<PAGE>
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
[ ] 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
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILINGS REQUIREMENTS FOR THE PAST 90 DAYS. YES _X_ NO _
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 _
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
<TABLE>
<CAPTION>
SHARES OUTSTANDING AT
CLASS OF COMMON STOCK MAY 11, 1995
--------------------- ------------
<S> <C>
$.10 PAR VALUE 12,515,959
</TABLE>
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<PAGE>
CORNERSTONE NATURAL GAS, INC.
INDEX TO QUARTERLY REPORT FORM 10-Q
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
PART I. Financial Information
ITEM 1. Financial Statements
Consolidated Statements of Operations for the three
months ended March 31, 1995, and 1994 ................ 3
Consolidated Balance Sheets as of March 31, 1995, and
December 31, 1994 .................................... 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1995, and 1994 ................ 5
Notes to Consolidated Financial Statements ........... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 7-8
PART II. Other Information
ITEM 1. Legal Proceedings .................................... 9
ITEM 6. Exhibits and Reports on Form 8-K ..................... 9
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIOD
ENDED MARCH 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues .................................................. $25,645,000 $32,066,000
Expenses:
Cost of sales ........................................... 22,150,000 27,548,000
Operating expenses ...................................... 1,277,000 2,177,000
Depreciation and amortization ........................... 777,000 658,000
General and administrative .............................. 1,288,000 1,268,000
----------- -----------
25,492,000 31,651,000
----------- -----------
Operating earnings ........................................ 153,000 415,000
----------- -----------
Other income (expense):
Interest income ......................................... 27,000 5,000
Interest expense ........................................ (443,000) (320,000)
Equity in net losses of unconsolidated subsidiaries ..... (1,000) (16,000)
Other ................................................... 19,000 4,000
----------- -----------
(398,000) (327,000)
----------- -----------
Earnings (loss) before income taxes ....................... (245,000) 88,000
Provision for current income taxes ........................ - 4,000
----------- -----------
Net earnings (loss) ....................................... $ (245,000) $ 84,000
=========== ===========
Earnings (loss) per common and common equivalent share .... $ (.02) $ .01
=========== ===========
Weighted average common and common
equivalent shares outstanding ........................... 12,516,000 14,057,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
<PAGE>
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 282,000 $ 655,000
Accounts receivable ........................... 11,023,000 12,424,000
Inventory ..................................... 171,000 93,000
Other current assets .......................... 315,000 286,000
------------ ------------
Total current assets ........................ 11,791,000 13,458,000
Assets held for disposition ..................... 1,000,000 1,000,000
Property, plant and equipment, at cost .......... 59,682,000 54,632,000
Less: accumulated depreciation ................ (34,227,000) (33,543,000)
------------ ------------
Net property, plant and equipment ............. 25,455,000 21,089,000
Goodwill, net ................................... 3,647,000 3,676,000
Other assets ................................... 1,101,000 1,080,000
------------ ------------
$ 42,994,000 $ 40,303,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt ........ $ 959,000 $ 4,857,000
Accounts payable .............................. 13,992,000 14,993,000
Accrued interest payable ...................... 53,000 52,000
Income tax payable ............................ 162,000 162,000
------------ ------------
Total current liabilities ................... 15,166,000 20,064,000
Long-term debt .................................. 14,967,000 6,898,000
Other liabilities ............................... 1,237,000 1,472,000
Stockholders' equity:
Common stock, $.10 par value; 25,000,000 shares
authorized; 12,515,959 shares issued and
outstanding ................................. 1,252,000 1,252,000
Additional paid-in capital .................... 51,298,000 51,298,000
Accumulated deficit ........................... (40,926,000) (40,681,000)
------------ ------------
Total stockholders' equity .................. 11,624,000 11,869,000
------------ ------------
$ 42,994,000 $ 40,303,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
<PAGE>
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIOD
ENDED MARCH 31,
-------------------------
1995 1994
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Earnings (loss) before extraordinary item .................... $ (245,000) $ 84,000
Non-cash items included in earnings (loss):
Depreciation and amortization .............................. 777,000 658,000
Equity in net losses of unconsolidated
subsidiaries ............................................. 1,000 16,000
Other ...................................................... (22,000) 7,000
----------- -----------
Working capital provided by operations before
reorganization items ......................................... 511,000 765,000
Changes in operating assets or liabilities which provided
(used) cash during the period:
Decrease in accounts receivable .............................. 1,402,000 5,290,000
Increase in inventory ........................................ (78,000) (206,000)
(Increase) decrease in other current assets .................. (29,000) 473,000
Increase in other assets ..................................... - (17,000)
Decrease in accounts payable ................................. (978,000) (5,669,000)
Increase (decrease) in accrued interest payable .............. 1,000 (2,000)
Decrease in other current liabilities ........................ - (202,000)
Increase in other liabilities ................................ (172,000) (2,000)
----------- -----------
Cash provided by operations before reorganization items ........ 657,000 430,000
Cash used by reorganization items - professional fees .......... (87,000) (305,000)
----------- -----------
Cash provided by operating activities .......................... 570,000 125,000
Cash flows from investing activities:
Additions to property, plant and equipment ................... (5,115,000) (1,450,000)
(Increase) decrease in investment in
unconsolidated subsidiaries ................................ - (62,000)
----------- -----------
Cash used by investing activities .............................. (5,115,000) (1,512,000)
Cash flows from financing activities:
Borrowings of revolving debt ................................. 700,000 700,000
Additional borrowings ........................................ 4,000,000 -
Reduction of long-term debt .................................. (528,000) (514,000)
----------- -----------
Cash provided by financing activities .......................... 4,172,000 186,000
----------- -----------
Decrease in cash and cash equivalents .......................... (373,000) (1,201,000)
Cash and cash equivalents:
Beginning of period .......................................... 655,000 2,416,000
----------- ----------
End of period ................................................ $ 282,000 $ 1,215,000
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest ..................................................... $ 484,000 $ 244,000
Income taxes ................................................. $ - $ -
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-5-
<PAGE>
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X, "Interim Financial
Statements", and accordingly do not include all information and footnotes
required under generally accepted accounting principles for complete
financial statements. The financial statements have been prepared in
conformity with the accounting principles and practices as disclosed in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994. In
the opinion of management, these interim financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the Company's financial position as of March 31, 1995,
the results of its operations for the three months ended March 31, 1995, and
the Company's cash flows for the three months ended March 31, 1995. Results
of operations for the periods presented herein are not necessarily indicative
of the results that may be expected for the year ending December 31, 1995.
NOTE 2 - LONG-TERM DEBT
On May 12, 1995, the Company received a commitment letter for a new Senior
Loan facility. Under the new facility, the Company will have a $20 million
commitment for bank borrowings. The Company will replace the term portion of
its existing Senior Loan with a portion of the commitment. The remaining
balance is available for new projects or acquisitions subject to certain
lender approval. This facility will have no amortization through December
31, 1996. Payment will then begin based on a five year straight-line
amortization with a balloon payment due 49 months after closing. The
Company's intention is to renew this facility every 12 months as supported by
its borrowing base, as defined. The Company can pay down and borrow under
this facility without penalty, as necessary.
The new Senior Loan facility also increases the amount available under the
Company's revolving credit facility. The revolving facility now allows for
working capital loans and standby letters of credit up to an aggregate of $10
million subject to a borrowing base, as defined. The revolving facility has
an initial two year term.
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
On May 12, 1995, the Company received a commitment letter for a new Senior
Loan facility. Under the new facility, the Company will have a $20 million
commitment for bank borrowings. The Company will replace the term portion of
its existing Senior Loan with a portion of the commitment. The remaining
balance is available for new projects or acquisitions subject to certain
lender approval. This facility will have no amortization through December
31, 1996. Payment will then begin based on a five year straight-line
amortization with a balloon payment due 49 months after closing. The
Company's intention is to renew this facility every 12 months as supported by
its borrowing base, as defined. The Company can pay down and borrow under
this facility without penalty, as necessary.
The new Senior Loan facility also increases the amount available under the
Company's revolving credit facility. The revolving facility now allows for
working capital loans and standby letters of credit up to an aggregate of
$10 million subject to a borrowing base, as defined. The revolving
facility has an initial two year term.
Working capital provided by operations in the first quarter of 1995 was
$511,000 compared to $765,000 for the same period in the prior year. The
decrease was the result of reduced earnings, primarily caused by the closing
of the refinery. This was partially offset by the increase at the Company's
North Louisiana cryogenic natural gas processing facilities. The Company had
a working capital deficit of $3.4 million at March 31, 1995. The Company
intends to issue equity securities, additional long-term debt or sell an
interest in certain assets in order to reduce the working capital deficit.
The Company expects that cash provided from operations combined with amounts
available under its revolving credit facility will be more than sufficient to
meet its cash requirements in 1995.
The Company made capital expenditures of approximately $5.1 million in the
first quarter of 1995. These expenditures were primarily on two projects.
The first was the Company's acquisition of the Willow Springs and North
Lansing natural gas gathering systems (collectively referred to as "Willow
Springs") from Bayou South Gas Gathering Company, L.C. The second project
was the expansion of the Company's Calhoun plant and gathering system. This
has allowed the Company to increase the volume of natural gas which can be
gathered and processed at its Calhoun facility.
Cash provided by financing activities was approximately $4.2 million in the
first quarter of 1995. The Company borrowed an additional $4.0 million as
part of the Willow Springs acquisition. The Company also borrowed $700,000
under its revolving credit facility and repaid $528,000 on its long-term debt
obligations.
At March 31, 1995, the Company had borrowed $3.8 million under the revolving
credit portion of the Senior Loan and the financial institution had issued,
for the Company's benefit, $3.4 million in standby letters of credit for
natural gas purchases.
-7-
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 COMPARED
TO THREE MONTHS ENDED MARCH 31, 1994
GENERAL. The Company's earnings before interest, income taxes and
depreciation ("EBITD") were $930,000 in the first quarter of 1995 compared
to $1.1 million in the first quarter of 1994. The Company recorded a net
loss of $245,000 ($0.02 per share) in the first quarter of 1995 compared to
net earnings of $84,000 ($0.01 per share) in the first quarter of 1994. The
first quarter of 1994 included results from the Company's discontinued
refining operations. Without the refining operations the Company would have
had a net loss of $880,000 in the first quarter of 1994.
NATURAL GAS PROCESSING OPERATIONS. The following table provides pertinent
information relating to the Company's natural gas processing operations
excluding refining operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------- INCREASE
1995 1994 (DECREASE)
----- ----- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Gross Margin $2,236 $1,304 $ 932
EBITD $1,180 $ 6 $1,174
(MILLION CUBIC FEET PER DAY)
Natural gas inlet volumes 82 86 (4)
</TABLE>
The Company's natural gas processing operations excluding refining had
increased EBITD of $1.2 million in the first quarter of 1995. This is
primarily the result of increased natural gas liquid recoveries, lower fuel
costs and decreased operating expenses from the Company's North Louisiana
cryogenic natural gas processing facilities that became operational in the
second quarter of 1994. This was achieved even though several producers had
their natural gas shut-in due to lower prices. The Company also had a major
portion of its Dubach gathering system shut-in for nine days in February 1995
while it was expanding its Calhoun natural gas processing plant and gathering
lines. These factors were the main reason for the first quarter loss.
However, the Calhoun expenditures have increased the natural gas volume which
is being processed at the Company's North Louisiana facilities by
approximately 20 million cubic feet per day ("MMCFD"). The Company expects
increased earnings beginning in the second quarter of 1995 as a result of the
increased natural gas volumes.
NATURAL GAS PIPELINE OPERATIONS. The following table provides pertinent
information relating to the Company's natural gas pipeline operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------- INCREASE
1995 1994 (DECREASE)
----- ----- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Gross Margin $1,259 $1,122 $ 137
EBITD $ 676 $ 663 $ 13
(MILLION CUBIC FEET PER DAY)
Natural gas sales volumes 160 98 62
</TABLE>
The Company's natural gas pipeline operations had increased gross margin of
$137,000 and increased EBITD of $13,000. These increases were the result of
the addition of the Willow Springs system which the Company acquired
effective January 1, 1995. These increases were substantially offset by lower
margins on the Company's off-system sales.
-8-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain 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 adverse effect on the Company's financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 Third Amendment to Revolving Credit and Term Loan
Agreement between Cornerstone Natural Gas, Inc.,
et al and Bank of Oklahoma, National Association
dated March 31, 1995.
Exhibit 27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
-9-
<PAGE>
EXHIBIT INDEX
EXHIBIT SEQ NO
NUMBER PAGE
------- ------
Exhibit 10.1 Third Amendment to Revolving Credit and Term Loan
Agreement between Cornerstone Natural Gas, Inc.,
et al and Bank of Oklahoma, National Association
dated March 31, 1995.
Exhibit 27.1 Financial Data Schedule.
-10-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
CORNERSTONE NATURAL GAS, INC.
(Registrant)
Date: May 15, 1995 By: /s/Robert L. Cavnar
------------------------------------
Robert L. Cavnar
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
Date: May 15, 1995 By: /s/Richard W. Piacenti
------------------------------------
Richard W. Piacenti
Vice President and Controller
(Principal Accounting Officer)
-11-
<PAGE>
EXHIBIT 10.1
THIRD AMENDMENT TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
THIS THIRD AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT, dated as
of March 31, 1995 ("Agreement"), is entered into among CORNERSTONE NATURAL
GAS, INC. (formerly Endevco, Inc.), a Delaware corporation ("Cornerstone"),
ENDEVCO PRODUCING COMPANY, a Delaware corporation ("EPRC"), CORNERSTONE GAS
GATHERING COMPANY (formerly Cornerstone Pipeline Company), a Delaware
corporation ("CGGC"), DUBACH GAS COMPANY, a Texas corporation ("Dubach"),
CORNERSTONE GAS PROCESSING, INC. (formerly Endevco Natural Gas Company), a
Delaware corporation ("CGP"), CORNERSTONE GAS RESOURCES, INC. (formerly
Endevco Oil and Gas Company), a Delaware corporation ("CGR"), CORNERSTONE
PIPELINE COMPANY (formerly Endevco Pipeline Company), a Delaware corporation
("CPC") and PENTEX PIPELINE COMPANY, a Texas corporation ("PPC")
(collectively the "Borrowers") and BANK OF OKLAHOMA, NATIONAL ASSOCIATION, a
national banking association (the "Bank").
W I T N E S S E T H:
A. WHEREAS, the Borrowers have applied to the Bank for a modification and
increase of that certain $6,000,000 Revolving Credit Commitment described and
defined in the Revolving Credit and Term Loan Agreement dated as of November
2, 1993 by and among the Borrowers named above (including certain
predecessors' thereof) and the Bank (the "Original Credit Agreement") as
amended by that certain First Amendment dated as of September 30, 1994 and as
further amended by that certain Second Amendment dated as of January 4, 1995
(the Original Credit Agreement and such foregoing Amendments being
collectively referred to herein as the "Existing Credit Agreement") by
increasing the maximum principal amount thereof from $6,000,000 to
$8,000,000, which modified and increased Revolving Credit Commitment is to be
evidenced by Borrowers' joint and several Replacement Revolving Credit Note
hereinafter described and defined; and
B. WHEREAS, the Bank is willing to modify and increase the Revolving
Credit Commitment to the Borrowers, subject to the terms, conditions and
provisions of the Original Credit Agreement, as previously amended and as
further amended and modified by the terms and provisions hereinafter set
forth, all of which are material to the Bank and without which the Bank would
not be willing to modify, restructure and increase the Revolving Credit
Commitment described above.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consider-
<PAGE>
ation, receipt of which is acknowledged by the parties hereto, the parties
agree as follows:
1. DEFINITIONS. The following definitions in Article I of the Existing
Credit Agreement are hereby amended and modified or added as follows:
1.9 "CORNERSTONE PLEDGE" shall have the meaning assigned to
that term in Article IV of the Original Credit Agreement, as
amended by that certain First Amendment to Pledge Agreement from
Cornerstone to the Bank dated as of September 30, 1994, as further
amended by that certain Second Amendment to Pledge Agreement from
Cornerstone to the Bank dated as of January 4, 1995 and as further
amended by that certain Third Amendment to Pledge Agreement from
Cornerstone to the Bank dated as of even date herewith.
1.15 "Eligible Accounts" shall be amended as follows: Clause (e)
of Section 1.15 shall be replaced in its entirety by the following:
(e) If (i) the aggregate accounts of any one
Uninsured Account Debtor constitute more than ten
percent (10%) of the total accounts of the Borrowers
at any one time, the amount of all such accounts in
excess of ten percent (10%) shall be deemed ineligible
for Borrowing Base purposes or (ii) the aggregate
accounts of any one Insured Account Debtor constitute
more than twenty-five percent (25%) of the total Insured
Eligible Accounts of the Borrowers at any one time, the
amount of all such Insured Eligible Accounts in excess
of twenty five percent (25%) shall be deemed ineligible
for Borrowing Base purposes; provided however, that upon
prior application by such Borrower to the Bank setting
froth in writing the extent of and reasons for the excess
of concentration limits, the Bank in its sole discretion
may in writing allow certain Uninsured Eligible Accounts
in excess of the ten percent (10%) concentration limit for
Uninsured Eligible Accounts to be included in Eligible Accounts;
1.16 "ENGC DEED OF TRUST" shall have the meaning
assigned to that term in Article IV of the Original
Credit Agreement, as amended by that certain First
Amended Deed of Trust, Security Agreement, Financing
Statement and Assignment (with Power of Sale) from CGP
2
<PAGE>
to the Bank dated as of January 4, 1995 and as further
amended by that certain Second Amended Deed of Trust,
Security Agreement, Financing Statement and Assignment
(with Power of Sale) from CGP to the Bank dated as of
even date herewith.
1.19 "EPIC DEED OF TRUST" shall have the meaning
assigned to that term in Article IV of the Original
Credit Agreement, as amended by that certain First
Amended Deed of Trust, Security Agreement, Financing
Statement and Assignment from CPC to the Bank dated as
of September 30, 1994, as further amended by that
certain Second Amended Deed of Trust, Security Agree
ment, Financing Statement and Assignment from CPC to
the Bank dated as of January 4, 1995 and as further
amended by that certain Third Amended Deed of Trust,
Security Agreement, Financing Statement and Assignment
from CPC dated as of even date herewith.
1.21 "EPIC PLEDGE" shall have the meaning
assigned to that term in Article IV of the Original
Credit Agreement, as amended by that certain First
Amended Assignment, Pledge and Security Agreement from
CPC to the Bank dated as of January 4, 1995 and as
further amended by that certain Second Amended
Assignment, Pledge and Security Agreement from CPC to
the Bank dated as of even date herewith.
1.24 "CGGC DEED OF TRUST" shall have the meaning
assigned to that term in Section 1.24 of the Original
Credit Agreement, as amended by that certain First
Amended Deed of Trust, Security Agreement, Financing
Statement and Assignment from CGGC to the Trustee and
the Bank dated as of August 1, 1994, as further
amended by that certain Second Amended Deed of Trust,
Security Agreement, Financing Statement and Assignment
from CGGC to the Trustee and the Bank dated as of
September 30, 1994, as further amended by that certain
Third Amended and Supplemental Deed of Trust, Security
Agreement, Financing Statement and Assignment from
CGGC to the Trustee and the Bank dated as of January
4, 1995 and as further amended by that certain Fourth
Amended and Supplemental Deed of Trust, Security
Agreement, Financing Statement and Assignment from
CGGC to the Trustee and the Bank dated as of even date
herewith.
1.41 "NOTES" shall mean the Replacement Revolving
Credit Note, the Replacement Term Note and the Second
Term Note, together with each and every replacement,
extension, renewal, modification, substitution and
3
<PAGE>
change in form thereof which may be from time to time
and for any term or terms effected.
1.45 "PPC DEED OF TRUST" shall have the meaning
assigned to that term in Section 1.45 of the Original
Credit Agreement, as amended by that certain First
Amended Deed of Trust, Security Agreement, Financing
Statement and Assignment (with Power of Sale) from PPC
to the Bank dated as of January 4, 1995 and as further
amended by that certain Second Amended Deed of Trust,
Security Agreement, Financing Statement and Assignment
(with Power of Sale) from PPC to the Bank dated as of
even date herewith.
1.51 "REVOLVING CREDIT NOTE" shall mean the
Borrowers' joint and several $8,000,000 revolving
credit note in the form of EXHIBIT A annexed to the
Third Amendment (described and defined therein as the
Replacement Revolving Credit Note), to be delivered to
the Bank pursuant to Section 2.2 hereof, together with
any and all extensions, renewals, modifications,
substitutions and changes in form thereof which may be
from time to time and for any term or terms effected.
1.53 "SECURITY AGREEMENT" shall have the meaning
assigned to that term in Article V of the Original
Credit Agreement, as amended by that certain First
Amendment to Security Agreement and Assignment from
the Borrowers to the Bank dated as of January 4, 1995
and as further amended by that certain Second
Amendment to Security Agreement and Assignment from
the Borrowers to the Bank dated as of even date
herewith.
The following new definitions shall be added to Article I as
follows:
1.61 "ELIGIBLE LIQUID INVENTORY" shall mean
Borrowers' natural gas liquids owned, held and/or
stored by Borrowers from time to time.
1.62 "INSURED ELIGIBLE ACCOUNTS" shall mean the
insured amount of Accounts, otherwise eligible in
accordance with the terms and provisions of Section
1.15 hereof, that are insured by American Credit
Indemnity Insurance Company ("ACIIC") in accordance
with and subject to the limitations of the ACIIC
policy and scheduled limitations per approved account
debtors. "UNINSURED ELIGIBLE ACCOUNTS shall mean all
Accounts, otherwise eligible in accordance with the
terms and provisions of Section 1.15 hereof, other
than and excluding Insured Eligible Accounts.
4
<PAGE>
2. REVOLVING CREDIT LOAN. The Bank agrees, upon the terms subject to the
conditions set forth in the Original Credit Agreement, as previously amended,
and herein, to increase the Revolving Credit Commitment to the maximum
principal amount of $8,000,000.00; provided, however, in no event shall
the aggregate, unpaid loan advances requested hereunder (excluding draws in
connection with letters of credit issued on one or more of the Borrowers'
account by Bank in accordance with the provisions of Section 2.7 of the
Original Credit Agreement) exceed $4,000,000 at any time.
3. REVOLVING CREDIT NOTE. To evidence the increase in the Revolving
Credit Commitment, as funded pursuant to the provisions of paragraph 2 above,
the Borrowers shall execute and deliver to the order of the Bank Borrowers'
joint and several replacement revolving credit note in the principal amount
of $8,000,000.00, the form of which is annexed hereto as EXHIBIT "A" and
hereby made a part hereof (hereinafter referred to as the "Replacement
Revolving Credit Note"). The Replacement Revolving Credit Note shall be dated
as of the date hereof, shall bear interest, payable monthly on the last day
of every month commencing March 31, 1995, and at final maturity on October
31, 1995, on unpaid balances of principal from time to time outstanding and
on any past due interest at a variable annual rate equal from day to day to
the Applicable Prime Rate therein defined plus two percentage points (2%),
but in no event at a rate greater than permitted by applicable law. All
outstanding principal of and unpaid accrued interest on the Replacement
Revolving Credit Note not previously paid hereunder shall be due and payable
at final maturity on October 31, 1995, unless such maturity shall be extended
by the Bank in writing or accelerated pursuant to the terms hereof. After
maturity (whether by acceleration or otherwise) the Replacement Revolving
Credit Note shall bear interest at the Default Rate, payable on demand.
Interest shall be calculated on the basis of a year of 360 days but assessed
for the actual number of days elapsed in each accrual period.
4. REVOLVING CREDIT BORROWING BASE. Section 2.4 of the Original Credit
Agreement "Revolving Credit Borrowing Base" shall be replaced in its entirety
by the following:
2.4 REVOLVING CREDIT BORROWING BASE. The
Borrowers will not request, nor will they accept, the
proceeds of any revolving Credit Loans or advance under
the Revolving Credit Note at any time when the amount
thereof, together with the unpaid principal amount of
the Revolving Credit Note and outstanding but unfunded
letters of credit, exceeds the Revolving Credit
Borrowing Base. As used in this Agreement, the term
"Revolving Credit Borrowing Base" shall mean an amount
5
<PAGE>
equal to the lesser of (i) $8,000,000, and (ii) the sum
of (x) eighty percent (80%) of Borrowers' Uninsured
Eligible Accounts as of the last business day of the
immediately preceding calendar month plus (y) ninety
five percent (95%) of Borrowers' Insured Eligible
Accounts as of the last Business Day of the immediately
preceding calendar month plus (z) fifty percent (50%)
of Borrowers' Eligible Liquid Inventory (such amount of
(z) being limited in all respects to a sum not greater
than thirty percent (30%) of the aggregate Revolving
Credit Borrowing Base).
5. COLLATERAL. The repayment of the Indebtedness (including the
Revolving Credit Loan) shall continue to be secured by all of the Collateral
as more particularly described and defined in paragraph 6(c) hereof below, in
the Existing Credit Agreement and/or in the Security Instruments, including
without limitation, the Security Agreement encumbering the items and types of
Collateral more particularly described in Section 4.1 thereof as continuing
and continuous security for all of the Indebtedness and all security
described in the Fourth Amended and Supplemental Deed of Trust, Security
Agreement, Financing Statement and Assignment from CGGC to the Trustee and
the Bank as more particularly described in Section 1.24 hereof and/or in the
Second Amendment to Security Agreement and Assignment as more particularly
described in Section 1.53 hereof. Borrowers hereby incorporate by reference,
ratify, confirm, continue and regrant in favor of the Bank all of the
security interests, liens and pledges set forth or described in the Security
Agreement and in Article IV of the Original Credit Agreement, as previously
amended by the First Amendment and the Second Amendment thereto, including
the priorities thereof, with the same force and effect as if fully restated
herein.
6. CONDITIONS PRECEDENT TO EXTENSION OF SECOND TERM LOAN. The obligation
of the Bank to increase the Revolving Credit Loan is subject to satisfaction
of all the following conditions on or prior to the date such increase in the
Revolving Credit Loan, as evidenced by the Replacement Revolving Credit Note,
in the maximum sum of $8,000,000.00 occurs (in addition to the other terms
and conditions set forth in the Original Credit Agreement as previously
amended by the First Amendment and the Second Amendment thereto):
(a) REPLACEMENT REVOLVING CREDIT NOTE. The Borrower
shall have delivered the Replacement Revolving Credit Note to
the order of the Bank, appropriately executed.
(b) BORROWERS' CERTIFICATES AND PROCEEDINGS.
Each of the Borrowers shall have delivered to the Bank
6
<PAGE>
a certificate satisfactory to the Bank and its legal
counsel, including corporate resolutions, incumbency
certificates and articles and certificates of
incorporation and bylaws as may be required by the
Bank and its legal counsel.
(c) SECURITY INSTRUMENTS. The Borrower shall
have delivered to the Bank the Fourth Amended and
Supplemental CGGC Deed of Trust, the Second Amendment
to Security Agreement and such supplemental and
amendment instruments to the Security Instruments more
particularly described and defined in the Original
Credit Agreement, the First Amendment and the Second
Amendment as are required by the Bank and its legal
counsel, including without limitation, the amendments
more particularly described in Sections 1.9, 1.16,
1.18, 1.19, 1.21, 1.24 and 1.45 in paragraph 1 hereof.
(d) OPINION OF COUNSEL. The Bank shall have
received from Borrowers' counsel, Schlanger, Mills,
Mayer and Grossberg a favorable closing opinion satis-
factory in form and substance to the Bank and its
counsel.
7. EXISTING CREDIT AGREEMENT. The remaining terms, provisions,
covenants, warranties, representations and conditions of the Existing Credit
Agreement are ratified, confirmed and continued in full force and effect with
the same effect as if fully restated and incorporated herein by reference.
8. FURTHER MODIFICATIONS. All references in the Existing Credit Agreement
(whether the Original Credit Agreement or otherwise) to the "$6,000,000
Revolving Credit Note" or "$6,000,000" shall be deleted and substituted in
lieu thereof shall be "$8,000,000 Revolving Credit Note" and "$8,000,000",
respectively. The Loan Advance Request annexed to this Third Amendment as
"EXHIBIT B" shall replace the form thereof annexed as "EXHIBIT C" to the
Original Credit Agreement.
9. COUNTERPARTS. This Third Amendment may be executed in any number of
counterparts, all of which when taken together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have caused this Third Amendment to be
duly executed and delivered by the Borrowers to the Bank in Tulsa, Oklahoma,
effective as of the day and year first above written.
7
<PAGE>
"Borrowers"
CORNERSTONE NATURAL GAS, INC.
By_____________________________________
Robert L. Cavnar
Senior Vice President
ENDEVCO PRODUCING COMPANY
By_____________________________________
Robert L. Cavnar
Senior Vice President
CORNERSTONE GAS GATHERING COMPANY,
formerly known as Cornerstone
Pipeline Company
By_____________________________________
Robert L. Cavnar
Senior Vice President
DUBACH GAS COMPANY
By_____________________________________
Robert L. Cavnar
Senior Vice President
CORNERSTONE GAS PROCESSING, INC.,
formerly known as Endevco Natural
Gas Company
By_____________________________________
Robert L. Cavnar
Senior Vice President
8
<PAGE>
CORNERSTONE GAS RESOURCES, INC.,
formerly known as Endevco Oil &
Gas Company
By_____________________________________
Robert L. Cavnar
Senior Vice President
CORNERSTONE PIPELINE COMPANY,
formerly known as Endevco Pipeline
Gas Company
By_____________________________________
Robert L. Cavnar
Senior Vice President
PENTEX PIPELINE COMPANY
By_____________________________________
Robert L. Cavnar
Senior Vice President
"Bank"
BANK OF OKLAHOMA, NATIONAL
ASSOCIATION
By_____________________________________
Jack D. Brannon, Vice President
9
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 282,000
<SECURITIES> 0
<RECEIVABLES> 11,023,000
<ALLOWANCES> 0
<INVENTORY> 171,000
<CURRENT-ASSETS> 11,791,000
<PP&E> 59,682,000
<DEPRECIATION> 34,227,000
<TOTAL-ASSETS> 42,994,000
<CURRENT-LIABILITIES> 15,166,000
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<COMMON> 1,252,000
0
0
<OTHER-SE> 10,372,000
<TOTAL-LIABILITY-AND-EQUITY> 42,994,000
<SALES> 25,645,000
<TOTAL-REVENUES> 25,691,000
<CGS> 24,204,000
<TOTAL-COSTS> 25,492,000
<OTHER-EXPENSES> 1,000
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<INTEREST-EXPENSE> 443,000
<INCOME-PRETAX> (245,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (245,000)
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<NET-INCOME> (245,000)
<EPS-PRIMARY> (.02)
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