable on demand.
2. PAYMENTS OF PRINCIPAL AND INTEREST. The outstanding principal
of this Promissory Note shall be payable in installments as follows: (a) [pro
rata portion of $500,000] shall be due and payable on or before the last
Business Day of the 13th month after the date of this Promissory Note; (b)
[pro rata portion of $500,000] shall be due and payable on or before the last
Business Day of the 25th month after the date of this Promissory Note; (c)
[pro rata portion of $750,000] shall be due and payable on or before the last
Business Day of the 37th month after the date of this Promissory Note; and (d)
[pro rata portion of $750,000] shall be due and payable on the last Business
Day of the 49th month after the date of this Promissory Note (the "Maturity
Date"). Accrued, unpaid interest on this Promissory Note shall be payable
quarterly, commencing on December 31, 1993, and on each March 31, June 30,
September 30 and December 31 thereafter, and at the maturity hereof (however
such maturity may occur). The entire principal balance hereof then unpaid and
all accrued, unpaid interest hereon shall be due and payable on the Maturity
Date. All payments on this Promissory Note shall be applied first to accrued,
unpaid interest and the balance, if any, applied to the principal of this
Promissory Note.
3. PREPAYMENTS. Maker shall have the right and privilege of
prepaying all or any part of this Promissory Note at any time without notice
or penalty.
PAGE 1 OF 10
<PAGE>
4. CORNERSTONE NOTES. This Promissory Note is one of a series of
Promissory Notes totalling $2,500,000.00 in aggregate principal amount
(collectively, the "Cornerstone Notes"), issued pursuant to Section 3.9 of
that certain Debtors' First Amended Joint Plan of Reorganization dated August
30, 1993, as the same may be amended from time to time (the "Plan"), filed by
Maker, ANGIC, Inc. f/k/a Cornerstone Natural Gas Company, Mississippi Fuel
Company and Endevco Taft Company with the United States Bankruptcy Court,
Eastern District of Texas, Sherman Division.
5. DEFINITIONS. The following definitions shall apply to terms
used in this Promissory Note:
"APPLICABLE LAW" means that law in effect from time to time and
applicable to this Promissory Note which lawfully permits the charging
and collection of the highest permissible lawful, non-usurious rate of
interest on this Promissory Note, including laws of the State of Texas,
and to the extent controlling, laws of the United States of America. It
is intended that Article 1.04, Title 79, Revised Civil Statutes of
Texas, 1925, as amended (Article 5069-1.04, as amended, Vernon's Texas
Civil Statutes) shall be included in laws of the State of Texas in
determining Applicable Law; and for the purpose of applying said Article
1.04 to this Promissory Note, the interest ceiling applicable to this
Promissory Note under said Article 1.04 shall be the indicated rate
ceiling from time to time in effect.
"BASE RATE" means (a) for the period from the date of this
Promissory Note to the last Business Day of the 25th month after the
date of this Promissory Note, a rate per annum equal to ten percent
(10%) compounded quarterly, and (b) thereafter, a rate per annum equal
to fifteen percent (15%) compounded quarterly.
"BUSINESS DAY" means a day of the year that is not a Saturday,
Sunday or a day banks are authorized or required by law to close in
Houston, Texas or New York, New York.
"SUBSIDIARY" means any corporation of which more than 50% of the
outstanding capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation is directly or
indirectly owned by Maker.
6. SECURITY. This Promissory Note is secured by all security
agreements, collateral assignments, guarantees, deeds of trust, mortgages and
lien instruments, if any, executed by Maker in favor of the holder hereof or
any of the other Cornerstone Notes, or executed by any other party with
respect to this Promissory Note or any of the other Cornerstone Notes as
security for this Promissory Note or any of the other Cornerstone Notes,
including those executed simultaneously herewith, those heretofore executed
and
PAGE 2 OF 10
<PAGE>
those hereafter executed, including without limitation, the Stock Pledge
Agreement executed by Maker dated of even date herewith, the Subsidiary
Guarantee executed by Endevco Pipeline Company (the "Guarantor Subsidiary")
dated of even date herewith, the Assignment, Pledge and Security Agreement
executed by the Guarantor Subsidiary dated of even date herewith, the
Subsidiary Guarantee executed by Pentex Petroleum, Inc. ("Pentex") executed of
even date herewith, the Stock Pledge Agreement executed by Pentex of even date
herewith and the mortgage and security documents relating to the Excelsior
Gathering System (as defined in the Plan) (all such agreements, documents and
instruments referred to herein as the "Security Documents").
7. EVENTS OF DEFAULT. If any of the following events (an "Event of
Default") shall occur and be continuing for any reason whatsoever (and whether
such occurrence shall be voluntary or involuntary or come about or be effected
by operation of law or otherwise):
(i) Maker defaults in the payment or prepayment of any principal
of this Promissory Note or any of the other Cornerstone Notes when the
same shall become due, either by the terms hereof or thereof or as
otherwise provided in this Promissory Note or any of the other
Cornerstone Notes; or
(ii) Maker defaults in the payment of any interest on this
Promissory Note or any of the other Cornerstone Notes for more than five
days after the date due; or
(iii) Maker or any of its Subsidiaries defaults as a result of the
occurrence of an acceleration of any indebtedness for borrowed money in
excess of $100,000 or if there shall exist a default by Maker or any of
its Subsidiaries and such default, after notice or lapse of time, would
be grounds for acceleration of the indebtedness by the lender with
respect to any indebtedness for borrowed money in excess of $100,000,
which default shall not have been waived or remedied by the lender
within 90 days thereafter; PROVIDED HOWEVER, in the case of any
default that is determined in the discretion of the lender, the event
shall not be considered a default until notice of such default is
provided by the lender; or
(iv) Maker or any of its Subsidiaries defaults in the performance
or observance of any agreement, obligation, term or condition contained
in this Promissory Note, any of the other Cornerstone Notes or any of
the Security Documents and such default shall not have been remedied
within 30 days after the earlier of (a) written notice thereof shall
have been given by or on behalf of the holder hereof or any holder of
the other Cornerstone Notes to Maker or (b) the date that the chief
executive officer or chief financial officer of Maker had actual
knowledge of such condition; or
(v) a default exists under any of the Security Documents; or
PAGE 3 0F 10
<PAGE>
(vi) Maker, the Mountain Creek Joint Venture, a Texas general
partnership ("Mountain Creek"), or any Subsidiary of Maker shall (a) be
generally not paying its debts as they become due, (b) file, or consent
by answer or otherwise to the filing against it of, a petition for relief
or reorganization or arrangement or any other petition in bankruptcy,
for liquidation or to take advantage of any bankruptcy or insolvency law
of any jurisdiction, (c) make an assignment for the benefit of its
creditors, (d) consent to the appointment of a custodian, receiver,
trustee or other officer with similar powers of itself or of any
substantial part of its property, (e) be adjudicated insolvent or be
liquidated or (f) take corporate action for the purpose of any of the
foregoing; or
(vii) a court or governmental authority of competent jurisdiction
shall enter an order appointing, without consent by Maker, Mountain
Creek or any Subsidiary of Maker, a custodian, receiver, trustee or
other officer with similar powers with respect to any of them or with
respect to any substantial part of any of their property, or if an order
for relief shall be entered in any case or proceeding for liquidation or
reorganization or otherwise to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of Maker, Mountain Creek or any Subsidiary of
Maker, or if any petition for any such relief shall be filed against
Maker, Mountain Creek or any Subsidiary of Maker and such petition shall
not be dismissed within 60 days; or
(viii)a final judgment shall be rendered against Maker, Mountain
Creek or any Subsidiary of Maker for the payment of money in excess of
the sum of $50,000, plus the applicable amount, if any, of insurance as
to which the insurer of Maker, Mountain Creek or any Subsidiary of Maker
has admitted coverage, and such judgment shall not be discharged or
execution thereon stayed pending appeal, within 60 days after entry
thereof, or, in the event of such a stay, such judgment shall not be
discharged within 60 days after such stay expires;
(ix) except as disclosed to the Payee in writing prior to the
execution of this Promissory Note, there has been any material loss or
damage to the assets or business of Mountain Creek from June 30, 1993,
to the date hereof; or
(x) any material representation or warranty made by or on behalf
of Maker or the Guarantor Subsidiary in this Promissory Note, any of the
other Cornerstone Notes or any of the Security Documents or in any
certificate or other writing furnished in connection with or pursuant to
such
PAGE 4 OF 10
<PAGE>
documents shall be false or misleading or breached in any material respect on
the date as of which made;
then (X) upon the occurrence of any Event of Default described in clause (vi)
or (vii) of this paragraph 7 with respect to Maker, the unpaid principal
amount of and the accrued interest on this Promissory Note shall automatically
become immediately due and payable, without demand, presentment for payment,
notice of non-payment, protest, notice of protest, notice of intent to
accelerate or other notice or other requirements of any kind, all of which are
hereby expressly waived by Maker, or (Y) upon the occurrence of any other Event
of Default, the holder or holders of at least 25% of the unpaid principal amount
of the Cornerstone Notes at the time outstanding may, by written notice to
Maker, declare all of the Cornerstone Notes to be, and the same shall, without
demand, presentment for payment, notice of non-payment, protest, notice of
protest, notice of intent to accelerate or other notice or other requirements of
any kind, all of which are hereby expressly waived by Maker, forthwith become
due and payable, together with accrued interest thereon which shall be deemed
matured; PROVIDED that, during the existence of an Event of Default described in
clause (i) or (ii) of this paragraph 7, the holder of this Promissory Note may,
by written notice to Maker, declare this Promissory Note to be, and the same
shall, without demand, presentment for payment, notice of non-payment, protest,
notice of protest, notice of acceleration or other notice or other requirements
of any kind, all of which are hereby expressly waived by Maker, forthwith become
due and payable, together with accrued interest hereon which shall be deemed
matured. If any holder of any of the other Cornerstone Notes shall exercise the
similar option specified in the proviso to the preceding sentence and contained
in such other Cornerstone Note, the holder of this Promissory Note may, by
written notice to Maker, declare the principal of this Promissory Note to be,
and the same shall, without demand, presentment for payment, notice of
non-payment, protest, notice of protest, notice of acceleration or other notice
or other requirements of any kind, all of which are hereby expressly waived by
Maker, forthwith become due and payable, together with accrued interest hereon
which shall be deemed matured. Nevertheless, if at any time after acceleration
of the maturity of this Promissory Note or any of the other Cornerstone Notes,
Maker shall pay all arrears of interest and all payments on account of the
principal which shalL have become due otherwise than by acceleration (with
interest on principal and, to the extent permitted by law, on overdue interest,
at the rate specified in such Cornerstone Notes) and all Events of Default
(other than non-payment of principal of and accrued interest on such Cornerstone
Notes due and payable solely by virtue of acceleration) shall be remedied or
waived, then the holder or holders of at least two-thirds of the unpaid
principal amount of the Cornerstone Notes at the time outstanding, by written
notice to Maker, may (but in no event shall be obligated to) rescind and annul
the acceleration and its consequences; but such action shall not affect any
subsequent Event of Default or impair any right consequent thereon.
8. REMEDIES. If any Event of Default shall have occurred and be
continuing, the holder of this Promissory Note may proceed to protect and
enforce its rights under this Promissory Note by exercising such remedies as
are available to such holder in respect
PAGE 5 OF 10
<PAGE>
thereof under applicable law, either by suit in equity or by action at law, or
both, whether for specific performance of any agreement contained in this
Promissory Note or in aid of the exercise of any power granted in this
Promissory Note. No remedy is intended to be exclusive and each remedy shall be
cumulative.
9. PAYMENT OF FEES AND EXPENSES. Maker hereby agrees to pay all
expenses relating to this Promissory Note, the other Cornerstone Notes and the
Security Documents (except for legal fees incurred in the preparation and
review of this Promissory Note and the Security Documents executed concurrently
with this Promissory Note), including but not limited to:
(i) the cost of reproducing this Promissory Note, the other
Cornerstone Notes and the Security Documents;
(ii) all filing of the Security Documents;
(iii) the fees and expenses of Payee, including reasonable fees
and disbursements of counsel, relating to any waiver or amendment of any
provision or term of this Promissory Note, the other Cornerstone Notes
or the Security Documents or to any consent required by this Promissory
Note, the other Cornerstone Notes or the Security Documents;
(iv) such amounts, to the extent lawful, as shall be sufficient
to pay the costs and expenses of collection or of otherwise enforcing
any of the rights of the holder hereof, including reasonable counsel
fees and expenses; and
(v) the cost of delivering to Payee's home office, insured to
Payee's satisfaction, this Promissory Note duly executed by Maker.
10. WAIVERS. Maker and all sureties, endorsers and guarantors of
this Promissory Note waive demand, presentment for payment, notice of
non-payment, protest, notice of protest, notice of intent to accelerate,
notice of acceleration and all other notice (except such notice as provided in
this Promissory Note), filing of suit and diligence in collecting this
Promissory Note or enforcing any of the security herefor, and agree to any
substitution, exchange or release of any of such security or the release of
any party primarily or secondarily liable hereon and further agree that it
will not be necessary for any holder hereof, to enforce payment by Maker of
this Promissory Note, to first institute suit or exhaust its remedies against
any others liable herefor, or to enforce its rights against any security
herefor, and consent to any extensions or postponements of time of payment of
this Promissory Note or any other indulgences with respect hereto, without
notice thereof to Maker.
11. REPRESENTATIONS AND WARRANTIES. Maker hereby represents and
warrants that:
PAGE 6 OF 10
<PAGE>
(i) Maker is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to own and operate its
properties, to carry on its business as now conducted and as currently
proposed to be conducted and to enter into this Promissory Note.
(ii) Each of this Promissory Note, the other Cornerstone Notes
and the Security Documents to which Maker is a party has been duly
authorized by all necessary corporate action on the part of Maker, has
been duly executed and delivered by Maker, and constitutes the legal,
valid and binding obligation of Maker, enforceable against Maker in
accordance with its terms, except as such enforceability may be limited
by general principles of equity and by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally.
(iii) Each of the Subsidiary Guaranty and the Security Documents
to which the Guarantor Subsidiary is a party has been duly authorized by
all necessary corporate action on the part of the Guarantor Subsidiary,
has been duly executed and delivered by the Guarantor Subsidiary, and
constitutes the legal, valid and binding obligation of the Guarantor
Subsidiary, enforceable against the Guarantor Subsidiary in accordance
with its terms, except as such enforceability may be limited by general
principles of equity and by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally.
(iv) Other than consents already obtained as of the date of this
Promissory Note, no consent, approval or authorization of or
registration, qualification, designation, declaration or filing with any
governmental authority (Federal, state or otherwise) or any other person
on the part of Maker, any of its Subsidiaries or Mountain Creek is
required in connection with the execution and delivery of this
Promissory Note, the other Cornerstone Notes, the Security Documents or
the consummation of any transaction contemplated hereby.
(v) Other than the security interests being granted pursuant to
the Security Documents and pursuant to the junior liens granted to the
Bank of Oklahoma, National Association, and referred to therein, Maker
owns all of the issued and outstanding shares of capital stock of each
Subsidiary (except Cengaz Company, which is greater than 50 percent
owned by Maker), and such shares are owned, beneficially and of record,
by Maker free of any mortgage, pledge, lien, security interest, charge,
encumbrance or title retention agreement and are validly issued and
outstanding and fully paid and nonassessable.
PAGE 7 OF 10
<PAGE>
(vi) Maker, Mountain Creek and the Subsidiaries of Maker have
good and indefeasible title to all their respective real properties and
good and indefeasible title to all of their other respective material
properties and assets, and none of such properties or assets is subject
to any mortgage, pledge, lien, security interest, lease, charge or
encumbrance (including conditional sale agreements and leases in the
nature thereof and other title retention agreements) other than (a)
liens for current taxes not yet due and payable, (b) mechanics',
materialmens', workmens', repairmens', operators', warehousemens',
carriers' and similar liens incident to current construction or
operations or arising in the ordinary course of business for charges which
are not delinquent, (c) those liens set forth in the disclosure letter
delivered by Maker to the Payees of the Cornerstone Notes on the date
hereof and (d) such encumbrances and imperfections of title, if any, as
are not substantial in character, amount or extent and do not materially
interfere with the present or proposed use of any of such properties.
Maker and the Subsidiaries enjoy peaceful and undisturbed possession under
all material leases under which they are currently operating as lessee,
and all such leases are valid and subsisting and are in full force and
effect with no material default existing under any thereof.
(vii) Maker, Mountain Creek and the Subsidiaries of Maker are each
in compliance with the representations and warranties made in Sections
7.7 and 7.16 of that certain Revolving Credit and Term Loan Agreement
date of even date hereof among the Borrowers (as defined therein) and
Bank of Oklahoma, National Association as if such representations and
warranties were made by it herein.
(viii)Since January 1, 1993, there have been no amendments,
modifications or changes to the terms of any material agreements of or
relating to Mountain Creek or the Excelsior Gathering System and copies
of all material agreements relating to Mountain Creek and the Excelsior
Gathering System have been previously provided to Payee.
12. COVENANTS. Maker covenants and agrees that from the date of
this Promissory Note and so long as any amount is outstanding under this
Promissory Note, Maker will duly perform and observe each and all of the
covenants and agreements set forth below:
(i) Maker shall not, directly or indirectly, declare any
dividend on any class of its stock or make any other distribution on
account of any class of its stock, without the prior approval of the
holders of at least two-thirds in principal amount of the Cornerstone
Notes; PROVIDED that Maker shall be permitted, without obtaining such
approval, to issue (i) shares of its capital stock pursuant to the
exercise of the option granted to the Purchasers named in the First
Amended Stock Purchase Agreement between Maker and Ray
PAGE 8 OF 10
<PAGE>
Davis, Trustee, dated May 28, 1993, as amended, modified or supplemented and
(ii) stock options to management of Maker or stock if such options are
exercised.
(ii) Maker shall not redeem, purchase or otherwise acquire, or
permit any Subsidiary to redeem, purchase or otherwise acquire, directly
or indirectly, any shares of Maker's capital stock or any of the
Subsidiaries, without the prior approval of the holders of at least
two-thirds in principal amount of the Cornerstone Notes.
(iii) Maker shall promptly and duly execute and deliver to the
holder hereof such further documents and take, and cause its
Subsidiaries to take, such further action that may be required under
applicable law, or as the holder hereof may, from time to time
reasonably request, in order to more effectively carry out and
accomplish the intent and purpose of this Promissory Note, the other
Cornerstone Notes and the Security Documents, and to establish and
protect the rights and remedies created or intended to be created in
favor of the holder hereof hereunder or thereunder.
(iv) Maker shall use its best efforts to cause the Guarantor
Subsidiary to keep and maintain its interest in Mountain Creek and the
material assets of Mountain Creek and the Excelsior Gathering System and
shall not permit the Guarantor Subsidiary to sell, assign, transfer,
exchange or otherwise dispose of its interest in any of such assets.
13. USURY. It is the intent of Payee and Maker in the execution and
performance of this Promissory Note to remain in strict compliance with
Applicable Law from time to time in effect. In furtherance thereof, Payee and
Maker stipulate and agree that none of the terms and provisions contained in
this Promissory Note or any document securing or otherwise relating to this
Promissory Note shall ever be construed to create a contract to pay for the
use, forbearance or detention of money with interest at a rate or in an amount
in excess of the maximum rate or amount of interest permitted to be charged
under Applicable Law. For purposes of this Promissory Note, "interest" shall
include the aggregate of all charges which constitute interest under
Applicable Law that are contracted for, taken, charged, reserved, received or
paid under this Promissory Note. Maker shall never be required to pay
unearned interest and shall never be required to pay interest at a rate or in
an amount in excess of the maximum rate or amount of interest that may be
lawfully charged under Applicable Law, and the provisions of this paragraph 13
shall control over all other provisions of this Promissory Note, and of any
other instrument pertaining to or securing this Promissory Note, which may be
in actual or apparent conflict herewith. If this Promissory Note is prepaid,
or if the maturity of this Promissory Note is accelerated for any reason, or
if under any other contingency the effective rate or amount of interest which
would otherwise be payable under this Promissory Note would exceed the maximum
rate or amount of interest Payee or any other holder of this Promissory Note
is allowed by
PAGE 9 OF 10
<PAGE>
Applicable Law to charge, contract for, take, reserve or receive, or in the
event Payee or any other holder of this Promissory Note shall charge, contract
for, take, reserve or receive monies that are deemed to constitute interest
which would, in the absence of this provision, increase the effective rate or
amount of interest payable under this Promissory Note to a rate or amount in
excess of that permitted to be charged, contracted for, taken, reserved or
received under Applicable Law then in effect, then the principal amount of this
Promissory Note or the amount of interest which would otherwise be payable under
this Promissory Note or both shall be reduced to the amount allowed under
Applicable Law as now or hereinafter construed by courts having jurisdiction,
and all such monies so charged, contracted for, taken, reserved or received that
are deemed to constitute interest in excess of the maximum rate or amount of
interest permitted by Applicable Law shall immediately be returned to or
credited to the account of Maker upon such determination. Payee and Maker
further stipulate and agree that, without limitation of the foregoing, all
calculations of the rate or amount of interest contracted for, charged, taken,
reserved or received under this Promissory Note which are made for the purpose
of determining whether such rate or amount exceeds the maximum rate, shall be
made, to the extent not prohibited by Applicable Law, by amortizing, prorating,
allocating and spreading during the period of the full stated term of this
Promissory Note, all interest at any time contracted for, charged, taken,
reserved or received from Maker or otherwise by Payee or any other holder of
this Promissory Note.
14. GOVERNING LAW. This Promissory Note shall be construed in
accordance with and governed by the internal laws of the State of Texas and,
to the extent applicable, the federal laws of the United States of America.
15. HEADINGS. The paragraph headings contained herein are inserted
for convenience only and shall not be construed or interpreted as a part of
this Promissory Note.
CORNERSTONE NATURAL GAS, INC. (FORMERLY
KNOWN AS ENDEVCO, INC.)
By: __________________________________
Name: ________________________________
Title: _______________________________
PAGE 10 OF 10
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF PREFERRED NOTES
Preferred Shareholder # of Note Principal Principal
Shares Amount Pmt 1&2 Pmt 3&4
<S> <C> <C> <C> <C>
The Travelers Indemnity Company 81,500 1,018,750 203,750 305,625
The Travelers Corporation 5,000 62,500 12,500 18,750
The Travelers Indemnity Company of Rhode
Island 10,000 125,000 25,000 37,500
The Prospect Company 3,500 43,750 8,750 13,125
Phoenix Home Life Mutual Insurance
Company 70,000 875,000 175,000 262,500
Sun Bank, N.A., Trustee for Riverside
Memorial Park Merchandise 600 7,500 1,500 2,250
Sun Bank, N.A., Trustee for Palm Beach
Memorial Park Merchandise 400 5,000 1,000 1,500
Sun Bank, N.A., Trustee for Hillcrest
Palm Beach Memorial Park Merchandise 200 2,500 500 750
Sun Bank, N.A., Trustee for Hillcrest
Memorial Gardens, Inc., Vero Beach
Merchandise 200 2,500 500 750
Sun Bank, N.A., Trustee for Town & Country
Funeral Home (Palm Beach) 500 6,250 1,250 1,875
Sun Bank, N.A., Trustee for Town & Country
Funeral Home, Inc. (Jacksonville) 200 2,500 500 750
Sun Bank, N.A., Trustee for TNCS 1988 2,000 25,000 5,000 7,500
Sun Bank, N.A., Trustee for TNCS 1987 3,400 42,500 8,500 12,750
Sun Bank, N.A., Trustee for Guardian
Plans, Inc. 1988 100 1,250 250 375
Sun Bank, N.A., Trustee for Guardian
Plans, Inc. 1984 800 10,000 2,000 3,000
Sun Bank, N.A., Trustee for Guardian
Plans, Inc. 1979 1,300 16,250 3,250 4,875
Sun Bank, N.A., Trustee for Feaster
Memorial Homes, Inc. 300 3,750 750 1,125
Odyssey Partners L.P. 20,000 250,000 50,000 75,000
</TABLE>
<PAGE>
EXHIBIT 10.45
JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT (hereinafter referred to as the
"Agreement") dated as of the 28th day of October, 1993, is entered into by and
among Cornerstone Natural Gas, Inc., a Delaware corporation ("Cornerstone"),
and Merit Natural Gas Company, a Texas corporation ("Merit").
W I T N E S S E T H:
I.
DEFINITIONS
As used herein, the following terms shall have the following meanings:
"BUDGET" means that term as defined in Section 4.2.
"BUDGET YEAR" means 12 months beginning December 1 of each year.
"CAPITAL ACCOUNT" means the individual Capital Account maintained for
each Joint Venturer on the books of account of the Joint Venture, in a manner
which is in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv),
and the following:
(a) A Joint Venturer's Capital Account shall be credited with
(i) the amount of cash and the value of any property contributed to the
Joint Venture, (ii) such Joint Venturer's allocable share of profits,
and (iii) the amount of any Joint Venture liabilities that are expressly
assumed by such Joint Venturer or that are secured by any Joint Venture
property distributed to such Joint Venturer; and
(b) A Joint Venturer's Capital Account shall be debited with (i)
the amount of cash and the value of any Joint Venture property
distributed to such Joint Venturer pursuant to any provision of this
Agreement, (ii) such Joint Venturer's allocable share of losses, and
(iii) the amount of any liabilities of such Joint Venturer that are
expressly assumed by the Joint Venture or that are secured by any
property contributed by such Joint Venturer to the Joint Venture.
"DISPOSITION" means any transfer, pledge, mortgage, granting of a
security interest or other encumbrance or any other disposition of all or any
portion of an Interest (hereinafter defined), whether voluntary or
involuntary.
"INTEREST" means the entire percentage ownership, both legal and
beneficial interest of a Joint Venturer in the Joint Venture at any particular
time, including the right of such Joint Venturer to any and all benefits to
which a Joint Venturer may be entitled as provided in this Agreement, together
with the obligations of such
<PAGE>
Joint Venturer to comply with all the terms and provisions of this Agreement,
but excluding any rights as a creditor of the Joint Venture.
"JOINT VENTURERS" means Cornerstone and Merit and their permitted
successors and assigns.
"JOINT VENTURE" means the Joint Venture hereby formed, and as said
Joint Venture may from time to time be constituted, amended and, if necessary,
reconstituted.
"PERSON" means an individual, firm, corporation, partnership, trust or
other legal entity.
"POLICY COMMITTEE" means that term as defined in Section 4.1.
"PRO RATA SHARE" means a percentage for each Joint Venturer equal to
its percentage ownership.
"TUPA" means the Texas Uniform Partnership Act, Art. 6132b of the
Civil Statutes of the State of Texas, as adopted and from time to time
amended.
II.
GENERAL
2.1 FORMATION. The Joint Venturers hereby join in and form the
Joint Venture. Except as expressly provided for herein to the contrary, the
rights and obligations of the Joint Venturers and the administration and
termination of the Joint Venture shall be governed by the TUPA. Each Joint
Venturer's Interest in the Joint Venture shall be personal property for all
purposes. All real property owned by the Joint Venture shall be deemed owned
by the Joint Venture as an entity, and no Joint Venturer shall have any
individual ownership rights in such property. Business will commence on
December 1, 1993, or as soon thereafter as is practical.
2.2 NAME. The name of the Joint Venture is Cornerstone/Merit Joint
Venture.
2.3 ASSUMED NAME CERTIFICATE. The Joint Venturers shall execute and
file of record an appropriate assumed name certificate reflecting that they
are doing business under the name of the Joint Venture and any other names
under which the Joint Venture shall do business during the continuation of the
Joint Venture.
2.4 PRINCIPAL OFFICE. The principal office of the Joint Venture
shall be located at 8080 North Central Expressway, 12th Floor, Dallas, Texas
75206, such location or locations as may be decided upon by the Joint
Venturers.
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2.5 PURPOSE. The purpose of the Joint Venture is to develop
business opportunities for Cornerstone and Merit consistent with their lines
of business or appropriate expansions thereof.
2.6 AUTHORITY. To carry out its purpose and not in limitation
thereof, the Joint Venture is empowered and authorized to do any and all acts
and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of its purpose, and for the
protection and benefit of the Joint Venture, in accordance with and subject to
the limitations in this Agreement and in accordance with the TUPA.
III.
CONTRIBUTIONS TO CAPITAL; LOANS BY
3.1 INITIAL CAPITAL CONTRIBUTION. Each Joint Venturer shall
initially contribute for working capital (the "Initial Contribution") its Pro
Rata Share to the Joint Venture in cash or Office Contribution (as hereafter
defined) an amount equal to 1/6th of the expenses to be incurred by the Joint
Venture pursuant to the Budget for the first fiscal year.
3.2 OFFICE CONTRIBUTION. Cornerstone shall provide for the Joint
Venture an office located at 8080 North Central Expressway, 12th Floor,
Dallas, Texas 75206, and Cornerstone will be compensated for providing such
office and other services. In addition to providing an office, Cornerstone
will also provide the Joint Venture use of its office equipment and
secretarial services (collectively the "Office Contribution"). The Office
Contribution does not include third party expenses such as long distance calls
or expenses other than the use of the office equipment, space made available
and secretarial services. The Joint Venturers agree that the initial value of
the Office Contribution is $12,000.00 per year (the "Initial Value").
Cornerstone will receive credit for the Office Contribution by deducting 1/6th
of the Initial Value from its obligation to make the Initial Contribution, and
thereafter the remaining balance in the initial Budget Year and each
subsequent year will be credited against contribution in equal increments so
that a full credit is received by Cornerstone each year. The value of the
Office Contribution will be reviewed yearly and appropriately adjusted by the
Policy Committee.
3.3 JOINT VENTURER'S INTEREST. The initial share of Cornerstone's
Interest in the Joint Venture shall be 60 percent and the initial share of
Merit's Interest in the Joint Venture shall be 40 percent.
3.4 MONTHLY CONTRIBUTIONS. At the beginning of each month, each
Joint Venturer shall be obligated to contribute to the Joint Venture each
Joint Venturer's Pro Rata Share of the required working capital so that the
Joint Venture may pay its current obligations timely. Cornerstone will bill
monthly for such
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contribution, but the required contribution cannot exceed the Budget without
prior approval of the Policy Committee.
3.5 JOINT VENTURER LOANS. The Joint Venture shall be authorized to
borrow money, including, if necessary, from any Joint Venturer or any related
Person for authorized Joint Venture purposes to the extent deemed required.
The amount of any loan made to the Joint Venture by a Joint Venturer shall not
be considered an increase in such Joint Venturer's Capital Account or
otherwise a contribution to the Joint Venture, nor shall the making of such
loan affect the Interests. No Joint Venturer shall be obligated to make any
loans to the Joint Venture. No loan will be made without the consent of the
Policy Committee.
3.6 RETURN OR WITHDRAWAL OF CAPITAL CONTRIBUTIONS; DISTRIBUTIONS.
Except as otherwise expressly provided in this Agreement, none of the
Joint Venturers shall be entitled to demand a refund or return of any capital
contributions or to withdraw any part of its Capital Account nor to receive
any distribution from the Joint Venture. No Joint Venturer shall be
personally liable for the return of the capital contributions of the other
Joint Venturer, or any portion thereof, it being expressly understood that any
such return shall be made solely from Joint Venture assets. No Joint Venturer
shall have the right to demand or receive property other than cash for its
Interest.
IV.
OVERALL MANAGEMENT AND CONTROL
4.1 POLICY COMMITTEE. The policies of the Joint Venture shall be
determined by a Policy Committee, which shall be vested with the control and
direction of the affairs of the Joint Venture and shall be organized and
function as set forth below:
(a) The Policy Committee shall consist of four persons, two of
whom shall be appointed by Cornerstone and two of whom shall be
appointed by Merit. The initial members designated by Cornerstone are
Kelcy Warren and Ray Davis; and the initial members designated by Merit
are Wayne Packard and Ted Collins. Kelcy Warren shall serve as chairman
of the Policy Committee (the "Chairman") until such time as his
successor shall be designated by the Policy Committee. Each member of
the Policy Committee shall be vested by the Joint Venturer appointing
him with the authority to vote and act at meetings of the Policy
Committee. If one of the respective members named above dies, resigns,
is removed by the Joint Venturer appointing him, or becomes
incapacitated or otherwise unable or unwilling to perform and discharge
his duties as a member of the Policy Committee, the Joint Venturer which
appointed him shall name and appoint a successor member by written
notice, signed by an
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<PAGE>
appropriate representative of such Joint Venturer and delivered to the
other Joint Venturers.
(b) Any matter which is proper for consideration by the Policy
Committee may be considered and acted upon at a meeting held for that
purpose. A meeting of the Policy Committee can be called by the
Chairman any time, and a meeting shall be called by him upon request of
any Joint Venturer. The Chairman shall give each member notice at least
48 hours in advance of each meeting. Any member of the Policy Committee
who will not be present at a meeting may vote on any items to be
considered at such meeting by telephone communication, through the
Chairman, by mail, facsimile or telegram, addressed to the Chairman, or
by proxy, and if such vote has not been received by the Chairman prior
to the meeting, the Chairman shall poll such absent member by telephone
or other means and his vote shall be recorded in the minutes of the
meeting. The vote of each member present on any question submitted to
the meeting shall also be recorded in the minutes. The presence of all
voting members of the Policy Committee (either actually or
constructively in the manner provided above) shall be necessary to
constitute a quorum of the Policy Committee. Except as otherwise
provided herein, all actions taken by the Policy Committee shall require
the affirmative vote of at least a majority of the members thereof. All
meetings of the Policy Committee shall be held in such places as have
been agreed upon by the members thereof. Minutes shall be kept of all
meetings of the Policy Committee and all actions taken by the Policy
Committee by written communications without a meeting.
(c) The Policy Committee may take action without an assembled
meeting by communications between the Chairman and the other members.
Any matter or matters may be submitted by the Chairman by giving each
member notice by mail, facsimile, telegram or telephone (confirmed in
writing as soon thereafter as practical). Each member may communicate
his vote thereon to the Chairman by mail, facsimile, telegram or
telephone (confirmed in writing as soon thereafter as practical). All
actions so taken by the Policy Committee without an assembled meeting
shall require the affirmative vote of all members thereof.
(d) The members of the Policy Committee shall serve without
compensation, but each member shall be entitled to reimbursement from
the Joint Venture of all third party expenses actually and reasonably
incurred in connection with the performance of his duties.
(e) No member of the Policy Committee shall be liable for any
act or omission of any other member thereof, nor for any act or omission
on his own part, excepting his own willful
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<PAGE>
misconduct or gross negligence. Each Joint Venturer shall indemnify and
hold harmless each member of the Policy Committee designated by it
against any and all expenses and liabilities arising out of his
membership except only expenses and liabilities arising out of such
member's own willful misconduct or gross negligence.
4.2 BUDGET. Sixty days prior to the beginning of each fiscal year,
the Policy Committee shall prepare a Budget for the upcoming fiscal year for
all the reasonable and necessary expenses to be incurred by the Joint Venture.
The expenses of the Joint Venture shall not exceed the Budget without the
express written consent of the Policy Committee. If the Policy Committee
cannot agree on a Budget or does not approve expenses in excess of the Budget
pursuant to this Section, the Joint Venture will terminate pursuant to Article
IX.
4.3 LIABILITY. None of the Joint Venturers shall be liable to the
Joint Venture or any other Joint Venturer for any act or omission performed or
omitted pursuant to any authority granted to it by this Agreement, other than
for its material breach of any of its material obligations under this
Agreement, fraud, bad faith, willful malfeasance or gross negligence. No
Joint Venturer shall have any obligation to loan, advance or contribute any
amounts to the Joint Venture (whether any deficit exists or otherwise) other
than its obligations to pay capital contributions as called for in Article
III. The Joint Venture shall and hereby does indemnify and save harmless each
Joint Venturer, and their agents and employees, as the case may be, from any
loss, damage, claim or liability, including, but not limited to, reasonable
attorneys' fees and expenses, incurred by it by reason of any act performed on
behalf of the Joint Venture or in furtherance of the Joint Venture's interests
other than breach of any material obligation under this Agreement, fraud, bad
faith, willful malfeasance or gross negligence.
V.
WAYNE PACKARD
5.1 EMPLOYMENT AGREEMENT. The Joint Venture shall enter into an
employment agreement with Wayne Packard in such form and substance as approved
by the Policy Committee.
5.2 FUTURE JOINT VENTURES.
(a) If the Joint Venture discovers, develops, finds or is the
recipient of a proposed business transaction (a "J.V. Proposal"), each
Joint Venturer shall have the right to participate pro rata in any such
J.V. Proposal. The Joint Venture will give prompt notice (the "Initial
Notice") to the Joint Venturers of any J.V. Proposal within five (5)
business
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<PAGE>
days after the terms are sufficiently established so that an informed
investment decision can be made.
(b) If a Joint Venturer wishes to exercise its right to
participate in a J.V. Proposal, such Joint Venturer must give written
notice to the other Joint Venturer within 30 days after receipt of the
Initial Notice. If a Joint Venturer does not accept such J.V. Proposal
by giving written notice within the 30 days after receipt of the Initial
Notice to the other Joint Venturer, such Joint Venturer will be deemed
to have rejected the right to participate in such J.V. Proposal.
(c) If all Joint Venturers elect to participate in the J.V.
Proposal they will have a right to participate based on their Pro Rata
Share, unless a specific written agreement by the parties provides to
the contrary.
(d) If either Joint Venturer decides not to participate in any
such J.V. Proposal, the other Joint Venturer shall be able to
participate in the J.V. Proposal if such Joint Venturer has timely given
its written notice of acceptance.
(e) Each Joint Venturer may sell, assign or dispose of all or a
portion of their Pro Rata Share of such J.V. Proposal without the
consent of the other Joint Venturer.
(f) Each J.V. Proposal that is accepted shall be pursuant to a
separate joint venture agreement, in such form as the participants
agree.
VI.
DISTRIBUTIONS AND ALLOCATIONS
6.1 DISTRIBUTIONS. Cash available for distribution shall be
distributed in accordance with each Joint Venturer's Pro Rata Share and in
accordance with procedures established by the Policy Committee.
6.2 ALLOCATIONS. In general, all items of income, loss, gain,
deductions and credit shall be allocated in accordance with each Joint
Venturer's Pro Rata Share.
6.3 CONTRIBUTED PROPERTY. In accordance with Code Section 704(c)
and the Treasury Regulations thereunder, income, gain, loss, and deduction
with respect to any property contributed to the capital of the Joint Venture
shall, solely for tax purposes, be allocated among the Joint Venturers so as
to take account of any variation between the adjusted basis of such property
to the Joint Venture for federal income tax purposes and its initial book
value. In the event the book value of any Joint Venture property is adjusted,
subsequent allocations of income, gain, loss, and deduction with respect to
such asset shall take account of any
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<PAGE>
variation between the adjusted basis of such asset for federal income tax
purposes and such book value in the same manner as under Code Section 704(c)
and the Treasury Regulations thereunder. Any elections or other decisions
relating to such allocations shall be made by the Joint Venturers in any
manner that reasonably reflects the purpose and intention of this Agreement.
Allocations pursuant to this subsection (c) are solely for purposes of
federal, state, and local taxes and shall not affect, or in any way be taken
into account in computing, any Joint Venturer's Capital Account or share of
profits, losses, other items, or distributions pursuant to any provision of
this Agreement.
VII.
JOINT VENTURE ACCOUNTING
7.1 METHOD OF ACCOUNTING. The Joint Venture accounts, books and
records shall be kept by the method of accounting as chosen by the Policy
Committee.
7.2 FISCAL YEAR AND BUDGET YEAR. The fiscal year of the Joint
Venture shall be the calendar year, but for purposes of the Budget Year, it
will be a 12 month period beginning December 1 of each year.
7.3 CAPITAL ACCOUNTS. A Capital Account shall be established for
each Joint Venturer.
7.4 INTEREST. No interest shall be paid to any Joint Venturer on
its capital contributions.
7.5 BANK ACCOUNTS. The Joint Venture shall maintain such bank
accounts and at such financial institutions as the Policy Committee shall
determine. Checks shall be drawn for Joint Venture purposes only. All money
received by the Joint Venture shall be deposited in such account or accounts.
7.6 JOINT VENTURE RECORDS.
(a) The Policy Committee shall maintain, or cause to be
maintained, at the expense of the Joint Venture, complete and accurate
records and books of account of all transactions, matters and things
relating to the Joint Venture's business as are usually entered into
books of account kept by persons engaged in a business of a like
character.
(b) All of such records and books of account, together with all
other documents and files of the Joint Venture, and all correspondence
shall, at all times, be kept at the main office of the Joint Venture (to
which the Joint Venturers shall have reasonable access), and all such
records, books of account, documents and files shall be the exclusive
property of the Joint Venture. In the event of the termination of the
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<PAGE>
Joint Venture Interest of any Joint Venturer, all such records, books of
account, documents and files shall remain in the exclusive possession of
the Joint Venture. At any time, and from time to time, while the Joint
Venture continues and until its complete liquidation (but only during
reasonable business hours), each Joint Venturer may fully examine,
inspect, make copies of and audit the Joint Venture's books, records,
accounts and assets, including, but not limited to, bank balances, or
cause an audit to be made by any competent accountant or other
professional employed by it at its expense. Upon the complete
liquidation of the Joint Venture, the Joint Venture's records, books of
account, documents and files shall be maintained in such manner and for
such period as the Joint Venturers shall determine, and all Joint
Venturers shall have access to same during reasonable business hours
with at least one business day's notice.
7.7 ELECTION. Unless such election already has been made and is in
effect, or unless the Joint Venture is precluded from doing so, the Policy
Committee, at the request of the successor in interest of a Joint Venturer,
and at the request of a substitute Joint Venturer, shall file on behalf of the
Joint Venture an election under Section 754 of the Code, as provided for in
Sections 734 and 743 thereof. If such an election is filed, the Joint
Venture will be required to provide additional accounting or tax information
with respect to any adjustment to basis for any Joint Venturer, provided such
information is reasonably within the Joint Venture's knowledge.
7.8 TAX RETURNS. The Policy Committee shall cause to be prepared
all tax returns which the Joint Venture is required to file, and shall file
such returns within the time prescribed by law (including extensions) for the
filing of each such return.
7.9 TAX MATTERS JOINT VENTURER. Cornerstone is hereby designated
as the Tax Matters Joint Venturer for the Joint Venture for purposes of
Section 6231(l)(7) of the Internal Revenue Code of 1986, as amended, with
respect to operations conducted by the Joint Venturer during the period that
Cornerstone is a Joint Venturer. The Tax Matters Joint Venturer shall comply
with the requirements of Sections 6221 through 6232, of the Internal Revenue
Code of 1986, as amended.
VIII.
TRANSFERS OF INTERESTS
8.1 DISPOSITIONS. No Joint Venturer may sell, assign, give, devise,
pledge, encumber or in any other manner transfer all or any portion of its
Joint Venture Interest unless such Joint Venturer shall have first received
the prior written consent of each other Joint Venturer, which consent may be
withheld in the absolute and total discretion of each Joint Venturer.
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<PAGE>
8.2 INVOLUNTARY DISPOSITION. Prior to or upon any involuntary
Disposition of a Joint Venturer's Interest, whether by bankruptcy or
otherwise, and as far in advance as is practicable prior to declaring
bankruptcy under the U.S. Bankruptcy Code, such Joint Venturer shall
immediately send notice thereof to the other Joint Venturer, disclosing in
full the nature and details of such event. Such threatened, imminent or
actual involuntary Disposition or declaration of bankruptcy shall constitute
the granting to the other Joint Venturers of an option to purchase the
Interest of such Joint Venturer, which option must be exercised no later than
60 days from the delivery of notice thereof. The other Joint Venturer shall
have the right to cause the Joint Venture to be dissolved and liquidated.
IX.
DISSOLUTION
9.1 DISSOLUTION. The Joint Venture shall be dissolved upon the
first of the following to happen:
(a) The withdrawal, dissolution, bankruptcy or termination of
any Joint Venturer;
(b) Upon 30 days' written notice to the other Joint Venturer;
(c) The failure of the Policy Committee to agree to a Budget or
approve expenses in excess of the Budget;
(d) There being only one Joint Venturer;
(e) A decree of a court;
(f) The occurrence of any other circumstance which, by law,
would require that the Joint Venture be dissolved; or
(g) In any event, the date 50 years from the effective date
hereof.
9.2 LIQUIDATION. Upon such dissolution, an accounting shall be made
of the account of the Joint Venture, of each Joint Venturer and of the Joint
Venture's assets, liabilities and operations from the date of the last
previous accounting to the date of such dissolution. Upon any such
dissolution not followed by a reconstitution, the Policy Committee or such
person as shall be designated by the Joint Venturers shall act as Liquidating
Trustee and immediately proceed to terminate and liquidate the business of the
Joint Venture. The assets shall be applied to the following purposes in the
following order:
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<PAGE>
(a) To pay or provide for all amounts owing by the Joint Venture
to creditors other than Joint Venturers and for expenses of winding up;
(b) To pay or provide for all amounts owing by the Joint Venture
to Joint Venturers other than for capital and profits;
(c) To the Joint Venturers, in amounts equal to the positive
balances, if any, remaining in their respective Capital Accounts; and
(d) To the Joint Venturers in proportion to the Joint Venturer's
respective Interests, as those have changed from time to time pursuant
to this Agreement or otherwise.
9.3 J.V. PROPOSALS. If at the time of the dissolution of the Joint
Venture there is any J.V. Proposal being worked on by Wayne Packard and if the
Joint Venture has rights to such J.V. Proposal when finally developed, such
J.V. Proposal or J.V. Proposals shall be made available to each Joint Venturer
and shall be subject to the same provisions as provided by Section 5.2 of this
Agreement.
9.4 RECONSTITUTION. Notwithstanding anything to the contrary
contained in or inferred from the above, if upon the dissolution of the Joint
Venture at least two of the Joint Venturers elect to reconstitute the Joint
Venture, same shall not be liquidated but rather shall be reconstituted and
shall continue in accordance with the terms, provisions and conditions of this
Agreement; provided, however, that those Joint Venturers who do not become a
member of the reconstituted Joint Venture shall be entitled to receive from
the Joint Venture an amount equal to the fair market value of their respective
Joint Venture Interests. Immediately following such reconstitution, the
Interests of the withdrawing Joint Venturers shall be allocated among the
remaining Joint Venturers in accordance with the ratio that the Interests of
the remaining Joint Venturers bear to each other.
9.5 NEGATIVE CAPITAL ACCOUNTS. If, after the application of the
assets of the Joint Venture under Paragraph 9.2(b), and the allocation to the
Joint Venturers of all items of income, loss, gain, deduction and credit under
Section 6.2, any Joint Venturer has a negative Capital Account, such negative
Capital Account shall not be an asset of the Joint Venture or a liability of a
Joint Venturer. The foregoing shall not affect the liability of the Joint
Venturers as general partners of the Joint Venture for the recourse
liabilities of the Joint Venture nor the right of one of the Joint Venturers
to contribution from the other in the event it pays more than its pro rata
share of any liability or lends to the Joint Venture an amount necessary to
pay any such liabilities.
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9.6 DISTRIBUTIONS-IN-KIND. In the event all or part of the Joint
Venture assets are distributed in kind at the time of liquidation, for
purposes of determining the balance in any Joint Venturer's Capital Account,
any such Joint Venture asset shall be deemed sold by the Joint Venture for the
amount of such asset's fair market value, and any gain or loss realized on
such deemed sale shall be properly charged to the Capital Accounts of the
Joint Venturers.
9.7 CONTINUING OBLIGATION. Except as provided in this Agreement, no
dissolution of the Joint Venture shall release or relieve any of the Joint
Venturers, or any of their respective successors or assigns, from any previous
breach or default of, or from any obligations theretofore incurred or accrued
under, any of the provisions of this Agreement nor, except to the extent
otherwise expressly provided herein, shall any Joint Venturer, or any of her
or its respective successors or assigns, be relieved from its respective
obligations hereunder, and all such obligations and all breaches and defaults
relating to such obligations shall survive despite such dissolution.
X.
MISCELLANEOUS
10.1 RECIPIENT OF DISTRIBUTIONS AND PAYMENTS. All distributions and
payments of cash or property to be made pursuant to the provisions of this
Agreement shall be made directly to the parties who are entitled thereto at
their respective addresses indicated in the records of the Joint Venture or at
such other address as shall have been set forth in a notice sent pursuant to
the provisions of Section 10.2 hereof.
10.2 COMMUNICATIONS. Except as otherwise expressly provided in this
Agreement, any election, approval, consent, objection, request, waiver, notice
or other document required or permitted to be made or given pursuant to any
provision of this Agreement, shall be deemed duly made or given, as the case
may be, if in writing, signed by or on behalf of the person making or giving
the same, and shall be deemed completed when either (a) personally delivered
(with receipt acknowledged by the recipient), or (b) sent by electronic
facsimile, provided a copy of such document is sent to such party the same day
by one of the other methods set forth herein, or (c) deposited for delivery by
Federal Express or other similar overnight courier service; addressed to the
Person or Persons to whom such election, approval, consent, objection,
request, waiver, notice or other document is to be made or given at their
respective addresses, as follows:
1. in the case of the Joint Venturers, at the addresses
indicated in the records of the Joint Venture;
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2. in the case of the Joint Venture, notice to all Joint
Venturers shall be sufficient to constitute notice to the Joint
Venture.
Any party hereto shall have the right to change its address hereunder by
sending notice to all other parties hereto pursuant to this Section.
10.3 ENTIRE AGREEMENT; APPLICABLE LAW; EFFECT. This Agreement
contains the entire agreement by and among the parties with respect to the
ownership and operation of the Joint Venture. This Agreement shall be
construed, enforced and governed in conformity with the laws of the State of
Texas and the TUPA, without giving effect to principles of conflicts of law,
and shall be binding upon the parties hereto, their successors, heirs,
devisees, permitted assigns, legal representatives, executors and
administrators, but shall not be deemed for the benefit of creditors or any
other Persons.
10.4 MODIFICATION; WAIVER OR TERMINATION. Except as otherwise
expressly provided in this Agreement, no modification, waiver or termination
of this Agreement, or any part hereof, shall be effective unless made in
writing signed by the party or parties sought to be bound thereby, and no
failure to pursue or elect any remedy shall constitute a waiver of any default
under or breach of any provision of this Agreement, nor shall any waiver of
any default under or breach of any provision of this Agreement be deemed to
be a waiver of any other subsequent similar or different default under or
breach of such or any other provision or of any election or remedies available
in connection therewith. Receipt by any party of any money or other
consideration due under this Agreement, with or without knowledge of any
breach of default, shall not constitute a waiver of such breach or default of
any provision of this Agreement.
10.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, notwithstanding that all of the parties did not execute the
same counterpart, each of such counterparts shall, for all purposes, be deemed
to be an original, and all of such counterparts shall constitute one and the
same instrument binding on all of the parties hereto.
10.6 SEPARABILITY. Each provision of this Agreement shall be
considered separable and if for any reason any provision or provisions herein
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid.
10.7 ARTICLE AND SECTION HEADINGS. Article and section titles or
captions contained in this Agreement are inserted only as a matter of
convenience and for reference, and shall not be construed
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in any way to define, limit, extend or describe the scope of any of the
provisions hereof.
10.8 WORD MEANINGS. The words such as "herein," "hereinafter,"
"hereof," and "hereunder" refer to this Agreement as a whole and not merely to
a subdivision in which such words appear unless the context otherwise
requires. The singular shall include the plural and the masculine gender
shall include the feminine and neuter, and vice versa, unless the context
otherwise requires.
10.9 SURVIVAL OF COVENANTS, ETC. The covenants and other
statements set forth in this Agreement shall survive execution and delivery
hereof and making of the capital contributions provided for herein. All of
the same shall be deemed to be independently material and to have been relied
upon by the party or parties to whom made.
10.10 FURTHER ACTIONS. Each of the Joint Venturers shall hereafter
execute and deliver such further instruments and do such further acts and
things as may be required or useful to carry out the intent and purpose of
this Agreement and as are not inconsistent with the provisions hereof.
XI.
RIGHT TO COMPETE
11.1 RIGHT TO COMPETE. Neither Joint Venturer shall be prevented or
limited in any way from originating or participating in business opportunities
or projects on its own even if such business opportunity or project would have
been an appropriate business opportunity or project of this Joint Venture or
will compete with this Joint Venture. It is understood that each Joint
Venturer has the right to compete with the other and with this Joint Venture,
except no Joint Venturer may use knowledge or information developed by the
Joint Venture to compete with the Joint Venture by utilizing such information.
Executed as of the 28th day of October, 1993.
CORNERSTONE NATURAL GAS, INC.
By: ___________________________
Name:___________________________
Title:__________________________
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<PAGE>
MERIT NATURAL GAS COMPANY
By: ___________________________
Name:___________________________
Title:__________________________
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<PAGE>
EXHIBIT 10.46
AMENDED AND RESTATED
INTERCREDITOR AGREEMENT
This AMENDED AND RESTATED INTERCREDITOR AGREEMENT (the "Agreement") dated
effective as of December 31, 1993, is entered into between Union Bank, a
California banking corporation ("Union") and Bank of Oklahoma, National
Association ("BOK").
W I T N E S S E T H:
WHEREAS, Union and Dubach Gas Company, a Texas corporation ("Dubach")
entered into a certain Amended and Restated Term Loan and Revolving Credit
Agreement dated as of July 26, 1991, as previously amended and as further
amended and modified effective as of November 2, 1993 and as of December
21, 1993 (collectively, the "Union Credit Agreement"), pursuant to which
Union eliminated its Acquisition Loan and its Working Capital Loans credit
facilities to Dubach and modified its $400,000 Debt Reserve Loan and modified
and extended its revolving credit facility to Dubach in the reduced maximum
amount of $10,000,000 for the limited purpose of issuance of letters of credit
by Union on Dubach's account on or before February 28, 1994 in connection with
Dubach's refining and refinery operations and certain gas marketing operations
with expiration dates no later than March 31, 1994 and which Union revolving
credit facility is guaranteed by Dubach's corporate parent, Cornerstone
Natural Gas, Inc., formerly known as Endevco, Inc., a Delaware corporation
("Cornerstone");
WHEREAS, the Debt Reserve Loan matured on November 29, 1993 and the
revolving credit facility extended by Union to Dubach pursuant to the Union
Credit Agreement matures no later than March 31, 1994 and until such
expiration date, the contingent liabilities of Union under all letters of
credit issued to Dubach pursuant to the Union Credit Agreement will be secured
by (i) all of Dubach's Accounts, Contracts, Contract Rights, Inventory and
General Intangibles and (ii) Dubach banking accounts with Union, all
commercial paper purchased by Dubach and issued by Union commercial Funding
Corporation and Dubach's account number 0100136050 with BancOne, Dallas, Texas
(the types of collateral described in clauses (i) and (ii) , including all
proceeds thereof, being collectively referred to herein as the "Dubach Soft
Collateral");
WHEREAS, Dubach entered into that certain Revolving credit and Term Loan
Agreement with BOK effective as of November 2, 1993 (the "BOK Credit
Agreement") pursuant to which BOK has extended to Dubach, Cornerstone and
other corporate subsidiaries of Cornerstone therein described and defined
(collectively, the "Borrowers") a certain $5,800,000 term credit facility and
a $6,000,000 revolving line of credit secured, INTER ALIA, by the Dubach
Soft Collateral and certain other types and items of Collateral as that term
is described and defined in the Security Agreement and Assignment from the
Borrowers (including Dubach) to BOK dated as of even date with
<PAGE>
the BOK Credit Agreement and certain other Security Instruments described and
defined in the BOK Credit Agreement;
WHEREAS, until the union revolving line of credit established pursuant to
the Union Credit Agreement automatically and irrevocably matures on March 31,
1994 or is otherwise previously terminated AND all security interests and
pledges in favor of Union pertaining to any assets of Dubach (including the
Dubach Soft Collateral) have been fully discharged and released or terminated
of record, BOK will exclude all of Dubach's Accounts, Contracts, Contract
Rights, Inventory and General Intangibles (including all proceeds thereof)
from the borrowing base utilized by the Borrowers in connection with the
revolving line of credit established by BOK pursuant to the BOK Credit
Agreement; and
WHEREAS, from the effective date hereof through and including March 31,
1994, Union and BOK desire to execute this Agreement in order to provide for
certain rights, relative priorities and the manner of enforcing the respective
liens and security interests of Union and BOK in the Dubach assets
constituting Collateral now or hereafter securing the indebtedness of Dubach
(and insofar as the BOK Credit Agreement is concerned, the other Borrowers
therein described and defined) arising under the Union Credit Agreement and
the BOK Credit Agreement.
THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Union and BOK hereby agree as follows:
1. Insofar as the Union Credit Agreement is concerned, Union hereby
represents to and covenants and agrees with BOK as follows:
a. Union may from time to time issue letters of credit for the
account of Dubach (but in no event will any such letters of credit be issued
by Union after February 28, 1994) only in connection with Dubach's refining
and refinery plant operations and gas marketing operations. Union will not
issue any letters of credit for or on behalf of Dubach except only those
issued pursuant to the Union Credit Agreement and in no event shall Union
issue any letters of credit for the account of Dubach in connection with or
arising out of Dubach's natural gas processing, treating or fractionation
business or plant operations (except for gas marketing operations).
b. In no event will the outstanding amount of letters of credit
issued by Union to Dubach pursuant to the Union Credit Agreement exceed
$10,000,000 at any time nor will any letters of credit issued by Union on
Dubach's account have expiration or expiry dates later than March 31, 1994.
Union will not extend or renew any letters of credit now or hereafter issued
under the Union Credit Agreement to any expiry or expiration date subsequent
to March 31, 1994.
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c. The Acquisition Loan and the Working Capital Loans to Dubach
under the Union Credit Agreement have been fully paid and discharged and Union
neither has nor claims any mortgage liens, security interests, pledges or
other collateral interest in any property, assets or accounts of Dubach other
than the Dubach Soft Collateral.
d. Upon receipt of good funds evidencing payment in full of its
Acquisition Loan and the Working Capital Loans to Dubach, Union will promptly
release and/or terminate in recordable form of all of its mortgage liens and
security interests in all of Dubach's assets constituting collateral for the
Union Credit Agreement except only for the Dubach Soft Collateral. Union
agrees to provide BOK with copies of all such releases or termination
statements and will provide such further documents or evidence as may be
reasonably requested by BOK as further assurance of Union's full and complete
release of all of the Dubach assets as collateral for Union's liabilities and
indebtedness established pursuant to the Union Credit Agreement except only
for the Dubach Soft Collateral. In no event shall Union claim or assert any
security interest or mortgage lien in or encumbrance against any of Dubach's
equipment, real estate, leases, fixtures, rights-of-way or other hard assets,
including (without limitation) those used or useful in or pertaining to
Dubach's natural gas processing, treating and fractionating plants, pipeline
systems and refinery and refining plants or operations.
2. Union and BOK acknowledge and agree that regardless of any
priority otherwise available to either thereof by applicable law based upon
time of filing or otherwise insofar as applicable law is concerned, the liens
of Union and BOK in the Dubach Soft Collateral (including all proceeds
thereof) shall be determined, governed and administered solely in accordance
with the terms and provisions hereof, particularly paragraph 3 below.
3. Union agrees that regardless of any priority otherwise available
to Union by law insofar as any or all of the Dubach Soft Collateral is
concerned, other than its first priority security interest in the Dubach Soft
Collateral used, arising out of and/or generated in connection with Dubach's
refinery, refining plant and/or gas marketing operations, all of Union's liens
thereagainst shall be junior and fully subordinate for all purposes to the
security interests and mortgage liens granted to BOK under the BOK Credit
Agreement and the Security Instruments therein defined and described. Union
shall retain its first priority security interest in the Dubach Soft
Collateral used, arising out of and/or generated in connection with Dubach's
refining, refinery plant and/or gas marketing operations.
4. Upon the occurrence of a Default or Event of Default by Dubach under
the Union Credit Agreement or any one or more of the Borrowers under the BOK
Credit Agreement, both Union and BOK
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represent to and acknowledge and stipulate with the other party hereto that
they will diligently and jointly examine the books and records of Dubach in
order to delineate between (i) Dubach Soft Collateral as to which BOK shall be
entitled to absolute and first priority over Union in all respects pursuant to
paragraph 3 hereof above and (ii) Dubach Soft Collateral as to which Union
shall have absolute and first priority over BOK in all respects pursuant to
paragraph 3 hereof above.
5. Each party hereto agrees that it shall provide the other party
hereto with a copy of all notices related to defaults that it is required to
give to Dubach (or Cornerstone as Dubach's agent insofar as the BOK Credit
Agreement is concerned) in accordance with such party's Credit Agreement or
any of the Security Instruments pertaining thereto. Any notice that either
party delivers hereunder shall be personally delivered, deposited in the United
States mail, postage prepaid, certified mail, or by overnight courier of
recognized national standing, addressed as follows:
Union Bank
Energy Capital Services
445 South Figueroa Street
Los Angeles, California 90071
Bank of Oklahoma, National Association
Bank of Oklahoma Tower
one Williams Center
Energy Department - 8th Floor
Tulsa, Oklahoma 74192
6. This Agreement shall inure to the benefit of, and be binding on,
Union and BOK and their respective successors and assigns. In the event that
either party hereto shall at any time transfer or assign its right, title and
interest under any Security Agreement or Security Instrument or to any
Collateral after any such transfer, each party hereto hereby agrees to give
prior written notice of the terms of this Agreement to any such transferee or
assignee.
7. Nothing contained herein shall be construed so as to require
(other than the consent required to be obtained by Dubach pursuant to the BOK
Credit Agreement) the consent of Union to any amendment, supplement, extension
or modification of the BOK Credit Agreement or the increase, renewal or
extension of any obligation of Dubach thereunder or under any BOK Security
Instrument now or at any time hereafter.
8. This Agreement may be executed in one or more counterparts, each
of which shall constitute an original but when taken together shall constitute
but one agreement.
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9. This Agreement may be amended or modified by a writing duly
executed by each of the parties hereto.
10. Each term not otherwise defined herein shall have the meaning
ascribed thereto in the applicable Uniform Commercial code.
11. This Agreement shall be governed by the substantive laws (other
than conflict laws) of the State of Oklahoma.
12. This Amended and Restated Intercreditor Agreement supersedes and
replaces that certain Intercreditor Agreement dated as of November 2, 1993
between Union and BOK.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by their
duly authorized officers as of the date and year first above written.
UNION BANK
By: ______________________________
Walter M. Roth, Vice President
By: ______________________________
(Title)
"Union"
BANK OF OKLAHOMA, NATIONAL
ASSOCIATION
By: ____________________________
Jack Brannon, Vice President
"BOK"
The undersigned acknowledges receipt of a fully executed counterpart of the
foregoing Amended and Restated Intercreditor Agreement between Union and BOK
and consents and agrees to the terms and provisions thereof.
Dubach Gas Company
By: _____________________
Robert L. Cavnar,
Senior Vice President
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EXHIBIT 10.47
SUBORDINATION AGREEMENT
TO: Premier Bank
130 DeSiard Street
Monroe, Louisiana 71201
Attention: Daniel M. Van,
Vice President
Gentlemen:
WHEREAS, Dubach Gas Company, a Texas corporation (together with its
successors and assigns, collectively referred to herein as "Dubach"), has
requested that Premier Bank ("Premier") extend a letter of credit facility to
Dubach for the issuance of letters of credit during the period from February
28, 1994 through March 4, 1994 in connection with Dubach's refining and
refinery operations and certain gas marketing operations (which such letters
of credit will have an expiration date no later than April 30, 1994) in an
aggregate outstanding principal amount not in excess of $2,600,000 (the
"Letter of Credit Facility"), to be evidenced by the promissory note, the
security agreement and the financing statement between Dubach and Premier,
dated as of even date herewith (collectively the "Letter of Credit
Documents");
WHEREAS, Dubach has advised Premier of the terms and provisions of that
certain Amended and Restated Intercreditor Agreement between Union Bank, a
California banking corporation ("Union") and Bank of Oklahoma, National
Association ("BOK"), dated as of December 31, 1993 (the "Intercreditor
Agreement"), a true, correct and complete copy of which Intercreditor
Agreement has been provided to Premier;
WHEREAS, in order to induce Premier to extend the Letter of Credit
Facility to Dubach and enter into the Letter of Credit Documents, Premier has
required that BOK agree to subordinate the priority of its security interest
in the Dubach Soft Collateral as more particularly described and defined in
the Intercreditor Agreement, to the extent used, arising out of and/or
generated in connection with Dubach's refinery, refining plant and/or gas
marketing operations, to the security interests of Premier in the Dubach Soft
Collateral as security for Premier's contingent obligations and liabilities
under Letters of Credit issued thereby for the account of Dubach under the
Letter of Credit Facility, which such subordination, as hereinafter set forth,
shall be limited to the LESSER of the aggregate outstanding amount of
letters of credit issued by Premier under the Letter of Credit Facility or
$2,600,000; and
WHEREAS, Premier has required that BOK enter into this Subordination
Agreement as a condition to the closing of the Letter of Credit Documents and
provision of the Letter of Credit Facility to Dubach;
<PAGE>
NOW, THEREFORE, to induce Premier to enter into the Letter of Credit
Documents, to consummate the transaction provided for therein and to agree to
make the Letter of Credit Facility available to Dubach and for other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, BOK agrees, covenants and stipulates as follows:
1. Subject to the limitations herein provided, BOK subordinates its
security interests in the Dubach Soft Collateral used, arising out of and/or
generated in connection with Dubach's refinery, refining plant and/or gas
marketing operations to the security interests therein of Premier
notwithstanding the prior filing of Financing Statements in favor of BOK, as
secured party, pertaining to such Dubach Soft Collateral. The purpose and
effect of this Subordination Agreement shall be to subordinate BOK's foregoing
security interest to the security interest in favor of Premier, in accordance
with the terms, provisions and limitations hereof with the same force, effect
and legal significance as if the Premier Financing Statements pertaining to
the Dubach Soft Collateral used, arising out of and/or operated in connection
with Dubach's refinery, refining plant and/or gas marketing operations had
been filed prior to the BOK Financing Statements pertaining thereto.
2. The subordination by BOK insofar as the Dubach Soft Collateral is
concerned shall be limited in all respects to a maximum outstanding amount not
in excess of the LESSER of (i) the aggregate outstanding amount of Letters
of Credit issued by Premier pursuant to the Letter of Credit Facility or (ii)
$2,600,000. By virtue of its acceptance hereof, Premier covenants and agrees
with BOK that all letters of credit issued by Premier for the account of
Dubach shall be to sellers (as beneficiaries) of crude oil purchased by Dubach
for March 1994 crude oil purchases by Dubach for use in Dubach's refining and
refining plant operations. Such letters of credit shall be issued no later
than March 4, 1994, and shall have expiry or expiration dates no later than
April 30, 1994. Premier will not extend or renew any letters of credit issued
under the Letter of Credit Facility to any expiry or expiration date
subsequent to April 30, 1994.
3. Premier recognizes, acknowledges and stipulates to the terms and
provisions of the Intercreditor Agreement, including (without limitation), the
prior and senior position of Union in and to the Dubach Soft Collateral as
therein set forth and provided. Premier further acknowledges, stipulates and
agrees that its priority security interest in the Dubach Soft Collateral used,
arising out of and/or generated in connection with Dubach's refinery, refining
plant and/or gas marketing operations shall be limited to such Dubach Soft
Collateral in all respects and in no event shall Premier claim or assert any
security interest or mortgage lien in or encumbrance against any of Dubach's
equipment, real estate, leases, fixtures, rights of way or other hard assets,
including (without limitation) those used or useful in or pertain-
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<PAGE>
ing to Dubach's natural gas processing, treating and fractionating plants,
pipeline systems and refinery and refining plants or operations. BOK shall
retain its first priority security interest in all Dubach Soft Collateral OTHER
THAN such Dubach Soft Collateral used, arising out of and/or generated in
connection with Dubach's refining, refinery plant and/or gas marketing
operations.
4. Each party hereto agrees that it shall provide the other party
hereto with a copy of all notices related to defaults that it is required to
give to Dubach (or Cornerstone as Dubach's agent insofar as the BOK Credit
Agreement defined in the Intercreditor Agreement is concerned) in accordance
with such party's credit agreement or any of the Security Instruments
pertaining thereto. Any notice that either party delivers hereunder shall be
personally delivered, deposited in the United States mail, postage prepaid,
certified mail, or by overnight courier of recognized national standing,
addressed as follows:
Premier Bank
130 DeSiard Street
Monroe, Louisiana 71201
Attention: Daniel M. Van,
Vice President
Bank of Oklahoma, National Association
Bank of Oklahoma Tower
One Williams Center
Energy Department - 8th Floor
Tulsa, Oklahoma 74192
5. Upon the occurrence of a default or event of default by Dubach
under the Letter of Credit Documents or one or more of the Borrowers under the
BOK Credit Agreement (as defined and described in the Intercreditor
Agreement), both Premier and BOK represent to and acknowledge and stipulate to
the other party that they will diligently and jointly examine the books and
records of Dubach in order to delineate between the (i) Dubach Soft Collateral
as to which BOK shall be entitled to absolute priority over Premier in all
respects pursuant to paragraph 3 hereinabove, and (ii) Dubach Soft Collateral
as to which Premier shall hold absolute first priority over BOK in all
respects pursuant to paragraph 3 hereinabove.
6. This Agreement shall inure to the benefit of, and be binding on,
Premier and BOK and their respective successors and assigns. In the event
that either party hereto shall at any time transfer or assign its right, title
and interest under any Security Agreement or Security Instrument or to any
Collateral after any such transfer, each party hereto hereby agrees to give
prior written notice of the terms of this Agreement to any such transferee or
assignee.
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<PAGE>
7. Nothing contained herein shall be construed so as to require
(other than the consent required to be obtained by Dubach pursuant to the BOK
Credit Agreement) the consent of Premier to any amendment, supplement,
extension or modification of the BOK Credit Agreement or the increase, renewal
or extension of any obligation of Dubach thereunder or under any BOK Security
Instrument now or at any time hereafter.
8. This Agreement is subject to the terms and provisions of the
Intercreditor Agreement. All terms used but not defined herein shall have the
meanings assigned thereto in the Intercreditor Agreement.
9. This Agreement may be executed in one or more counterparts, each
of which shall constitute an original but when taken together shall constitute
but one agreement.
10. This Agreement may be amended or modified by a writing duly
executed by each of the parties hereto.
11. Each term not otherwise defined herein shall have the meaning
ascribed thereto in the applicable Uniform Commercial Code.
12. This Agreement shall be governed by the substantive laws (other
than conflict laws) of the State of Oklahoma.
IN WITNESS WHEREOF, this Subordination Agreement has been made and
entered into effective as of February 28, 1994, by the undersigned.
BANK OF OKLAHOMA, NATIONAL
ASSOCIATION
By:
-----------------------------
Gary R. Christopher
Senior Vice President
"BOK"
PREMIER BANK
By:
-----------------------------
Daniel M. Van, Vice President
"Premier"
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<PAGE>
The undersigned hereby acknowledges receipt of a copy of the foregoing
Subordination Agreement, waives notice of acceptance thereof by Premier Bank,
and agrees to be bound by the terms and provisions thereof and to do every
other act and thing necessary or appropriate to carry out the terms and
provisions of the foregoing Subordination Agreement.
Dated as of the 28th day of February, 1994.
Dubach Gas Company
By
----------------------------
Robert L. Cavnar,
Senior Vice President
"Dubach"
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EXHIBIT 10.48
CONSULTING AGREEMENT
CONSULTING AGREEMENT (this "Agreement"), dated June 4, 1993, between
ENDEVCO, INC., a Delaware corporation (the "Company"), and JAMES W. BRYANT, an
individual residing in Dallas, Texas (the "Consultant").
WHEREAS, the Consultant is resigning as Vice Chairman of the Board and
from the Office of the Chief Executive of the Company; and
WHEREAS, the Company desires to have the continued benefit of the
Consultant's knowledge and experience as a business consultant to the Company
and considers such arrangement a vital element to protecting and enhancing the
best interests of the Company and its stockholders; and
WHEREAS, the Consultant is willing to consult to the Company, on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company and the Consultant hereby agree as follows:
1. CONSULTING SERVICES. The Company agrees to employ the
Consultant, and the Consultant agrees to enter the employ of the Company, as a
business consultant to the Company, for the period set forth in Paragraph 2,
with the duties set forth in Paragraph 3, and upon the other terms and
conditions herein provided.
2. EFFECTIVE DATE AND TERM. The employment of the Consultant by
the Company as provided in Paragraph 1 shall be for a three-year term
commencing on the effective date of the Plan of Reorganization of the Company
(the "Effective Date"), unless further extended as herein provided (the
"Consulting Period"). On the second and each subsequent anniversary of the
Effective Date, the Consulting Period shall be automatically extended for an
additional year unless, before such anniversary, the Company gives the
Consultant written notice that it elects to terminate this Agreement at the
end of the Consulting Period then in effect. The Consulting Period may be
terminated earlier in accordance with the provisions of Paragraph 5.
3. DUTIES.
(a) During the Consulting Period, the Consultant shall serve as a
business consultant to the Company for the purpose of rendering to it services
expected of a senior executive officer of the Company as it may reasonably
request from time to time in connection with matters with respect to which the
Consultant has special knowledge and expertise. These matters will include,
but not be limited to, the following special projects of the Company: (i) gas
liquid processing plant expansions and relocations and (ii) the coal bed
methane project in Czechoslovakia. In his capacity as a business consultant
hereunder, the Consultant shall report only to the Chairman, Chief Executive
Officer and the Chief Operating Officer of the Company. The duties of
Consultant shall be limited to duties comparable to those customarily assigned
to senior executives of the Company. During the
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Consulting Period, the Consultant shall be available to devote 40 hours per
week to his duties under this Agreement, except for usual, ordinary, and
customary periods of vacation and absence due to illness or other disability.
If, at the request of the Company, the Consultant performs services hereunder
in any one week for more than 40 hours, the Consultant shall be credited with
1 1/2 hours of vacation time for each extra hour of work performed in excess of
40 hours per week.
(b) The Consultant shall be based in Dallas, Texas and shall not be
required to render the consulting services required by this Agreement other
than at locations in Dallas, Texas, subject, however, to such reasonable
travel as the performance of such services may require.
(c) It is specifically understood by the parties hereto that the
Consultant shall retain the right to pursue other business or businesses and
engage in other activities, whether or not in the same industries in which the
Company is active, so long as such businesses or activities do not interfere
with the Consultant's proper performance of the consulting services required
by this Agreement. To the extent necessary to comply with his obligations
under Paragraph 4(d) below, the Consultant will not compete with the Company
during the Consulting Period.
(d)(i) During the Consulting Period, the Consultant shall have
among his duties the development of new business opportunities for the
Company in the Company's line of business ("Business Opportunities"),
including but not limited to (A) finding profitable utilization for
equipment that is not being utilized (excluding any projects originated
by the Company), and (B) finding new projects in the area of business
conducted by the Company such as providing gas to plants, acquiring new
pipelines or gathering systems or providing processing to pipelines or
gathering systems. A Business Opportunity shall be a "Compensated
Business Opportunity" if it is originated by the Consultant and not by
employees, agents or representatives of the Company.
(ii) The Consultant shall present each potential Compensated
Business Opportunity in writing to the Chief Executive Officer of the
Company. Unless the Company notifies the Consultant within ten (10)
days after receipt of such written presentation that it does not agree
that such opportunity was originated by the Consultant, such opportunity
shall be considered a Compensated Business Opportunity.
(iii) All Compensated Business Opportunities must be first offered
to the Company. The receipt by the Company of the written presentation
referred to in Paragraph 4(d)(ii) shall constitute an offer by the
Consultant to permit the Company to accept the Compensated Business
Opportunity. For a reasonable period of time after receipt of such
offer (not to exceed sixty (60) days), the Company shall have the right
to accept such offer by giving a written notice of acceptance to the
Consultant prior to the expiration of such period. Such offer may not
be accepted for less than 100% of the available opportunity. If the
Company elects not to pursue a Compensated Business Opportunity, then
the Consultant may pursue such
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opportunity himself or may offer it to third parties. If the terms of the
Compensated Business Opportunity change so that the terms are materially better
than those offered to the Company at the time the Company rejected such offer,
then the Consultant must reoffer such Compensated Business Opportunity to the
Company.
(iv) If the Company elects to implement a Compensated Business
Opportunity, then the Consultant will be paid the special bonus
described on Exhibit A hereof at the time the Compensated Business
Opportunity is completed and fully operational. If the Company accepts
a Compensated Business Opportunity and thereafter fails to pursue such
opportunity with reasonable diligence, the Consultant may pursue such
opportunity himself or may offer it to third parties. If the Consultant
believes that the Company has failed to pursue such opportunity with
reasonable diligence, he will so notify the Company and may thereafter
pursue such opportunity only after the Company has released the
opportunity to the Consultant in writing, which release shall not be
unreasonably withheld, or the Company's lack of reasonable diligence in
pursuing such opportunity has been determined by arbitration pursuant to
Paragraph 13 below.
(v) If the Company accepts a Compensated Business Opportunity,
the Consultant will nevertheless be entitled to participate and invest
in such Compensated Business Opportunity, himself or with other parties,
to the extent of 40% of the available interest if (A) the Consultant
agrees to manage the project and (B) all or part of the Consulting Fee
will be paid from the project revenues after the project is completed
and fully operational. If the management of the project will not
require the Consultant's full time services or if the project cannot
reasonably bear the entire Consulting Fee, then the portion of the
Consulting Fee to be borne by the project shall be as mutually agreed by
the Company and the Consultant.
(vi) If the Company determines that the development of a
Compensated Business Opportunity by the Company requires a joint venture
or equity partner (a debt financing with equity kickers or warrants
shall not be considered an equity partner or joint venture), the Company
will notify the Consultant and the Consultant may seek to locate an
investor for such project. If (A) the Consultant is able to locate an
equity partner or joint venture partner for such Compensated Business
Opportunity who agrees to provide such financing on terms better than
the terms offered to the Company by other parties prior to the time that
the Company has agreed to pursue such Compensated Business Opportunity
with another party and (B) the terms offered by such person are
otherwise satisfactory to the Company, then the Company will agree to
enter into a joint venture, partnership or other arrangement with such
person. The Consultant will be entitled to receive whatever
compensation such person is willing to pay him for presenting such
opportunity to it but will not be entitled to any additional
compensation from the Company.
4. COMPENSATION AND RELATED MATTERS.
(a) CONSULTING FEE. During the Consulting Period, the Company
shall pay to the Consultant for his services hereunder a consulting fee
("Consulting Fee") at the rate of not
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less than $200,000 per year, payable in installments (in as nearly equal amounts
as is practicable) in accordance with the general payroll practices of the
Company in effect at the time such payment is made, but in no event less
frequently than monthly, or as otherwise mutually agreed upon. The Consulting
Fee shall also be subject to such increases as may be determined from time to
time by the Board of Directors of the Company. Once established at an increased
specified rate, the Consulting Fee shall not thereafter be reduced.
(b) EXPENSES. During the Consulting Period, the Consultant shall be
entitled to receive prompt reimbursement for all reasonable travel,
entertainment and other expenses (including business class air fare for any
international travel) paid or incurred by the Consultant in performing the
consulting services required by this Agreement.
(c) VACATIONS. During the Consulting Period, the Consultant shall
be entitled to reasonable periods of vacation, which shall be four weeks (plus
any increase because of work in excess of 40 hours per week) during each
12-month period commencing on the date of this Agreement. The Consultant
agrees to utilize his vacation at such time or times as are (i) consistent
with the proper performance of his duties hereunder and (ii) mutually
convenient for the Company and the Consultant.
(d) OFFICE AND SUPPORT SERVICES. During the Consulting Period, the
Company shall provide to the Consultant, at the Company's sole cost, a private
office of a size with furnishings and other appointments, and personal
secretarial and other support staff assistance (including document
preparation, file storage, copying and telecopying transmission), first floor,
covered parking, and other office amenities, at the Company's principal
executive offices in Dallas, Texas, commensurate with those provided by the
Company to the Consultant as of the date of this Agreement. Such office shall
be furnished with the furniture and other appointments located at the
Consultant's present office. At any time during the Consulting Period, the
Company may request the Consultant to office at a location separate from the
Company's principal executive offices in Dallas, Texas. If so requested by
the Company, the Consultant shall relocate his office to a location of his
choice, provided the Company pays to the Consultant a moving allowance of
$25,000. The Consultant shall also have the right to purchase any furniture
or decorations in his office that are not owned by him for a cost equal to
their book value. Commencing one year following such relocation, the Company
shall pay to the Consultant an office expense allowance of $1,000 per month
during the remainder of the Consulting Period. The office expense allowance
shall be paid on the first day of each calendar month in advance.
(e) WELFARE BENEFIT PLANS. The Company shall make all arrangements
necessary to permit the Consultant and his dependents who currently
participate therein to continue to be covered during the Consulting Period by
all welfare benefit plans of the Company in which he or they currently
participate, including, without limitation, medical/health/hospitalization,
life insurance, accidental death and dismemberment insurance, and disability
insurance plans, and to participate during the Consulting Period in any and
all welfare benefit plans provided by the Company to its employees generally
following the date hereof, including any increase in benefits provided by
existing plans, in each case at the same cost to the Consultant as he would
have incurred had he remained
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an employee of the Company; provided that the foregoing benefits shall not
include payment of premiums on any of the Consultant's life insurance policies
that are in addition to the types of policies that are offered to the senior
executives of the Company. In the event that for any reason the Company is
unable to provide the foregoing welfare benefit plan coverage, it shall promptly
reimburse the Consultant for any excess costs incurred by him in obtaining
individual insurance policies providing reasonably similar coverage.
(f) INDEMNIFICATION. In addition to any other indemnity rights the
Consultant may have, the Consultant shall be entitled and continue to be
entitled, during the Consulting Period and thereafter without limitation of
time, as a matter of separate contract, but without duplication of payment, to
mandatory indemnification and advancement of expenses to the full extent such
indemnification and advancement of expenses may be made to directors and
officers of the Company as of the date of this Agreement under the Company's
certificate of incorporation and bylaws as in effect as of the date of this
Agreement and under Section 145 of the Delaware General Corporation Law (the
"DGCL") as in effect as of the date of this Agreement (except that subsection
(d) of Section 145 of the DGCL, Section 8.03 of the Company's bylaws and the
phrase "in accordance with Section 8.03 hereof" in Section 8.05(a) of the
Company's bylaws shall not apply for purposes of this Agreement), regardless
of any amendments thereto or repeal thereof or any adoption of new or
superseding bylaws or statutory provisions which may hereafter occur. The
Company shall indemnify and hold harmless the Consultant from and against all
costs and expenses reasonably incurred by him in securing such indemnification
and in enforcing his rights under this Paragraph 4(f). The provisions of this
Paragraph 4(f) shall continue in effect notwithstanding termination of the
Consultant's employment hereunder for any reason.
5. TERMINATION OF CONSULTING SERVICES.
(a) DEATH. The Consultant's employment as a consultant hereunder
shall terminate automatically upon his death.
(b) DISABILITY. If the Disability (as defined below) of the
Consultant occurs during the Consulting Period, the Company may notify the
Consultant of the Company's intention to terminate the Consultant's employment
as a consultant hereunder for Disability. In such event, the Consultant's
employment as a consultant hereunder shall terminate effective on the 30th day
following the date such notice of termination is given to the Consultant,
provided that the Consultant shall not have returned to the full-time
performance of his duties hereunder during such 30-day period. For purposes
of this Agreement, the "Disability" of the Consultant shall be deemed to have
occurred in the event of the full-time absence of Consultant from his duties
hereunder for 180 consecutive days as a result of his physical or mental
incapacity.
(c) TERMINATION BY COMPANY. The Company may terminate the
Consultant's employment as a consultant hereunder for Cause (as defined
below). For purposes of this Agreement, "Cause" shall mean either of the
following: (i) acts of dishonesty by the Consultant that constitute a felony
under the laws of the State of Texas and that result or are intended to
result, directly or indirectly, in gain to or personal enrichment of the
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Consultant at the expense of the Company; (ii) the willful and continued
failure by the Consultant to substantially perform his duties hereunder (other
than any such failure resulting from the Consultant's physical or mental
incapacity) or to substantially follow the directions of the Board of Directors,
the Chairman, the Chief Executive Officer or the Chief Operating Officer (as
long as such directions are consistent with this Agreement) after demand for
substantial performance is delivered by the Company that specifically identifies
the manner in which the Company believes the Consultant has not substantially
performed his duties or has not substantially followed such directions; (iii)
conviction of a felony involving moral turpitude; (iv) habitual insobriety or
failure to perform duties due to alcoholism or drug addiction; or (v)
misappropriation of Company funds.
Notwithstanding the foregoing, the Consultant shall not be deemed to
have been terminated for Cause without (i) reasonable notice to the Consultant
setting forth the reasons for the Company's intention to terminate his
employment as a consultant hereunder for Cause, (ii) an opportunity for the
Consultant, together with his counsel, to be heard before the Board of
Directors of the Company, and (iii) delivery to the Consultant of a Notice of
Termination (as defined below) from the Company satisfying the requirements of
this Agreement, which notice shall be accompanied by a resolution duly adopted
by a majority of the directors of the Company then in office finding that, in
the good faith opinion of such directors, the Consultant was guilty of conduct
which constitutes Cause hereunder and specifying the particulars thereof
in reasonable detail.
(d) TERMINATION BY CONSULTANT. The Consultant may terminate his
employment as a consultant hereunder at any time during the Consulting Period
for any reason. For purposes of this Agreement, "Good Reason" shall mean any
of the following (without the Consultant's express written consent):
(i) the assignment to the Consultant by the Company of any
duties materially inconsistent with the Consultant's duties as provided
herein or a change in the reporting responsibilities of the Consultant
as provided herein;
(ii) a reduction by the Company of the Consultant's Consulting
Fee as then in effect pursuant to the provisions hereof or the failure
of the Company to pay such Consulting Fee to the Consultant at the time
and in the manner specified in Paragraph 4(a); or
(iii) any failure by the Company to otherwise comply with any
material provision of this Agreement.
(e) NOTICE OF TERMINATION. Any termination of the Consultant's
employment as a consultant hereunder by the Company or by the Consultant
(other than a termination pursuant to Paragraph 5(a)) shall be communicated by
a Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a written notice which (i)
indicates the specific termination provision in this Agreement relied upon and
(ii) in the case of a termination for Disability, Cause, or Good Reason, sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Consultant's employment under the provision so
indicated. Consultant shall give the
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Company 30 days' prior written notice of any termination by Consultant and, in
the case of a termination for Good Reason, the Consultant may only terminate
this Agreement if the Company has failed to cure the circumstances claimed to
constitute Good Reason within such 30-day period.
6. OBLIGATIONS OF COMPANY UPON TERMINATION OF CONSULTING SERVICES.
(a) If the Consultant's employment as a consultant hereunder is
terminated by reason of the Consultant's death or Disability or for Cause or
by the Consultant other than for Good Reason, the Company shall thereafter
have no further obligations to the Consultant under this Agreement, except as
provided in Paragraphs 4(f), 11, and 14.
(b) If the Consultant's employment as a consultant hereunder is
terminated by the Company other than for Cause or Disability or is terminated
by the Consultant for Good Reason, the Company shall, until the end of the
Consulting Period then in effect, continue to be obligated to (i) make the
payments of the Consulting Fee (at the rate in effect hereunder at the time of
termination) specified in Paragraph 4(a), (ii) provide the welfare benefit
plan coverage provided for in Paragraph 4(e), (iii) provide the moving
allowance and office expense allowance described in Paragraph 4(d), (iv)
provide the indemnification and reimbursement of expenses described in
Paragraph 4(f) and (v) comply with any obligations covered by Paragraphs 11
and 14.
(c) Notwithstanding any provision of this Agreement to the contrary,
the Company's obligation to allow the Consultant to seek third party financing
for Compensated Business Opportunities, and the Consultant's obligation to
offer any business opportunities to the Company, shall terminate upon any
termination of this Agreement pursuant to either Section 6(a) or (b) above.
7. COMPLIANCE WITH OTHER AGREEMENTS.
(a) The Company represents and warrants to the Consultant that the
execution, delivery, and performance by the Company of this Agreement have
been duly authorized by all necessary corporate action of the Company and do
not and will not conflict with or result in a violation of any provision of,
or constitute a default under, any contract, agreement, instrument, or
obligation to which the Company is a party or by which it is bound.
(b) The Consultant represents and warrants to the Company that the
execution, delivery, and performance by the Consultant of this Agreement do
not and will not conflict with or result in a violation of any provision of,
or constitute a default under, any contract, agreement, instrument, or
obligation to which the Consultant is a party or by which he is bound.
8. CONFIDENTIALITY. During the Consulting Period and for a period
of one year thereafter, the Consultant shall hold in strict confidence and
shall not, directly or indirectly, disclose or reveal to any person, or use
for his own personal benefit or for the benefit of anyone else, any trade
secrets, confidential dealings, or other confidential or proprietary
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information of any kind, nature, or description (whether or not acquired,
learned, obtained, or developed by the Consultant alone or in conjunction with
others) belonging to or concerning the Company or any of its subsidiaries, or
any of their customers or clients or others with whom they now or hereafter have
a business relationship, except (i) with the prior written consent of the
Company duly authorized by its Board of Directors, (ii) in the course of the
proper performance of the Consultant's duties hereunder, or (iii) as required by
applicable law or legal process. The terms "trade secrets, confidential
dealings, or other confidential or proprietary information" shall not include
information that is or becomes (i) known to the public other than by improper
disclosure by Consultant or (ii) available to the Consultant from sources other
than the Company. The provisions of this Paragraph 8 shall continue in effect
notwithstanding termination of the Consultant's employment hereunder for any
reason. The Consultant shall not compete with the Company during the Consulting
Period of this agreement except as herein provided.
9. INDEPENDENT CONTRACTOR. It is expressly recognized by the
parties that the Consultant is not an employee of the Company and that the
relationship of the Consultant to the Company is that of an independent
contractor. Without limiting the scope of the immediately preceding sentence,
the Consultant shall be responsible for any and all federal, state, and local
income and self-employment and similar taxes.
10. MITIGATION. The Consultant shall not be required to mitigate
the amount of any payment or other benefit provided for under this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment
or other benefit provided for under this Agreement be reduced by any
compensation earned by the Consultant as a result of employment by another
employer during or after the Consulting Period or otherwise; provided that any
portion of the Consulting Fee that is actually paid from project revenues as
contemplated by Paragraph 3(d)(v) hereof shall reduce the amounts otherwise
payable by the Company hereunder.
11. NO EFFECT ON OTHER CONTRACTUAL RIGHTS. The provisions of this
Agreement, and any payment or other benefit provided for hereunder, shall not
reduce any amounts otherwise payable to the Consultant, or in any way diminish
the Consultant's rights, whether existing now or hereafter, under any other
contract or agreement of the Company providing benefits to the Consultant.
12. ATTORNEYS' FEES AND COSTS. In the event there is any litigation
between the parties hereto with respect to this Agreement, the prevailing
party in such litigation shall be entitled to recover all attorneys' fees and
costs incurred by such party in connection with such litigation.
13. ARBITRATION. Any dispute, controversy, or claim arising out of
or relating to this Agreement, or the validity, interpretation,
enforceability, or breach thereof, which is not settled by agreement between
the parties, shall be settled by arbitration in Dallas, Texas, in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
or any successor organization (the "Association") then in effect. The decision
of the arbitrator(s) shall be final and binding on the parties. A judgment on
the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction, or application
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may be made to such court for judicial acceptance of the award and an order of
enforcement, as the case may be. The expenses of such arbitration, including
the fee, if any, of the arbitrator(s), shall be divided between the parties on
an equal basis unless otherwise specified in the arbitrators' award. Each party
shall pay the fees and expenses of its own witnesses and counsel, unless the
arbitrator(s) shall specify otherwise in the award.
14. SURVIVAL. Neither the expiration or the termination of the term
of the Consultant's employment as a consultant hereunder shall impair the
rights or obligations of either party hereto which shall have accrued
hereunder prior to such expiration or termination.
15. NOTICES. All notices, requests, demands, and other
communications required or permitted to be given or made hereunder by either
party hereto shall be in writing and shall be deemed to have been duly given
or made (i) when delivered personally or (ii) when deposited in the United
States mail, first class registered or certified mail, postage prepaid, return
receipt requested, to the party for which intended at the following addresses
(or at such other addresses as shall be specified by the parties by like
notice, except that notices of change of address shall be effective only upon
receipt):
If to the Company, at:
8080 North Central Expressway
Suite 1200, Lock Box 47
Dallas, Texas 75206
Attention: Chairman of the Board
If to the Consultant, at:
8080 North Central Expressway
Suite 1200, Lock Box 47
Dallas, Texas 75206
16. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto concerning the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to such subject matter. This Agreement
specifically supersedes any prior agreements between the parties, including
without limitation the agreement known as the Conflict of Interest Agreement
signed by all Company employees annually.
17. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
heirs, legal representatives, successors, and assigns; provided, however,
that:
(i) the Consultant shall not assign or otherwise transfer this
Agreement or any of his rights or obligations hereunder without the
prior written consent of the Company (except that any rights that the
Consultant may have hereunder at the time
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of his death may be transferred by will or pursuant to the laws of descent and
distribution); and
(ii) the Company shall not assign or otherwise transfer this
Agreement or any of its rights or obligations hereunder without the
prior written consent of the Consultant. Notwithstanding the foregoing,
however, if the Company merges or consolidates with or into another
corporation, or transfers or sells all or substantially all its assets
to a third party, the Company may assign this Agreement to the party
which is the successor to its business and assets without the consent of
the Consultant, provided the Company remains liable hereunder (if the
Company survives such transaction) and such assignee assumes or becomes
legally bound to perform all obligations of the Company hereunder.
18. AMENDMENT. This Agreement may not be modified or amended in any
respect except by an instrument in writing signed by the party against whom
such modification or amendment is sought to be enforced.
19. WAIVER. Any term or condition of this Agreement may be waived
at any time by the party hereto which is entitled to have the benefit thereof,
but such waiver shall only be effective if evidenced by a writing signed by
such party, and a waiver on one occasion shall not be deemed to be a waiver of
the same or any other type of breach on a future occasion. No failure or
delay by a party hereto in exercising any right or power hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right or power.
20. SEVERABILITY. If any provision of this Agreement is held to be
unenforceable, (a) this Agreement shall be considered divisible, (b) such
provision shall be deemed inoperative to the extent it is deemed
unenforceable, and (c) in all other respects this Agreement shall remain in
full force and effect; provided, however, that if any such provision may be
made enforceable by limitation thereof, then such provision shall be deemed to
be so limited and shall be enforceable to the maximum extent permitted by
applicable law.
21. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
on its behalf by its duly authorized officer, and the Consultant has executed
this Agreement, as of the date first set forth above.
ENDEVCO, INC.
By:
Name:
Title:
"COMPANY"
<PAGE>
JAMES W. BRYANT "CONSULTANT"
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EXHIBIT A
Consultant's special bonus shall be an amount equal to:
(i) 5% of the first $1,000,000 of the Company Investment, plus
(ii) 4% of the amount of the Company Investment in excess of
$1,000,000 but not in excess of $2,000,000, plus
(iii) 3% of the amount of the Company Investment in excess of
$2,000,000 but not in excess of $3,000,000, plus
(iv) 2% of the amount of the Company Investment in excess of
$3,000,000 but not in excess of $4,000,000, plus
(v) 1% of the amount of the Company Investment in excess of
$4,000,000.
"Company Investment" shall mean the total cash consideration and the total
value of other consideration paid by the Company to third parties (but
excluding salaries, travel, overhead expenses and expenses paid to outside
advisors or consultants, including without limitation legal, accounting and
engineering expenses) with respect to a Compensated Business Opportunity (as
defined in Paragraph 3(d) of this Agreement).
<PAGE>
EXHIBIT 22.1
CORNERSTONE NATURAL GAS, INC.
SCHEDULE OF CORPORATE ENTITIES
STATE OF
INCORPORATION
-------------
Cornerstone Natural Gas, Inc. Delaware
Wholly-Owned Subsidiaries of Cornerstone Natural Gas, Inc.:
Cornerstone Gas Resources, Inc. Delaware
Cornerstone Gas Processing, Inc. Delaware
Cornerstone Gas Gathering Company Delaware
Cornerstone Pipeline Company Delaware
Dubach Gas Company Texas
Endevco Producing Company Delaware
Pentex Petroleum, Inc. Texas
Wholly-Owned Subsidiaries of Pentex Petroleum, Inc.
1. Endevco Taft Company Delaware
2. Endevco Three Rivers Delaware
Pentex Pipeline Company Texas
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-4637) pertaining to the Cornerstone Natural Gas, Inc. Employee
Savings Plan, of our report dated March 7, 1994, with respect to the
consolidated financial statements and schedules of Cornerstone Natural Gas, Inc.
included in the Annual Report (Form 10-K) for the year ended December 31, 1993.
ERNST & YOUNG
Dallas, Texas
March 23, 1994
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