<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PETROLEUM DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 95-2636730
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
103 EAST MAIN STREET
BRIDGEPORT, WEST VIRGINIA 26330
(304) 842-6256
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------
STEVEN R. WILLIAMS, PRESIDENT
PETROLEUM DEVELOPMENT CORPORATION
103 EAST MAIN STREET
BRIDGEPORT, WEST VIRGINIA 26330
(304) 842-6256
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
COPIES TO: DAVID J. SORIN, ESQUIRE
LAURENCE S. LESE, ESQUIRE BUCHANAN INGERSOLL
DUANE, MORRIS & HECKSCHER LLP 500 COLLEGE ROAD EAST
1667 K STREET N.W., SUITE 700 PRINCETON, NJ 08540
WASHINGTON, DC 20006-1608 (609) 987-6800
(202) 776-7815
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. [_]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Section 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Section 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF SHARES AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED (1) PER SHARE (2) OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value.................. 4,427,500 shares $8.72 $38,607,800 $11,699.34
</TABLE>
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(1) Includes 577,500 shares subject to the Underwriters' over-allotment
option.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 of the Securities Act.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 1997
PROSPECTUS
3,850,000 SHARES
[LOGO OF PETROLEUM DEVELOPMENT CORPORATION APPEARS HERE]
PETROLEUM DEVELOPMENT CORPORATION
COMMON STOCK
-----------
Of the 3,850,000 shares of Common Stock offered hereby, 3,500,000 shares are
being sold by the Company and 350,000 shares are being sold by the Selling
Stockholders. The Company will not receive any proceeds from the sale of shares
of Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders."
The Common Stock is currently traded on the Nasdaq National Market under the
symbol PETD. On September 23, 1997, the last reported sale price of the Common
Stock on the Nasdaq National Market was $8 11/16 per share. See "Price Range of
Common Stock."
-----------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2) SELLING STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
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Total (3)............... $ $ $ $
</TABLE>
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(1) Excludes a non-accountable expense allowance of $150,000 payable to the
Representative of the Underwriters. See "Underwriting" for indemnification
arrangements.
(2) Before deducting the expenses of the offering payable by the Company,
estimated at $550,000, including the non-accountable expense allowance.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 577,500 shares of Common Stock solely to cover over-
allotments, if any. If all such shares are purchased, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ , $ ,
and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates of such shares will be available for delivery on or about October
, 1997 at the offices of Pennsylvania Merchant Group Ltd in West
Conshohocken, Pennsylvania.
PENNSYLVANIA MERCHANT GROUP LTD
, 1997
<PAGE>
[MAP APPEARS HERE]
Map of the eastern United States, including the Company's headquarters located
in Bridgeport, West Virginia and the Company's natural gas and oil production
operation areas in the West Virginia, Pennsylvania, Ohio and Tennessee
portions of the Appalachian Basin, as well as the Company's operations in the
Michigan Basin.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING ENTERING INTO STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS, IF ANY, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
----------------
The Company's name and logo and those of its subsidiaries are trademarks of
the Company and its subsidiaries.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements (including the notes thereto) appearing elsewhere in this
Prospectus. Unless the text indicates otherwise, the "Company" refers to
Petroleum Development Corporation and its wholly owned subsidiaries, Paramount
Natural Gas Company, Paramount Transmission Corporation, Riley Natural Gas
Company and PDC Securities Incorporated. Except where otherwise indicated, all
information in this Prospectus assumes no exercise of the Underwriters' over-
allotment option. For explanations of certain technical terms used in this
Prospectus, see "Glossary of Certain Industry Terms" on page 49.
THE COMPANY
Petroleum Development Corporation (the "Company") is a regional independent
energy company engaged primarily in the development, production and marketing
of natural gas. The Company has grown primarily through increased drilling and
development activities, the acquisition of natural gas producing wells and the
expansion of its natural gas marketing activities. As of June 30, 1997, the
Company operated approximately 1,170 natural gas wells located in the
Appalachian Basin and in the Michigan Basin, and had net proved reserves of
47.3 Bcf of natural gas. The wells operated by the Company currently produce an
aggregate of approximately 22,000 Mcf of natural gas per day, of which the
Company's share is approximately 5,100 Mcf.
In 1996, more than 22.5 Tcf of natural gas were consumed in the United
States. Uses of natural gas include steam, process heat and co-generation for
industrial uses; feedstock for chemicals used in fertilizer and gasoline
production; electric generation and residential and commercial heating. It is
expected that natural gas will continue to increase market share relative to
other fossil fuels due to its efficiency and positive safety and environmental
characteristics. In addition, the Company believes that deregulation of certain
sectors of the natural gas industry, which has resulted in lower prices for
natural gas, is expected to increase market demand.
The majority of the wells operated by the Company are located in West
Virginia and Pennsylvania within the Appalachian Basin. The Appalachian Basin
is characterized by shallow natural gas formations, which generally have
provided for highly predictable drilling success rates. In addition, because
wells drilled in the Appalachian Basin are closer to the large demand centers
in the northeastern United States, natural gas from this area typically has
commanded a price premium relative to natural gas produced in areas such as the
Gulf Coast and Mid-Continent regions of the United States. In 1997, the Company
commenced drilling in the Antrim shale formation of the Michigan Basin, and,
through August 31, 1997, had drilled 24 wells in this location. In addition to
its drilling activities, from time to time the Company purchases natural gas
producing properties. For example, in July 1996, the Company purchased 188
producing wells located in West Virginia.
In April 1996, the Company acquired Riley Natural Gas Company ("RNG"), an
Appalachian Basin natural gas marketing company, which aggregates and resells
natural gas developed by the Company and other producers. This acquisition
allowed the Company to diversify its operations beyond natural gas drilling and
production. RNG has established relationships with many of the small natural
gas producers in the Appalachian Basin and has significant expertise in the
natural gas end-user market. In addition, RNG has extensive experience in the
use of hedging strategies, which the Company utilizes to reduce the financial
impact on the Company of changes in the price of natural gas.
Since 1984, the Company, as managing general partner, has sponsored limited
partnerships formed to engage in drilling operations. The Company typically
retains a 20% ownership interest in these drilling limited partnerships. In
1996, the Company raised $24.6 million through four public drilling
partnerships, making it the sponsor of the largest public oil and gas
partnership program in the United States in that year. The drilling programs
have provided the Company with access to the capital resources necessary to
expand its drilling opportunities and to maintain the geological, engineering,
marketing and other resources necessary to support such activities.
1
<PAGE>
The Company's growth strategy is to expand its drilling operations in the
Appalachian Basin and the Michigan Basin, acquire producing properties, pursue
geographic expansion, reduce risks inherent in natural gas development and
marketing and expand its strategic relationships.
The Company was incorporated in Nevada in 1955 and commenced oil and gas
operations in 1969. Its principal executive offices are located at 103 East
Main Street, Bridgeport, West Virginia 26330, and its telephone number is (304)
842-6256.
THE OFFERING
Common Stock offered by the 3,500,000 shares
Company.............................
Common Stock offered by the Selling 350,000 shares
Stockholders........................
Common Stock to be outstanding 14,485,753 shares(1)
after the offering..................
Use of proceeds..................... To fund development drilling on new and
existing properties, potential
acquisition of producing properties and
general corporate purposes, including
working capital and possible acquisitions
of complementary businesses.
Nasdaq National Market symbol....... PETD
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(1) Based on 10,985,753 shares of Common Stock outstanding on September 15,
1997. Excludes an aggregate of 2,182,650 shares of Common Stock reserved
for issuance under the Company's stock option plans and outstanding
warrants, of which: (i) 2,057,650 shares are issuable upon the exercise of
stock options outstanding as of September 15, 1997, at a weighted average
exercise price of $1.96 per share, and (ii) 125,000 shares are issuable
upon the exercise of warrants outstanding as of September 15, 1997, at an
exercise price of $6.00 per share. See "Management--Stock Option Plans" and
"Description of Capital Stock--Warrants."
2
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------ ---------------
1992 1993 1994 1995 1996(1)(2) 1996(1) 1997(2)
------- ------- ------- ------- ---------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Oil and gas well
drilling operations.... $14,931 $12,073 $15,190 $13,941 $18,698 $10,733 $19,277
Oil and gas sales....... 4,867 4,471 4,361 4,151 26,051 8,964 16,349
Well operations and
pipeline income and
other income........... 3,368 3,941 4,255 4,255 4,865 2,078 2,699
------- ------- ------- ------- ------- ------- -------
Total revenues.......... $23,166 $20,485 $23,806 $22,347 $49,614 $21,775 $38,325
======= ======= ======= ======= ======= ======= =======
Income before taxes and
extraordinary item..... $ 2,614 $ 1,596 $ 1,098 $ 1,832 $ 4,650 $ 2,462 $ 5,334
======= ======= ======= ======= ======= ======= =======
Net income.............. $ 1,748 $ 1,590 $ 922 $ 1,481 $ 3,549 $ 1,940 $ 3,910
======= ======= ======= ======= ======= ======= =======
Earnings per common and
common equivalent
share.................. $ 0.16 $ 0.14 $ 0.08 $ 0.13 $ 0.31 $ 0.17 $ 0.33
Weighted average common
shares outstanding..... 11,191 11,564 11,990 11,607 11,573 11,363 11,700
OTHER FINANCIAL DATA:
Depreciation, depletion
and amortization....... $ 1,671 $ 1,717 $ 1,848 $ 2,152 $ 2,310 $ 1,207 $ 1,220
Capital expenditures.... 2,830 2,630 5,607 3,910 10,416 1,093 2,712
EBITDA.................. 4,341 3,727 3,247 4,304 7,340 3,809 6,759
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital.............................. $ (313) $29,263
Total assets................................. 50,080 79,656
Total long-term debt, excluding current
maturities.................................. 3,695 3,695
Stockholders' equity......................... 27,010 56,586
</TABLE>
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(1) In April 1996, the Company acquired the outstanding capital stock of RNG.
Such acquisition has been accounted for under the purchase method of
accounting, and, accordingly, the results of continuing operations of RNG
have been included in the Company's Consolidated Statement of Operations
since the date of the acquisition. See Note 12 of Notes to Consolidated
Financial Statements.
(2) In July 1996, the Company acquired 188 producing wells from Angerman
Associates, Inc. See Note 12 of Notes to Consolidated Financial Statements.
(3) Adjusted to reflect (i) the sale of 500,000 shares of Common Stock pursuant
to a private placement consummated on September 15, 1997 and the $2.0
million net proceeds therefrom and (ii) the estimated net proceeds from the
sale of 3,500,000 shares of Common Stock offered by the Company hereby.
3
<PAGE>
SUMMARY OPERATING DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Development wells drilled:
Productive.............. 73 49 71 64 92 55 100
Dry..................... 7 7 4 8 5 3 6
------ ------ ------ ------ ------ -------- --------
Total................... 80 56 75 72 97 58 106
Net development wells
drilled:
Productive.............. 14.5 8.8 13.0 11.8 16.4 10.0 24.8
Dry..................... 1.4 1.3 0.8 1.6 1.0 0.6 1.6
------ ------ ------ ------ ------ -------- --------
Total................... 15.9 10.1 13.8 13.4 17.4 10.6 26.4
Production(1):
Oil (MBbls)............. 16 10 11 11 7 3 4
Natural gas (MMcf)...... 948 965 1,195 1,336 1,495 666 878
Equivalent MMcfs(2)..... 1,044 1,025 1,261 1,402 1,537 684 902
Average Sales Price(3):
Oil (per Bbl)........... $18.21 $16.62 $14.41 $15.80 $16.35 $ 17.78 $ 16.48
Natural gas (per Mcf)... $ 2.41 $ 2.24 $ 2.01 $ 1.75 $ 3.04 $ 3.15 $ 2.58
Average production cost
(lifting cost) per
equivalent Mcf(4)........ $ 0.48 $ 0.57 $ 0.58 $ 0.53 $ 0.63 $ 0.80 $ 0.66
</TABLE>
- --------
(1) Production as shown in the table is net to the Company and is determined by
multiplying the gross production volume of properties in which the Company
has an interest by the percentage of the leasehold or other property
interest owned by the Company.
(2) A ratio of energy content of natural gas and oil (six Mcf of natural gas
equals one barrel of oil) was used to obtain a conversion factor to convert
oil production into equivalent Mcfs of natural gas.
(3) Average sale price does not include the effect of hedge transactions.
(4) Production costs represent oil and gas operating expenses as reflected in
the financial statements of the Company.
SUMMARY RESERVE DATA
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------- AS OF
1992 1993 1994 1995 1996 JUNE 30, 1997
------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
ESTIMATED NET PROVED
RESERVES
Oil (MBbls).............. 78 91 79 140 81 41
Natural gas (MMcf)....... 24,980 24,660 32,225 32,829 43,312 47,331
Equivalent MMcfs......... 25,448 25,206 33,699 32,669 43,798 47,577
Standardized measure of
discounted future cash
flows (after-
tax)($000)(1)........... $15,515 $14,018 $14,445 $21,060 $34,262 $16,924
</TABLE>
- --------
(1) Represents the estimated future net revenues after income taxes discounted
at 10% per annum.
4
<PAGE>
RISK FACTORS
An investment in the Common Stock involves a high degree of risk. This
Prospectus contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"),
including, without limitation, trends impacting the natural gas industry
(including prices and market demand), the Company's success in drilling and
development activities, the expected effect of deregulation and the Company's
ability to expand geographically and implement its acquisition strategy, that
involve risks and uncertainties. The Company's actual results and development
could differ materially from those discussed or implied in the forward-looking
statements as a result of certain factors. Factors that may cause or
contribute to such differences include those discussed under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
Prospectus. The Company cautions the reader, however, that this list of
factors may not be exhaustive. Prospective investors should consider carefully
the following factors, in addition to the other information in this
Prospectus, prior to making their investment decision.
VOLATILITY OF NATURAL GAS PRICES AND MARKETS
The Company's revenues, results of operations, financial condition,
profitability, ability to obtain additional capital and future rate of growth
depend substantially on prevailing prices for natural gas, which are highly
volatile. Prices for natural gas are subject to wide fluctuations in response
to relatively minor changes in the supply of and demand for natural gas,
market uncertainty and a variety of additional factors, all of which are
beyond the control of the Company. These factors include actual and
anticipated weather conditions, changes in the demand for, and supply of,
natural gas, seasonality, the supply and price of Canadian and other foreign
natural gas, the price and availability of alternative fuels, governmental
regulations, speculation in the natural gas market and regional or national
economic conditions. These external factors and the volatile nature of the
energy markets make it difficult to accurately estimate future prices of
natural gas. Decreases in natural gas prices may materially adversely affect
the Company's financial condition, liquidity, ability to finance planned
capital expenditures, results of operations and ability to produce natural gas
economically.
In addition to general factors affecting prices for natural gas, the
Company's prices for natural gas are affected by geographic location. Prices
for natural gas sold from Appalachian wells historically have been higher than
those for natural gas produced in the Gulf Coast and Mid-Continent regions of
the United States, generally because of the geographic proximity to the large
demand centers in the Northeast natural gas markets. No assurance can be given
that this price advantage will continue. In Michigan and other new locations
of operations for the Company, it is likely that natural gas will be sold at a
lower premium compared to average national prices, and possibly even below
average national prices. The Company will attempt to evaluate the impact of
price differences prior to drilling in any new area. Furthermore, from time to
time, a surplus of natural gas occurs in West Virginia, Pennsylvania, and many
other areas of the United States. The effect of a surplus may be to reduce the
price the Company receives for its natural gas production, or to reduce the
amount of natural gas that the Company may produce and sell.
The availability of a ready market for the Company's natural gas also
depends on the proximity of the Company's natural gas reserves to pipelines,
the capacity of such pipelines and the cooperation of pipeline owners. In
addition, under certain of its natural gas sales arrangements, the Company is
subject to the risk of reduced purchases or access to pipelines under firm and
interruptible transportation agreements. Wells may temporarily be shut in for
lack of a market or due to inadequacy or unavailability of pipeline or
gathering system capacity. Any significant reduction or curtailment of the
Company's production for an extended period of time could have a material
adverse effect on its business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
DRILLING RISKS
The selection of prospects for natural gas drilling is inherently risky, and
the Company cannot predict whether any prospect will produce commercial
quantities of natural gas. The costs of drilling, completing and operating
wells are often uncertain, and drilling operations may be curtailed, delayed
or canceled as a result of a
5
<PAGE>
variety of factors, including unexpected drilling conditions, compliance with
governmental requirements and shortages or delays in the availability of
drilling rigs and equipment, and labor shortages. Additionally, as the prices
paid to the Company by its drilling partners are frequently fixed before the
wells are drilled or are determined solely upon the well depth, the Company is
subject to the risk that prices of goods or services used in drilling could
increase, rendering its drilling contracts less profitable or unprofitable. In
addition, the natural gas industry has experienced periods of rapid cost
increases from time to time, and within short periods of time. If such
increases were to occur in the future, they would adversely affect the ability
of the Company to acquire additional natural gas leases, equipment and
supplies. A substantial industry-wide increase in drilling operations in the
United States could result in the decreased availability of drilling rigs and
gas field tubular goods. This in turn could lead to shortages of equipment and
material, which would make timely drilling and completion of wells impossible.
The Company cannot predict whether its drilling activities will prove to be
economically successful, and, if not successful, such activities will have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Exploration and
Development Activities."
ABILITY TO REPLACE RESERVES; UNCERTAINTY OF RESERVE INFORMATION AND FUTURE
RESERVE ESTIMATES
In general, the rate of production from a natural gas property declines as
its reserves are depleted, with the rate of decline depending upon the
property's reservoir characteristics. Unless the Company conducts successful
exploration and development activities or acquires properties containing
proved reserves, the Company's proved reserves will decline. The Company's
future success is therefore dependent upon its ability to replace and expand
its existing natural gas reserves through the acquisition of producing
properties and the exploration for and development of additional natural gas
reserves. There can be no assurance that the Company's acquisition,
exploration and development activities will result in the replacement of, or
additions to, the Company's reserves.
Acquisition of economically viable producing properties generally requires,
among other things, accurate assessments of recoverable reserves, future oil
and natural gas prices, operating costs and potential environmental risks and
other liabilities. Such assessments are inherently imprecise and inexact, and
their accuracy is uncertain. Estimates of the Company's proved reserves and
future net revenues appearing elsewhere in this Prospectus and estimates made
for the Company in future periods are and will be based primarily on
independent engineering reports prepared for the Company. Natural gas reserves
cannot be precisely measured, and estimates made by other engineers might
differ materially from such estimates. There can be no assurance that
estimated prices will be realized or that the volumes projected will be
produced as indicated in a summary reserve report, if at all. Estimates of
economically recoverable natural gas reserves, and future net cash flows,
depend upon a number of factors, including assumptions concerning future
natural gas prices, future operating costs, development costs, severance and
excise taxes, workover and remedial costs, governmental regulations and other
factors beyond the control of the Company. Certain events, including
production history, acquisitions and sales of properties, changes in prices
and further drilling and development, could result in increases or decreases
of estimated proved reserves or estimates of future net revenues. The
Company's inability to replace its reserves or receive accurate reserve
estimates will likely have a material adverse effect on the Company's
business, financial condition or results of operations. See "Business--
Properties," Note 17 of Notes to Consolidated Financial Statements and the
Summary Reserve Report attached to this Prospectus as Appendix A.
WORKING CAPITAL REQUIREMENTS
The natural gas industry is capital-intensive. The Company's business and
operations require a substantial investment of working capital, principally to
finance operating activities. The Company requires significant capital
reserves in connection with its acquisition and leasing of producing and
potentially producing properties as well as for drilling expenses.
Historically, the Company has relied upon funds generated by its drilling
operations, primarily through its interests in the drilling partnerships it
has sponsored, and through bank borrowing. The use of funds generated from the
drilling partnerships is restricted to future drilling operations. The Company
also finances its other cash needs through funds from operations. There can be
no assurance that such sources will continue to be available to the Company
for its working capital needs in the future on terms acceptable to the
Company, if at all. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
6
<PAGE>
RISKS ASSOCIATED WITH DRILLING LIMITED PARTNERSHIPS
Since 1984, the Company has served as the managing general partner of 42
drilling limited partnerships, which have provided an aggregate of
approximately $137.0 million for drilling activities. These funds represent
the majority of the funds utilized by the Company in development activities to
date. As competition for investment capital for both public and private
drilling programs is intense, the Company competes with a number of the
companies that offer interests in drilling partnerships which have a wide
range of investment objectives and program structures. There can be no
assurance that the Company will be able to continue to raise the necessary
funds from drilling limited partnerships for investment and development, and
such inability will likely have a material adverse effect on the Company's
business, financial condition or results of operations.
The Company may be subject to certain risks with respect to its sales and
management of the drilling limited partnerships. The Company is contingently
liable as general partner for the obligations of these partnerships, including
responsibility for their day-to-day operations and liabilities that cannot be
repaid from partnership assets or insurance proceeds. Additionally, the
Company may be exposed to litigation in connection with partnership activities
and may find it necessary to advance funds on behalf of certain partnerships
to protect the value of their natural gas assets. The Company also faces
potential conflicts of interest in its role as manager of the limited
partnerships, such as provisions in limited partnership agreements: (i)
limiting the Company's ability to benefit disproportionately from discoveries
made by the limited partnerships; (ii) prohibiting the Company's acquisition
of certain property interests if to do so would conflict with the interests of
the limited partnerships; and (iii) providing for an increase in distributions
to the investor partners and a decrease in distributions to the Company for
periods ranging from three to ten years, in the event that certain performance
and earnings goals are not met by a particular well or a particular drilling
partnership. The result of such provisions could be to reduce the Company's
earnings from its participation in the drilling partnerships.
As the prices paid to the Company by its investor partners for the Company's
services are frequently fixed before the wells are drilled or are determined
solely on the well depth, the Company is subject to the risk that prices of
goods or services used in the development process could increase, rendering
its contracts with its investor partners less profitable or unprofitable. As
the general partner of the partnerships, the Company is also subject to a
variety of tax regulations, which may change from time to time. Additionally,
the Company and its wholly owned broker-dealer subsidiary, PDC Securities
Incorporated ("PDC Securities"), the dealer-manager of the drilling limited
partnerships, are subject to various federal and state securities regulations,
and failure to comply with these regulations could result in liability to the
Company and PDC Securities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Financing of
Drilling Activities."
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends to a large degree on the efforts of its
three senior officers, James N. Ryan, Chief Executive Officer and Chairman of
the Board of Directors, Steven R. Williams, President and a director, and Dale
G. Rettinger, Executive Vice President and Chief Financial Officer and a
director. The loss of the services of any of these individuals could have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company has employment agreements with each of
these individuals and maintains key-man insurance on the life of each of them,
in the amount of $5.0 million for Mr. Ryan and $1.0 million for each of
Messrs. Williams and Rettinger. In the event that the services of any of
Messrs. Ryan, Williams or Rettinger become unavailable to the Company, there
is no assurance that the Company could find a qualified replacement on
acceptable terms. See "Management--Employment and Other Agreements and
Arrangements" and "Management--Key-Man Insurance."
DERIVATIVES AND HEDGING RISKS
The Company utilizes commodity-based derivative instruments as hedges to
manage a portion of its exposure to price volatility stemming from its natural
gas sales and marketing activities. These instruments consist of natural gas
futures contracts traded on the NYMEX. The futures contracts hedge committed
and anticipated natural gas purchases and sales, generally forecasted to occur
within a three- to twelve-month period. The Company does not hold or issue
derivatives for trading or speculative purposes. In order for futures
contracts
7
<PAGE>
to serve as effective hedges, there must be sufficient correlation to the
underlying hedged transaction. The use of hedges cannot completely alleviate
the Company's exposure to price volatility. In addition, the use of hedges
will prevent the Company from receiving the full economic benefit of increases
in oil and natural gas prices. See "Business--Hedging Activities."
COMPETITION
The Company encounters competition from numerous other natural gas
companies, drilling programs and partnerships in all areas of its operations,
including drilling and marketing natural gas, acquiring producing properties
and obtaining desirable natural gas leases. Many of these competitors possess
larger staffs and greater financial resources than the Company, which may
enable such competitors to identify and acquire desirable producing properties
and drilling prospects more economically. The Company's ability to explore for
natural gas prospects and to acquire additional properties in the future
depends on its ability to conduct its operations, to evaluate and select
suitable properties and to consummate transactions in this highly competitive
environment. The Company also faces intense competition in the marketing of
natural gas from competitors, including other producers as well as marketing
companies. Also, international developments and the possible improved
economics of domestic natural gas exploration may influence other oil
companies to increase their domestic natural gas exploration. The Company's
business, financial condition or results of operations could be materially
adversely affected by such competition. See "Business--Competition."
GOVERNMENTAL REGULATION
Natural gas operations are subject to various federal, state and local
government regulations, which may be changed from time to time in response to
economic or political conditions. Matters subject to regulation include
discharge permits for drilling operations, drilling bonds, reports concerning
operations, the spacing of wells, unitization and pooling of properties and
taxation. From time to time, regulatory agencies have imposed price controls
and limitations on production by restricting the rate of flow of natural gas
wells below actual production capability in order to conserve supplies of
natural gas. The natural gas industry is subject to extensive tax laws,
including laws relating to depletion and intangible drilling costs. Potential
changes to these laws could have adverse effects on the Company that cannot be
predicted. Legal requirements are frequently changed and are subject to
interpretation, and the Company is unable to predict the ultimate cost of
compliance with these requirements or their effect on its operations.
Additionally, the Company is impacted by state and federal regulation, such as
regulation by the Federal Energy Regulatory Commission ("FERC") of pipeline
transportation, which requires that pipelines provide firm and interruptible
transportation service on an open access basis. Although the Company believes
that it is in material compliance with all such laws and regulations, there is
no assurance that new laws or regulations or new interpretations of existing
laws and regulations will not substantially increase the costs of compliance
or otherwise adversely affect the Company's business, financial condition or
results of operations. See "Business--Governmental Regulation."
ENVIRONMENTAL RISKS AND REGULATIONS
The development, production, handling, storage, transportation and disposal
of natural gas and oil, by-products thereof and other substances and materials
produced or used in connection with natural gas operations are subject to
federal, state and local laws and regulations primarily relating to the
protection of the environment and human health. There are numerous natural
hazards involved in the drilling of natural gas and oil wells, including
unexpected or unusual formations, pressures, blowouts involving possible
damages to property and third parties, surface damages, damage to and loss of
equipment, reservoir damage, discharge of natural gas or pollutants into the
air, soil or water, oil spills and loss of reserves. No assurance can be given
that existing laws or regulations, as currently interpreted or reinterpreted
in the future, or future laws or regulations will not materially adversely
affect the Company's business, financial condition or results of operations.
The Company may thus be subject to liability for pollution, abuses of the
environment and other similar damages. See "Business--Governmental
Regulation--Environmental Regulations."
8
<PAGE>
OPERATING HAZARDS AND LIABILITIES
The Company's exploration and production operations include a variety of
operating risks, including the risk of fire, explosions, blowouts, craterings,
pipe failure, casing collapse, abnormally pressured formations, and
environmental hazards such as gas leaks, ruptures and discharges of toxic gas,
the occurrence of any of which could result in substantial losses to the
Company's business, financial condition or results of operations due to injury
and loss of life, severe damage to and destruction of property, natural
resources and equipment, pollution and other environmental damage, clean-up
responsibilities, regulatory investigation and penalties and suspension of
operations. The Company's pipeline, gathering and distribution operations are
subject to the many hazards inherent in the natural gas industry. These
hazards include damage to wells, pipelines and other related equipment and
surrounding properties caused by hurricanes, floods, fires and other acts of
God, inadvertent damage from construction equipment, leakage of natural gas
and other hydrocarbons, fires and explosions and other hazards that could also
result in personal injury and loss of life, pollution and suspension of
operations.
Any significant problems related to its facilities could adversely affect
the Company's ability to conduct its operations. The Company maintains
insurance against some, but not all, potential risks; however, there can be no
assurance that such insurance will be adequate to cover any losses or exposure
for liability. Furthermore, the Company cannot predict whether insurance will
continue to be available at premium levels that justify its purchase or
whether insurance will be available at all. The occurrence of a significant
event not fully insured against could materially adversely affect the
Company's business, financial condition or results of operations. See
"Business--Operating Hazards and Insurance."
MANAGEMENT OF GROWTH RISKS
The Company has experienced significant growth in the recent past due to
increased drilling and development activities, the acquisition of natural gas
producing wells and the expansion of its natural gas marketing activities. In
1996, the Company purchased RNG, which expanded the range of the Company's
operations to include natural gas marketing, purchased 188 producing wells in
the Appalachian Basin and drilled 97 new wells. Additionally, the Company's
drilling programs have provided large amounts of capital for drilling
projects. The Company's rapid growth has placed, and is expected to continue
to place, a significant strain on the Company's financial, technical,
operational and administrative resources. The Company has relied in the past,
and expects to continue to rely in the future, on outside investment partners
and independent subcontractors that have provided the Company with drilling
funds and operational services. As part of its strategy, the Company intends
to expand into new geographical areas. Such expansion will subject the Company
to increased state and local regulation, different geological formations and
environmental conditions and the need for additional skilled and reliable
subcontractors. The success of such expansion will depend on the ability of
the Company and its geologists, engineers and subcontractors to adapt to the
requirements of such new locations. The failure of the Company to continue to
upgrade its technical, operational and administrative resources, the
occurrence of unexpected expansion difficulties or the reduced availability of
investment partners and subcontractors, could have a material adverse effect
on the Company's business, financial condition or results of operations. There
can be no assurance that the Company will be successful in achieving growth or
any other aspect of its business strategy. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Strategy."
DEPENDENCE UPON SUBCONTRACTORS
The nature of the Company's business, including the variety of skills
necessary for the exploration, drilling, extraction and marketing of natural
gas, requires specialized personnel. The Company relies on subcontractors for
many of these functions, both to take advantage of their expertise and because
of geographical and seasonal constraints. Additionally, although the Company
endeavors to ascertain the financial condition of its subcontractors, if
subcontractors fail to timely pay for materials and services, the wells
operated by the Company could be subject to materialmen's and workmen's liens.
In that event, the Company could incur additional costs in discharging such
liens. The Company's business, financial condition or results of operations
may be adversely affected by the inability of the Company to retain a
sufficient number of skilled and reliable subcontractors with adequate
financial resources. See "Business--Exploration and Developmental Activities."
9
<PAGE>
VOLATILITY OF STOCK PRICES
Stock prices for natural gas companies depend upon a variety of factors,
including the prevailing prices for natural gas, seasonality, supply and
demand for natural gas, media and analysts' reports and changes in
environmental regulations and other governmental policies. The price of the
Common Stock has been, and likely will continue to be, affected by these
factors. The trading price of the Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in operating results
(historically, the Company's operating results have been strongest in the
first and fourth quarters of the year), announcements of unanticipated
operating results by the Company and other events or factors. In addition, the
stock market has from time to time experienced extreme price and volume
fluctuations, which have particularly affected the market price for certain
companies in a manner often unrelated to the operating performance of these
companies. These broad market fluctuations may adversely affect the market
price of the Common Stock. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" and "Price Range of Common
Stock."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Nevada general corporation law and the Company's
By-Laws may tend to deter potential unsolicited offers or other efforts to
obtain control of the Company that are not approved by the Board of Directors
or a majority of the Company's stockholders entitled to vote. Such provisions
may therefore deprive the stockholders of opportunities to sell shares of
Common Stock at prices higher than prevailing market prices. See "Description
of Capital Stock--Certain Corporate Anti-Takeover Provisions."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
this offering could adversely affect the market price for the Company's Common
Stock. The number of shares of Common Stock available for sale in the public
market is limited by restrictions under the Securities Act and lock-up
agreements under which the Company, its officers and directors and the Selling
Stockholders have agreed that they will not, without the prior written consent
of the Representative of the Underwriters, offer for sale, contract to sell,
sell or otherwise dispose of any shares of Common Stock for a period of 180
days from the date of this Prospectus. After these contractual restrictions
expire, such persons will be permitted to sell these shares in the public
market, subject only to applicable restrictions prescribed by Rule 144 of the
Securities Act. Immediately following the offering, 14,485,753 shares of
Common Stock will be outstanding. Of these shares, an aggregate of 13,015,739
shares, consisting of (i) the 3,850,000 shares sold in this offering (plus any
additional shares sold upon the Underwriters' exercise of their over-allotment
option) and (ii) an aggregate of 9,165,739 shares, without taking into account
the lock-up agreements referred to above, issued and outstanding prior to the
date the Registration Statement is declared effective will be freely
transferable by persons other than "affiliates" of the Company without
restriction or further registration under the Securities Act. The remaining
shares may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including an exemption
afforded by Rule 144. See "Shares Eligible for Future Sale."
NO DIVIDENDS
The Company has never declared or paid dividends on its Common Stock and
does not anticipate paying any dividends in the foreseeable future. The
Company intends to retain any earnings for operations and expansion of its
business. See "Dividend Policy."
10
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 3,500,000 shares of Common Stock
offered hereby by the Company at an assumed offering price of $8 11/16 per
share are estimated to be $27.6 million after deduction of underwriting
discounts and estimated offering expenses payable by the Company. The Company
will not receive any proceeds from the sale of the shares of Common Stock by
the Selling Stockholders. See "Principal and Selling Stockholders."
The Company intends to use the net proceeds from this offering for
development drilling on new and existing properties, potential acquisition of
producing properties and for general corporate purposes, including working
capital and possible acquisitions of complementary businesses, including, for
example, the Company's possible acquisition of a natural gas gathering system
at a cost to the Company of $1.4 million. See "Business--Exploration and
Development Activities--Transportation." Although the Company reviews and
considers possible acquisitions on an ongoing basis, other than as set forth
in the preceding sentence, no specific acquisitions are being negotiated or
planned as of the date of this Prospectus. The actual use of proceeds may vary
depending on the Company's assessment of the relative attractiveness of
available acquisition and development opportunities. Pending such uses, the
net proceeds to the Company from this offering will be invested in short-term,
investment-grade, interest-bearing instruments.
PRICE RANGE OF COMMON STOCK
The following table sets forth, for the periods indicated, the high and low
daily sales prices per share of the Common Stock as reported by the Nasdaq
National Market for the periods indicated. The Common Stock is traded on the
Nasdaq National Market under the symbol PETD.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
First Quarter.............................................. $1 3/8 $ 7/8
Second Quarter............................................. 1 9/16 1 1/16
Third Quarter.............................................. 1 3/8 1
Fourth Quarter............................................. 1 5/8 31/32
YEAR ENDED DECEMBER 31, 1996:
First Quarter.............................................. $2 1/8 $1 5/16
Second Quarter............................................. 2 13/16 1 7/8
Third Quarter.............................................. 3 9/16 2 7/16
Fourth Quarter............................................. 6 3/16 3 1/2
YEAR ENDED DECEMBER 31, 1997:
First Quarter.............................................. $5 1/8 $3 9/16
Second Quarter............................................. 5 5/16 3
Third Quarter (through September 23, 1997)................. 11 7/16 4 11/16
</TABLE>
The last reported sale price of the Common Stock on the Nasdaq National
Market on September 23, 1997 was $8 11/16 per share.
As of June 30, 1997, there were approximately 1,794 record holders of the
Company's Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and does not anticipate paying any cash dividends in the foreseeable future.
The Company currently intends to retain its earnings for operations and
expansion of its business. Furthermore, the Company's credit agreement
prohibits the Company from paying dividends in excess of 50% of the Company's
net income for the respective fiscal year. The declaration and payment by the
Company of any dividends on its Common Stock in the future and the amount
thereof will, nevertheless, be at the discretion of the Company's Board of
Directors and will depend upon the Company's operating results, financial
condition, cash requirements, future prospects and other factors deemed
relevant by the Company's Board of Directors.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 and as adjusted to give effect to the sale of 3,500,000 shares of
Common Stock offered by the Company hereby (assuming an offering price of $8
11/16 per share and after deducting the underwriting discount and estimated
offering expenses payable by the Company). See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt(2)...................................... $ 3,695 $ 3,695
------- -------
Stockholders' equity:
Common Stock, Class A, $0.01 par value;
authorized 2,750,000 shares; none issued............ -- --
Common Stock, $0.01 par value;
authorized 22,250,000 shares; 10,485,753 shares
issued and outstanding; 14,485,753 shares issued and
outstanding, as adjusted(1)(3)...................... 105 145
Additional paid-in capital............................. 6,639 36,129
Warrants outstanding................................... -- 46
Retained earnings...................................... 20,337 20,337
Unamortized stock award................................ (71) (71)
------- -------
Total stockholders' equity........................... 27,010 56,586
------- -------
Total capitalization............................... $30,705 $60,281
======= =======
</TABLE>
- --------
(1) Reflects a pro forma adjustment to include 500,000 shares of Common Stock
issued and sold by the Company on September 15, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) For information concerning the Company's long-term debt, see Note 3 of
Notes to Consolidated Financial Statements.
(3) Excludes an aggregate of 2,182,650 shares of Common Stock reserved for
issuance under the Company's stock option plans and outstanding warrants,
of which: (i) 2,057,650 shares are issuable upon the exercise of stock
options outstanding as of September 15, 1997, at a weighted average
exercise price of $1.96, and (ii) 125,000 shares are issuable upon the
exercise of warrants outstanding as of September 15, 1997, at an exercise
price of $6.00 per share. See "Management--Stock Option Plans" and
"Description of Capital Stock."
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31, 1992,
1993, 1994, 1995 and 1996 and for each of the years in the five-year period
ended December 31, 1996 have been derived from the audited consolidated
financial statements of the Company. The following selected consolidated
financial data as of June 30, 1996 and 1997 and for each of the six-month
periods ended June 30, 1996 and 1997 have been derived from unaudited
consolidated financial statements and include all adjustments (consisting only
of normal recurring accruals) that the Company considers necessary for a fair
presentation of such financial information for those periods. The results of
operations for the six months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for any other interim period or
for the full year. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and
related notes included elsewhere herein. All information is in thousands,
except per share data.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Oil and gas well
drilling operations... $14,931 $12,073 $15,190 $13,941 $18,698 $ 10,733 $ 19,277
Oil and gas sales...... 4,867 4,471 4,361 4,151 26,051 8,964 16,349
Well operations and
pipeline income....... 2,936 3,843 3,730 3,750 3,929 1,847 2,248
Other income........... 432 98 525 504 936 231 451
------- ------- ------- ------- ------- -------- --------
Total revenues........ 23,166 20,485 23,806 22,347 49,614 21,775 38,325
------- ------- ------- ------- ------- -------- --------
Costs and expenses:
Cost of oil and gas
well drilling
operations............ 13,347 11,100 14,289 11,943 15,780 8,770 15,759
Oil and gas purchases
and production
costs................. 3,643 4,120 4,067 4,139 24,190 8,084 14,716
General and
administrative
expenses.............. 1,837 1,897 2,204 1,961 2,304 1,112 1,092
Depreciation, depletion
and amortization...... 1,671 1,717 1,848 2,152 2,310 1,208 1,220
Interest............... 54 55 300 320 380 139 204
------- ------- ------- ------- ------- -------- --------
Total costs and
expenses............. 20,552 18,889 22,708 20,515 44,964 19,313 32,991
------- ------- ------- ------- ------- -------- --------
Income before income
taxes and extraordinary
item................... 2,614 1,596 1,098 1,832 4,650 2,462 5,334
Income taxes............ 866 275 177 351 1,101 522 1,424
------- ------- ------- ------- ------- -------- --------
Income before
extraordinary item..... 1,748 1,321 921 1,481 3,549 1,940 3,910
Extraordinary item net
of income taxes........ -- 269 -- -- -- -- --
------- ------- ------- ------- ------- -------- --------
Net income.............. $ 1,748 $ 1,590 $ 921 $ 1,481 $ 3,549 $ 1,940 $ 3,910
======= ======= ======= ======= ======= ======== ========
Earnings per common and
common equivalent
share.................. $ 0.16 $ 0.14 $ 0.08 $ 0.13 $ 0.31 $ 0.17 $ 0.33
======= ======= ======= ======= ======= ======== ========
Average common and
common
equivalent shares
outstanding
during the year
(period)............... 11,191 11,564 11,990 11,607 11,573 11,363 11,700
======= ======= ======= ======= ======= ======== ========
BALANCE SHEET DATA (END
OF PERIOD):
Working capital......... $ (590) $ 289 $(1,614) $(1,520) $(2,357) $ 717 $ (313)
Total assets............ 34,632 36,413 38,325 40,620 63,604 38,465 50,080
Long-term debt,
excluding current
maturities............. 3,969 3,167 3,100 2,500 5,320 2,700 3,695
Stockholders' equity.... 15,347 17,236 18,381 19,921 23,072 21,442 27,010
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of the Company and related notes included therein.
OVERVIEW
The Company is a regional independent energy company engaged primarily in
the development, production and marketing of natural gas. The Company has
drilled and produced natural gas and oil in the Appalachian Basin since 1969,
and currently operates approximately 1,170 natural gas wells in West Virginia,
Ohio, Pennsylvania, Michigan and Tennessee. While early activities included
drilling and operating producing oil wells, all of the Company's current
drilling activities, and more than 95% of its reserve and production value,
result from natural gas operations. In 1997, the Company expanded its drilling
activities to include drilling in the Antrim shale formation of the Michigan
Basin.
The Company derives the majority of its revenues from natural gas drilling
operations and natural gas sales, and also generates revenues from natural gas
marketing (aggregating and reselling) and natural gas gathering and
transportation. The Company drills wells for Company-sponsored drilling
partnerships as well as for Company-owned properties. The Company also engages
in the marketing of third party natural gas production and earns operating and
pipeline fees for managing wells and gathering natural gas.
Cost of oil and gas well drilling operations includes the direct costs of
drilling wells. Oil and gas purchases and production costs include natural gas
purchased for resale in the Company's marketing activities as well as the
costs of production for Company-owned and other wells.
The Company's results will vary based in part on changes in the market price
of natural gas. Since 1992, the Company's annual average natural gas sales
price has ranged from a high of $3.04 per Mcf in 1996 to a low of $1.75 per
Mcf in 1995. For the year ended December 31, 1996, and for the six months
ended June 30, 1997, the Company's average sales prices for natural gas were
$3.04 per Mcf and $2.58 per Mcf, respectively. Natural gas drilled in the
Appalachian Basin typically has commanded a price premium relative to natural
gas produced in areas such as the Gulf Coast and Mid-Continent regions of the
United States, due to the Appalachian Basin's proximity to the large demand
centers in the northeastern United States. From October 1996 to September
1997, Appalachian natural gas on the CNG system received a premium which
varied from $0.20 per Mcf to $0.55 per Mcf and averaged almost $0.33 per Mcf
for that time period.
As part of its business strategy, during 1996 the Company made two
acquisitions. On April 1, 1996, the Company acquired RNG in exchange for
shares of the Company's Common Stock having a market value of $449,100. RNG is
an Appalachian Basin natural gas marketing company that specializes in the
acquisition and aggregation of Appalachian Basin natural gas production. The
acquisition was accounted for by the Company as a purchase and is reflected as
such in the Company's financial statements for 1996. Natural gas purchased
from third parties is resold with a lower margin than natural gas produced by
the Company.
In July 1996, the Company completed the acquisition of 188 natural gas wells
located primarily in Gilmer County, West Virginia from Angerman Associates,
Inc., a Pittsburgh-based production company, for a cash purchase price of $3.3
million. Independent petroleum engineers have estimated remaining proved
developed reserves in these properties at 4.1 Bcf of natural gas and 27,000
barrels of oil on December 31, 1996. Net production per day from the
acquisition averaged approximately 750 Mcf and 8 Bbls during 1996.
The Company believes that its available funds, together with cash flow
expected to be generated from operations, existing credit facilities and the
net proceeds of this offering will be adequate to satisfy operations for at
least 24 months following the completion of this offering.
14
<PAGE>
PRODUCTION
The following table shows the Company's net production in Bbls of crude oil
and in Mcf of natural gas and the costs and weighted average selling prices
thereof, for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Production(1):
Oil (MBbls)............. 16 10 11 11 7 3 4
Natural Gas (MMcf)...... 948 965 1,195 1,336 1,495 666 878
Equivalent MMcfs(2)..... 1,044 1,025 1,261 1,402 1,537 684 902
Average sales price(3):
Oil (per Bbl)........... $18.21 $16.62 $14.41 $15.80 $16.35 $ 17.78 $ 16.48
Natural gas (per Mcf)... $ 2.41 $ 2.24 $ 2.01 $ 1.75 $ 3.04 $ 3.15 $ 2.58
Average production cost
(lifting cost) per
equivalent Mcf(4)........ $ 0.48 $ 0.57 $ 0.58 $ 0.53 $ 0.63 $ 0.80 $ 0.66
</TABLE>
- --------
(1) Production as shown in the table is net to the Company and is determined
by multiplying the gross production volume of properties in which the
Company has an interest by the percentage of the leasehold or other
property interest owned by the Company.
(2) A ratio of energy content of natural gas and oil (six Mcf of natural gas
equals one barrel of oil) was used to obtain a conversion factor to
convert oil production into equivalent Mcfs of natural gas.
(3) Average sale price does not include the effect of hedge transactions.
(4) Production costs represent oil and gas operating expenses as reflected in
the financial statements of the Company.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH JUNE 30, 1996
Revenues. Total revenues for the six months ended June 30, 1997 were $38.3
million compared to $21.8 million for the six months ended June 30, 1996, an
increase of approximately $16.5 million, or 75.7%. Such increase was a result
of increased drilling revenues and oil and gas sales. Drilling revenues for
the six months ended June 30, 1997 were $19.3 million compared to $10.7
million for the six months ended June 30, 1996, an increase of approximately
$8.6 million, or 80.4%. Such increase resulted from higher volumes of drilling
and completion activities, due to increased levels of drilling partnership-
related financing. Oil and gas sales for the six months ended June 30, 1997
were $16.3 million compared to $9.0 million for the six months ended June 30,
1996, an increase of approximately $7.3 million, or 81.1%. Such increase was
due primarily to the natural gas marketing activities of RNG, which accounted
for $6.9 million of the increase. Increased natural gas production was offset
in part by lower average sales prices from the Company's producing properties.
Well operations and pipeline income for the six months ended June 30, 1997
were $2.2 million compared to $1.8 million for the six months ended June 30,
1996, an increase of approximately $400,000, or 22.2%. Such increase resulted
from an increase in the number of wells operated by the Company. Other income
for the six months ended June 30, 1997 was $452,000 compared to $231,000 for
the six months ended June 30, 1996, an increase of approximately $221,000, or
95.7%. Such increase resulted from interest earned on higher average cash
balances together with a gain on the sale of equipment.
Costs and expenses. Costs and expenses for the six months ended June 30,
1997 were $33.0 million compared to $19.3 million for the six months ended
June 30, 1996, an increase of approximately $13.7 million, or 71.0%. Oil and
gas well drilling operations costs for the six months ended June 30, 1997 were
$15.8 million compared to $8.8 million for the six months ended June 30, 1996,
an increase of approximately $7.0 million, or
15
<PAGE>
79.5%. Such increase resulted from additional expenses resulting from
increased drilling activity. Oil and gas purchases and production costs for
the six months ended June 30, 1997 were $14.7 million compared to $8.1 million
for the six months ended June 30, 1996, an increase of approximately $6.6
million, or 81.5%. Such increase was due primarily to purchases of natural gas
for resale by RNG. General and administrative expenses for the six months
ended June 30, 1997 remained relatively constant at $1.1 million.
Net income. Net income for the six months ended June 30, 1997 was $3.9
million compared to net income of $1.9 million for the six months ended June
30, 1996, an increase of approximately $2.0 million, or 105.3%.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH DECEMBER 31, 1995
Revenues. Total revenues for the year ended December 31, 1996 were $49.6
million compared to $22.3 million for the year ended December 31, 1995, an
increase of approximately $27.3 million, or 122.4%. Drilling revenues for the
year ended December 31, 1996 were $18.7 million compared to $13.9 million for
the year ended December 31, 1995, an increase of approximately $4.8 million,
or 34.5%. Such increase was due to an increase in drilling and completion
activities, which was a direct result of an increase in drilling funds from
the Company's public drilling programs. Oil and gas sales for the year ended
December 31, 1996 were $26.1 million compared to $4.2 million for the year
ended December 31, 1995, an increase of approximately $21.9 million, or
521.4%. Such increase was due primarily to the natural gas marketing
activities of RNG, along with increased production and higher average sales
prices from the Company's producing properties and increased natural gas
purchased for resale. Well operations and pipeline income for the year ended
December 31, 1996 were $3.9 million compared to $3.7 million for the year
ended December 31, 1995, an increase of approximately $200,000, or 5.4%. Such
increase resulted from an increase in the number of wells operated by the
Company. Other income for the year ended December 31, 1996 was $936,000
compared to $504,000 for the year ended December 31, 1995, an increase of
approximately 432,000, or 85.7%. Such increase was due to management fees
earned on higher volumes of drilling partnerships.
Costs and expenses. Costs and expenses for the year ended December 31, 1996
were $45.0 million compared to $20.5 million for the year ended December 31,
1995, an increase of approximately $24.5 million, or 119.5%. Oil and gas well
drilling operations costs for the year ended December 31, 1996 were $15.8
million compared to $11.9 million for the year ended December 31, 1995, an
increase of approximately $3.9 million, or 32.8%. Such increase resulted from
additional expenses resulting from increased drilling activity. Oil and gas
purchases and production costs for the year ended December 31, 1996 were $24.2
million compared to $4.1 million for the year ended December 31, 1995, an
increase of approximately $20.1 million, or 490.2%. Such increase was due
primarily to natural gas purchases by RNG for resale and to a lesser extent
higher volumes of natural gas purchased for resale at higher average prices.
General and administrative expenses for the year ended December 31, 1996 were
$2.3 million compared to $2.0 million for the year ended December 31, 1995, an
increase of approximately $300,000, or 15.0%. Such increase was due to overall
administrative costs and increased personnel costs and generally higher
administrative overhead.
Net income. Net income for the year ended December 31, 1996 was $3.5 million
compared to $1.5 million for the year ended December 31, 1995, an increase of
approximately $2.0 million, or 133.3%.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH DECEMBER 31, 1994
Revenues. Total revenues for the year ended December 31, 1995 were $22.3
million compared with $23.8 million for the year ended December 31, 1994, a
decrease of approximately $1.5 million, or 6.3%. Drilling revenues for the
year ended December 31, 1995 were $13.9 million compared with $15.2 million
for the year ended December 31, 1994, a decrease of approximately $1.3
million, or 8.6%. This decrease was due to a slight decrease in drilling and
completion activities in 1995 compared to 1994. Oil and gas sales for the year
ended December 31, 1995 were $4.2 million compared to $4.4 million for the
year ended December 31, 1994, a decrease of approximately $200,000, or 4.5%.
This decrease was the result of lower average natural gas sales prices offset
by increased volumes of natural gas sold. Well operations and pipeline income
for the year ended December 31, 1995 remained relatively constant at $3.7
million. Other income for the year ended December 31, 1995 was $504,000
compared to $524,000 for the year ended December 31, 1994, a decrease of
approximately $20,000, or 3.8%.
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<PAGE>
Costs and expenses. Costs and expenses for the year ended December 31, 1995
were $20.5 million, compared to $22.7 million for the year ended December 31,
1994, a decrease of approximately $2.2 million, or 9.7%. Oil and gas well
drilling operations costs for the year ended December 31, 1995 were $11.9
million compared to $14.3 million for the year ended December 31, 1994, a
decrease of approximately $2.4 million, or 16.8%. Such decrease resulted from
decreased drilling and completion activities. Oil and gas purchases and
production costs for the year ended December 31, 1995 were $4.1 million
compared to $4.0 million for the year ended December 31, 1994, an increase of
approximately $100,000, or 2.5%. General and administrative expenses for the
year ended December 31, 1995 were $2.0 million, compared to $2.2 million for
the year ended December 31, 1994, a decrease of approximately $200,000, or
9.1%. This decrease was a result of a general Company-wide cost-cutting
program.
Net income. Net income for the year ended December 31, 1995 was $1.5 million
compared to $922,000 for the year ended 1994, an increase of approximately
$578,000, or 62.7%.
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain condensed unaudited quarterly financial
information for each of the ten most recent quarters in the period ended June
30, 1997. This information is derived from unaudited consolidated financial
statements of the Company that include, in the opinion of the Company, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of results of operations for such periods, when read in
conjunction with the audited Consolidated Financial Statements of the Company
and notes thereto appearing elsewhere in this Prospectus. All information is
in thousands, except per share data.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Oil and gas well
drilling operations.. $7,294 $2,379 $1,857 $2,411 $7,987 $2,746 $2,991 $4,974 $13,261 $6,016
Oil and gas sales..... 1,162 1,018 800 1,171 2,467 6,497 7,168 9,919 8,767 7,581
Well operations and
pipeline income...... 1,002 970 869 909 902 946 1,018 1,063 1,131 1,118
Other income.......... 79 66 56 303 85 145 140 566 249 203
------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Total revenues........ 9,537 4,433 3,582 4,794 11,441 10,334 11,317 16,522 23,408 14,918
------ ------ ------ ------ ------ ------ ------ ------ ------- ------
COSTS AND EXPENSES:
Costs of oil and gas
well drilling
operations........... 6,136 1,990 1,355 2,462 6,502 2,268 2,455 4,555 11,319 4,439
Oil and gas purchases
and production costs. 1,310 1,096 818 915 2,035 6,049 6,958 9,148 7,561 7,155
General and
administrative
expenses............. 450 521 601 389 542 571 651 541 499 593
Depreciation,
depletion, and
amortization......... 588 536 591 436 666 542 583 519 610 611
Interest.............. 84 76 71 89 72 67 107 134 103 102
------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Total costs and
expenses............. 8,568 4,219 3,436 4,291 9,817 9,497 10,754 14,897 20,092 12,900
------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Income before income
taxes................. 969 214 146 503 1,624 837 563 1,625 3,316 2,018
Income taxes........... 240 53 36 21 344 177 153 427 812 612
------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Net income............. $ 729 $ 161 $ 110 $ 482 $1,280 $ 660 $ 410 $1,198 $ 2,504 $1,406
====== ====== ====== ====== ====== ====== ====== ====== ======= ======
Earnings per common and
common equivalent
share................. $ 0.06 $ 0.02 $ 0.01 $ 0.04 $ 0.11 $ 0.06 $ 0.04 $ 0.10 $ 0.21 $ 0.12
====== ====== ====== ====== ====== ====== ====== ====== ======= ======
</TABLE>
The Company historically has received the majority of its total annual
revenues during the first and fourth quarters of each year. Such pattern is
attributable to (i) the seasonal demand for natural gas, which is typically
greatest during the winter months of the first and fourth quarters and (ii)
the generation of funds from the drilling
17
<PAGE>
activities of the Company-sponsored limited partnerships. The Company
recognizes revenues from drilling operations on the percentage of completion
method as wells are drilled, rather than when funds are received. As the last
partnership to close in a given year is typically the largest partnership of
the year, the Company receives substantial funds during the fourth quarter
from its year-end drilling partnerships and recognizes revenues from such
receipt in the subsequent first quarter as the wells for such drilling
partnership are drilled. Therefore, the Company's quarterly earnings may vary
considerably due to the impact of seasonality and the timing of receipt of
investment funds.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operations through a combination of cash flow from
operations, capital raised through drilling partnerships, and use of the
Company's credit facility. Operational cash flow is generated by sales of
natural gas from the Company's well interests, well drilling and operating
activities for the Company's investor partners, natural gas gathering and
transportation, and natural gas marketing. Cash payments from Company-
sponsored partnerships are used to drill and complete wells for the
partnerships, with operating cash flow accruing to the Company to the extent
payments exceed drilling costs. The Company utilizes its revolving credit
arrangement to meet the cash flow requirements of its operating and investment
activities.
Sales volumes of natural gas have continued to increase while natural gas
prices fluctuate monthly. The Company's natural gas sales prices are subject
to increase and decrease based on various market-sensitive indices. A major
factor in the variability of these indices is the seasonal variation of demand
for natural gas, which typically peaks during the winter months. The volumes
of natural gas sales are expected to continue to increase as a result of
continued drilling activities. The Company utilizes commodity-based derivative
instruments (natural gas futures contracts traded on the NYMEX) as hedges to
manage a portion of its exposure to this price volatility. The futures
contracts hedge committed and anticipated natural gas purchases and sales,
generally forecasted to occur within a three- to twelve-month period. As of
June 30, 1997, the Company had futures contracts for the sale of $2.4 million
of natural gas. While these contracts have nominal carrying value, their fair
value, represented by the estimated amount that would be received upon
termination of the contracts, based on market quotes, was a net value of
$51,100 at June 30, 1997. The Company is required to maintain margin deposits
($300,000 as of June 30, 1997) with brokers for outstanding futures contracts.
On January 31, 1996, the Company repurchased 1,200,000 shares of its Common
Stock, for $0.83 per share, from PNC Bank, N.A. This repurchase was pursuant
to an option agreement, which was obtained in connection with a debt
restructuring in 1990. These shares, which represented approximately 11% of
the shares of the Company's Common Stock then outstanding, were retired by the
Company.
On March 13, 1997, the Company amended and restated its bank credit
agreement with First National Bank of Chicago, which provides a borrowing base
of $10.0 million, subject to adequate oil and natural gas reserves. At the
request of the Company, the bank, at its sole discretion, may increase the
borrowing base to $20.0 million. As of September 15, 1997, the balance
available under the line was $6.5 million. Interest accrues at prime, with
LIBOR (London Interbank Market Rate) alternatives available at the discretion
of the Company. No principal payments are required until the credit agreement
expires on December 31, 1999.
The Company closed its first public drilling partnership of 1997 in the
second quarter and drilled the wells funded thereby in the second and third
quarters of 1997. The Company closed its second public drilling partnership of
1997 in September 1997 and plans to drill the wells funded thereby during the
remainder of 1997. The Company's first and second drilling programs of 1997
closed with funding approximately 62% and 152%, respectively, higher than the
first and second drilling programs of 1996. The Company expects to close two
additional partnerships in 1997. Typically, the last partnership closed during
each year is the largest partnership of the year; the last partnership of 1996
raised $15.3 million. The Company generally invests, as its equity
contribution to each drilling partnership, an additional sum approximating 20%
of the aggregate subscriptions received for that particular drilling
partnership. As a result, the Company is subject to substantial cash
commitments at the closing of each drilling partnership. The funds received
from these programs are restricted to use in future drilling operations. No
assurance can be made that the Company will continue to receive this level of
funding from these or future programs.
18
<PAGE>
In September 1997, the Company consummated a private offering of Common
Stock (the "Private Placement"), pursuant to which it issued and sold 500,000
shares at a price of $4.00 per share, and issued warrants for 125,000 shares
of Common Stock exercisable during a two-year period ending September 15, 1999
at an exercise price of $6.00 per share, resulting in proceeds to the Company
of $2.0 million. No registration rights were granted in connection with the
securities issued in the Private Placement.
In September 1997, the Company was notified that it had submitted a
successful bid for the acquisition of Columbia Gas Transmission Company's
Rimersburg natural gas gathering system, located in northern Pennsylvania. If
consummated, this transaction would occur in early- to mid-1998 and would add
to the Company's existing natural gas gathering system 207 miles of pipeline
located in an area contiguous to the Company's Pennsylvania drilling
operations, at a cost to the Company of $1.4 million.
The Company continues to pursue capital investment opportunities in
producing natural gas properties as well as its plan to participate in its
sponsored natural gas drilling partnerships, while pursuing opportunities for
operating improvements and cost efficiencies. Management believes that the
Company has adequate capital to meet its operating requirements.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. SFAS
No. 128 supersedes APB Opinion No. 15, Earnings per Share ("Opinion No. 15"),
and requires the calculation and dual presentation of basic and diluted
earnings per share ("EPS"), replacing the measures of primary and fully-
diluted EPS as reported under Opinion No. 15. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997;
earlier application is not permitted. Accordingly, EPS for the three- and six-
month periods ended June 30, 1997 and 1996 presented on the accompanying
statements of income are calculated under the guidance of Opinion 15.
Under SFAS No 128, basic EPS would have been $0.37 and $0.19 and diluted EPS
would have been $0.33 and $0.17 per share for the six months ended June 30,
1997 and 1996, respectively. Also under SFAS No. 128, basic EPS would have
been $0.13 and $0.06 and diluted EPS would have been $0.12 and $0.06 per share
for the quarters ended June 30, 1997 and 1996, respectively.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," and SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information,"
were issued. The Company will adopt these standards in 1998.
19
<PAGE>
BUSINESS
INTRODUCTION
The Company is a regional independent energy company engaged primarily in
the development, production and marketing of natural gas. The Company has
grown primarily through increased drilling and development activities, the
acquisition and subsequent development of natural gas producing wells and the
expansion of its natural gas marketing activities. As of June 30, 1997, the
Company operated approximately 1,170 natural gas wells located in the
Appalachian Basin and in the Michigan Basin, and had net proved reserves of
47.3 Bcf of natural gas. The Company's wells currently produce an aggregate of
approximately 22,000 Mcf of natural gas per day, of which the Company's share
is approximately 5,100 Mcf.
The majority of the wells operated by the Company are located in the West
Virginia and Pennsylvania portions of the Appalachian Basin. The Appalachian
Basin is characterized by shallow developmental wells, which generally have
provided highly predictable drilling success rates. In addition, because wells
drilled in the Appalachian Basin are closer to the large demand centers for
natural gas in the northeastern United States, natural gas from this area
typically has commanded a price premium relative to natural gas produced in
areas such as the Gulf Coast and Mid-Continent regions of the United States.
In 1997, the Company commenced drilling in the Antrim shale formation of the
Michigan Basin, and, through August 31, 1997, had drilled 24 wells in this
location. In addition to its drilling activities, from time to time the
Company purchases natural gas producing properties. For example, in July 1996,
the Company purchased 188 wells located in West Virginia from Angerman
Associates, Inc.
In April 1996, the Company acquired RNG, an Appalachian Basin natural gas
marketing company, which aggregates and resells natural gas developed by the
Company and other producers. This acquisition allowed the Company to diversify
its operations beyond natural gas drilling and production. RNG has established
relationships with many of the small natural gas producers in the Appalachian
Basin and has significant expertise in the natural gas end-user market. In
addition, RNG has extensive experience in the use of hedging strategies, which
the Company utilizes to reduce the financial impact on the Company of changes
in the price of natural gas.
Since 1984, the Company has sponsored limited partnerships formed to engage
in drilling operations. The Company typically retains a 20% ownership interest
in these drilling limited partnerships. In 1996, the Company raised $24.6
million through four public drilling partnerships, making it the sponsor of
the largest public oil and gas partnership program in the United States in
that year. The drilling programs have provided the Company with access to the
capital resources necessary to expand its drilling opportunities and to
maintain the infrastructure necessary to support such activities.
INDUSTRY OVERVIEW
Natural gas is the second largest energy source in the United States, after
liquid petroleum. The 22.5 Tcf of natural gas consumed in 1996 represented
approximately 24% of the total energy used in the United States. Natural gas
is consumed in the United States as follows: 46% by industrial end-users as
feedstock for products such as plastic and fertilizer or as the energy source
for producing products such as glass; 24% and 15% by residential and
commercial end-users, respectively, for uses including heating, cooling and
cooking; 12.5% by utilities for the generation of electricity; and the
remainder for transportation purposes.
The Company believes that the market for natural gas will grow in the
future. The demand for natural gas has increased due to four main factors:
. Efficiency. Relative to other energy sources, natural gas losses during
transportation from source to destination are slight, averaging only
about 9% of the natural gas energy.
. Environmentally favorable. Natural gas is the cleanest and most
environmentally safe of the fossil fuels.
. Safety. The delivery of natural gas is among the safest means of
distributing energy to customers, as the natural gas transmission system
is fixed and is located underground.
20
<PAGE>
. Price. The deregulation of the natural gas industry and a favorable
regulatory environment have resulted in end-users' ability to purchase
natural gas on a competitive basis from a greater variety of sources.
The Company believes that the foregoing factors, together with the increased
availability of natural gas as a form of energy for residential, commercial
and industrial uses, should increase the demand for natural gas as well as
create new markets for natural gas.
As local supplies of natural gas are inadequate to meet demand, the West
Coast and the Northeast import natural gas from producing areas via interstate
natural gas pipelines. The cost of transporting natural gas from the major
producing areas to markets creates a price advantage for production located
closer to the consuming region. Appalachian Basin natural gas production
enjoys two advantageous factors affecting price. First, the Appalachian Basin
is characterized by shallow development gas wells that generally have provided
highly predictable drilling success rates of 90% to 92%, which permits a more
basic approach to drilling based on the geology unique to the area. Also, the
natural gas industry in the Appalachian Basin benefits from its proximity to
the northeastern United States. Appalachian Basin producers have recently
experienced price differentials averaging $0.15 per Mcf to $0.30 per Mcf on an
annual average as compared to production in the Gulf Coast and Mid-Continent
regions of the United States. From October 1996 to September 1997, Appalachian
natural gas on the CNG system received a premium ranging from $0.20 per Mcf to
$0.55 per Mcf and averaged almost $0.30 per Mcf for that time period.
In the early 1990's, natural gas companies began exploiting the northern
portion of Michigan's lower peninsula, when certain favorable tax credits for
natural gas development were enacted. The result of such development was new
advances in drilling technology, which made natural gas drilling in this area
profitable even after the expiration of these tax credits. In Michigan's lower
peninsula, there is an abundance of shallow Antrim gas shale, which should
provide significant reserves per well drilled. Additionally, this area is
close to certain end-user markets, which should provide favorable premiums.
With a current productive area of nearly 2.5 million acres, Michigan is one of
the most active areas for natural gas drilling in the United States.
BUSINESS STRATEGY
The Company's objective is to expand its natural gas reserves, production
and revenues through a strategy that includes the following key elements:
Expand drilling operations. The Company has had one of the most active
drilling programs in the Northeast in the 1990's and will seek to continue to
build on the experience developed in drilling more than 450 shallow natural
gas wells since 1992. In the first six months of 1997, the Company drilled 106
wells, compared to 97 for the entire year of 1996. The Company believes that
it will be able to drill a substantial number of new wells on its current
undeveloped leased properties. As of June 30, 1997, the Company had 22,075 net
undeveloped acres in the Michigan Basin and 37,800 net undeveloped acres in
the Appalachian Basin. As drilling activity increases, the Company benefits as
its fixed costs may be spread over a larger number of wells.
Acquire producing properties. The Company's acquisition efforts are focused
on properties that fit well within existing operations or that help to build
critical mass in areas where the Company is establishing new operations.
Toward that end, in 1996, in order to further penetrate its existing
development area, the Company purchased 188 producing wells in the Appalachian
Basin. Acquisitions will likely offer economies in management and
administration, and therefore the Company believes that it will be able to
acquire more producing wells without incurring substantial increases in its
costs of operations.
Pursue geographic expansion. The Company has a proven ability to drill and
operate shallow natural gas wells successfully. There are a number of areas
outside the Appalachian Basin where drilling and operating characteristics are
similar to those in Appalachia. For example, in 1996, the Company expanded
into the Michigan Basin, which permits the Company to leverage its expertise
developed in the Appalachian Basin, because of the similarities in methods of
drilling, depth, equipment and operations. Moreover, expected reserves and
production levels of two to three times that of Appalachian levels for a
similar investment should more than offset higher expected operating costs.
The Company will continue to evaluate opportunities to expand geographically
on an ongoing basis.
21
<PAGE>
Reduce risks inherent in natural gas development and marketing. An integral
part of the Company's strategy has been and will continue to be to concentrate
on drilling development, rather than exploratory, wells, shallow wells and
geographical diversification to reduce risk levels associated with natural gas
and oil production. Development drilling is less risky than exploratory
drilling and is likely to generate cash returns more quickly. The focus on
shallow wells builds on the Company's knowledge and experience, and also
provides greater investment diversification than an equal investment in a
smaller number of deeper and/or more expensive wells. Geographical
diversification can help to offset possible weakness in the natural gas market
or disappointing drilling results in one area. The Company believes that, as
natural gas markets are deregulated, successful natural gas marketing is
essential to profitable operations. To further this goal, in 1996, the Company
acquired RNG, an experienced Appalachian Basin natural gas marketer. The
Company intends to continue to expand its market capacity to keep pace with
the changing natural gas industry.
Expand strategic relationships. By managing drilling programs for itself and
other investors, the Company is able to share administrative, overhead and
other costs with its partners, reducing costs for both. The Company also is
able to maintain a larger and more capable geology and engineering staff than
would be possible without partners. Other benefits from these associations
include greater buying power for drilling services and materials, larger
amounts of natural gas available to market, profits to the Company from
drilling and operating wells for partners, and greater awareness of the
Company in the investment community.
EXPLORATION AND DEVELOPMENT ACTIVITIES
The Company's development activities focus on the identification and
drilling of new productive wells and the acquisition of existing producing
wells from other producers.
PROSPECT GENERATION
The Company's staff of professional geologists is responsible for
identifying areas with potential for economic production of natural gas. The
Company's team of professional geologists has decades of experience drilling
successful, economically feasible natural gas wells. The geological team
utilizes results from logs and other tools to evaluate existing wells and to
predict the location of attractive new gas reserves. To further this process,
the Company has collected and continues to collect logs, core data, production
information and other raw data available from state and private agencies,
other companies and individuals actively drilling in the regions being
evaluated. From this information the geologists develop models of the
subsurface structures and stratigraphy that are used to predict areas with
above-average prospects for economic development.
On the basis of these models, the geologists instruct the Company's land
department to obtain available natural gas leaseholds in these prospective
areas. These leases are then obtained, if possible, by the Company's land
department or contract landmen under the direction of the Company's land
manager. In most cases, the Company pays a lease bonus and annual rental
payments, converting, upon initiation of production, to a 12.5% royalty on
gross production revenue in return for obtaining the leases. In some instances
of particularly attractive properties, additional overriding royalty payments
may be made to third parties or royalty owners. As of June 30, 1997, the
Company had a total leasehold inventory of approximately 129,835 gross acres
and 128,175 net acres. See "-- Properties--Natural Gas Leases."
DRILLING ACTIVITIES
When prospects have been identified and leased, the Company develops these
properties by drilling wells. In 1996, the Company drilled a total of 97
wells, of which five were dry holes. In 1997, through June 30, the Company
drilled a total of 106 wells, of which six were dry holes. Typically, the
Company will act as driller-operator for these prospects, entering into
contracts with partnerships, including Company-sponsored partnerships, and
other entities that are interested in exploration or development of the
prospects. The Company generally retains an interest in each well it drills.
See "--Financing of Drilling Activities."
Much of the work associated with drilling, completing and connecting wells,
including drilling, fracturing, logging and pipeline construction, is
performed by subcontractors specializing in those operations, as is common
22
<PAGE>
in the industry. A large part of the material and services used by the Company
in the development process is acquired through competitive bidding by approved
vendors. The Company also directly negotiates rates and costs for services and
supplies when conditions indicate that such an approach is warranted. As the
prices paid to the Company by its investor partners for the Company's services
are frequently fixed before the wells are drilled or are determined solely on
the well depth, the Company is subject to the risk that prices of goods or
services used in the development process could increase, rendering its
contracts with its investor partners less profitable or unprofitable. In
addition, problems encountered in the process can substantially increase
development costs, sometimes without recourse for the Company to recover its
costs from its partners. To minimize these risks, the Company seeks to lock in
its development costs in advance of drilling and, when possible, at the time
of negotiation and execution of its investor partnership agreements.
ACQUISITIONS OF PRODUCING PROPERTIES
In addition to drilling new wells, the Company continues to pursue
opportunities to purchase existing producing wells from other producers and
greater ownership interests in the wells it operates. Generally, outside
interests purchased include a majority interest in the wells and well
operations.
In 1994, the Company purchased approximately 53 wells from Chesterfield
Energy Corporation. The wells, located in Boone County, West Virginia added
more than two Bcf of proved producing reserves. In 1996, the Company purchased
approximately 188 producing wells from Angerman Associates, Inc. The wells,
located primarily in Gilmer County, West Virginia, added more than four Bcf of
proved producing reserves at December 31, 1996, in addition to several proved
undeveloped locations.
WELL OPERATIONS AND PRODUCTION
The Company currently operates approximately 1,170 natural gas wells in the
Appalachian Basin and 24 wells in the Michigan Basin. The Company's ownership
interest in these wells ranges from 0% to 100%, and, on average, the Company
has an approximate 40% ownership interest in the wells it operates. Currently
these wells produce an aggregate of about 22,000 Mcf of natural gas per day,
including the Company's share of 5,100 Mcf per day.
The Company is paid a monthly operating charge for each well it operates.
The rate is competitive with rates charged by other operators in the area. The
charge covers monthly operating and accounting costs, insurance and other
recurring costs. The Company may also receive additional compensation for
special non-recurring activities, such as reworks and recompletions.
TRANSPORTATION
Natural gas wells are connected by pipelines to natural gas markets. Over
the years, the Company has developed extensive gathering systems in its areas
of operations. The Company also continues to construct new trunklines as
necessary to provide for the marketing of natural gas being developed from new
areas and to enhance or maintain its existing systems. The Company is paid a
transportation fee for natural gas that is moved by other producers through
these pipeline systems. In many cases the Company has been able to receive
higher natural gas prices as a result of its ability to move natural gas to
more attractive markets through this pipeline system, to the benefit of both
the Company and its investor partners.
The Company has an Ohio subsidiary, Paramount Natural Gas Company ("PNG"),
which commenced operations in October 1992 as a regulated Ohio distribution
utility. As a utility, PNG has been able to connect new customers, and the
Company is able to compete for the natural gas markets of these customers by
transporting natural gas through the PNG system. The majority of PNG's
throughput is attributable to natural gas transported for the Company and
industrial customers for a transportation tariff, with the balance being sales
to residential, commercial and industrial customers.
In September 1997, the Company was notified that it had submitted a
successful bid for the acquisition of Columbia Gas Transmission Company's
Rimersburg natural gas gathering system, located in northern Pennsylvania. If
consummated, this transaction would occur in early- to mid-1998 and would add
to the
23
<PAGE>
Company's existing natural gas gathering system 207 miles of pipeline located
in an area contiguous to the Company's Pennsylvania drilling operations, at a
cost to the Company of $1.4 million. The Company believes that the advantage
of such acquisition would be to improve its natural gas gathering network at
low cost to the Company, as current operating personnel would be used to
manage the additional pipeline. The Company has conditioned the consummation
of the transaction on numerous factors, including an environmental audit,
resolution of any environmental problems revealed in such audit, transfer of
natural gas gathering agreements from Columbia Gas Transmission Company to the
Company and FERC approval. No assurance can be given that the Company will
consummate this transaction.
PROPERTIES
DRILLING ACTIVITY
The following table summarizes the Company's drilling activity for the years
ended December 31, 1992, 1993, 1994, 1995 and 1996 and the six months ended
June 30, 1997. There is no correlation between the number of productive wells
completed during any period and the aggregate reserves attributable to those
wells. The Company's exploratory wells drilled in the past five years consist
of three dry holes (0.75 net) drilled in 1993.
<TABLE>
<CAPTION>
DEVELOPMENT WELLS
1992 1993 1994 1995 1996 1997*
------------- ------------- ------------- ------------- ------------- --------------
DRILLED NET DRILLED NET DRILLED NET DRILLED NET DRILLED NET DRILLED NET
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total wells............. 80 15.86 56 10.00 75 13.76 72 13.40 97 17.44 106 26.42
Productive natural gas
wells.................. 73 14.47 49 8.75 71 13.00 64 11.80 92 16.46 100 24.80
Dry holes............... 7 1.39 7 1.25 4 0.76 8 1.60 5 0.98 6 1.62
</TABLE>
- --------
*Through June 30, 1997
SUMMARY OF PRODUCTIVE WELLS
The table below shows the number of the Company's productive gross and net
wells at June 30, 1997.
<TABLE>
<CAPTION>
WELLS
---------------------------
GAS OIL
------------- -------------
LOCATION GROSS NET GROSS NET
-------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Michigan...................................... 23 9.89 -- --
Ohio.......................................... 16 5.50 9 2.03
Pennsylvania.................................. 163 35.63 -- --
Tennessee..................................... 1 0.57 44 16.73
West Virginia................................. 967 421.90 10 4.46
------ ------ ------ ------
Total....................................... 1,170 473.49 63 23.22
====== ====== ====== ======
</TABLE>
RESERVES
All of the Company's oil and natural gas reserves are located in the United
States. The Company's approximate net proved reserves were estimated, by the
Company's petroleum engineers for 1994 and 1995 and by Wright & Company, Inc.
independent petroleum engineers ("Wright & Company"), for 1996 and 1997, to be
47,331,000 Mcf of natural gas and 41,000 Bbls of oil at June 30, 1997;
43,312,000 Mcf of natural gas and 81,000 Bbls of oil at December 31, 1996;
32,829,000 Mcf of natural gas and 140,000 Bbls of oil at December 31, 1995;
and 32,225,000 Mcf of natural gas and 79,000 Bbls of oil at December 31, 1994.
24
<PAGE>
The Company's approximate net proved developed reserves were estimated, by
the Company for 1994 and 1995 and by Wright & Company for 1996 and 1997, to be
38,239,000 Mcf of natural gas and 41,000 Bbls of oil at June 30, 1997;
35,516,000 Mcf of natural gas and 81,000 Bbls of oil at December 31, 1996;
26,326,000 Mcf of natural gas and 140,000 Bbls of oil at December 31, 1995;
and 27,746,000 Mcf of natural gas and 79,000 Bbls of oil at December 31, 1994.
No major discovery or other favorable or adverse event that would cause a
significant change in estimated reserves is believed by the Company to have
occurred since June 30, 1997. Reserves cannot be measured exactly, as reserve
estimates involve subjective judgment. The estimates must be reviewed
periodically and adjusted to reflect additional information gained from
reservoir performance, new geological and geophysical data and economic
changes.
The standardized measure of discounted future net cash flows attributable to
the Company's proved oil and gas reserves, giving effect to future estimated
income tax expenses, was estimated, by the Company in 1994 and 1995 and by
Wright & Company in 1996 and 1997, to be $16.9 million as of June 30, 1997,
$34.3 million as of December 31, 1996, $21.0 million as of December 31, 1995,
and $14.4 million as of December 31, 1994. These amounts are based on period-
end prices at the respective dates. Since December 31, 1996, prices have
decreased due to seasonal demand. The values expressed are estimates only, and
may not reflect realizable values or fair market values of the natural gas and
oil ultimately extracted and recovered. The standardized measure of discounted
future net cash flows may not accurately reflect proceeds of production to be
received in the future from the sale of natural gas and oil currently owned
and does not necessarily reflect the actual costs that would be incurred to
acquire equivalent natural gas and oil reserves.
NET PROVED NATURAL GAS AND OIL RESERVES
The proved reserves of natural gas and oil of the Company as estimated by
Wright & Company at June 30, 1997 are set forth below. These reserves have
been prepared in compliance with the rules of the Securities and Exchange
Commission (the "SEC") based on period-end prices. An analysis of the change
in estimated quantities of natural gas and oil reserves from January 1, 1997
to June 30, 1997, all of which are located within the United States, is shown
below:
<TABLE>
<CAPTION>
NATURAL GAS (MCF)
-----------------
<S> <C>
Proved developed and undeveloped reserves:
Beginning of year (January 1, 1997)......................... 43,312,000
Revisions of previous estimates............................. (3,301,000)
----------
Beginning of year as revised................................ 40,011,000
New discoveries and extensions.............................. 8,198,000
Dispositions................................................ --
Acquisitions................................................ --
Production.................................................. (878,000)
----------
End of period (June 30, 1997)............................... 47,331,000
==========
Proved developed reserves:
Beginning of year (January 1, 1997)......................... 35,516,000
==========
End of period (June 30, 1997)............................... 38,239,000
==========
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
OIL (BBLS)
----------
<S> <C>
Proved developed and undeveloped reserves:
Beginning of year (January 1, 1997)................................ 81,000
Revisions of previous estimates.................................... (36,000)
-------
Beginning of year as revised....................................... 45,000
Dispositions....................................................... --
Acquisitions....................................................... --
Production......................................................... (4,000)
-------
End of period (June 30, 1997)...................................... 41,000
=======
Proved developed reserves:
Beginning of year (January 1, 1997)................................ 81,000
=======
End of period (June 30, 1997)...................................... 41,000
=======
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED NATURAL GAS AND OIL RESERVES
Summarized in the following table is information for the Company with
respect to the standardized measure of discounted future net cash flows
relating to proved natural gas and oil reserves. Future cash inflows are
derived by applying current natural gas and oil prices to estimated future
production. Future production, development, site restoration and abandonment
costs are derived based on current costs, assuming continuation of existing
economic conditions. Future income tax expenses are computed by applying the
statutory rate in effect at June 30, 1997 to the future pretax net cash flows,
less the tax basis of the properties, and gives effect to permanent
differences, tax credits and allowances related to the properties.
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
<S> <C>
Future estimated cash flows...................................... $114,836,000
Future estimated production and development costs................ (51,448,000)
Future estimated income tax expense.............................. (17,495,000)
------------
Future net cash flows............................................ 45,893,000
10% annual discount for estimated timing of cash flows........... (28,969,000)
------------
Standardized measure of discounted future estimated net cash
flows........................................................... $ 16,924,000
============
</TABLE>
The following table summarizes the principal sources of change in the
standardized measure of discounted future estimated net cash flows from
January 1, 1997 through June 30, 1997:
<TABLE>
<S> <C>
Sales of oil and natural gas production, net of production costs. $ (1,736,000)
Net changes in prices and production costs....................... (66,622,000)
Extensions, discoveries and improved recovery, less related cost. 9,348,000
Acquisitions..................................................... --
Development costs incurred during the period..................... 1,152,000
Revisions of previous quantity estimates......................... (10,588,000)
Changes in estimated income taxes................................ 16,004,000
Accretion of discount............................................ 37,264,000
Other............................................................ (2,160,000)
------------
$(17,338,000)
============
</TABLE>
The foregoing data should not be viewed as representing the expected cash
flow from, or current value of, existing proved reserves, as the computations
are based on a large number of estimates and arbitrary assumptions. Reserve
quantities cannot be measured with precision, and their estimation requires
many judgmental determinations and frequent revisions. The required projection
of production and related expenditures over time requires further estimates
with respect to pipeline availability, rates of demand and governmental
control. Actual
26
<PAGE>
future prices and costs are likely to be substantially different from the
current prices and costs utilized in the computation of reported amounts. Any
analysis or evaluation of the reported amounts should give specific
recognition to the computational methods and the limitations inherent therein.
Substantially all of the Company's natural gas and oil reserves have been
mortgaged or pledged as security for bank loans to the Company. See Note 3 of
Notes to Consolidated Financial Statements.
NATURAL GAS LEASES
The following table sets forth, as of June 30, 1997, the acres of developed
and undeveloped natural gas and oil properties in which the Company had an
interest, listed alphabetically by state.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
ACREAGE ACREAGE
------------- -------------
GROSS NET GROSS NET
------ ------ ------ ------
<S> <C> <C> <C> <C>
Michigan............................................ 4,150 4,150 22,075 22,075
Ohio................................................ 1,200 800 -- --
Pennsylvania........................................ 250 250 13,900 13,160
Tennessee........................................... 3,600 3,600 -- --
West Virginia....................................... 59,900 59,500 24,760 24,640
------ ------ ------ ------
Total............................................. 69,100 68,300 60,735 59,875
====== ====== ====== ======
</TABLE>
TITLE TO PROPERTIES
The Company believes that it holds good and indefeasible title to its
properties, in accordance with standards generally accepted in the natural gas
industry, subject to such exceptions stated in the opinion of counsel employed
in the various areas in which the Company conducts its exploration activities,
which exceptions, in the Company's judgment, do not detract substantially from
the use of such property. As is customary in the natural gas industry, only a
perfunctory title examination is conducted at the time the properties believed
to be suitable for drilling operations are acquired by the Company. Prior to
the commencement of drilling operations, an extensive title examination is
conducted and curative work is performed with respect to defects which the
Company deems to be significant. A title examination has been performed with
respect to substantially all of the Company's producing properties. No single
property owned by the Company represents a material portion of the Company's
holdings. The Company's properties are subject to customary royalty interests,
liens incident to operating agreements, liens for current taxes and other
burdens which the Company believes do not materially interfere with the use of
or affect the value of such properties.
The properties owned by the Company are subject to royalty, overriding
royalty and other outstanding interests customary in the industry. The
properties are also subject to burdens such as liens incident to operating
agreements, current taxes, development obligations under natural gas and oil
leases, farm-out arrangements and other encumbrances, easements and
restrictions. The Company does not believe that any of these burdens will
materially interfere with the use of the properties.
NATURAL GAS SALES
Natural gas is sold by the Company under contracts with terms ranging from
one month to three years. Virtually all of the Company's contract pricing
provisions are tied to a market index, with certain adjustments based on,
among other factors, whether a well delivers to a gathering or transmission
line, quality of natural gas and prevailing supply and demand conditions, so
that the price of the natural gas fluctuates to remain competitive with other
available natural gas supplies. As a result, the Company's revenues from the
sale of natural gas will suffer if market prices decline and benefit if they
increase. The Company believes that the pricing provisions of its natural gas
contracts are customary in the industry.
The Company sells its natural gas to industrial end-users and utilities. One
customer, Hope Gas, Inc., a regulated public utility ("Hope Gas"), accounted
for 30.9% of the Company's revenues from oil and gas sales (13.2% of total
revenues) during the first six months of 1997; 30.7% of the Company's revenues
from oil and
27
<PAGE>
gas sales (16.1% of total revenues) in 1996; 39.7% of the Company's revenues
from oil and gas sales (7.4% of total revenues) in 1995; and 43.3% of the
Company's revenues from oil and gas sales (7.9% of total revenues) in 1994.
The Company and Hope Gas are parties to a Pipeline Purchase Agreement, which
expires on May 31, 1999, pursuant to which agreement the Company must deliver
to Hope Gas, upon demand, minimum quantities of natural gas (4,500 dth per day
delivered directly to Hope Gas's pipelines and 11,000 dth per day for total
deliveries including both direct and transferred volumes). The Company and
Hope Gas are also parties to a Master Gas Purchase Agreement, which expires on
May 31, 1999, pursuant to which the Company must offer to Hope Gas all volumes
of natural gas available at specific points of delivery, up to the minimum
delivery requirements of the Pipeline Purchase Agreement. No other single
purchaser of the Company's natural gas accounted for 10% or more of the
Company's revenues from oil and natural gas sales during the first six months
of 1997 or in 1996, 1995 or 1994.
At December 31, 1996, natural gas produced by the Company sold at prices per
Mcf ranging from $1.75 to $6.31, depending upon well location, the date of the
sales contract and whether the natural gas was sold in interstate or
intrastate commerce. The weighted net average price of natural gas sold by the
Company during 1996 was $3.04 per Mcf.
In general, the Company, together with its marketing subsidiary, RNG, has
been and expects to continue to be able to produce and sell natural gas from
its wells without curtailment by providing natural gas to purchasers at
competitive prices. Open access transportation on the country's interstate
pipeline system has greatly increased the range of potential markets. Whenever
feasible the Company allows for multiple market possibilities from each of its
gathering systems, while seeking the best available market for its natural gas
at any point in time.
NATURAL GAS MARKETING
The Company's natural gas marketing activities involve the aggregation and
reselling of natural gas produced by the Company and others. The Company
believes that, as natural gas markets are deregulated, successful natural gas
marketing is essential to profitable operations. A variety of factors affect
the market for natural gas, including the availability of other domestic
production, natural gas imports, the availability and price of alternative
fuels, the proximity and capacity of natural gas pipelines, general
fluctuations in the supply and demand for natural gas and the effects of state
and federal regulations on natural gas production and sales. The natural gas
industry also competes with other industries in supplying the energy and fuel
requirements of industrial, commercial and individual customers.
For nearly a decade, the United States has experienced an oversupply of
natural gas. This oversupply has been caused primarily by deregulation,
imports and unusually warm weather conditions. Seasonal variations exist to
the extent that the demand for natural gas is somewhat lower during the summer
months than during the winter season.
In 1996, the Company acquired RNG, an Appalachian Basin natural gas
marketing company that specializes in the acquisition and aggregation of
Appalachian Basin gas production. The owner/managers and employees of RNG
joined the Company, and RNG's operations were relocated to the Company's
headquarters. RNG markets natural gas produced by the Company and also
purchases natural gas from other producers and resells to utilities, end users
or other marketers. The employees of RNG have extensive knowledge of the
natural gas market in the Appalachian region. Such knowledge should assist the
Company in maximizing its prices as it markets natural gas from Company-
operated wells. RNG and its management also bring to the Company specific
knowledge and relationships with many producers in the Appalachian Basin
region. Paramount Transmission Corporation ("PTC"), an Ohio subsidiary of the
Company, focuses its efforts on the marketing of Ohio natural gas production
to commercial and industrial end-users.
In West Virginia, Pennsylvania and Michigan, the Company markets natural gas
from its own wells and wells operated for its investment partnerships as a
part of the services provided under the basic monthly operating charge. The
gas is marketed to natural gas utilities, pipelines and industrial and
commercial customers, either directly through the Company's gathering system,
or utilizing transportation services provided by regulated interstate pipeline
companies.
28
<PAGE>
HEDGING ACTIVITIES
The Company utilizes commodity-based derivative instruments as hedges to
manage a portion of its exposure to price volatility stemming from its natural
gas sales and marketing activities. These instruments consist of NYMEX-traded
natural gas futures contracts. The futures contracts hedge committed and
anticipated natural gas purchases and sales, generally forecasted to occur
within a three- to twelve-month period. Company policy prohibits the use of
natural gas futures for speculative purposes and permits utilization of hedges
only if there is an underlying physical position.
The Company has extensive experience with the use of financial hedges to
reduce the risk and impact of natural gas price changes. These hedges are used
to coordinate fixed and variable priced purchases and sales and to "lock in"
fixed prices from time to time for the Company's share of production. In order
for future contracts to serve as effective hedges, there must be sufficient
correlation to the underlying hedged transaction. While hedging can help
provide price protection if spot prices drop, hedges can also limit upside
potential.
Despite the measures taken by the Company to attempt to control price risk,
the Company remains subject to price fluctuations for natural gas sold in the
spot market. The Company continues to evaluate the potential for reducing
these risks by entering into hedge transactions. In addition, the Company may
also close out any portion of hedges that may exist from time to time. As of
June 30, 1997, there were 111 existing hedge positions. Total natural gas
purchased and sold under hedging arrangements during the year ended December
31, 1996 and the six months ended June 30, 1997 were 1,280,000 MMbtu and
1,620,000 MMbtu, respectively. Under such hedging arrangements, the Company
realized a loss of $146,008 for the year ended December 31, 1996 and a gain of
$73,013 for the six months ended June 30, 1997.
FINANCING OF DRILLING ACTIVITIES
The Company conducts development drilling activities for its own account and
for other investors. In 1984, the Company began sponsoring private drilling
limited partnerships, and, in 1989, the Company began to register the
partnership interests offered under public drilling programs with the SEC. The
Company's public partnerships had $24.6 million in subscriptions in 1996.
Funds received pursuant to drilling contracts were $25.0 million in 1996,
$13.6 million in 1995 and $14.9 million in 1994. The Company generally
invests, as its equity contribution to each drilling partnership, an
additional sum approximating 20% of the aggregate subscriptions received for
that particular drilling partnership. As a result, the Company is subject to
substantial cash commitments at the closing of each drilling partnership. The
funds received from these programs are restricted to use in future drilling
operations. While funds were received by the Company pursuant to drilling
contracts in the years indicated, the Company recognizes revenues from
drilling operations on the percentage of completion method as the wells are
drilled, rather than when funds are received. Most of the Company's drilling
and development funds now are received from partnerships in which the Company
serves as managing general partner. However, because wells produce for a
number of years, the Company continues to serve as operator for a large number
of unaffiliated parties. In addition to the partnership structure, the Company
also utilizes joint venture arrangements for financing drilling activities.
The financing process begins when the Company enters into a development
agreement with an investor partner, pursuant to which the Company agrees to
assign its rights in the property to be drilled to the partnership or other
entity. The partnership or other entity thereby becomes owner of a working
interest in the property.
The Company's development contracts with its investor partners have
historically taken many different forms. Generally the agreements can be
classified as on a "footage-based" rate, whereby the Company receives drilling
and completion payments based on the depth of the well; "cost-plus," in which
the Company is reimbursed for its actual cost of drilling plus some additional
amount for overhead and profit; or "turnkey," in which a specified amount is
paid for drilling and another amount for completion. As part of the
compensation for its services, the Company also has received some interest in
the production from the well in the form of an overriding royalty interest,
working interest or other proportionate share of revenue or profits. Often the
Company's development contracts provide for a combination of several of the
foregoing payment options. Basic drilling and completion operations are
performed on a footage-based rate, with leases and gathering pipelines being
contributed at Company cost. The Company also purchases a working interest in
the subject properties.
29
<PAGE>
The level of the Company's drilling and development activity is dependent
upon the amount of subscriptions in its public drilling partnerships and
investments from other partnerships or other joint venture partners. The use
of partnerships and similar financing structures enables the Company to
diversify its holdings, thereby reducing the risks to its development
investments. Additionally, the Company benefits through such arrangements by
its receipt of fees for its management services and/or through an increased
share in the revenues produced by the developed properties. The Company
believes that investments in drilling activities, whether through Company-
sponsored partnerships or other sources, are influenced in part by the
favorable treatment that such investments enjoy under the federal income tax
laws. No assurance can be given that the Company will continue to have access
to funds generated through these financing vehicles.
OIL PRODUCTION
Before 1980, the Company generated a significant portion of its revenues
from oil production. However, the Company made a strategic decision to
concentrate its development efforts on natural gas production and most of the
Company's current oil production is associated with natural gas production.
The Company does not believe its current production of oil, from wells located
in Tennessee, Ohio and West Virginia, to be material, as its share of oil
production has declined to about 7,000 barrels per year. The Company is
currently able to sell all the oil that it can produce under existing sales
contracts with petroleum refiners and marketers. The Company does not refine
any of its oil production. The Company's crude oil production is sold to
purchasers at or near the Company's wells under short-term purchase contracts
at prices and in accordance with arrangements which are customary in the oil
industry. No single purchaser of the Company's crude oil accounted for 10% or
more of the Company's revenues from oil and gas sales in 1996, 1995 or 1994.
At December 31, 1996, oil produced by the Company sold at prices ranging from
$21.50 to $22.50 per barrel, depending upon the location and quality of oil.
In 1996, the weighted net average price per barrel of oil sold by the Company
was $16.35.
Oil production is subject to many of the same operating hazards and
environmental concerns as natural gas production, but is also subject to the
risk of oil spills. Federal regulations require certain owners or operators of
facilities that store or otherwise handle oil, such as the Company, to procure
and implement spill prevention, control, countermeasures and response plans
relating to the possible discharge of oil into surface waters. The Oil
Pollution Act of 1990 ("OPA") subjects owners of facilities to strict joint
and several lability for all containment and cleanup costs and certain other
damages arising from oil spills. Noncompliance with OPA may result in varying
civil and criminal penalties and liabilities. Operations of the Company are
also subject to the Federal Clean Water Act and analogous state laws relating
to the control of water pollution, which laws provide varying civil and
criminal penalties and liabilities for release of petroleum or its derivatives
into surface waters or into the ground.
GOVERNMENTAL REGULATION
The Company's business and the natural gas industry in general are heavily
regulated. The availability of a ready market for natural gas production
depends on several factors beyond the Company's control. These factors include
regulation of natural gas production, federal and state regulations governing
environmental quality and pollution control, state limits on allowable rates
of production, the amount of natural gas available for sale, the availability
of adequate pipeline and other transportation and processing facilities and
the marketing of competitive fuels. State and federal regulations generally
are intended to prevent waste of natural gas, protect rights to produce
natural gas between owners in a common reservoir, control the amount of
natural gas produced by assigning allowable rates of production and control
contamination of the environment. Pipelines are subject to the jurisdiction of
various federal, state and local agencies. The Company takes the steps
necessary to comply with applicable regulations both on its own behalf and as
part of the services it provides to its investor partnerships. The Company
believes that it is in substantial compliance with such statutes, rules,
regulations and governmental orders, although there can be no assurance that
this is or will remain the case. The following discussion of the regulation of
the United States natural gas industry is not intended to constitute a
complete discussion of the various statutes, rules, regulations and
environmental orders to which the Company's operations may be subject.
30
<PAGE>
REGULATION OF NATURAL GAS EXPLORATION AND PRODUCTION
The Company's natural gas operations are subject to various types of
regulation at the federal, state and local levels. Prior to commencing
drilling activities for a well, the Company must procure permits and/or
approvals for the various stages of the drilling process from the applicable
state and local agencies in the state in which the area to be drilled is
located. Such permits and approvals include those for the drilling of wells,
and such regulation includes maintaining bonding requirements in order to
drill or operate wells and regulating the location of wells, the method of
drilling and casing wells, the surface use and restoration of properties on
which wells are drilled, the plugging and abandoning of wells and the disposal
of fluids used in connection with operations. The Company's operations are
also subject to various conservation laws and regulations. These include the
regulation of the size of drilling and spacing units or proration units and
the density of wells, which may be drilled and the unitization or pooling of
natural gas properties. In this regard, some states allow the forced pooling
or integration of tracts to facilitate exploration while other states rely
primarily or exclusively on voluntary pooling of lands and leases. In areas
where pooling is voluntary, it may be more difficult to form units, and
therefore, more difficult to develop a project if the operator owns less than
100% of the leasehold. In addition, state conservation laws establish maximum
rates of production from natural gas wells, generally prohibit the venting or
flaring of natural gas and impose certain requirements regarding the
ratability of production. The effect of these regulations may limit the amount
of natural gas the Company can produce from its wells and may limit the number
of wells or the locations at which the Company can drill. The regulatory
burden on the natural gas industry increases the Company's costs of doing
business and, consequently, affects its profitability. Inasmuch as such laws
and regulations are frequently expanded, amended and reinterpreted, the
Company is unable to predict the future cost or impact of complying with such
regulations.
REGULATION OF SALES AND TRANSPORTATION OF NATURAL GAS
Historically, the transportation and sale for resale of natural gas in
interstate commerce have been regulated pursuant to the Natural Gas Act of
1938, the Natural Gas Policy Act of 1978 (the "NGPA") and the regulations
promulgated thereunder by FERC. Maximum selling prices of certain categories
of natural gas sold in "first sales," whether sold in interstate or intrastate
commerce, were regulated pursuant to the NGPA. The Natural Gas Wellhead
Decontrol Act (the "Decontrol Act") removed, as of January 1, 1993, all
remaining federal price controls from natural gas sold in "first sales" on or
after that date. FERC's jurisdiction over natural gas transportation was
unaffected by the Decontrol Act. While sales by producers of natural gas and
all sales of crude oil, condensate and natural gas liquids can currently be
made at market prices, Congress could reenact price controls in the future.
The Company's sales of natural gas are affected by the availability, terms
and cost of transportation. The price and terms for access to pipeline
transportation are subject to extensive regulation. In recent years, FERC has
undertaken various initiatives to increase competition within the natural gas
industry. As a result of initiatives like FERC Order No. 636, issued in April
1992, the interstate natural gas transportation and marketing system has been
substantially restructured to remove various barriers and practices that
historically limited non-pipeline natural gas sellers, including producers,
from effectively competing with interstate pipelines for sales to local
distribution companies and large industrial and commercial customers. The most
significant provisions of Order No. 636 require that interstate pipelines
provide transportation separate or "unbundled" from their sales service, and
require that pipelines provide firm and interruptible transportation service
on an open access basis that is equal for all natural gas suppliers. In many
instances, the result of Order No. 636 and related initiatives have been to
substantially reduce or eliminate the interstate pipelines' traditional role
as wholesalers of natural gas in favor of providing only storage and
transportation services. Another effect of regulatory restructuring is the
greater transportation access available on interstate pipelines. In some
cases, producers and marketers have benefitted from this availability.
However, competition among suppliers has greatly increased and traditional
long-term producer-pipeline contracts are rare. Furthermore, gathering
facilities of interstate pipelines are no longer regulated by FERC, thus
allowing gatherers to charge higher gathering rates.
Additional proposals and proceedings that might affect the natural gas
industry are pending before Congress, FERC, state commissions and the courts.
The natural gas industry historically has been very heavily regulated;
therefore, there is no assurance that the less stringent regulatory approach
recently pursued by FERC and
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Congress will continue. The Company cannot determine to what extent future
operations and earnings of the Company will be affected by new legislation,
new regulations, or changes in existing regulation, at federal, state or local
levels.
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to numerous laws and regulations
governing the discharge of materials into the environment or otherwise
relating to environmental protection. Public interest in the protection of the
environment has increased dramatically in recent years. The trend of more
expansive and stricter environmental legislation and regulations could
continue. To the extent laws are enacted or other governmental action is taken
that restricts drilling or imposes environmental protection requirements that
result in increased costs to the natural gas industry in general, the business
and prospects of the Company could be adversely affected.
The Company generates wastes that may be subject to the Federal Resource
Conservation and Recovery Act ("RCRA") and comparable state statutes. The U.S.
Environmental Protection Agency ("EPA") and various state agencies have
limited the approved methods of disposal for certain hazardous and
nonhazardous wastes. Furthermore, certain wastes generated by the Company's
operations that are currently exempt from treatment as "hazardous wastes" may
in the future be designated as "hazardous wastes," and therefore be subject to
more rigorous and costly operating and disposal requirements.
The Company currently owns or leases numerous properties that for many years
have been used for the exploration and production of oil and natural gas.
Although the Company believes that it has utilized good operating and waste
disposal practices, prior owners and operators of these properties may not
have utilized similar practices, and hydrocarbons or other wastes may have
been disposed of or released on or under the properties owned or leased by the
Company or on or under locations where such wastes have been taken for
disposal. These properties and the wastes disposed thereon may be subject to
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), RCRA and analogous state laws as well as state laws governing the
management of oil and natural gas wastes. Under such laws, the Company could
be required to remove or remediate previously disposed wastes (including
wastes disposed of or released by prior owners or operators) or property
contamination (including groundwater contamination) or to perform remedial
plugging operations to prevent future contamination.
CERCLA and similar state laws impose liability, without regard to fault or
the legality of the original conduct, on certain classes of persons that are
considered to have contributed to the release of a "hazardous substance" into
the environment. These persons include the owner or operator of the disposal
site or sites where the release occurred and companies that disposed of or
arranged for the disposal of the hazardous substances found at the site.
Persons who are or were responsible for release of hazardous substances under
CERCLA may be subject to joint and several liability for the costs of cleaning
up the hazardous substances that have been released into the environment and
for damages to natural resources, and it is not uncommon for neighboring
landowners and other third parties to file claims for personal injury and
property damage allegedly caused by the hazardous substances released into the
environment.
The Company's operations may be subject to the Clean Air Act ("CAA") and
comparable state and local requirements. Amendments to the CAA were adopted in
1990 and contain provisions that may result in the gradual imposition of
certain pollution control requirements with respect to air emissions from the
operations of the Company. The EPA and states have been developing regulations
to implement these requirements. The Company may be required to incur certain
capital expenditures in the next several years for air pollution control
equipment in connection with maintaining or obtaining operating permits and
approvals addressing other air emission-related issues.
The Company's expenses relating to preserving the environment during 1996
were not significant in relation to operating costs and the Company expects no
material change in 1997. Environmental regulations have had no materially
adverse effect on the Company's operations to date, but no assurance can be
given that environmental
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<PAGE>
regulations will not, in the future, result in a curtailment of production or
otherwise have a materially adverse effect on the Company's business,
financial condition or results of operations.
As a matter of corporate policy and commitment, the Company attempts to
minimize the adverse environmental impact of all its operations. For example,
during 1996, the Company was one of the most active drilling companies in West
Virginia. Even with this level of activity, the Company was able to maintain a
high level of environmental sensitivity. During the 1990's, the Company has
been a four-time recipient of the West Virginia Department of Environmental
Protection's top award in recognition of the quality of the Company's
environmental and reclamation work in its drilling activities.
UTILITY REGULATION
PNG, which is an Ohio public utility, is subject to regulation by the Public
Utilities Commission of Ohio in virtually all of its activities, including
pricing and supply of services, addition of and abandonment of service to
customers, design and construction of facilities, and safety issues.
OPERATING HAZARDS AND INSURANCE
The Company's exploration and production operations include a variety of
operating risks, including the risk of fire, explosions, blowouts, craterings,
pipe failure, casing collapse, abnormally pressured formations, and
environmental hazards such as gas leaks, ruptures and discharges of toxic gas,
the occurrence of any of which could result in substantial losses to the
Company due to injury and loss of life, severe damage to and destruction of
property, natural resources and equipment, pollution and other environmental
damage, clean-up responsibilities, regulatory investigation and penalties and
suspension of operations. The Company's pipeline, gathering and distribution
operations are subject to the many hazards inherent in the natural gas
industry. These hazards include damage to wells, pipelines and other related
equipment, and surrounding properties caused by hurricanes, floods, fires and
other acts of God, inadvertent damage from construction equipment, leakage of
natural gas and other hydrocarbons, fires and explosions and other hazards
that could also result in personal injury and loss of life, pollution and
suspension of operations.
Any significant problems related to its facilities could adversely affect
the Company's ability to conduct its operations. In accordance with customary
industry practice, the Company maintains insurance against some, but not all,
potential risks; however, there can be no assurance that such insurance will
be adequate to cover any losses or exposure for liability. The occurrence of a
significant event not fully insured against could materially adversely affect
the Company's operations and financial condition. The Company cannot predict
whether insurance will continue to be available at premium levels that justify
its purchase or whether insurance will be available at all.
COMPETITION
The Company believes that its exploration, drilling and production
capabilities and the experience of its management generally enable it to
compete effectively. The Company encounters competition from numerous other
natural gas companies, drilling and income programs and partnerships in all
areas of its operations, including drilling and marketing natural gas and
obtaining desirable natural gas leases. Many of these competitors possess
larger staffs and greater financial resources than the Company, which may
enable them to identify and acquire desirable producing properties and
drilling prospects more economically. The Company's ability to explore for
natural gas prospects and to acquire additional properties in the future
depends upon its ability to conduct its operations, to evaluate and select
suitable properties and to consummate transactions in this highly competitive
environment. The Company competes with a number of other companies which offer
interests in drilling partnerships with a wide range of investment objectives
and program structures. Competition for investment capital for both public and
private drilling programs is intense. The Company also faces intense
competition in the marketing of natural gas from competitors including other
producers as well as marketing companies. Also, international developments and
the possible improved economics of domestic natural gas exploration may
influence other oil companies to increase their domestic natural gas
exploration. Furthermore,
33
<PAGE>
competition among natural gas companies for favorable natural gas prospects
can be expected to continue, and it is anticipated that the cost of acquiring
natural gas properties may increase in the future.
Factors affecting competition in the natural gas industry include price,
location, availability, quality and volume of natural gas. The Company
believes that it can compete effectively in the natural gas industry on each
of the foregoing factors, due to the location of its wells near the large
demand centers for natural gas located in the northeastern United States and
the price premiums generally available for Appalachian Basin natural gas, the
quality and availability of the natural gas the Company produces, the
proximity of its wells to transportation and the significant volume of natural
gas produced by the Company on a daily basis. Nevertheless, the Company's
business, financial condition or results of operations could be materially
adversely affected by competition.
EMPLOYEES
As of June 30, 1997, the Company had 74 employees, including 12 in finance,
seven in administration, 12 in exploration and development, 37 in production
and six in natural gas marketing. The Company's engineers, supervisors and
well tenders are generally responsible for the day-to-day operation of wells
and pipeline systems. In addition, the Company retains subcontractors to
perform drilling, fracturing, logging, and pipeline construction functions at
drilling sites. The Company's employees act as supervisors of the
subcontractors.
The Company's employees are not covered by a collective bargaining
agreement. The Company considers relations with its employees to be excellent.
LEGAL PROCEEDINGS
From time to time the Company is a party to various legal proceedings in the
ordinary course of business. The Company is not currently a party to any
litigation that it believes would materially affect the Company's business,
financial condition or results of operations.
FACILITIES
The Company owns and occupies three buildings in Bridgeport, West Virginia,
two of which serve as the Company's headquarters and one which serves as a
field operating site. The Company also owns a field operating building in
Gilmer County, West Virginia. The Company believes that its current facilities
are sufficient for its current and anticipated operations.
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<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS OF THE COMPANY
The directors and officers of the Company, their principal occupations for
the past five years and additional information are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES HELD
- ---- --- -------------------------------------------------------------------------
<S> <C> <C>
James N. Ryan 66 Chairman, Chief Executive Officer and Director
Steven R. Williams 46 President and Director
Dale G. Rettinger 53 Chief Financial Officer, Executive Vice President, Treasurer and Director
Ersel E. Morgan 54 Vice President of Production
Thomas E. Riley 44 Vice President of Business Development
Eric R. Stearns 39 Vice President of Exploration and Development
Darwin L. Stump 42 Controller
Roger J. Morgan 70 Secretary and Director
Vincent F. D'Annunzio 45 Director
Jeffrey C. Swoveland 42 Director
</TABLE>
James N. Ryan served as President of the Company from 1969 to 1983 and has
served as director of the Company since 1969. Mr. Ryan was elected Chairman
and Chief Executive Officer of the Company in March 1983. Mr. Ryan focuses on
capital formation through the Company's drilling partnerships.
Steven R. Williams has served as President and director of the Company since
March 1983. Prior to joining the Company, Mr. Williams was employed by Exxon
as an engineer from 1973 until 1979. A 1981 graduate of the Stanford Graduate
School of Business, Mr. Williams was employed by Texas Oil and Gas Company as
a financial analyst from 1981 until July 1982, when he joined Exco Enterprises
as Manager of Operations, and served in that capacity until he joined the
Company.
Dale G. Rettinger has served as Vice President and Treasurer of the Company
since July 1980. Additionally, Mr. Rettinger has served as President of PDC
Securities Incorporated since 1981. Mr. Rettinger was elected director in 1985
and appointed Chief Financial Officer in September 1997. Previously, Mr.
Rettinger was a partner with KPMG Main Hurdman, Certified Public Accountants,
and served in that capacity from 1976 until he joined the Company.
Ersel E. Morgan has served as Vice President of Production of the Company
since 1996. Prior to assuming this position, Mr. Morgan served as the
Company's Manager of the Land and Operations groups from 1981 until 1993 and
as Manager of Production of the Company from 1993 to 1996.
Thomas E. Riley has served as Vice President of Business Development of the
Company since April 1996. Mr. Riley co-founded and has served as President of
RNG since its inception in 1987 until the present. See "Certain Transactions."
Eric R. Stearns has served as Vice President of Exploration and Development
of the Company since 1995. Mr. Stearns joined the Company in 1985 as a
wellsite geologist and served as Manager of Geology from 1988 until 1995.
Darwin L. Stump has served as Controller of the Company since 1980.
Previously, Mr. Stump was a senior accountant with Main Hurdman, Certified
Public Accountants, having served in that capacity from 1977 until he joined
the Company.
Roger J. Morgan, a director and Secretary of the Company since 1969, has
been a member of the law firm of Young, Morgan & Cann, Clarksburg, West
Virginia, for more than the past five years. Mr. Morgan is not active in the
day-to-day business of the Company, but his law firm provides legal services
to the Company.
Vincent F. D'Annunzio, a director since February 1989, has for the past five
years served as President of Beverage Distributors, Inc. located in
Clarksburg, West Virginia. Mr. D'Annunzio serves as a director of Heritage
Bank in Clarksburg, West Virginia.
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<PAGE>
Jeffrey C. Swoveland, a director since March 1991, has been employed by
Equitable Resources, an oil and gas production, marketing and distribution
company, since 1994 and presently serves as Treasurer. Mr. Swoveland
previously served as Vice President and a lending officer with Mellon Bank,
N.A. from July 1989 until 1994.
The Company's By-Laws provide that the directors of the Company shall be
divided into three classes and that, at each annual meeting of stockholders of
the Company, successors to the class of directors whose term expires at the
annual meeting will be elected for a three-year term. The classes are
staggered so that the term of one class expires each year. Mr. Ryan and Mr.
D'Annunzio are members of the class whose term expires in 1998; Mr. Rettinger
and Mr. Swoveland are members of the class whose term expires in 1999; and Mr.
Williams and Mr. Morgan are members of the class whose term expires in 2000.
There is no family relationship between any director or executive officer and
any other director or executive officer of the Company. There are no
arrangements or understandings between any director or officer and any other
person pursuant to which such person was selected as an officer.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has three standing committees of the Board of Directors: the
Executive Committee; the Audit Committee; and the Stock Option and Executive
Compensation Committee. The Audit Committee is comprised of Messrs.
D'Annunzio, Ryan and Swoveland. The Executive Committee is comprised of
Messrs. Ryan, Williams and Rettinger. The Stock Option and Executive
Compensation Committee is comprised of Messrs. D'Annunzio and Swoveland. The
Company does not have a formal Nominating Committee, and the full Board of
Directors handles these responsibilities.
The functions performed by the Executive Committee include handling
important Board of Directors matters that arise between Board of Directors
meetings, serving as a liaison between the Board of Directors and senior
management on important matters requiring Board of Directors attention and
recommending to the Board of Directors nominations for election of new and
existing members of the Board of Directors.
The Audit Committee is comprised of a majority of outside Directors of the
Company. The functions performed by the Audit Committee include recommending
the selection of independent accountants, reviewing with the Company's
independent accountants the results of audits performed by them and overseeing
and reviewing monthly and quarterly unaudited financial statements. These
reviews include the adequacy of cash flow and the status of credit
arrangements of the Company.
The Stock Option and Executive Compensation Committee is comprised entirely
of outside Directors of the Company. The functions performed by this committee
include recommending to the Board of Directors compensation levels of senior
management and directing and recommending levels of corporate stock options
and other benefit plans of the Company. In this regard, the committee monitors
trends to ensure the Company's compensation levels are competitive in the oil
and natural gas industry.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Stock Option and Executive Compensation Committee are
Messrs. D'Annunzio and Swoveland. There are no Stock Option and Executive
Compensation Committee interlocks.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's By-Laws provide that the Company shall indemnify any director,
officer, employee, or other agent of the Company who is or was a party, or is
threatened to be made a party, to any proceeding (other than an action by or
in the right of the Company to procure a judgment in its favor) by reason of
the fact that such person is or was an agent of the Company against expenses,
judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with such proceeding, if that person acted in good
faith and in a manner that person reasonably believed to be in the best
interest of the Company, and in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of that person was unlawful.
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<PAGE>
The Company has entered into separate indemnification agreements with each
of its directors and officers whereby the Company has agreed to indemnify the
director or officer against all expenses, including attorneys' fees, and other
amounts reasonably incurred by the officer or director in connection with any
threatened, pending or completed civil, criminal, administrative or
investigative action or proceeding to which such person is party by reason of
the fact he is or was a director or officer, as the case may be, of the
Company, if the person acted in good faith and in a manner reasonably believed
to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, the person had no reasonable
cause to believe such conduct to be unlawful. The agreements provide for the
advancement of expenses and that the Company has the right to purchase and
maintain insurance on behalf of the director or officer against any liability
or liabilities asserted against him, whether or not the Company would have the
power to indemnify the person against such liability under any provision of
the agreement. The Company has agreed to indemnify such person against
expenses actually and reasonably incurred in connection with any action in
which the person has been successful on the merits or otherwise.
Indemnification must also be provided by the Company (unless ordered otherwise
by a court) only as authorized in the specific case upon a determination that
the indemnification of the person is appropriate because he has met the
applicable standard of conduct described in the agreement made by (i) the
Board of Directors, by a majority vote of a quorum consisting of directors who
are not parties to such action or proceeding, (ii) by independent legal
counsel in a written opinion or (iii) the shareholders of the Company.
DIRECTOR COMPENSATION
Each non-salaried employee director and outside director of the Company is
paid an annual fee of $20,000 and $100 for each meeting of the Board of
Directors attended. Each inside director is paid an annual fee of $10,000.
EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation received
during each of the Company's last three fiscal years by the Chief Executive
Officer and by each other executive officer of the Company whose salary and
bonus exceeded $100,000 in 1996 (the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------- -----------------------------------------
OTHER SECURITIES ALL OTHER
NAME AND ANNUAL COMPEN- RESTRICTED STOCK UNDERLYING COMPENSA-
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) SATION($)(2) AWARD(S)($)(3) OPTIONS(#)(4) TION($)(5)
- -------------------- ---- --------- ----------- -------------- ---------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
James N. Ryan 1996 164,295 153,383 10,000 10,897
Chairman and Chief 1995 159,330 100,000 10,000 33,750 70,000 4,111
Executive Officer 1994 154,078 107,500 10,000 4,086
Steven R. Williams 1996 125,895 173,383 10,000 10,862
President and 1995 120,930 100,000 10,000 33,750 70,000 4,125
Director 1994 115,678 107,500 10,000 4,017
Dale G. Rettinger
Executive Vice
President, 1996 125,895 173,383 10,000 10,862
Treasurer 1995 120,930 100,000 10,000 33,750 70,000 4,125
and Director 1994 115,678 107,500 10,000 4,017
</TABLE>
- --------
(1) During 1994, the Board of Directors approved a deferred compensation
arrangement for the Named Executives. See "Employment and Other Agreements
and Arrangements." Under the arrangements, each Named Executive may choose
to defer any portion of his bonus compensation until retirement or
separation from the Company. The Named Executives voluntarily deferred
$80,000, $60,000 and $60,000, respectively, in 1996; $30,000 each in 1995;
and $30,000 each in 1994. In 1996 and 1995, $30,000 of the deferred bonus
compensation of Messrs. Williams and Rettinger was utilized to pay the
premiums of split-dollar life insurance policies for Messrs. Williams and
Rettinger.
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<PAGE>
(2) The respective Named Executives receive fees as directors of the Company
of $10,000 per year.
(3) In 1995, the Company granted a restricted stock award of 30,000 shares of
Common Stock to each of the Named Executives at the grant date market
price of $1.125 per share. These shares will vest upon a Named Executive's
retirement or involuntary separation from employment with the Company, or
upon a change of control of the Company. The aggregate value of the
holdings of each individual as of December 31, 1996 was $125,640.
(4) The exercise price of these options is $1.125 per share. In July 1997, the
Company granted each Named Executive options to purchase 108,000 shares of
Common Stock at an exercise price of $5.125 per share, the fair market
value of such shares of Common Stock at the date of grant. The options may
be exercised with respect to one-half of the shares granted thereunder on
or after July 15, 1998 and with respect to one-half of the shares granted
thereunder on or after July 15, 1999, provided that the grantee is
employed with the Company on the exercise date. Such options expire on
July 15, 2007.
(5) This amount includes contributions made by the Company under the Company's
Employee Profit Sharing Plan and 401(k) plan. In 1996 and 1995 the Company
contributed $50,000 and $28,500, respectively, to the Employee Profit
Sharing Plan. Of these contributions, each of the Named Executives was
credited $3,071 in 1996 and $1,815 in 1995. The Company provided a
matching of 401(k) contributions based upon varying rates of the Named
Executives' respective contributions. Of the total Company matching
contribution of $139,800, $70,800 and $68,700 in 1996, 1995 and 1994, the
Named Executives were credited with matching contributions of $7,826,
$7,791 and $7,791, respectively, in 1996; $4,111, $4,125 and $4,125,
respectively, in 1995; and $4,086, $4,017 and $4,017, respectively, in
1994.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides certain information with respect to options
exercised during 1996 by the persons named in the Summary Compensation Table
under the Company's stock option plans. The table also represents information
as to the number of options outstanding as of December 31, 1996 with respect
to options granted pursuant to the Company's Employee Stock Option Plans. No
options were granted in 1996. The table does not include stock options granted
in 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
NUMBER OF YEAR-END(#) YEAR-END(1)($)
OF SHARES VALUE ----------------------------- -------------------------
NAME EXERCISED REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------- ----------- ---------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James N. Ryan -- -- 401,000 -- 1,290,125 --
Steven R. Williams -- -- 391,000 -- 1,257,625 --
Dale G. Rettinger -- -- 391,000 -- 1,257,625 --
</TABLE>
- --------
(1) For all unexercised options held as of December 31, 1996, the aggregate
dollar value is equal to the excess of the market value of the stock
underlying those options over the exercise price of those unexercised
options. On December 31, 1996, the closing sales price of the Common Stock
was $4.1875 per share.
In July 1997, the Company granted each Named Executive options to purchase
108,000 shares of Common Stock at an exercise price of $5.125 per share, the
fair market value of such shares of Common Stock at the date of grant. The
options may be exercised with respect to one-half of the shares granted
thereunder on or after July 15, 1998 and with respect to one-half of the
shares granted thereunder on or after July 15, 1999, provided that the grantee
is employed with the Company on the exercise date. Such options expire on July
15, 2007.
EMPLOYMENT AND OTHER AGREEMENTS AND ARRANGEMENTS
The Company has entered into employment agreements with each of the Named
Executives, each of which has a term that has been extended to December 31,
2000. Pursuant to the respective terms of the employment agreements, each of
the Named Executives is entitled to receive the basic annual salary set forth
therein that is subject to increase, but not decrease (unless dire economic
circumstances as declared by the Board of Directors requires a reduction for
all senior executive employees of the Company), as the Board of Directors may
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<PAGE>
determine to reflect changes in the cost of living, the financial success of
the Company and the performance of such Named Executive. For 1997, the basic
salary has been set by the Board of Directors under the respective agreements
as $170,760 for Mr. Ryan, $132,360 for Mr. Williams and $132,360 for Mr.
Rettinger. Each Named Executive is also entitled to be paid an annual bonus
equal to 2.5% of the Company's net pre-tax earnings for any year in which the
Company's net pre-tax earnings exceed $300,000. The Company has been required
to establish a deferred compensation plan, described below, for the Named
Executives and to fund such plan with an annual contribution of $30,000
commencing in 1994, subject to adjustment for inflation.
In the event of a change in control of the Company, each Named Executive has
the right within six months after such change of control to elect to terminate
his employment under his employment agreement and receive severance
compensation equal to the sum of his basic salary plus an amount equal to the
average bonus paid to him over the preceding three years as provided in the
agreement multiplied by the remaining years of the employment agreement,
provided, however, that the minimum severance compensation must not be less
than the amount equal to three years of basic compensation plus an amount
equal to three times the average bonus paid to such person over the preceding
three-year period.
Each employment agreement also provides that if the Company obtains the
right to sell working interests in any drilling program, the Named Executive
is entitled to participate as an investor in such oil and gas drilling project
subject to the prior approval by the Board of Directors of the terms of any
such participation.
Each employment agreement contains a standard non-disclosure covenant. Each
employment agreement also provides that the Named Executive is prohibited
during the term of his employment and for a period of one year following his
termination from engaging in any business that is competitive with the
Company's oil and gas drilling business in West Virginia, unless his
termination results from a change of control of the Company. During any period
for which the non-competition provision prohibits the officer from pursuing
activities that would compete with the Company's business as provided in the
agreement following termination of the agreement, the Company is required to
pay the officer his basic salary and bonus as provided in the agreement.
In the event of termination under the terms of the agreement, the Company
will be required to loan to the officer funds equal to the exercise price of
all options held by the Named Executive under the Company's stock option
plans, which loan, if made, must be repaid within nine months and will bear
interest at the prime rate then in effect.
Each employment agreement may be terminated for cause for willful
misfeasance or malfeasance, disregard of the Named Executive's duties or
negligence related to the performance of his duties, if so determined by a
court of competent jurisdiction. Also, the Company may terminate the
employment agreement without cause, in which case the Company must either (i)
reassign the Named Executive to a comparable executive position or designate
him as a consultant for the remaining term of his agreement or (ii) pay him
liquidated damages in an amount equal to his then basic salary for the
remaining term of the employment agreement, with a minimum payment equal to
twelve months of basic salary.
The Company has entered into an employment agreement with Thomas E. Riley.
The term of the employment agreement expires on March 31, 2000. Mr. Riley's
compensation under the employment agreement includes an annual base salary of
$70,000, a guaranteed annual bonus of $40,000 and an annual performance bonus
based on Mr. Riley's contribution to the Company and the overall success and
status of the Company, as determined by the Compensation Committee and as
approved by the Board of Directors.
The Company has entered into stock redemption agreements with each of the
Named Executives. The agreements require the Company to maintain life
insurance policies on each of them in the amount of $1 million. At the
election of the Named Executive's estate or heirs made within one year of such
person's death, the Company must utilize the proceeds from such insurance
policies to purchase from his estate or heirs all or a portion of his shares
of the Company's Common Stock owned by him, including shares subject to
outstanding stock options or warrants owned by such Named Executive at the
time of his death, up to an aggregate sale price of $1 million. The purchase
price for such shares of Common Stock will be based upon the average closing
asked price for the Company's Common Stock as quoted by Nasdaq during a
specified period. The Company is
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<PAGE>
not required to purchase any shares in excess of the amount provided by such
insurance policies. If the Named Executive's estate or heirs elect not to sell
any or all of the shares to the Company, the estate or heirs will be precluded
from selling the shares to anyone for a period of two years after the date of
the person's death, except that the shares may be transferred into the names
of the decedent's heirs and beneficiaries and the stock sold pursuant to Rule
144 under the Securities Act. If the Named Executive terminates his employment
with the Company or disposes of all or substantially all of his shares of
Common Stock in the Company, the Named Executive has the right to purchase his
respective insurance policy for a price equal to the cash surrender value of
the policy as of the date of such event. If the Named Executive fails to
purchase the policy within ninety days after such event, the Company may
cancel all policies covering the life of the Named Executive. The stock
redemption agreements will terminate upon bankruptcy or cessation of business
by the Company.
Mr. Ryan, Mr. Williams and Mr. Rettinger are also the participants in the
Company's deferred bonus compensation plan. Under this plan, the Company's
Board of Directors must declare a year-end bonus for each participant, the
receipt of which is automatically deferred pursuant to the plan, unless prior
to the beginning of a particular year, the participant enters into a voluntary
bonus compensation agreement under which he irrevocably elects to receive his
year-end bonus as cash compensation, payable as soon as practicable following
the end of the year. The amount of the participant's year-end bonus is a
minimum of $30,000 or such greater amount as may be declared by the Board of
Directors. The participant also has the right to elect to defer receipt of his
other bonus compensation under this plan. Any bonus compensation deferred
under this plan will not be paid until such participant's retirement, or upon
termination of employment, disability or death or upon hardship, as provided
in the plan. A trustee selected by the Board of Directors maintains accounts
for each participant under the plan. The Company has reserved the right to
terminate the deferred bonus compensation plan, in whole or in part, at any
time and without liability for such termination or discontinuance.
STOCK OPTION PLANS
Under the Company's incentive stock option plans, options to purchase shares
of Common Stock of the Company may be granted to certain officers and key
employees of the Company, which options are intended to qualify as incentive
stock options under the provisions of the Internal Revenue Code. Under the
plan adopted in 1997, the Company may grant options for up to an aggregate of
500,000 shares of Common Stock at an exercise price of not less than 100% of
the fair market value per share of the Company's Common Stock on the date of
grant. The options may be exercised with respect to one-half of the shares
granted on or after the first anniversary of the date of grant and with
respect to the other one-half of the shares granted on or after the second
anniversary of the date of grant. Options generally will expire ten years from
the date of grant if not exercised. A dissolution or liquidation of the
Company or a merger or consolidation in which the Company is not the surviving
corporation will cause each outstanding option to terminate, provided that
each optionee, in such event, will have the right immediately prior to said
dissolution or liquidation or merger or consolidation to exercise his option
in whole or in part without regard to any installment vesting provisions with
respect to such options. Options have been granted for all shares available
under the plan. Under the plan adopted in 1990, the Company may grant options
for up to an aggregate of 500,000 shares of Common Stock at an exercise price
of not less than 100% of the fair market value per share of the Company's
Common Stock on the date of grant. Options generally will expire five years
from the date of grant if not exercised. A dissolution or liquidation of the
Company or a merger or consolidation in which the Company is not the surviving
corporation will cause each outstanding option to terminate, provided that
each optionee, in such event, will have the right immediately prior to said
dissolution or liquidation or merger or consolidation to exercise his option
in whole or in part without regard to any installment vesting provisions with
respect to such options. Options have been granted for all shares available
under the plan.
KEY-MAN LIFE INSURANCE
The Company maintains key-man life insurance policies on the lives of
Messrs. Ryan, Williams and Rettinger in the amounts of $5.0 million, $1.0
million and $1.0 million, respectively. The Company is the beneficiary of each
policy.
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<PAGE>
CERTAIN TRANSACTIONS
In January 1996, the Company repurchased 1,200,000 shares of Common Stock
(approximately 11% of the then outstanding shares of Common Stock) from PNC
Bank, N.A. ("PNC") for a purchase price of $1.0 million, or $0.83 per share,
pursuant to the Second Amended and Restated Option Agreement dated April 30,
1993 between the Company and PNC. PNC had acquired 1,562,500 shares of the
Company's Common Stock (of which 1,381,250 shares were owned by PNC at the
date of the repurchase) in exchange for the partial forgiveness of certain
indebtedness of the Company to PNC pursuant to the Fourth Amended and Restated
Loan Agreement between the Company and PNC. The shares were retired by the
Company immediately following the repurchase.
In April 1996, the Company acquired RNG in a stock-for-stock exchange for
236,094 shares of the Company's Common Stock, which had a market value of
$449,100 at that time. RNG is an Appalachian Basin natural gas marketing
company that specializes in the acquisition and aggregation of Appalachian
Basin production. Thomas E. Riley, Donna Riley, Mr. Riley's wife, and a co-
founder and an employee of RNG, and three other employees of RNG joined the
Company at that time.
Roger J. Morgan, Secretary and Director of the Company, is a senior partner
of Young, Morgan & Cann, a law firm which the Company has retained to provide
various legal services for the Company, including during the year ended
December 31, 1996.
With respect to transactions with Messrs. Ryan, Williams and Rettinger, see
"Management--Executive Compensation--Employment and Other Agreements and
Arrangements."
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding ownership of
the Company's Common Stock as of September 15, 1997, and as adjusted to
reflect the sale of the Common Stock offered hereby, by: (a) each person known
by the Company to own beneficially more than 5% of the outstanding shares of
Common Stock; (b) each director of the Company; (c) each Named Executive; (d)
a selling stockholder who does not own more than 5% of the Company's Common
Stock and who is not a director or executive officer of the Company; and (e)
all directors and executive officers as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING(1) AFTER THE OFFERING(1)
--------------------------- SHARES BEING -------------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------- -------------- ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
James N. Ryan(2)........ 1,030,474 9.0% 100,000 930,474 6.3%
103 East Main Street
Bridgeport,WV26330
Fidelity Management..... 995,000 9.1 -- 995,000 6.9
82 Devonshire Street
Boston, MA 02109
Steven R. Williams(3)... 649,000 5.7 100,000 549,000 3.7
103 East Main Street
Bridgeport, WV 26330
Dale G. Rettinger(3).... 617,834 5.4 100,000 517,834 3.5
103 East Main Street
Bridgeport, WV 26330
Thomas E. Riley......... 236,094 2.1 50,000 186,094 1.3
Roger J. Morgan(4)...... 132,504 1.2 -- 132,504 *
Vincent F.
D'Annunzio(5)........... 53,600 * -- 53,600 *
Jeffrey C. Swoveland(6). 23,550 * -- 23,550 *
All directors and
executive officers as a
group
(6 persons)(7)......... 2,506,962 20.4 300,000 2,206,962 14.0
</TABLE>
- --------
* Less than 1%
(1) The nature of the beneficial ownership for all the shares is sole voting
and investment power. Percentage of beneficial ownership is calculated
assuming 10,985,753 shares of Common Stock outstanding on September 15,
1997 (including 500,000 shares issued and sold by the Company in the
Private Placement) and 14,485,753 shares of Common Stock outstanding after
completion of this offering.
(2) Includes options to purchase 401,000 shares of Common Stock that Mr. Ryan
can currently exercise or that will become exercisable within 60 days.
Excludes 108,000 shares underlying options granted on July 15, 1997
exercisable thereafter.
(3) Includes options to purchase 391,000 shares that such person can currently
exercise or that will become exercisable within 60 days. Excludes 108,000
shares underlying option granted to such person on July 15, 1997
exercisable thereafter.
(4) Includes options to purchase 77,500 shares that Mr. Morgan can currently
exercise or that will become exercisable within 60 days.
(5) Includes options to purchase 43,600 shares that Mr. D'Annunzio can
currently exercise or that will become exercisable within 60 days.
(6) Includes options to purchase 23,550 shares that Mr. Swoveland can
currently exercise or that will become exercisable within 60 days.
(7) Includes options to purchase an aggregate of 1,327,650 shares that such
persons can currently exercise or that will become exercisable within 60
days.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 22,250,000 shares of
Common Stock, par value $.01 per share, and 2,750,000 shares of Common Stock,
Class A, par value $0.01 per share ("Class A Common Stock"). Following
consummation of this offering, there will be approximately 14,485,753 shares
of Common Stock outstanding, and no shares of Class A Common Stock will be
outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to vote of stockholders and do not have cumulative voting
rights. Accordingly, a holder of a majority of the outstanding shares of
Common Stock entitled to vote in any election of Directors may elect all the
Directors standing for election. Holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor. Upon the liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to receive ratably the net assets of the Company available for distribution
after the payment of all debts and other liabilities of the Company. Holders
of Common Stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of Common Stock are, and the shares offered
hereby when issued and paid for will be, fully paid and nonassessable.
CLASS A COMMON STOCK
The Board of Directors is empowered by the Company's Articles of
Incorporation to designate and issue from time to time one or more classes or
series of Class A Common Stock without any action of the stockholders. The
Class A Common Stock is identical in all respects to the Common Stock, except
that the Class A Common Stock shares (i) carry no right to vote for the
election of directors of the Company and no right to vote on any matter
presented to the shareholders for their vote or approval and (ii) are
convertible at the option of the holder thereof into shares of Common Stock on
a one-for-one basis. No shares of Class A Common Stock have been issued and
the Company does not presently contemplate the issuance of such shares.
WARRANTS
Warrants to purchase up to an aggregate of 125,000 shares of Common Stock
are outstanding. Each warrant is exercisable for one share of Common Stock at
a price of $6.00 per share and is exercisable prior to September 15, 1999.
CERTAIN CORPORATE ANTI-TAKEOVER PROVISIONS
The Company's By-Laws provide for the Board of Directors to be divided into
three classes of directors serving staggered three-year terms. The
classification system of electing directors may discourage a third party from
making a tender offer or otherwise attempting to obtain control of the Company
and may maintain the incumbency of the Board of Directors, as it generally
makes it more difficult for stockholders to replace a majority of the members
of the Board of Directors.
The Nevada general corporation law (the "NGCL") provides that directors and
officers may, in discharging their duties, consider the interests of a number
of different constituencies, including stockholders, employees, suppliers,
customers and creditors; the economy of the state and nation; the interests of
the community and society; and the long-term as well as short-term interest of
the Company and its stockholders. Directors and officers are not required to
consider the interests of the stockholders to a greater degree than other
constituencies' interests.
The NGCL also contains several other anti-takeover provisions identified
below that will be applicable to the Company. The NGCL's "Combinations with
Interested Stockholders" statute, which applies to a Nevada corporation having
at least 200 stockholders, and which, unless the Articles of Incorporation
provide otherwise, has a class of voting shares registered under the Exchange
Act, prohibits an "interested stockholder" from entering into a "combination"
with the corporation, unless certain conditions are met. A "combination"
includes (a) any merger or consolidation with an interested stockholder, (b)
any sale, lease, exchange, mortgage,
43
<PAGE>
pledge, transfer or other disposition of assets, in one transaction or a
series of transactions, to an interested stockholder, having: (i) an aggregate
market value equal to 5% or more of the aggregate market value of the
corporation's assets; (ii) an aggregate market value equal to 5% or more of
the aggregate market value of all outstanding shares of the corporation; or
(iii) representing 10% or more of the earning power or net income of the
corporation, or (c) any issuance or transfer of shares of the corporation or
its subsidiaries to an interested stockholder having an aggregate market value
equal to 5% or more of the aggregate market value of all the outstanding
shares of the corporation. An "interested stockholder" is a person who,
together with affiliates and associates, beneficially owns directly or
indirectly (or within the prior three years, did beneficially own) 10% or more
of the corporation's voting stock. A stockholder who owned 10% or more of the
corporation's stock on January 1, 1991 is not an interested stockholder.
A corporation to which the statute applies may not engage in a "combination"
with the interested stockholder within three years after the interested
stockholder acquired its shares, unless the combination or the interested
stockholder's acquisition of the shares making the stockholder an interested
stockholder was approved by the board of directors before the interested
stockholder acquired such shares. If this prior approval is not obtained, then
after the three-year period expires, the combination may be consummated either
by the approval of the board of directors or a majority of the voting power
held by disinterested stockholders at a meeting called after expiration of the
three-year period, or if the consideration to be paid by the interested
stockholder is at least equal to the higher of: (i) the highest price per
share paid by the interested stockholder within the three years immediately
preceding the date of the announcement of the combination or in the
transaction in which it became an interested stockholder, whichever is higher,
plus interest as provided in the statute; or (ii) the market value per common
share on the date of announcement of the combination or the date the
interested stockholder acquired the shares, whichever is higher; plus interest
as provided in the statute.
Nevada's "Acquisition of Controlling Interest" statute prohibits a person or
group owning or offering to acquire voting shares of a corporation, under
certain circumstances, from voting shares of a target corporation's stock
after crossing certain threshold ownership percentages, unless such
corporation's Articles of Incorporation or By-Laws are amended to make the
statute inapplicable to the acquisition or unless the acquiror obtains the
approval of the target corporation's disinterested stockholders. The statute
specifies three thresholds: at least one-fifth but less than one-third, at
least one-third but less than a majority, and a majority or more, of the
outstanding voting power. Once an acquiror crosses one of the above
thresholds, shares which it acquired in the transaction taking it over the
threshold or within ninety days become "Control Shares" which are deprived of
the right to vote until a majority of the disinterested stockholders restore
that right. If an acquiror does not make certain timely demands on the target
corporation or if the stockholders fail to restore voting rights to the
acquiror, then the corporation may, if so provided in its Articles of
Incorporation or By-Laws, call certain of the acquiror's shares for
redemption. The Company's Articles of Incorporation and By-Laws do not
currently permit it to call an acquiror's shares for redemption under these
circumstances. The Acquisition of Controlling Interest statute also provides
that in the event the stockholders restore full voting rights to a holder of
Control Shares which owns a majority of the voting stock, then all other
stockholders who do not vote in favor of restoring voting rights to the
Control Shares may demand payment for the "fair value" of their shares (which
is generally equal to the highest price paid in the transaction subjecting the
stockholder to the statute). The Acquisition of Controlling Interest statute
applies only to a Nevada corporation with at least 200 stockholders, including
at least 100 record stockholders who are Nevada residents, and which does
business directly or indirectly in Nevada. As of the date of this Prospectus,
the Company does not have 100 record stockholders in Nevada and does not
conduct business in Nevada, although there can be no assurance that in the
future the Acquisition of Controlling Interest statute will not be applicable
to the Company.
The provisions described above, together with the staggered Board of
Directors, may have the effect of delaying or deterring a change in the
control or management of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is OTR Stock
Transfer, Portland, Oregon.
44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
14,485,753 shares of Common Stock. See "Capitalization." Of these shares, an
aggregate of 13,015,739 shares, consisting of (i) the 3,850,000 shares sold in
this offering (plus any additional shares sold upon the Underwriters' exercise
of their over-allotment option); and (ii) an aggregate of 9,165,739 shares,
without taking into account the lock-up agreements referred to below, that are
currently issued and outstanding, will be freely transferable by persons other
than "affiliates" of the Company without restriction or further registration
under the Securities Act. The remaining 1,470,014 shares of Common Stock are
"restricted securities" (the "Restricted Shares") within the meaning of Rule
144 and may not be sold in the absence of registration under the Securities
Act unless an exemption from registration is available, including an exemption
afforded by Rule 144.
The Company and all of the Company's officers and directors and the Selling
Stockholders have entered into lock-up agreements with the Representative
providing that they will not offer, sell, contract to sell or grant any option
to purchase or otherwise dispose of any of the shares of Common Stock owned by
them without the prior written consent of the Representative. This restriction
will apply to all of the shares owned by them for 180 days after the date of
this Prospectus.
Rule 144 provides that an affiliate of the Company or a person (or persons
whose sales are aggregated) who beneficially owned Restricted Shares for at
least one year but less than two years is entitled to sell, within any three-
month period, a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock (144,858 shares
immediately after this offering) or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 also are subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. However, a person who is not an "affiliate" of the Company at any
time during the three months preceding a sale, and who has beneficially owned
Restricted Shares for at least two years, is entitled to sell such shares
under Rule 144 without regard to the limitations described above.
The Common Stock has been traded on the Nasdaq National Market.
Nevertheless, sales of a substantial amount of the Common Stock in the public
market, or the perception that such sales could occur, could adversely affect
the market price of the shares of Common Stock and could impair the Company's
future ability to raise capital through an offering of its equity securities.
See "Risk Factors--Shares Eligible for Future Sale."
45
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
(the "Underwriting Agreement"), the Underwriters named below, for whom
Pennsylvania Merchant Group Ltd is acting as representative (the
"Representative"), have severally agreed to purchase from the Company and the
Selling Stockholders, the respective number of shares of Common Stock set
forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
----------- ----------------
<S> <C>
Pennsylvania Merchant Group Ltd...............................
---------
Total.................................................... 3,850,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all the shares of Common Stock offered hereby (other than
those covered by the over-allotment option described below) if any such shares
of Common Stock are taken.
The Company and Selling Stockholders have been advised by the Representative
that the Underwriters propose initially to offer the shares of Common Stock,
in part, directly to the public at the price set forth on the cover page of
this Prospectus and, in part, to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the initial offering of the Common Stock, the
offering price and other selling terms may be changed by the Representative.
The Company has granted to the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase, from time to time in
whole or in part, up to 577,500 additional shares of Common Stock at the
public offering price, less the underwriting discounts and commissions, all as
set forth on the cover page of this Prospectus. The Underwriters may exercise
such option solely for the purpose of covering over-allotments, if any, made
in connection with the offering. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares of Common Stock to be purchased by such Underwriter shown in the above
table bears to the total number of shares of Common Stock shown in the above
table.
Each of the Company and the Selling Stockholders have agreed to indemnify
the Underwriters against certain liabilities, including liabilities under the
Securities Act.
In connection with the offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise effect the price of the Common Stock.
Specifically, the Underwriters may over-allot the offering, creating a
syndicate short position. In addition, the Underwriters may bid for and
purchase shares of Common Stock in the open market to cover such syndicate
short position or to stabilize the price of the Common Stock. These activities
may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the SEC. In general, a passive market maker may not bid for, or
purchase, the Common Stock at a price that exceeds the highest independent
bid. In addition, the net daily purchases made by any passive market maker
generally may not exceed 30% of its average daily trading
46
<PAGE>
volume in the Common Stock during a specified two-month prior period, or 200
shares, whichever is greater. A passive market maker must identify passive
market making bids as such on the Nasdaq electronic inter-dealer reporting
system. Passive market making may stabilize or maintain the market price of
the Common Stock above independent market levels. Underwriters and dealers are
not required to engage in passive market making and may end passive market
making activities at any time.
Each of the Company, its executive officers and directors and certain
stockholders of the Company (including the Selling Stockholders) has agreed,
subject to certain exceptions, not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
(ii) enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise) for a period of 180 days after the date of this Prospectus
without the prior written consent of the Representative. In addition, during
such 180-day period, without the Representative's prior written consent, the
Company has also agreed not to file any registration statement with respect
to, and each of its executive officers and directors and certain stockholders
of the company (including the Selling Stockholders) has agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Duane, Morris & Heckscher LLP, Washington, DC. Certain legal
matters in connection with the offering will be passed on for the Underwriters
by Buchanan Ingersoll, Princeton, New Jersey.
EXPERTS
The consolidated financial statements and schedule of the Company as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, included herein and elsewhere in the registration
statement, have been included herein and in the registration statement in
reliance upon the reports of KPMG Peat Marwick LLP, independent auditors,
appearing elsewhere herein and in the registration statement, and upon the
authority of such firm as experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods
ended March 31, 1997 and 1996 and June 30, 1997 and 1996, incorporated by
reference herein, the independent certified public accountants have reported
that they applied limited procedures in accordance with professional standards
for a review of such information. However, their separate reports included in
the Company's quarterly reports on Form 10-Q for the quarters ended March 31,
1997 and June 30, 1997, and incorporated by reference herein, state that they
did not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their reports on such
information should be restricted in light of the limited nature of the review
procedures applied. The accountants are not subject to the liability
provisions of Section 11 of the Securities Act for their reports on the
unaudited interim financial information because the reports are not a "report"
or a "part" of the registration statement prepared or certified by the
accountants within the meaning of Sections 7 and 11 of the Securities Act.
The Summary Reserve Report of Wright & Company, Inc., independent petroleum
engineers, annexed hereto as Appendix A, containing estimates of proved
natural gas and oil reserves and related future net revenues and the present
value thereof, and the estimates of proved natural gas and oil reserves and
related future net revenues and the present value thereof as of December 31,
1996 and June 30, 1997 included in the Registration Statement, have been
derived from the reserve report of such firm and certain engineering reports
prepared by the Company and reviewed by such firm. All of such information has
been so included herein in reliance upon the authority of such firm as experts
in such matters.
47
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information filed by the Company with
the SEC can be inspected and copies at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, DC 20549, and at the following regional offices of the SEC: 7
World Trade Center, Suite 1300, New York, NY 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, IL 60661-2511. In addition, such
materials can also be obtained from the SEC's web site at http://www.sec.gov.
The Common Stock of the Company is traded on the Nasdaq National Market under
the symbol PETD, and copies of the above reports, proxy statements and other
information may also be inspected at the offices of Nasdaq Operations, 1735 K
Street, Washington, D.C. 20006.
The Company has filed with the SEC a Registration Statement on Form S-2 (the
"Registration Statement") under the Securities Act with respect to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
securities offered hereby, reference is hereby made to the Registration
Statement and the exhibits and schedules filed therewith. Statements contained
herein as to the content of any contract or other document are not necessarily
complete and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, and each
such statement shall be deemed qualified in its entirety by such references.
The Registration Statement and any amendments thereto, including exhibits
filed or incorporated by reference as a part thereof, may be obtained from the
principal office of the SEC in Washington, DC, upon payment of the fees
prescribed by the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates into this Prospectus by reference its Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 and its
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and June
30, 1997 filed with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any and all of the
documents incorporated herein by reference, other than exhibits to such
documents (except for exhibits that are specifically incorporated herein by
reference herein). Requests for such copies shall be directed to Steven R.
Williams, President, Petroleum Development Corporation, 103 East Main Street,
Bridgeport, West Virginia, 26330, telephone number (304) 842-6256.
48
<PAGE>
GLOSSARY OF CERTAIN INDUSTRY TERMS
The definitions set forth below shall apply to the indicated terms as used
in this Prospectus. All volumes of natural gas referred to herein are stated
at the legal pressure base of the state or area where the reserves exist and
at 60 degrees Fahrenheit and in most instances are rounded to the nearest
multiple.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein
reference to crude oil or other liquid hydrocarbons.
Bcf. Billion cubic feet.
Btu or British Thermal Unit. The quantity of heat required to raise the
temperature of one pound mass of water from 58.5 to 59.5 degrees Fahrenheit.
CNG system. Consolidated Natural Gas Transmission Company pipeline system.
Completion. The installation of permanent equipment for the production of
oil or natural gas or, in the case of a dry hole, the reporting of abandonment
to the appropriate agency.
Developed acreage. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
Development well. A well drilled to extend the limits of an already
developed pool, or within a proved area of an oil or gas reservoir to the
depth of a stratigraphic horizon known to be productive.
Drilled well. A well for which the Company supervised the drilling activity
or in which it has a working interest.
Dry hole or well. A well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production fail
to exceed production expenses and taxes.
Dth. One decatherm. One decatherm is equal to one million British thermal
units.
Exploratory well. A well drilled to find and produce oil or natural gas
reserves not classified as proved, to find a new reservoir in a field
previously found to be productive of oil or natural gas in another reservoir
or to extend a known reservoir.
Farm-in or farm-out. An agreement whereunder the owner of a working interest
in an oil and natural gas lease assigns the working interest or a portion
thereof to another party who desires to drill on the leased acreage.
Generally, the assignee is required to drill one or more wells in order to
earn its interest in the acreage. The assignor usually retains a royalty or
reversionary interest in the lease. The interest received by an assignee is a
"farm-in" while the interest transferred by the assignor is a "farm-out."
Gross acres or gross wells. The total acres or wells, as the case may be, in
which a working interest is owned.
Mcf. One thousand cubic feet.
MMBtu. One million British Thermal Units.
Net acres or net wells. When the sum of the fractional working interests
owned in gross acres or gross wells equals one.
NYMEX. New York Mercantile Exchange.
Present value. When used with respect to oil and natural gas reserves, the
estimated future gross revenue to be generated from the production of proved
reserves, net of estimated production and future development
49
<PAGE>
costs, using prices and costs in effect as of the date indicated, without
giving effect to nonproperty-related expenses such as general and
administrative expenses, debt service and future income tax expense or to
depreciation, depletion and amortization, discounted using an annual discount
rate of 10%.
Productive well. A well that is found to be capable of producing
hydrocarbons in sufficient quantities such that proceeds from the sale of such
production exceed production expenses and taxes.
Proved reserves. The estimated quantities of crude oil, natural gas and
natural gas liquids that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions.
Proved developed reserves. Proved reserves that are expected to be recovered
through existing wells with existing equipment and operating equipment.
Proved undeveloped location. A site on which a development well can be
drilled consistent with spacing rules for purposes of recovering proved
undeveloped reserves.
Proved undeveloped reserves. Proved reserves that are expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.
Recompletion. The completion for production of an existing well bore in
another formation from that in which the well has been previously completed.
Reservoir. A porous and permeable underground formation containing a natural
accumulation of producible oil and/or natural gas that is confined by
impermeable rock or water barriers and is individual and separate from other
reservoirs.
Royalty interest. An interest in an oil and natural gas property entitling
the owner to a share of oil or natural gas production free of costs of
production.
Spot market. The cash market for natural gas. Generally, the Company's
natural gas contracts are based on a day-to-day or month-to-month spot.
Tcf. Trillion cubic feet.
Undeveloped acreage. Lease acreage on which wells have not been drilled or
completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether such acreage contains proved
reserves.
Working interest. The operating interest that gives the owner the right to
drill, produce and conduct operating activities on the property and share of
production.
Workover. Operations on a producing well to restore or increase production.
50
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets at December 31, 1995 and 1996 and June 30,
1997..................................................................... F-3
Consolidated Statements of Income for the years ended December 31, 1994,
1995
and 1996 and six months ended June 30, 1996 and 1997..................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994,
1995 and 1996 and six months ended June 30, 1997......................... F-5
Consolidated Statements of Cash Flow for the years ended December 31,
1994, 1995
and 1996 and six months ended June 30, 1996 and 1997..................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Petroleum Development Corporation:
We have audited the consolidated balance sheets of Petroleum Development
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Petroleum
Development Corporation and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK
Pittsburgh, Pennsylvania
March 13, 1997
F-2
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
<S> <C> <C> <C>
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents (includes
restricted cash of $1,734,900 in
1996)................................ $10,053,600 $20,615,400 $ 8,461,600
Notes and accounts receivable......... 2,016,600 6,696,000 4,851,800
Inventories........................... 217,900 567,200 273,400
Prepaid expenses...................... 868,800 740,900 813,100
----------- ----------- -----------
Total current assets................ 13,156,900 28,619,500 14,399,900
Properties and equipment:
Oil and gas properties (successful
efforts accounting method)........... 37,992,000 46,525,700 48,028,600
Pipelines............................. 6,851,900 7,186,900 7,277,400
Transportation and other equipment.... 2,546,900 2,151,200 1,980,900
Land and buildings.................... 849,200 1,098,200 1,136,900
----------- ----------- -----------
48,240,000 56,962,000 58,423,800
Less accumulated depreciation,
depletion and amortization........... 21,127,100 22,522,300 23,336,300
----------- ----------- -----------
27,112,900 34,439,700 35,087,500
Other assets............................ 350,300 545,000 592,500
----------- ----------- -----------
$40,620,100 $63,604,200 $50,079,900
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 2,119,100 $ 9,703,800 $ 6,882,700
Accrued taxes......................... 155,100 506,000 694,900
Other accrued expenses................ 1,628,800 1,505,900 2,136,600
Advances for future drilling
contracts............................ 10,069,600 18,397,000 3,954,400
Funds held for future distribution.... 704,000 864,000 1,043,900
----------- ----------- -----------
Total current liabilities........... 14,676,600 30,976,700 14,712,500
Long-term debt, excluding current
maturities............................. 2,500,000 5,320,000 3,695,000
Other liabilities....................... 601,700 1,094,200 1,242,500
Deferred income taxes................... 2,920,900 3,140,800 3,419,900
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per
share; authorized
22,250,000 shares; issued and
outstanding 11,208,627, 10,460,753
and 10,485,753....................... 112,100 104,600 104,900
Common stock, Class A, par value $.01
per share; authorized 2,750,000
shares; issued and outstanding--none. -- -- --
Additional paid-in capital............ 7,019,800 6,617,300 6,638,900
Retained earnings..................... 12,878,000 16,427,400 20,336,900
Unamortized stock award............... (89,000) (76,800) (70,700)
----------- ----------- -----------
Total stockholders' equity.......... 19,920,900 23,072,500 27,010,000
----------- ----------- -----------
$40,620,100 $63,604,200 $50,079,900
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas well
drilling operations.. $15,190,200 $13,941,000 $18,698,200 $10,732,600 $19,276,800
Oil and gas sales..... 4,361,300 4,150,600 26,051,100 8,964,600 16,348,800
Well operations and
pipeline income...... 3,730,300 3,750,900 3,928,800 1,847,100 2,248,100
Other income.......... 524,400 504,000 935,600 230,700 451,500
----------- ----------- ----------- ----------- -----------
23,806,200 22,346,500 49,613,700 21,775,000 38,325,200
Costs and expenses:
Cost of oil and gas
well drilling
operations........... 14,288,700 11,943,000 15,779,800 8,770,200 15,758,800
Oil and gas purchases
and
production cost...... 4,067,000 4,138,700 24,190,300 8,084,300 14,716,400
General and
administrative
expenses............. 2,203,800 1,960,600 2,304,000 1,111,900 1,091,500
Depreciation,
depletion and
amortization......... 1,848,200 2,152,100 2,309,600 1,207,400 1,220,400
Interest.............. 300,200 319,700 380,000 139,400 204,500
----------- ----------- ----------- ----------- -----------
22,707,900 20,514,100 44,963,700 19,313,200 32,991,600
----------- ----------- ----------- ----------- -----------
Income before income
taxes.............. 1,098,300 1,832,400 4,650,000 2,461,800 5,333,600
Income taxes............ 176,700 350,900 1,100,600 521,900 1,424,100
----------- ----------- ----------- ----------- -----------
Net income............ $ 921,600 $ 1,481,500 $ 3,549,400 $ 1,939,900 $ 3,909,500
=========== =========== =========== =========== ===========
Earnings per common and
common equivalent
share.................. $ 0.08 $ 0.13 $ 0.31 $ 0.17 $ 0.33
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ISSUED
--------------------
ADDITIONAL
NUMBER PAID-IN RETAINED UNAMORTIZED
OF SHARES AMOUNT CAPITAL EARNINGS STOCK AWARD TOTAL
---------- -------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... 10,831,921 $108,300 $6,652,500 $10,474,900 $ -- $17,235,700
---------- -------- ---------- ----------- -------- -----------
Issuance of common
stock:
Purchase of
properties........... 55,000 500 109,500 -- -- 110,000
Exercise of employee
stock options........ 153,706 1,600 111,600 -- -- 113,200
Net income.............. -- -- -- 921,600 -- 921,600
---------- -------- ---------- ----------- -------- -----------
Balance, December 31,
1994................. 11,040,627 110,400 6,873,600 11,396,500 -- 18,380,500
---------- -------- ---------- ----------- -------- -----------
Issuance of common
stock:
Exercise of employee
stock options........ 78,000 800 45,800 -- -- 46,600
Stock award........... 90,000 900 100,400 -- (101,300) --
Amortization of stock
award................ -- -- -- -- 12,300 12,300
Net income.............. -- -- -- 1,481,500 -- 1,481,500
---------- -------- ---------- ----------- -------- -----------
Balance, December 31,
1995................. 11,208,627 112,100 7,019,800 12,878,000 (89,000) 19,920,900
---------- -------- ---------- ----------- -------- -----------
Issuance of common
stock:
Exercise of employee
stock options........ 230,699 2,300 166,100 -- -- 168,400
Purchase of
subsidiary........... 236,094 2,300 446,800 -- -- 449,100
Amortization of stock
award................ -- -- -- -- 12,200 12,200
Repurchase and
cancellation
of treasury stock...... (1,214,667) (12,100) (1,015,400) -- -- (1,027,500)
Net income.............. -- -- -- 3,549,400 -- 3,549,400
---------- -------- ---------- ----------- -------- -----------
Balance December 31,
1996................. 10,460,753 104,600 6,617,300 16,427,400 (76,800) 23,072,500
---------- -------- ---------- ----------- -------- -----------
Issuance of common
stock:
Exercise of employee
stock options
(unaudited).......... 25,000 300 21,600 -- -- 21,900
Amortization of stock
award (unaudited).... -- -- -- -- 6,100 6,100
Net income (unaudited).. -- -- -- 3,909,500 -- 3,909,500
---------- -------- ---------- ----------- -------- -----------
Balance June 30, 1997
(unaudited).......... 10,485,753 $104,900 $6,638,900 $20,336,900 $(70,700) $27,010,000
========== ======== ========== =========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 921,600 $ 1,481,500 $ 3,549,400 $1,939,900 $ 3,909,500
Adjustment to net
income to reconcile
to cash provided by
operating activities:
Deferred income
taxes............... 97,400 112,600 213,900 43,300 279,100
Depreciation,
depletion and
amortization........ 1,848,200 2,152,100 2,309,600 1,207,400 1,220,400
Disposition of
leasehold acreage... 173,600 201,300 151,700 100,300 120,000
Employee compensation
paid in stock....... 108,200 12,300 17,900 11,800 6,100
Decrease (increase)
in notes and
accounts receivable. 39,400 (41,200) (1,480,600) 254,700 1,844,200
(Increase) decrease
in inventories...... (38,100) 172,300 (349,300) (15,800) 293,800
(Increase) decrease
in prepaid expenses. (211,000) 10,600 203,300 16,900 (72,200)
Decrease (increase)
in other assets..... 65,100 65,800 (226,400) (144,600) (54,800)
Increase (decrease)
in accounts payable
and accrued
expenses............ 92,200 42,300 3,938,200 (480,700) (1,853,100)
Increase (decrease)
in advances for
future drilling
contracts........... 1,071,900 869,700 8,327,400 (7,834,400) (14,442,600)
(Decrease) increase
in funds held for
future distribution. (474,300) 337,300 160,000 13,000 179,900
Other................ 18,300 (95,800) 90,700 (9,800) (58,800)
----------- ----------- ----------- ---------- -----------
Total adjustments... 2,790,900 3,839,300 13,356,400 (6,837,900) (12,538,000)
----------- ----------- ----------- ---------- -----------
Net cash provided by
(used in)
operating
activities......... 3,712,500 5,320,800 16,905,800 (4,898,000) (8,628,500)
----------- ----------- ----------- ---------- -----------
Cash flows from
investing activities:
Capital expenditures... (5,606,500) (3,910,400) (10,415,500) (1,092,700) (2,711,500)
Proceeds from sale of
leases................ 282,100 289,400 655,400 327,100 729,000
Proceeds from sale of
fixed assets.......... 34,200 36,700 10,800 9,000 60,300
Net cash acquired from
purchase
of subsidiary......... -- -- 1,450,000 1,450,000 --
----------- ----------- ----------- ---------- -----------
Net cash (used in)
provided by
investing
activities......... (5,290,200) (3,584,300) (8,299,300) 693,400 (1,922,200)
----------- ----------- ----------- ---------- -----------
Cash flows from
financing activities:
Proceeds from debt..... 800,000 -- 4,200,000 1,000,000 --
Proceeds from issuance
of stock.............. 5,000 46,600 135,300 120,300 21,900
Purchase of treasury
stock................. -- -- (1,000,000) (1,000,000) --
Retirement of debt..... (899,300) (636,300) (1,380,000) (800,000) (1,625,000)
----------- ----------- ----------- ---------- -----------
Net cash (used in)
provided by
financing
activities......... (94,300) (589,700) 1,955,300 (679,700) (1,603,100)
----------- ----------- ----------- ---------- -----------
Net (decrease) increase
in cash and
cash equivalents....... (1,672,000) 1,146,800 10,561,800 (4,884,300) (12,153,800)
Cash and cash
equivalents, beginning
of year................ 10,578,800 8,906,800 10,053,600 10,053,600 20,615,400
----------- ----------- ----------- ---------- -----------
Cash and cash
equivalents, end of
year................... $ 8,906,800 $10,053,600 $20,615,400 $5,169,300 $ 8,461,600
=========== =========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Petroleum Development Corporation and its wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation. The Company accounts for its investment in limited partnerships
under the proportionate consolidation method. Under this method, the Company's
financial statements include its prorata share of assets and liabilities and
revenues and expenses, respectively, of the limited partnerships in which it
participates.
The Company is involved in two business segements. The different segments
are oil and gas well drilling, production and related property management and
marketing and pipeline operations.
The Company grants credit to purchasers of oil and gas and the owners of
managed properties, substantially all of whom are located in the Appalachian
Basin area of West Virginia, Tennessee, Pennsylvania and Ohio.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months or
less to be cash equivalents.
Inventories
Inventories of well equipment, parts and supplies are valued at the lower of
average cost or market. An inventory of natural gas is recorded when gas is
purchased in excess of deliveries to customers and is recorded at the lower of
cost or market.
Oil and Gas Properties
Exploration and development costs are accounted for by the successful
efforts method.
The Company assesses impairment of capitalized costs of proved oil and gas
properties by comparing net capitalized costs to undiscounted future net cash
flows on a field-by-field basis using expected prices. Prices utilized for
measurement purposes and expected costs are held constant. If net capitalized
costs exceed undiscounted future net cash flow, the measurement of impairment
is based on estimated fair value which would consider future discounted cash
flows.
Property acquisition costs are capitalized when incurred. Geological and
geophysical costs and delay rentals are expensed as incurred. The costs of
drilling exploratory wells are capitalized pending determination of whether
the wells have discovered economically producible reserves. If reserves are
not discovered, such costs are expensed as dry holes. Development costs,
including equipment and intangible drilling costs related to both producing
wells and developmental dry holes, are capitalized.
Unproved properties are assessed on a property-by-property basis and
properties considered to be impaired are charged to expense when such
impairment is deemed to have occurred.
Costs of proved properties, including leasehold acquisition, exploration and
development costs and equipment, are depreciated or depleted by the unit-of-
production method based on estimated proved developed oil and gas reserves.
F-7
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Upon sale or retirement of complete units of depreciable or depletable
property, the net cost thereof, less proceeds or salvage value, is credited or
charged to income. Upon retirement of a partial unit of property, the cost
thereof is charged to accumulated depreciation and depletion.
Based on the Company's experience, management believes site restoration,
dismantlement and abandonment costs net of salvage to be immaterial in
relation to operating costs. These costs are being expensed when incurred.
Transportation Equipment, Pipelines and Other Equipment
Transportation equipment, pipelines and other equipment are carried at cost.
Depreciation is provided principally on the straight-line method over useful
lives of 3 to 17 years.
Maintenance and repairs are charged to expense as incurred. Major renewals
and betterments are capitalized. Upon the sale or other disposition of assets,
the cost and related accumulated depreciation, depletion and amortization are
removed from the accounts, the proceeds applied thereto and any resulting gain
or loss is reflected in income.
Buildings
Buildings are carried at cost and depreciated on the straight-line method
over estimated useful lives of 30 years.
Retirement Plans
The Company has a 401(k) contributory retirement plan (401(k) Plan) covering
full-time employees. The Company provides a discretionary matching of employee
contributions to the plan.
The Company also has a profit sharing plan covering full-time employees. The
Company's contributions to this plan are discretionary.
During 1994, the Company established a deferred compensation arrangement
covering executive officers of the Company as a supplemental retirement
benefit.
During 1995, the Company established split-dollar life insurance
arrangements with certain executive officers. Under these arrangements,
advances are made to these officers equal to the premiums due. The advances
are collateralized by the cash surrender value of the policies. The Company
records as other assets its share of the cash surrender value of the policies.
Revenue Recognition
Oil and gas wells are drilled primarily on a contract basis. The Company
follows the percentage-of-completion method of income recognition for drilling
operations in progress.
Well operations income consists of operation charges for well upkeep,
maintenance and operating lease income on tangible well equipment.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in
F-8
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Derivatives
Gains and losses related to qualifying hedges of firm commitments or
anticipated transactions through the use of natural gas futures contracts are
deferred and recognized in income or as adjustments of carrying amounts when
the underlying hedged transaction occurs. In order for futures contracts to
qualify as a hedge, there must be sufficient correlation to the underlying
hedged transaction. The change in the fair value of derivative instruments
which do not qualify for hedging are recognized into income currently.
Stock Compensation
On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-
Based Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS 123 allows entities to continue to measure compensation
cost for stock-based awards using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and to provide pro forma net income and pro forma earnings per
share disclosures as if the fair value based method defined in SFAS 123 had
been applied. The Company has elected to continue to apply the provisions of
APB 25 and provide the pro forma disclosure provisions of SFAS 123. See note 5
to the financial statements.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and revenues and expenses
and the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates. Estimates which
are particularly significant to the consolidated financial statements include
estimates of oil and gas reserves and future cash flows from oil and gas
properties.
(2) NOTES AND ACCOUNTS RECEIVABLE
The Company held notes receivable from officers, directors and employees
with interest from 8% to 12% as of December 31, 1995 in the amount of $33,300
of which $200 is current.
Included in other assets are noncurrent notes and accounts receivable as of
December 31, 1995 and 1996, in the amounts of $168,400 and $5,930, net of the
allowance for doubtful accounts of $368,800 and $147,200, respectively.
The allowance for doubtful current accounts receivable as of December 31,
1995 and 1996 was $20,200 and $140,600, respectively.
(3) LONG-TERM DEBT
The Company is party to a bank credit agreement dated November 17, 1993
which, as amended, provides a borrowing base of $10,000,000 subject to
adequate natural gas reserve levels. At the request of the Company, the bank,
at its sole discretion, may increase the amount of the commitment to
$20,000,000. The Company has activated $7.5 million of the facility.
As of December 31, 1995 and 1996, the balance outstanding was $2,500,000 and
$5,320,000, respectively. No principal payments are required under the credit
agreement until maturity on December 31, 1999. Interest
F-9
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
accrues at prime with LIBOR (London Interbank Market) rate alternatives
available at the discretion of the Company. At December 31, 1996, interest
accrues at prime (8 1/4%) plus 1/4%. The Company is required to pay a
commitment fee of 1/8% to 1/4% on the unused portion of the credit facility.
The loan is secured by substantially all properties of the Company. The credit
agreement requires, among other things, the existence of satisfactory levels
of natural gas reserves, maintenance of certain working capital and tangible
net worth ratios along with a restriction on the payment of dividends.
(4) INCOME TAXES
The Company's provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Current:
Federal......................................... $ 66,600 $128,400 $ 545,600
State........................................... 12,700 109,900 341,100
-------- -------- ----------
Total current income taxes.................... 79,300 238,300 886,700
-------- -------- ----------
Deferred:
Federal......................................... 75,500 87,300 165,800
State........................................... 21,900 25,300 48,100
-------- -------- ----------
Total deferred income taxes................... 97,400 112,600 213,900
-------- -------- ----------
Total taxes................................... $176,700 $350,900 $1,100,600
======== ======== ==========
</TABLE>
Income tax expense attributable to income from continuing operations was
$176,700, $350,900 and $1,100,600 for the years ended December 31, 1994, 1995
and 1996, respectively, and differed from the amounts computed by applying the
U.S. federal income tax rate of 34 percent to pretax income from continuing
operations as a result of the following:
<TABLE>
<CAPTION>
1994 1995 1996
--------- -------- ----------
AMOUNT AMOUNT AMOUNT
--------- -------- ----------
<S> <C> <C> <C>
Computed "expected" tax........................ $ 373,400 $623,000 $1,581,000
State income tax............................... 71,200 108,800 249,900
Percentage depletion........................... (136,000) (155,900) (205,800)
Nonconventional source fuel credit............. (18,000) (127,300) (510,500)
Adjustment to oil and gas properties........... (132,700) -- --
Adjustments to valuation allowance............. -- (100,700) --
Other.......................................... 18,800 3,000 (14,000)
--------- -------- ----------
$ 176,700 $350,900 $1,100,600
========= ======== ==========
</TABLE>
F-10
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and 1996 are presented below:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Drilling notes, principally due to allowance for
doubtful accounts................................. $ 671,300 $ 465,800
Investment tax credit carryforwards................ 233,300 45,200
Alternative minimum tax credit carryforwards
(Section 29)...................................... 909,400 926,600
Other.............................................. 440,600 550,800
----------- -----------
Total gross deferred tax assets.................. 2,254,600 1,988,400
Less valuation allowance......................... (941,300) (926,600)
----------- -----------
Deferred tax assets.............................. 1,313,300 1,061,800
Less current deferred tax assets (included in
prepaid expenses)............................... (386,200) (376,100)
----------- -----------
Net non-current deferred tax assets.................. 927,100 685,700
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation
and amortization.................................. (3,848,000) (3,826,500)
----------- -----------
Total gross deferred tax liabilities............. (3,848,000) (3,826,500)
----------- -----------
Net deferred tax liability....................... $(2,920,900) $(3,140,800)
=========== ===========
</TABLE>
The Company has evaluated each deferred tax asset and has provided a
valuation allowance where it is believed it is more likely than not that some
portion of the asset will not be realized.
The net changes in the total valuation allowance were for the years ended
December 31, 1994 and 1995, an increase of $45,000 and $98,600, respectively,
and for the year ended December 31, 1996 a decrease of $14,700.
At December 31, 1996, the Company has investment tax credit carryforwards
for federal income tax purposes of approximately $45,200 which are available
to reduce future federal income taxes through 2000. In addition, the Company
has alternative minimum tax credit carryforwards (Section 29) of approximately
$926,600 which are available to reduce future federal regular income taxes
over an indefinite period.
(5) COMMON STOCK
Options
Options amounting to 210,000 shares were granted during 1995 to certain
employees and directors under the Company's Stock Option Plans. These options
were granted at market value as of the date of grant and vest over a two year
period. The outstanding options expire from 1997 to 2005.
The estimated fair value of the options granted during 1995 was $0.67 per
option. The fair value was estimated using the Black-Scholes option pricing
model with the following assumptions: risk-free interest rate of 5.8%,
expected dividend yield of 0%, expected volatility of 51% and expected life of
7 years.
F-11
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
NUMBER
OF SHARES AVERAGE RANGE
--------- ------- -----------
<S> <C> <C> <C>
Outstanding December 31, 1993................... 2,182,250 $0.71 $ 0.38-1.63
Granted......................................... -- -- --
Exercised....................................... (226,250) 0.50 0.44-0.69
Expired......................................... -- -- --
--------- ===== -----------
Outstanding December 31, 1994................... 1,956,000 0.77 0.38-1.63
Granted......................................... 210,000 1.13 1.13-1.13
Exercised....................................... (78,000) 0.60 0.56-0.72
Expired......................................... (235,350) 0.68 0.38-1.63
--------- ----- -----------
Outstanding December 31, 1995................... 1,852,650 0.91 0.50-1.63
Granted......................................... -- -- --
Exercised....................................... (230,000) 0.72 0.50-1.125
Expired......................................... (40,000) 0.80 0.50-1.625
--------- ----- -----------
Outstanding December 31, 1996................... 1,582,650 $0.94 $0.50-1.625
========= ===== ===========
</TABLE>
The Company accounts for its stock-based compensation plans under APB 25.
For stock options granted, the option price was not less than the market value
of shares on the grant date, therefore, no compensation cost has been
recognized. Had compensation cost been determined under the provisions of SFAS
123, the Company's net income and earnings per share would have been the
following on a pro forma basis:
<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net income........................ $1,481,500 $1,474,400 $3,549,400 $3,473,250
========== ========== ========== ==========
Earnings per share................ $ 0.13 $ 0.13 $ 0.31 $ 0.30
========== ========== ========== ==========
</TABLE>
Stock Redemption Agreement
The Company has stock redemption agreements with three officers of the
Company. The agreements require the Company to maintain life insurance on each
executive in the amount of $1,000,000. The agreements provide that the Company
shall utilize the proceeds from such insurance to purchase from such
executives' estates or heirs, at their option, shares of the Company's stock.
The purchase price for the outstanding common stock is to be based upon the
average closing asked price for the Company's stock as quoted by Nasdaq
National Market during a specified period. The Company is not required to
purchase any shares in excess of the amount provided for by such insurance.
Stock Purchase
On January 31, 1996, the Company purchased 1,200,000 shares of its common
stock pursuant to an option agreement. The option was obtained in connection
with a debt restructuring in 1990. The company utilized its revolving credit
line to acquire the shares for $1,000,000 or $0.83 a share. The shares
representing approximately 11% of the currently outstanding stock were retired
by the Company.
F-12
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(6) EMPLOYEE BENEFIT PLANS
The Company made 401(k) Plan contributions of $68,700, $71,800 and $139,800
for 1994, 1995 and 1996, respectively.
The Company has a profit sharing plan (the Plan) covering full-time
employees. The Company contributed $28,500 and $50,000 to the plan in cash
during 1995 and 1996, respectively. The Company did not make a contribution to
the Plan during 1994.
During 1995 and 1996, the Company expensed and established a liability for
$90,000 each year under a deferred compensation arrangement with the executive
officers of the Company.
In 1995, a total of 90,000 restricted shares of the Company's common stock
were granted to certain employees and available to them upon retirement. The
market value of shares awarded was $101,300. This amount was recorded as
unamortized stock award and is shown as a separate component of stockholders'
equity. The unamortized stock award is being amortized to expense over the
employees' expected years to retirement and amounted to $12,200 in 1995 and
1996.
At December 31, 1995 and 1996, the Company has recorded as other assets
$60,000 and $111,800, respectively as its share of the cash surrender value of
the life insurance pledged as collateral for the payment of premiums on split-
dollar life insurance policies owned by certain executive officers.
(7) EARNINGS PER SHARE
Earnings per share is based on the weighted average number of common and
common equivalent shares outstanding of 11,990,497 for 1994, 11,606,690 for
1995 and 11,573,429 for 1996. Stock options are considered to be common stock
equivalents and, to the extent appropriate, have been added to the weighted
average common shares outstanding. Fully diluted earnings per share have not
been presented as the inclusion of such additional shares would not create
significant dilution.
(8) TRANSACTIONS WITH AFFILIATES
As part of its duties as well operator, the Company received $12,834,300 in
1994, $11,397,000 in 1995 and $18,234,200 in 1996 representing proceeds from
the sale of oil and gas and made distributions to investor groups according to
their working interests in the related oil and gas properties. The Company
provided oil and gas well drilling services to affiliated partnerships,
substantially all of the Company's oil and gas well drilling operations was
for such partnerships. The Company also provided related services of operation
of wells, reimbursement of syndication costs, management fees, tax return
preparation and other services relating to the operation of the partnerships.
The Company received $4,041,600 in 1994, $4,003,500 in 1995 and $6,435,700 in
1996 for those services. During 1994, 1995 and 1996, the Company paid
$127,900, $38,500 and $35,400, respectively to the Corporate Secretary's law
firm for various legal services.
(9) COMMITMENTS AND CONTINGENCIES
The nature of the independent oil and gas industry involves a dependence on
outside investor drilling capital and involves a concentration of gas sales to
a few customers. The Company sells natural gas to various public utilities and
industrial customers. One customer, Hope Gas Inc., a regulated public utility,
accounted for 16.1% of total revenues in 1996.
The Company is not party to any legal action that would materially affect
the Company's operations or financial statements.
F-13
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(10) SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The Company paid $300,200, $319,700 and $380,000 for interest in 1994, 1995
and 1996, respectively. The Company paid income taxes in 1994 and 1996 in the
amounts of $312,500 and $664,300, respectively.
(11) NONCASH FINANCING AND INVESTING ACTIVITIES
In 1994 the Company issued 55,000 shares of common stock for the purchase of
producing properties. Also in 1994, employees exercised stock options for
143,706 shares of common stock and surrendered options for 72,544 common
shares in lieu of cash payments in connection with the options exercised. This
resulted in compensation expense of $108,200.
(12) ACQUISITIONS
On April 1, 1996, the Company acquired Riley Natural Gas Company (RNG), a
privately held gas marketing company in a stock for stock exchange accounted
for as a purchase. The acquisition has substantially increased the Company's
capabilities in the natural gas marketing area. PDC issued 236,094 shares with
a market value of $449,100, for 100% of the outstanding common stock of RNG.
Key employees of RNG have entered into employment contracts with PDC to assure
the continuity of RNG's gas marketing operations.
The following unaudited pro forma information presents the results of
operations of the Company assuming the RNG acquisition occurred at the
beginning of 1995:
Proforma Results (unaudited):
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Revenues................................................ $35,361,800 $53,091,400
=========== ===========
Net income.............................................. $ 1,546,900 $ 3,592,800
=========== ===========
Earnings per share...................................... $ 0.13 $ 0.31
=========== ===========
</TABLE>
The pro forma results are presented for informational purposes only and are
not necessarily indicative of results that would have occurred had the RNG
acquisition been consummated at the beginning of 1995.
On August 6, 1996 the Company purchased an interest in 188 oil and gas wells
in West Virginia. The Company utilized its revolving credit line to finance
the purchase. The purchase increased the Company's oil and gas reserves by 4.3
Bcf of natural gas and 27,000 barrels of oil, added 12,000 acres of leases to
its leasehold inventory and increased the Company's gathering systems by
forty-nine miles. The purchase price was $3.3 million.
(13) DERIVATIVES AND HEDGING ACTIVITIES
The Company utilizes commodity based derivative instruments as hedges to
manage a portion of its exposure to price volatility stemming from its
integrated natural gas production and marketing activities. These instruments
consist of natural gas futures contracts traded on the New York Mercantile
Exchange. The futures contracts hedge committed and anticipated natural gas
purchases and sales, generally forecasted to occur within a 12 month period.
The Company does not hold or issue derivatives for trading or speculative
purposes.
As of December 31, 1996, the Company had futures contracts for the sale of
$3,869,900 of natural gas maturing in 1997. While these contracts have nominal
carrying value, their fair value, represented by the estimated amount that
would be received upon termination of the contracts, based on market quotes,
was a net value of $217,770 at December 31, 1996.
F-14
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
The Company is required to maintain margin deposits with brokers for
outstanding futures contracts. As of December 31, 1996, cash in the amount of
$1,734,900 was on deposit.
(14) COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND
DEVELOPMENT ACTIVITIES
Costs incurred by the Company in oil and gas property acquisition,
exploration and development are presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Property acquisition cost:
Proved undeveloped properties............... $ 426,200 $ 167,800 $ 543,600
Producing properties........................ 1,332,100 218,500 3,211,800
Development costs........................... 2,260,800 2,977,700 5,344,900
---------- ---------- ----------
$4,019,100 $3,364,000 $9,100,300
========== ========== ==========
</TABLE>
Property acquisition costs include costs incurred to purchase, lease or
otherwise acquire a property. Exploration costs include the cost of geological
and geophysical activity, dry holes and drilling and equipping exploratory
wells. Development costs include costs incurred to gain access to and prepare
development well locations for drilling, to drill and equip development wells
and to provide facilities to extract, treat, gather and store oil and gas.
(15) OIL AND GAS CAPITALIZED COSTS
Aggregate capitalized costs for the Company related to oil and gas
exploration and production activities with applicable accumulated
depreciation, depletion and amortization are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Proved properties:
Intangible drilling costs............................ $16,582,000 $19,572,400
Tangible well equipment.............................. 16,831,800 21,999,600
Well equipment leased to others...................... 4,063,600 4,063,600
Undeveloped properties............................... 514,600 890,100
----------- -----------
37,992,000 46,525,700
Less accumulated depreciation, depletion and
amortization...................................... 14,529,900 15,837,800
----------- -----------
$23,462,100 $30,687,800
=========== ===========
</TABLE>
F-15
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(16) RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
The results of operations for oil and gas producing activities (excluding
marketing) are presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Oil and gas sales........................... $2,610,100 $2,534,000 $4,674,900
Expenses:
Production costs............................ 734,700 596,000 963,600
Depreciation, depletion and amortization.... 922,300 1,000,700 1,248,200
---------- ---------- ----------
1,657,000 1,596,700 2,211,800
---------- ---------- ----------
Results of operations for oil and gas
producing activities before provision for
income taxes............................... 953,100 937,300 2,463,100
Provision for income taxes.................... 146,600 137,800 519,600
---------- ---------- ----------
Results of operations for oil and gas
producing activities
(excluding corporate over-head and interest
costs)..................................... $ 806,500 $ 799,500 $1,943,500
========== ========== ==========
</TABLE>
Production costs include those costs incurred to operate and maintain
productive wells and related equipment, including such costs as labor,
repairs, maintenance, materials, supplies, fuel consumed, insurance and other
production taxes. In addition, production costs include administrative
expenses and depreciation applicable to support equipment associated with
these activities.
Depreciation, depletion and amortization expense includes those costs
associated with capitalized acquisition, exploration and development costs,
but does not include the depreciation applicable to support equipment.
The provision for income taxes is computed at the statutory federal income
tax rate and is reduced to the extent of permanent differences, such as
investment tax and non-conventional source fuel tax credits and statutory
depletion allowed for income tax purposes.
F-16
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(17) NET PROVED OIL AND GAS RESERVES (UNAUDITED)
The proved reserves of oil and gas of the Company as estimated by the
Company's petroleum engineers at December 31, 1994 and 1995 and by an
independent petroleum engineer, Wright & Company, Inc., at December 31, 1996.
These reserves have been prepared in compliance with the Securities and
Exchange Commission rules based on year end prices. Since December 31, 1996
prices have declined to seasonal levels. An analysis of the change in
estimated quantities of oil and gas reserves, all of which are located within
the United States, is shown below:
<TABLE>
<CAPTION>
OIL (BBLS)
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Proved developed and undeveloped reserves:
Beginning of year........................ 91,000 79,000 140,000
Revisions of previous estimates.......... (1,000) 72,000 (30,000)
---------- ---------- ----------
Beginning of year as revised............. 90,000 151,000 110,000
Dispositions............................. -- -- (49,000)
Acquisitions............................. -- -- 27,000
Production............................... (11,000) (11,000) (7,000)
---------- ---------- ----------
End of year.............................. 79,000 140,000 81,000
========== ========== ==========
Proved developed reserves:
Beginning of year........................ 91,000 79,000 140,000
========== ========== ==========
End of year.............................. 79,000 140,000 81,000
========== ========== ==========
<CAPTION>
GAS (MCF)
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Proved developed and undeveloped reserves:
Beginning of year........................ 24,660,000 32,225,000 33,829,000
Revisions of previous estimates.......... 4,472,000 686,000 (1,037,000)
---------- ---------- ----------
Beginning of year as revised............. 29,132,000 32,911,000 32,792,000
New discoveries and extensions........... 2,345,000 2,119,000 2,613,000
Disposition.............................. -- -- (127,000)
Acquisitions............................. 1,943,000 135,000 9,529,000
Production............................... (1,195,000) (1,336,000) (1,495,000)
---------- ---------- ----------
End of year.............................. 32,225,000 33,829,000 43,312,000
========== ========== ==========
Proved developed reserves:
Beginning of year........................ 20,181,000 27,746,000 29,326,000
========== ========== ==========
End of year.............................. 27,746,000 29,326,000 35,516,000
========== ========== ==========
</TABLE>
(18) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES
THEREIN RELATING TO PROVED OIL AND GAS RESERVES (UNAUDITED)
Summarized in the following table is information for the Company with
respect to the standardized measure of discounted future net cash flows
relating to proved oil and gas reserves. Future cash inflows are derived by
applying current oil and gas prices to estimated future production. Future
production, development, site restoration and abandonment costs are derived
based on current costs assuming continuation of existing economic conditions.
Future income tax expenses are computed by applying the statutory rate in
effect at the
F-17
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
end of each year to the future pretax net cash flows, less the tax basis of
the properties and gives effect to permanent differences, tax credits and
allowances related to the properties.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Future estimated cash flows.......... $ 73,316,000 $ 99,478,000 $193,800,000
Future estimated production and
development costs................... (24,370,000) (29,288,000) (59,806,000)
Future estimated income tax expense.. (13,950,000) (20,004,000) (33,499,000)
------------ ------------ ------------
Future net cash flows.............. 34,996,000 50,186,000 100,495,000
10% annual discount for estimated
timing of cash flows................ (20,551,000) (29,126,000) (66,233,000)
------------ ------------ ------------
Standardized measure of discounted
future estimated
net cash flows.................... $ 14,445,000 $ 21,060,000 $ 34,262,000
============ ============ ============
</TABLE>
The following table summarizes the principal sources of change in the
standardized measure of discounted future estimated net cash flows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Sales of oil and gas production, net of
production costs...................... $(1,875,000) $(1,938,000) $ (3,711,000)
Net changes in prices and production
costs................................. (9,560,000) 17,024,000 42,384,000
Extensions, discoveries and improved
recovery, less related cost........... 3,875,000 4,609,000 9,659,000
Acquisitions........................... 2,745,000 294,000 17,775,000
Development costs incurred during the
period................................ 2,261,000 2,978,000 5,345,000
Revisions of previous quantity
estimates............................. 8,222,000 1,700,000 (2,902,000)
Changes in estimated income taxes...... (882,000) (6,054,000) (13,495,000)
Accretion of discount.................. (1,785,000) (8,575,000) (37,107,000)
Other.................................. (2,574,000) (3,423,000) (4,746,000)
----------- ----------- ------------
$ 427,000 $ 6,615,000 $ 13,202,000
=========== =========== ============
</TABLE>
It is necessary to emphasize that the data presented should not be viewed as
representing the expected cash flow from, or current value of, existing proved
reserves since the computations are based on a large number of estimates and
arbitrary assumptions. Reserve quantities cannot be measured with precision
and their estimation requires many judgmental determinations and frequent
revisions. The required projection of production and related expenditures over
time requires further estimates with respect to pipeline availability, rates
of demand and governmental control. Actual future prices and costs are likely
to be substantially different from the current prices and costs utilized in
the computation of reported amounts. Any analysis or evaluation of the
reported amounts should give specific recognition to the computational methods
utilized and the limitations inherent therein.
F-18
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(19) BUSINESS SEGMENTS
Information on the Company's operations by business segment are as follows for
the years ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ------------ -----------
<S> <C> <C> <C>
Revenues:
Drilling and production................. $21,250,800 $ 20,360,100 $27,940,200
Marketing and pipeline.................. 2,031,000 1,482,400 20,737,900
----------- ------------ -----------
$23,281,800 $ 21,842,500 $48,678,100
=========== ============ ===========
Operating profit:
Drilling and production................. $ 3,302,800 $ 3,714,300 $ 6,207,000
Marketing and pipeline.................. (224,900) (105,600) 191,400
----------- ------------ -----------
3,077,900 3,608,700 6,398,400
----------- ------------ -----------
General and administrative expense...... (2,203,800) (1,960,600) (2,304,000)
Interest expense........................ (300,200) (319,700) (380,000)
Interest income and other............... 524,400 504,000 935,600
----------- ------------ -----------
Income before income taxes................ $ 1,098,300 $ 1,832,400 $ 4,650,000
=========== ============ ===========
Depreciation, depletion and amortization:
Drilling and production................. $ 1,696,800 $ 2,008,000 $ 2,153,900
Marketing and pipeline.................. 151,400 144,100 155,700
----------- ------------ -----------
$ 1,848,200 $ 2,152,100 $ 2,309,600
=========== ============ ===========
Identifiable assets:
Drilling and production................. $36,381,000 $ 39,016,000 $54,847,000
Marketing and pipeline.................. 1,383,600 1,067,700 8,005,100
Corporate............................... 560,700 536,400 752,100
----------- ------------ -----------
$38,325,300 $ 40,620,100 $63,604,200
=========== ============ ===========
Capital expenditures:
Drilling and production................. $ 5,478,000 $ 3,817,700 $10,059,900
Marketing and pipeline.................. 112,200 86,900 124,200
Corporate............................... 16,300 5,800 231,400
----------- ------------ -----------
$ 5,606,500 $ 3,910,400 $10,415,500
=========== ============ ===========
</TABLE>
F-19
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(20) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the years ended December 31, 1995 and
1996, are as follows:
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------
QUARTER YEAR
----------------------------------------------- -----------
FIRST SECOND THIRD FOURTH
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 9,537,000 $ 4,432,800 $ 3,582,500 $ 4,794,200 $22,346,500
Cost of operations...... 8,034,500 3,621,700 2,764,500 3,813,100 18,233,800
----------- ----------- ----------- ----------- -----------
Gross profit.......... 1,502,500 811,100 818,000 981,100 4,112,700
General and
administrative
expenses............... 450,300 520,900 600,700 388,700 1,960,600
Interest expense........ 83,400 76,300 71,000 89,000 319,700
----------- ----------- ----------- ----------- -----------
533,700 597,200 671,700 477,700 2,280,300
----------- ----------- ----------- ----------- -----------
Income before income
taxes.................. 968,800 213,900 146,300 503,400 1,832,400
Income taxes............ 240,300 53,000 36,300 21,300 350,900
----------- ----------- ----------- ----------- -----------
Net income............ $ 728,500 $ 160,900 $ 110,000 $ 482,100 $ 1,481,500
=========== =========== =========== =========== ===========
Primary earnings per
share................ $ 0.06 $ 0.02 $ 0.01 $ 0.04 $ 0.13
=========== =========== =========== =========== ===========
<CAPTION>
1996
-----------------------------------------------------------
QUARTER YEAR
----------------------------------------------- -----------
FIRST SECOND(1) THIRD(1) FOURTH(1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................ $11,441,300 $10,333,700 $11,317,000 $16,521,700 $49,613,700
Cost of operations...... 9,203,000 8,858,900 9,996,500 14,221,300 42,279,700
----------- ----------- ----------- ----------- -----------
Gross profit.......... 2,238,300 1,474,800 1,320,500 2,300,400 7,334,000
General and
administrative
expenses............... 541,800 570,100 651,000 541,100 2,304,000
Interest expense........ 72,100 67,300 106,400 134,200 380,000
----------- ----------- ----------- ----------- -----------
613,900 637,400 757,400 675,300 2,684,000
----------- ----------- ----------- ----------- -----------
Income before income
taxes.................. 1,624,400 837,400 563,100 1,625,100 4,650,000
Income taxes............ 344,400 177,500 152,600 426,100 1,100,600
----------- ----------- ----------- ----------- -----------
Net income............ $ 1,280,000 $ 659,900 $ 410,500 $ 1,199,000 $ 3,549,400
=========== =========== =========== =========== ===========
Primary earnings per
share................ $ 0.11 $ 0.06 $ 0.04 $ 0.10 $ 0.31
=========== =========== =========== =========== ===========
</TABLE>
Cost of operations include cost of oil and gas well drilling operations, oil
and gas purchases and production costs and depreciation, depletion and
amortization.
(1) These quarters include the operations of Riley Natural Gas Company acquired
on April 1, 1996, see footnote 12.
F-20
<PAGE>
Appendix A
Letterhead of Wright & Company, Inc.
September 19, 1997
Petroleum Development Corporation
103 East Main Street
P. O. Box 26
Bridgeport, WV 26330
ATTENTION: Mr. Steven R. Williams
SUBJECT: SUMMARY REPORT
Evaluation of Oil and Gas Reserves to the
Interests of Petroleum Development Corporation
Effective July 1, 1997
Pursuant to the Requirements of the
Securities and Exchange Commission
Job 7.411
Wright and Company, Inc. (Wright) has performed an evaluation to estimate
proved reserves and cash flow from certain oil and gas properties to the subject
interest. This evaluation was authorized by Mr. Steven R. Williams of Petroleum
Development Corporation (PDC). Projections of the reserves and cash flow to the
evaluated interests were based on economic parameters and operating conditions
considered applicable as of July 1, 1997, and are pursuant to the financial
reporting requirements of the Securities and Exchange Commission. The results
of the evaluation are presented in detail in the attached summary tables. The
following is a summary of results effective July 1, 1997:
<TABLE>
<CAPTION>
Proved
Proved Proved Developed
Developed Developed Nonproducing Proved Total
Producing Nonproducing Behind Pipe Undeveloped Proved
(PDP) (PDNP) (PDNP-BP) (PUD)
<S> <C> <C> <C> <C> <C>
Net Reserves to the
Evaluated Interests
Oil, MBBL: 41.174 0.000 0.000 0.000 41.174
Gas, MMCF: 21,107.380 5,044.289 12,088.450 9,092.687 47,332.800
Cash Flow (BTAX), M$
Undiscounted:
Discounted at 10% 30,891.650 5,132.763 18,370.590 8,994.116 63,389.120
Per Annum: 15,320.300 2,484.540 2,988.330 2,516.036 23,309.200
</TABLE>
5200 Maryland Way . Suite 100 2959 Briarpark Drive . Suite 138
Brentwood, Tennessee 37027 Houston, Texas 77042
(615)370-0755 Fax:(615)370-0756 (713)977-7655 Fax:(713)789-3591
A-1
<PAGE>
Mr. Steven R. Williams
Petroleum Development Corporation
September 19, 1997
Page 2
All data utilized in the preparation of this report with respect to
ownership, well information, and economic parameters, as applicable, were
provided by PDC. All data have been reviewed for reasonableness and, unless
obvious errors were detected, have been accepted as correct by Wright and
Company without further independent verification.
Oil and gas reserves were evaluated for the proved developed producing
(PDP), proved developed non producing (PDNP), proved developed nonproducing
behind pipe (PDNP-BP), and proved undeveloped (PUD) reserves categories. The
attached Definitions of Oil and Gas Reserves describe all categories of proved
reserves.
The individual projections of lease reserves and economics utilized to
generate these summaries contain certain data that describe the production
forecasts and all associated evaluation parameters, such as interests, severance
and ad valorem taxes, product prices, operating expenses, investments, salvage
values, and abandonments costs, as applicable.
It should be noted that revisions to the projections of reserves and
economics included in this SUMMARY REPORT may be required if the provided data
are revised for any reason.
Wright is an independent consulting firm and does not own any interests in
the properties covered by this report. No employee, officer, or director of
Wright is an employee, office, or director of PDC. Neither the employment of,
nor the compensation received by Wright, is contingent upon the values assigned
to the properties covered by this report.
It has been a pleasure to serve you by preparing this evaluation. All
related data will be retained in our files and are available for your review.
Very truly yours,
/s/ Wright & Company, Inc.
Wright & Company, Inc.
DRW/JDD/jrw
Job 7.411/PDCLT2.doc
A-2
<PAGE>
DEFINITIONS OF OIL AND GAS RESERVES1
PURSUANT TO THE REQUIREMENTS OF THE
SECURITIES EXCHANGE ACT
I. PROVED OIL AND GAS RESERVES
Proved oil and gas reserves are the estimated quantities of
crude oil, natural gas, and natural gas liquids which
geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions,
i.e., prices and costs as of the date the estimate is made.
Prices include consideration of changes in existing prices
provided only by contractual arrangements, but not on
escalations based upon future conditions.
A. Reservoirs are considered proved if economic
producibility is supported by either actual production
or conclusive formation test. The area of a reservoir
considered proved includes:
1. that portion delineated by drilling and defined
by gas-oil and/or oil-water contacts, if any; and
2. the immediately adjoining portions not yet
drilled, but which can be reasonably judged as
economically productive on the basis of available
geological and engineering data. In the absence
of information on fluid contacts, the lowest
known structural occurrence of hydrocarbons
controls the lower proved limit of the reservoir.
B. Reserves which can be produced economically through
application of improved recovery techniques (such as fluid
injection) are included in the "proved" classification when
successful testing by a pilot project, or the operation of an
installed program in the reservoir, provides support for the
engineering analysis on which the project or program was
based.
C. Estimates of proved reserves do not include the following:
1. oil that may become available from known reservoirs but
is classified separately as "indicated additional
reserves";
2. crude oil, natural gas, and natural gas liquids, the
recovery of which is subject to reasonable doubt because
of uncertainty as to geology, reservoir characteristics,
or economic factors:
3. crude oil, natural gas, and natural gas liquids, that
may occur in undrilled prospects; nor those quantities
being held in underground or surface storage.
4. crude oil, natural gas, and natural gas liquids, that
may be recovered from oil shales, coal and other such
sources.
II. PROVED DEVELOPED OIL AND GAS RESERVES*
Proved developed oil and gas reserves are reserves that can be
expected to be recovered through existing wells with existing
equipment and operating methods. Additional oil and gas
expected to be obtained through the application of fluid
<PAGE>
injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary
recovery should be included as "proved developed reserves"
only after testing by a pilot project or after the operation
of an installed program has confirmed through production
response that increased recovery will be achieved.
III. PROVED UNDEVELOPED OIL AND GAS RESERVES
Proved undeveloped oil and gas reserves are reserves that are
expected to be recovered from new wells on undrilled acreage,
or from existing wells where a relatively major expenditure is
required for recompletion. Reserves on undrilled acreage shall
be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved
reserves for other undrilled units can be claimed only where
it can be demonstrated with certainty that there is continuity
of production from the existing productive formation. Under no
circumstances should estimates for proved undeveloped reserves
be attributable to any acreage for which an application of
fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved
effective by actual tests in the area and in the same
reservoir.
- ---------------
1SEC Accounting Rules, Commerce Clearing House, Inc. October 1981,
Paragraph 290, Regulation 210.4-10, p.329.
2Wright & Company, Inc. may separate proved developed reserves into
proved developed producing and proved
developed nonproducing reserves. This is to identify proved developed
producing reserves as those to be recovered from actively producing wells.
Proved developed nonproducing reserves are those to be recovered from
wells or intervals within wells, which are completed but shut-in waiting
on equipment or pipeline connections, or wells where a relatively minor
expenditure is required for recompletion to another zone.
Wright & Company, Inc.
Petroleum Consultants
A-3
<PAGE>
<TABLE>
<CAPTION>
TOTAL PROVED DATE : 09/18/97
PDP, PDNP, PDNP-BP, & PU TIME : 15:04:57
TO THE INTERESTS OF DBS FILE : PDC997
PETROLEUM DEVELOPMENT CORP. SETUP FILE : PDC997
SEQ NUMBER : ******
R E S E R V E S A N D E C O N O M I C S
- - - - - - - - - - - - - - - - - - - -
JOB 7.411 PURSUANT TO SEC
AS OF 7/97
---PRICES--- --------- OPERATIONS M$ -------- 10.0%
-END- --GROSS PRODUCTION-- ---NET PRODUCTION--- OIL GAS NET OPER SEV + ADV NET OPER CAPITAL CASH FLOW CUM. DISC
MO-YR OIL, MBBL GAS, MMCF OIL, MBBL GAS, MMCF $/B $/M REVENUES TAXES EXPENSES COSTS M$ BTAX, M$ BTAX, M$
----- --------- --------- --------- --------- ----- ----- ---------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12-97 8.305 4109.860 2.852 1012.067 16.00 2.388 2462.399 178.538 456.119 3533.945 (1706.199) (1665.231)
12-98 15.294 8776.428 5.219 2462.081 16.00 2.404 6003.422 440.206 1256.306 3029.642 1277.264 (508.487)
12-99 13.209 8982.012 4.410 2764.384 16.00 2.414 6744.882 503.322 1491.402 276.770 4473.386 3185.963
12-00 11.511 8424.032 3.672 2676.639 16.00 2.417 6527.270 489.592 1482.624 64.029 4491.027 6559.202
12-01 9.349 7817.690 2.760 2512.219 16.00 2.420 6123.513 460.759 1445.235 50.454 4167.063 9405.206
12-02 8.492 7197.508 2.465 2305.010 16.00 2.423 5623.679 423.477 1396.554 38.026 3765.622 11743.210
12-03 7.621 6650.317 2.194 2087.999 16.00 2.423 5094.206 383.465 1322.520 56.073 3332.147 13623.920
12-04 6.497 6219.932 1.843 1925.071 16.00 2.422 4691.305 353.175 1279.677 61.428 2997.027 15161.580
12-05 5.831 5871.442 1.660 1802.269 16.00 2.423 4392.900 330.784 1247.533 89.769 2724.816 16431.890
12-06 5.287 5508.369 1.497 1680.939 16.00 2.421 4094.262 308.219 1219.341 38.341 2528.361 17504.060
12-07 4.719 5177.555 1.338 1558.428 16.00 2.421 3794.502 285.604 1174.335 39.715 2294.845 18388.850
12-08 4.284 4923.301 1.223 1464.686 16.00 2.420 3564.794 268.247 1135.537 40.852 2120.155 19131.670
12-09 3.873 4692.421 1.107 1382.390 16.00 2.419 3361.492 252.993 1107.091 39.380 1962.029 19756.620
12-10 3.482 4508.674 .990 1309.865 16.00 2.418 3182.553 239.526 1083.466 66.511 1793.050 20275.780
12-11 3.167 4326.484 .883 1244.429 16.00 2.416 3020.812 227.356 1053.325 41.970 1698.159 20722.850
S TOT 110.920 93186.020 34.112 28188.480 16.00 2.417 68681.980 5145.264 18151.070 7466.904 37918.750 20722.850
AFTER 21.923 81373.010 7.062 19144.330 16.00 2.405 46154.130 3497.193 15849.250 1337.299 25470.370 23309.200
TOTAL 132.843 174559.000 41.174 47332.800 16.00 2.412 114836.100 8642.457 34000.320 8804.203 63389.120 23309.200
</TABLE>
<TABLE>
<CAPTION>
CUM. 636.889 64878.080 NET OIL REVENUES (M$) 658.787 --------- PRESENT WORTH PROFILE ---------
NET GAS REVENUES (M$) 114177.300 DISC PW OF NET DISC PW OF NET
ULT. 769.732 239437.100 TOTAL REVENUES (M$) 114836.100 RATE BTAX, M$ RATE BTAX, M$
---- --------- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BTAX RATE OF RETURN (PCT) 100.00 PRODUCT LIFE (YEARS) 90.417 .0 63389.100 35.0 7417.075
BTAX PAYOUT YEARS 1.60 DISCOUNT RATE (PCT) 10.000 5.0 34684.510 40.0 6296.193
BTAX PAYOUT YEARS (DISC) 1.64 GROSS OIL WELLS 40.0 10.0 23309.200 50.0 4669.705
BTAX NET INCOME/INVEST 8.20 GROSS GAS WELLS 1657.0 15.0 17196.380 60.0 3556.656
BTAX NET INCOME/INVEST(DISC) 4.39 GROSS WELLS 1697.0 20.0 13370.610 70.0 2755.139
25.0 10752.880 80.0 2155.726
INITIAL W.I. % 28.2432 INITIAL NET OIL % 34.4241 30.0 8853.597 90.0 1694.113
FINAL W.I. % 19.8792 FINAL NET OIL % 72.8336 100.0 1330.211
PRODUCTION START DATE 1/94 INITIAL NET GAS % 25.3540
REPORT DATE 7/97 FINAL NET GAS % 19.7882
</TABLE>
JOHN D. DYER/PROJ. MANAGER
WRIGHT & COMPANY, INC.
BRENTWOOD, TN/HOUSTON, TX
A-4
<PAGE>
<TABLE>
<CAPTION>
TOTAL PROVED DEV. PRODUCING DATE : 09/18/97
PDP TIME : 15:02:37
TO THE INTERESTS OF
DBS FILE : PDC997
PETROLEUM DEVELOPMENT CORP. SETUP FILE : PDC997
SEQ NUMBER : ******
R E S E R V E S A N D E C O N O M I C S
- - - - - - - - - - - - - - - - - - - -
JOB 7.411 PURSUANT TO SEC
AS OF 7/97
---PRICES--- --------- OPERATIONS M$ -------- 10.0%
-END- --GROSS PRODUCTION-- ---NET PRODUCTION--- OIL GAS NET OPER SEV + ADV NET OPER CAPITAL CASH FLOW CUM. DISC
MO-YR OIL, MBBL GAS, MMCF OIL, MBBL GAS, MMCF $/B $/M REVENUES TAXES EXPENSES COSTS M$ BTAX, M$ BTAX, M$
----- --------- --------- --------- --------- ----- ----- ---------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12-97 8.305 3752.487 2.852 865.840 16.00 2.380 2106.434 154.982 397.720 .000 1553.736 1517.153
12-98 15.294 6632.159 5.219 1557.207 16.00 2.383 3794.332 280.164 784.897 .000 2729.268 3998.308
12-99 13.209 5820.304 4.410 1384.330 16.00 2.387 3375.158 250.107 757.198 .000 2367.852 5955.232
12-00 11.511 5228.007 3.672 1251.899 16.00 2.390 3050.440 226.488 722.914 .000 2101.039 7533.782
12-01 9.349 4771.799 2.760 1148.870 16.00 2.390 2790.247 207.867 691.779 .000 1890.599 8825.089
12-02 8.492 4399.210 2.465 1062.612 16.00 2.391 2580.165 192.459 672.613 .000 1715.095 9890.045
12-03 7.621 4078.892 2.194 979.080 16.00 2.394 2378.929 177.493 634.761 .000 1566.675 10774.390
12-04 6.497 3811.395 1.843 916.755 16.00 2.395 2224.838 166.160 618.967 .000 1439.712 11513.200
12-05 5.831 3572.855 1.660 860.306 16.00 2.395 2087.265 155.923 604.086 .000 1327.257 12132.380
12-06 5.287 3368.366 1.497 810.541 16.00 2.396 1965.975 146.887 592.751 .000 1226.338 12652.460
12-07 4.719 3163.858 1.338 755.783 16.00 2.398 1833.577 137.073 562.370 .000 1134.131 13089.720
12-08 4.284 2976.448 1.223 706.200 16.00 2.399 1713.661 128.040 535.644 .000 1049.975 13457.740
12-09 3.873 2801.487 1.107 663.337 16.00 2.399 1608.942 120.251 517.466 .000 971.226 13767.200
12-10 3.482 2638.361 .990 623.530 16.00 2.399 1511.530 112.927 501.464 .000 897.140 14027.070
12-11 3.167 2476.193 .883 582.389 16.00 2.397 1410.192 105.259 477.353 .000 827.579 14245.000
S TOT 110.920 59491.820 34.112 14168.680 16.00 2.392 34431.680 2562.081 9071.981 .000 22797.620 14245.000
AFTER 21.923 31007.350 7.062 6938.697 16.00 2.395 16730.270 1249.658 7386.570 .000 8094.030 15320.300
TOTAL 132.843 90499.170 41.174 21107.380 16.00 2.393 51161.950 3811.739 16458.550 .000 30891.650 15320.300
</TABLE>
<TABLE>
<CAPTION>
CUM. 636.889 64623.180 NET OIL REVENUES (M$) 658.787 --------- PRESENT WORTH PROFILE ---------
NET GAS REVENUES (M$) 50503.150 DISC PW OF NET DISC PW OF NET
ULT. 769.732 155122.300 TOTAL REVENUES (M$) 51161.940 RATE BTAX, M$ RATE BTAX, M$
---- --------- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BTAX RATE OF RETURN (PCT) 100.00 PRODUCT LIFE (YEARS) 78.667 .0 30891.640 35.0 7384.313
BTAX PAYOUT YEARS .00 DISCOUNT RATE (PCT) 10.000 5.0 20378.510 40.0 6772.003
BTAX PAYOUT YEARS (DISC) .00 GROSS OIL WELLS 40.0 10.0 15320.290 50.0 5854.521
BTAX NET INCOME/INVEST .00 GROSS GAS WELLS 1155.0 15.0 12389.740 60.0 5197.513
BTAX NET INCOME/INVEST(DISC) .00 GROSS WELLS 1195.0 20.0 10484.310 70.0 4702.085
25.0 9145.684 80.0 4314.046
INITIAL W.I. % 28.3641 INITIAL NET OIL % 34.4241 30.0 8152.201 90.0 4001.140
FINAL W.I. % 22.5992 FINAL NET OIL % 72.8336 100.0 3742.980
PRODUCTION START DATE 1/94 INITIAL NET GAS % 24.5823
REPORT DATE 7/97 FINAL NET GAS % 19.8257
</TABLE>
JOHN D. DYER/PROJ. MANAGER
WRIGHT & COMPANY, INC.
BRENTWOOD, TN/HOUSTON, TX
A-5
<PAGE>
<TABLE>
<CAPTION>
PROVED DEV. NONPRODUCING DATE : 09/18/97
PDNP TIME : 15:02:45
TO THE INTERESTS OF DBS FILE : PDC997
PETROLEUM DEVELOPMENT CORP. SETUP FILE : PDC997
SEQ NUMBER : ******
R E S E R V E S A N D E C O N O M I C S
- - - - - - - - - - - - - - - - - - - -
JOB 7.411 PURSUANT TO SEC
AS OF 7/97
---PRICES--- --------- OPERATIONS M$ -------- 10.0%
-END- --GROSS PRODUCTION-- ---NET PRODUCTION--- OIL GAS NET OPER SEV + ADV NET OPER CAPITAL CASH FLOW CUM. DISC
MO-YR OIL, MBBL GAS, MMCF OIL, MBBL GAS, MMCF $/B $/M REVENUES TAXES EXPENSES COSTS M$ BTAX, M$ BTAX, M$
----- --------- --------- --------- --------- ----- ----- ---------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12-97 .000 268.590 .000 70.170 .00 2.429 170.450 12.426 52.339 1371.349 (1265.664) (1235.070)
12-98 .000 1253.116 .000 393.871 .00 2.451 965.334 73.878 284.224 .000 607.231 (683.041)
12-99 .000 1442.077 .000 464.974 .00 2.454 1140.862 87.822 310.211 .000 742.828 (69.134)
12-00 .000 1406.666 .000 456.881 .00 2.454 1121.344 86.458 308.736 .000 726.150 476.434
12-01 .000 1333.511 .000 434.550 .00 2.455 1066.687 82.304 302.083 .000 682.299 942.453
12-02 .000 1160.508 .000 377.263 .00 2.454 925.971 71.410 283.413 .000 571.148 1297.091
12-03 .000 1018.256 .000 330.101 .00 2.454 810.115 62.437 268.017 .000 479.661 1567.847
12-04 .000 904.235 .000 292.313 .00 2.454 717.290 55.248 255.687 .000 406.355 1776.371
12-05 .000 811.079 .000 261.458 .00 2.454 641.499 49.379 245.626 .000 346.494 1938.013
12-06 .000 733.735 .000 235.860 .00 2.453 578.623 44.512 237.285 .000 296.826 2063.896
12-07 .000 668.589 .000 214.326 .00 2.453 525.731 40.418 230.277 .000 255.036 2162.224
12-08 .000 612.901 .000 195.968 .00 2.453 480.646 36.930 224.320 .000 219.396 2239.121
12-09 .000 564.691 .000 180.139 .00 2.452 441.778 33.926 219.203 .000 188.648 2299.230
12-10 .000 522.576 .000 166.366 .00 2.452 407.964 31.315 214.770 .000 161.879 2346.121
12-11 .000 485.492 .000 154.286 .00 2.452 378.313 29.028 210.897 .000 138.388 2382.563
S TOT .000 13186.020 .000 4228.525 .00 2.453 10372.610 797.492 3647.089 1371.349 4556.676 2382.563
AFTER .000 2875.430 .000 815.765 .00 2.439 1989.993 148.572 1265.335 .000 576.087 2484.540
TOTAL .000 16061.450 .000 5044.289 .00 2.451 12362.600 946.064 4912.424 1371.349 5132.763 2484.540
</TABLE>
<TABLE>
<CAPTION>
CUM. .000 254.902 NET OIL REVENUES (M$) .000 --------- PRESENT WORTH PROFILE ---------
NET GAS REVENUES (M$) 12362.600 DISC PW OF NET DISC PW OF NET
ULT. .000 16316.350 TOTAL REVENUES (M$) 12362.600 RATE BTAX, M$ RATE BTAX, M$
---- --------- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BTAX RATE OF RETURN (PCT) 56.75 PRODUCT LIFE (YEARS) 49.250 .0 5132.764 35.0 527.995
BTAX PAYOUT YEARS 2.39 DISCOUNT RATE (PCT) 10.000 5.0 3489.428 40.0 362.553
BTAX PAYOUT YEARS (DISC) 2.63 GROSS OIL WELLS .0 10.0 2484.540 50.0 116.339
BTAX NET INCOME/INVEST 4.74 GROSS GAS WELLS 49.0 15.0 1816.582 60.0 (56.070)
BTAX NET INCOME/INVEST(DISC) 2.86 GROSS WELLS 49.0 20.0 1345.744 70.0 (181.936)
25.0 998.986 80.0 (276.786)
INITIAL W.I. % 33.2506 INITIAL NET OIL % .0000 30.0 734.790 90.0 (350.065)
FINAL W.I. % 18.1265 FINAL NET OIL % .0000 100.0 (407.821)
PRODUCTION START DATE 1/94 INITIAL NET GAS % 26.9140
REPORT DATE 7/97 FINAL NET GAS % 15.7343
</TABLE>
JOHN D. DYER/PROJ. MANAGER
WRIGHT & COMPANY, INC.
BRENTWOOD, TN/HOUSTON, TX
A-6
<PAGE>
<TABLE>
<CAPTION>
TOTAL PROVED UNDEVELOPED DATE : 09/18/97
PU TIME : 15:04:56
TO THE INTERESTS OF DBS FILE : PDC997
PETROLEUM DEVELOPMENT CORP. SETUP FILE : PDC997
SEQ NUMBER : ******
R E S E R V E S A N D E C O N O M I C S
- - - - - - - - - - - - - - - - - - - -
JOB 7.411 PURSUANT TO SEC
AS OF 7/97
---PRICES--- --------- OPERATIONS M$ -------- 10.0%
-END- --GROSS PRODUCTION-- ---NET PRODUCTION--- OIL GAS NET OPER SEV + ADV NET OPER CAPITAL CASH FLOW CUM. DISC
MO-YR OIL, MBBL GAS, MMCF OIL, MBBL GAS, MMCF $/B $/M REVENUES TAXES EXPENSES COSTS M$ BTAX, M$ BTAX, M$
----- --------- --------- --------- --------- ----- ----- ---------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12-97 .000 88.783 .000 76.058 .00 2.439 185.515 11.131 6.060 2162.596 (1994.272) (1947.315)
12-98 .000 541.932 .000 426.991 .00 2.448 1045.194 70.577 174.404 2854.125 (2053.912) (3814.506)
12-99 .000 1001.276 .000 743.221 .00 2.454 1824.199 133.627 388.877 .000 1301.694 (2738.726)
12-00 .000 1023.069 .000 753.415 .00 2.455 1849.907 136.958 402.498 .000 1310.451 (1754.165)
12-01 .000 991.155 .000 727.307 .00 2.456 1786.100 132.870 400.521 .000 1252.710 (898.547)
12-02 .000 909.155 .000 666.690 .00 2.456 1637.293 121.909 385.041 .000 1130.343 (196.694)
12-03 .000 793.213 .000 582.636 .00 2.456 1430.756 106.294 360.499 .000 963.964 347.439
12-04 .000 701.655 .000 516.243 .00 2.455 1267.618 93.964 341.144 .000 832.510 774.648
12-05 .000 627.737 .000 462.621 .00 2.455 1135.862 84.011 325.553 .000 726.297 1113.471
12-06 .000 566.959 .000 418.508 .00 2.455 1027.475 75.829 312.768 .000 638.878 1384.417
12-07 .000 516.210 .000 381.654 .00 2.455 936.925 68.999 302.126 .000 565.800 1602.558
12-08 .000 473.175 .000 350.371 .00 2.455 860.066 63.209 293.152 .000 503.705 1779.104
12-09 .000 435.982 .000 323.270 .00 2.455 793.491 58.209 285.500 .000 449.782 1922.418
12-10 .000 403.493 .000 299.538 .00 2.454 735.198 53.846 278.909 .000 402.442 2038.991
12-11 .000 374.871 .000 278.581 .00 2.454 683.725 50.006 273.184 .000 360.535 2133.931
S TOT .000 9448.665 .000 7007.104 .00 2.455 17199.320 1261.439 4530.237 5016.721 6390.928 2133.931
AFTER .000 2684.369 .000 2085.583 .00 2.449 5108.315 351.671 2153.455 .000 2603.188 2516.036
TOTAL .000 12133.030 .000 9092.687 .00 2.453 22307.640 1613.110 6683.692 5016.721 8994.116 2516.036
</TABLE>
<TABLE>
<CAPTION>
CUM. .000 .000 NET OIL REVENUES (M$) .000 --------- PRESENT WORTH PROFILE ---------
NET GAS REVENUES (M$) 22307.630 DISC PW OF NET DISC PW OF NET
ULT. .000 12133.030 TOTAL REVENUES (M$) 22307.630 RATE BTAX, M$ RATE BTAX, M$
---- --------- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BTAX RATE OF RETURN (PCT) 22.54 PRODUCT LIFE (YEARS) 40.750 .0 8994.114 35.0 (1042.729)
BTAX PAYOUT YEARS 4.66 DISCOUNT RATE (PCT) 10.000 5.0 4747.427 40.0 (1281.470)
BTAX PAYOUT YEARS (DISC) 5.86 GROSS OIL WELLS .0 10.0 2516.035 50.0 (1605.667)
BTAX NET INCOME/INVEST 2.79 GROSS GAS WELLS 30.0 15.0 1177.610 60.0 (1803.216)
BTAX NET INCOME/INVEST(DISC) 1.53 GROSS WELLS 30.0 20.0 305.383 70.0 (1926.026)
25.0 (295.380) 80.0 (2002.292)
INITIAL W.I. % 93.7571 INITIAL NET OIL % .0000 30.0 (725.641) 90.0 (2048.414)
FINAL W.I. % 100.0000 FINAL NET OIL % .0000 100.0 (2074.436)
PRODUCTION START DATE 1/94 INITIAL NET GAS % 77.6262
REPORT DATE 7/97 FINAL NET GAS % 85.6624
</TABLE>
JOHN D. DYER/PROJ. MANAGER
WRIGHT & COMPANY, INC.
BRENTWOOD, TN/HOUSTON, TX
A-7
<PAGE>
<TABLE>
<CAPTION>
PROVED DEV. NONPRODUCING DATE : 09/18/97
BEHIND PIPE (PDNP-BP) TIME : 15:04:51
TO THE INTERESTS OF DBS FILE : PDC997
PETROLEUM DEVELOPMENT CORP. SETUP FILE : PDC997
SEQ NUMBER : ******
R E S E R V E S A N D E C O N O M I C S
- - - - - - - - - - - - - - - - - - - -
JOB 7.411 PURSUANT TO SEC
AS OF 7/97
---PRICES--- --------- OPERATIONS M$ -------- 10.0%
-END- --GROSS PRODUCTION-- ---NET PRODUCTION--- OIL GAS NET OPER SEV + ADV NET OPER CAPITAL CASH FLOW CUM. DISC
MO-YR OIL, MBBL GAS, MMCF OIL, MBBL GAS, MMCF $/B $/M REVENUES TAXES EXPENSES COSTS M$ BTAX, M$ BTAX, M$
----- --------- --------- --------- --------- ----- ----- ---------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12-97 .000 .000 .000 .000 .00 .000 .000 .000 .000 .000 .000 .000
12-98 .000 349.222 .000 84.013 .00 2.363 198.562 15.587 12.781 175.517 (5.323) (9.247)
12-99 .000 718.355 .000 171.859 .00 2.355 404.664 31.766 35.116 276.770 61.012 38.591
12-00 .000 766.290 .000 214.445 .00 2.358 505.579 39.688 48.476 64.029 353.386 303.151
12-01 .000 721.225 .000 201.492 .00 2.385 480.479 37.718 50.853 50.454 341.455 536.210
12-02 .000 728.636 .000 198.444 .00 2.420 480.250 37.700 55.487 38.026 349.037 752.765
12-03 .000 759.955 .000 196.182 .00 2.418 474.404 37.241 59.243 56.073 321.847 934.241
12-04 .000 802.647 .000 199.760 .00 2.411 481.558 37.802 63.878 61.428 318.450 1097.362
12-05 .000 859.771 .000 217.884 .00 2.425 528.275 41.470 72.269 89.769 324.768 1248.028
12-06 .000 839.308 .000 216.029 .00 2.417 522.188 40.992 76.536 38.341 366.319 1403.281
12-07 .000 828.898 .000 206.666 .00 2.411 498.269 39.114 79.562 39.715 339.878 1534.341
12-08 .000 860.778 .000 212.147 .00 2.406 510.420 40.068 82.421 40.852 347.079 1655.709
12-09 .000 890.261 .000 215.644 .00 2.399 517.281 40.607 84.922 39.380 352.373 1767.771
12-10 .000 944.244 .000 220.431 .00 2.395 527.860 41.437 88.323 66.511 331.588 1863.590
12-11 .000 989.928 .000 229.173 .00 2.394 548.582 43.064 91.891 41.970 371.657 1961.353
S TOT .000 11059.520 .000 2784.170 .00 2.399 6678.373 524.252 901.759 1078.834 4173.527 1961.353
AFTER .000 44805.870 .000 9304.281 .00 2.399 22325.550 1747.292 5043.889 1337.299 14197.070 2988.330
TOTAL .000 55865.390 .000 12088.450 .00 2.399 29003.920 2271.545 5945.648 2416.134 18370.590 2988.330
</TABLE>
<TABLE>
<CAPTION>
CUM. .000 .000 NET OIL REVENUES (M$) .000 --------- PRESENT WORTH PROFILE ---------
NET GAS REVENUES (M$) 29003.920 DISC PW OF NET DISC PW OF NET
ULT. .000 55865.390 TOTAL REVENUES (M$) 29003.920 RATE BTAX, M$ RATE BTAX, M$
---- --------- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BTAX RATE OF RETURN (PCT) 100.00 PRODUCT LIFE (YEARS) 90.417 .0 18370.580 35.0 547.496
BTAX PAYOUT YEARS 1.59 DISCOUNT RATE (PCT) 10.000 5.0 6069.142 40.0 443.107
BTAX PAYOUT YEARS (DISC) 1.69 GROSS OIL WELLS .0 10.0 2988.330 50.0 304.512
BTAX NET INCOME/INVEST 8.60 GROSS GAS WELLS 423.0 15.0 1812.450 60.0 218.429
BTAX NET INCOME/INVEST(DISC) 4.61 GROSS WELLS 423.0 20.0 1235.171 70.0 161.017
25.0 903.589 80.0 120.758
INITIAL W.I. % 20.9468 INITIAL NET OIL % .0000 30.0 692.247 90.0 91.452
FINAL W.I. % 18.9304 FINAL NET OIL % .0000 100.0 69.488
PRODUCTION START DATE 1/94 INITIAL NET GAS % 20.8839
REPORT DATE 7/97 FINAL NET GAS % 19.4672
</TABLE>
JOHN D. DYER/PROJ. MANAGER
WRIGHT & COMPANY, INC.
BRENTWOOD, TN/HOUSTON, TX
A-8
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT
RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY, OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 11
Price Range of Common Stock............................................... 11
Dividend Policy........................................................... 11
Capitalization............................................................ 12
Selected Consolidated Financial Data...................................... 13
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 14
Business.................................................................. 20
Management................................................................ 35
Certain Transactions...................................................... 41
Principal and Selling Stockholders........................................ 42
Description of Capital Stock.............................................. 43
Shares Eligible for Future Sale........................................... 45
Underwriting.............................................................. 46
Legal Matters............................................................. 47
Experts................................................................... 47
Available Information..................................................... 48
Incorporation of Certain Documents by Reference........................... 48
Glossary of Certain Industry Terms........................................ 49
Index to Consolidated Financial Statements................................ F-1
Summary Reserve Report.................................................... A-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,850,000 SHARES
[LOGO OF PETROLEUM DEVELOPMENT CORPORATION APPEARS HERE]
PETROLEUM DEVELOPMENT CORPORATION
COMMON STOCK
-------------------
PROSPECTUS
-------------------
PENNSYLVANIA MERCHANT GROUP LTD
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 11,699.34
NASD Filing Fee................................................... 4,360.78
Nasdaq Additional Listing Application Fee......................... 17,500.00
Blue Sky Qualification Fees and Expenses.......................... 12,000.00*
Registrar and Transfer Agent Fees................................. 10,000.00*
Legal Fees and Expenses........................................... 150,000.00*
Accountants' Fees and Expenses.................................... 60,000.00*
Printing and Engraving............................................ 100,000.00*
Miscellaneous..................................................... 34,439.88*
-----------
Total........................................................... $400,000.00*
===========
</TABLE>
- --------
* Estimated.
The Company will bear all of the foregoing expenses.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Form of Underwriting Agreement filed as Exhibit 1.1 hereto contains
certain provisions relating to indemnification.
The Nevada general corporation law authorizes the registrant to grant
indemnities to directors and officers in terms sufficiently broad to permit
such indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act.
The Company's By-Laws provide that the Company shall indemnify any director,
officer, employee, or other agent of the Company who is or was a party, or is
threatened to be made a party, to any proceeding (other than an action by or
in the right of the Company to procure a judgment in its favor) by reason of
the fact that such person is or was an agent of the Company against expenses,
judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with such proceeding, if that person acted in good
faith and in a manner that person reasonably believed to be in the best
interests of the Company, and in the case of a criminal proceeding, had no
reasonable cause to believe that the conduct was unlawful. In an action by or
in the right of the Company to procure a judgment in its favor, the Company
shall provide indemnification only against expenses actually and reasonably
incurred in connection with the defense or settlement of the action, and, in
addition to the requirements of acting in good faith and in the best interest
of the Company, the Company shall provide indemnification only if the person
acted with such care, including reasonable inquiry, as an ordinarily prudent
person in a like position would use under similar circumstances. However, the
Company will not provide indemnification: (i) in actions by or in the right of
the Company if the person is adjudged to be liable to the Company in the
performance of the person's duty to the Company, unless and only to the extent
that the court in the proceeding determines that the person is fairly and
reasonably entitled to indemnity for expenses; (ii) against amounts paid in
settling or otherwise disposing of an action, with or without court approval;
or (iii) against expenses incurred in defending an action which is settled or
otherwise disposed of without court approval.
The Company has entered into separate indemnification agreements with each
of its officers and directors whereby the Company has agreed to indemnify the
director or officer against all expenses, including attorneys' fees, and other
amounts reasonably incurred by the officer or director in connection with any
threatened, pending or completed civil, criminal, administrative or
investigative action or proceeding to which such person is party by reason of
the fact he is or was a director or officer, as the case may be, of the
Company, if the person acted in good faith and in a manner reasonably believed
to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, the person had no reasonable
cause to believe such conduct to be unlawful. The agreements provide for the
advancement of expenses and that the Company has the
II-1
<PAGE>
right to purchase and maintain insurance on behalf of the director or officer
against any liability or liabilities asserted against him, whether or not the
Company would have the power to indemnify the person against such liability
under any provision of the agreement. The Company has agreed to indemnify such
person against expenses actually and reasonably incurred in connection with
any action in which the person has been successful on the merits or otherwise.
Indemnification must also be provided by the Company (unless ordered otherwise
by a court) only as authorized in the specific case upon a determination that
the indemnification of the person is appropriate because he has met the
applicable standard of conduct described in the agreement made by (i) the
Board of Directors, by a majority vote of a quorum consisting of directors who
are not parties to such action or proceeding, (ii) by independent legal
counsel in a written opinion or (iii) the stockholders of the Company.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Company, as amended.
3.2 Amended and Restated By-Laws of the Company.
4.1 Form of Warrant (incorporated by reference to Exhibit 4 of the
Company's current report on Form 8-K filed on September 17, 1997).
5.1 Opinion of Duane, Morris & Heckscher LLP.
MANAGEMENT CONTRACTS
10.1 Employment Agreement dated as of July 1, 1988 between the Company
and James N. Ryan, and all amendments thereto.
10.2 Employment Agreement dated as of July 1, 1988 between the Company
and Steven R. Williams, and all amendments thereto.
10.3 Employment Agreement dated as of July 1, 1988 between the Company
and Dale G. Rettinger, and all amendments thereto.
10.4 Employment Agreement dated as of April 1, 1996 between the Company
and Thomas E. Riley.
10.5 The Company's Deferred Compensation Plan, dated December 29, 1994.
10.6 Stock Redemption Agreement dated October 15, 1991 between the
Company and James N. Ryan.
10.7 Stock Redemption Agreement dated October 15, 1991 between the
Company and Steven R. Williams.
10.8 Stock Redemption Agreement dated October 15, 1991 between the
Company and Dale G. Rettinger.
10.9 The Company's 1990 Employee Incentive Stock Option Plan.
10.10 The Company's 1997 Employee Incentive Stock Option Plan.
10.11 Form of Notice of Grant of Incentive Stock Options.
10.12 Profit Sharing Plan effective January 1, 1989, and all amendments
thereto.
10.13 Trust Agreement under the Company's Profit Sharing Plan, effective
January 1, 1992.
10.14 Savings and Protection Plan dated 1989, and all amendments
thereto.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
10.15 Form of Indemnification Agreement between the Company and the
directors and officers of the Company, and all amendments thereto.
DATE: PARTY:
January 1, 1987 James N. Ryan
January 1, 1987 Steven R. Williams
January 1, 1987 Dale G. Rettinger
January 1, 1987 Roger J. Morgan
March 8, 1991 Vincent F. D'Annunzio
March 8, 1991 Jeffrey Swoveland
April 4, 1996 Ersel E. Morgan
April 4, 1996 Thomas E. Riley
April 4, 1996 Eric R. Stearns
April 4, 1996 Darwin L. Stump
10.16 Form of Rabbi Trust Agreement between the Company and Frontier
Trust Company.
DATE: PARTY:
October 15, 1995 James N. Ryan
October 15, 1995 Steven R. Williams
October 15, 1995 Dale G. Rettinger
OTHER MATERIAL CONTRACTS
10.17 Amended and Restated Credit Agreement between the Company and
First National Bank of Chicago, dated March 31, 1997.
10.18 Agreement and Plan of Exchange between and the Company, RNG
Holding Company, Thomas E. Riley and Donna R. Riley, dated April
1, 1996.
10.19 Purchase and Sale Agreement between the Company and Angerman
Associates, Inc. dated July 16, 1996.
11.1 Computation of Per Share Earnings.
15.1 Letter re: unaudited interim financial information.
21.1 Subsidiaries of the Company.
23.1 Consent of Duane, Morris & Heckscher LLP (included in their
opinion filed as Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Wright & Company, Inc.
</TABLE>
ITEM 17. UNDERTAKINGS.
The Company undertakes that:
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(b) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-3
<PAGE>
(c) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Bridgeport, West Virginia on September 25, 1997.
PETROLEUM DEVELOPMENT CORPORATION
By: /s/ James N. Ryan
--------------------------------------
James N. Ryan,
Chairman and Chief Executive Officer
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Steven R. Williams and Dale G. Rettinger, and
each or either of them, as true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him, and in his name, place
and stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, as well as any
related registration statement (or amendment thereto) filed pursuant to Rule
462 promulgated under the Securities Act of 1933, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ James N. Ryan Chairman of the Board, Chief September 25,
- ------------------------- Executive Officer and Director 1997
James N. Ryan (principal executive officer)
/s/ Steven R. Williams President and Director September 25,
- ------------------------- 1997
Steven R. Williams
/s/ Dale G. Rettinger Executive Vice President, September 25,
- ------------------------- Treasurer and Director, Chief 1997
Dale G. Rettinger Financial Officer (principal
financial and accounting
officer)
/s/ Roger J. Morgan Secretary and Director September 25,
- ------------------------- 1997
Roger J. Morgan
/s/ Vincent F. D'Annunzio Director September 25,
- ------------------------- 1997
Vincent F. D'Annunzio
/s/ Jeffrey C. Swoveland Director September 25,
- ------------------------- 1997
Jeffrey C. Swoveland
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Company, as amended.
3.2 Amended and Restated By-Laws of the Company.
4.1 Form of Warrant (incorporated by reference to Exhibit 4 of the
Company's current report on Form 8-K filed on September 17, 1997).
5.1 Opinion of Duane, Morris & Heckscher LLP.
MANAGEMENT CONTRACTS
10.1 Employment Agreement dated as of July 1, 1988 between the Company
and James N. Ryan, and all amendments thereto.
10.2 Employment Agreement dated as of July 1, 1988 between the Company
and Steven R. Williams, and all amendments thereto.
10.3 Employment Agreement dated as of July 1, 1988 between the Company
and Dale G. Rettinger, and all amendments thereto.
10.4 Employment Agreement dated as of April 1, 1996 between the Company
and Thomas E. Riley.
10.5 The Company's Deferred Compensation Plan, dated December 29, 1994.
10.6 Stock Redemption Agreement dated October 15, 1991 between the
Company and James N. Ryan.
10.7 Stock Redemption Agreement dated October 15, 1991 between the
Company and Steven R. Williams.
10.8 Stock Redemption Agreement dated October 15, 1991 between the
Company and Dale G. Rettinger.
10.9 The Company's 1990 Employee Incentive Stock Option Plan.
10.10 The Company's 1997 Employee Incentive Stock Option Plan.
10.11 Form of Notice of Grant of Incentive Stock Options.
10.12 Profit Sharing Plan effective January 1, 1989, and all amendments
thereto.
10.13 Trust Agreement under the Company's Profit Sharing Plan, effective
January 1, 1992.
10.14 Savings and Protection Plan dated 1989, and all amendments
thereto.
10.15 Form of Indemnification Agreement between the Company and the
directors and officers of the Company, and all amendments thereto.
</TABLE>
DATE: PARTY:
January 1, 1987 James N. Ryan
January 1, 1987 Steven R. Williams
January 1, 1987 Dale G. Rettinger
January 1, 1987 Roger J. Morgan
March 8, 1991 Vincent F. D'Annunzio
March 8, 1991 Jeffrey Swoveland
April 4, 1996 Ersel E. Morgan
April 4, 1996 Thomas E. Riley
April 4, 1996 Eric R. Stearns
April 4, 1996 Darwin L. Stump
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
Form of Rabbi Trust Agreement between the Company and Frontier
10.16 Trust Company.
DATE: PARTY:
October 15, 1995 James N. Ryan
October 15, 1995 Steven R. Williams
October 15, 1995 Dale G. Rettinger
OTHER MATERIAL CONTRACTS
10.17 Amended and Restated Credit Agreement between the Company and
First National Bank of Chicago, dated March 31, 1997.
10.18 Agreement and Plan of Exchange between and the Company, RNG
Holding Company, Thomas E. Riley and Donna R. Riley, dated April
1, 1996.
10.19 Purchase and Sale Agreement between the Company and Angerman
Associates, Inc. dated July 16, 1996.
11.1 Computation of Per Share Earnings.
15.1 Letter re: unaudited interim financial information.
21.1 Subsidiaries of the Company.
23.1 Consent of Duane, Morris & Heckscher LLP (included in their
opinion filed as Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Wright & Company, Inc.
</TABLE>
<PAGE>
Exhibit 1.1
Draft of September 24, 1997
3,850,000 SHARES
PETROLEUM DEVELOPMENT CORPORATION
Common Stock
Underwriting Agreement
dated OCTOBER [___], 1997
<PAGE>
Underwriting Agreement
October [___], 1997
PENNSYLVANIA MERCHANT GROUP LTD
Four Falls Corporate Center
West Conshohocken, Pennsylvania 19428-2961
As Representative of the Several Underwriters
Ladies and Gentlemen:
INTRODUCTORY. Petroleum Development Corporation, a Nevada corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of 3,500,000 shares of its Common
- ----------
Stock, par value $0.01 per share (the "Common Stock"); and the stockholders of
the Company named in Schedule B (collectively, the "Selling Stockholders")
----------
severally propose to sell to the Underwriters an aggregate of 350,000 shares of
Common Stock. The 3,500,000 shares of Common Stock to be issued and sold by the
Company and the 350,000 shares of Common Stock to be sold by the Selling
Stockholders are collectively called the "Firm Common Shares". In addition, the
Company has granted to the Underwriters an option to purchase up to an
additional 577,500 shares (the "Optional Common Shares") of Common Stock, as
provided in Section 2. The Firm Common Shares and, if and to the extent such
option is exercised, the Optional Common Shares are collectively called the
"Common Shares". Pennsylvania Merchant Group Ltd has agreed to act as the
representative of the several Underwriters (in such capacity, the
"Representative") in connection with the offering and sale of the Common Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-2 (File
No. 333-[___]), which contains a form of prospectus to be used in connection
with the public offering and sale of the Common Shares. Such registration
statement, as amended, including the financial statements, exhibits and
schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (collectively, the "Securities Act"),
including any information deemed to be a part thereof at the time of
effectiveness pursuant to Rule 430A or Rule 434 under the Securities Act, is
called the "Registration Statement". Any registration statement filed by the
Company pursuant to Rule 462(b) under the Securities Act is called the
"Rule 462(b) Registration Statement", and from and after the date and time of
filing of the Rule 462(b) Registration Statement the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. Such
prospectus, in the form first used by the Underwriters to confirm sales of the
Common Shares, is called the "Prospectus"; provided, however, if the Company
has, with the consent of Pennsylvania Merchant Group Ltd, elected to rely upon
Rule 434 under the Securities Act, the term
<PAGE>
"Prospectus" shall mean the Company's prospectus subject to completion (each, a
"preliminary prospectus") dated [___] (such preliminary prospectus is called the
"Rule 434 preliminary prospectus"), together with the applicable term sheet (the
"Term Sheet") prepared and filed by the Company with the Commission under
Rules 434 and 424(b) under the Securities Act and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term Sheet.
All references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a preliminary prospectus, the Prospectus or the Term
Sheet, or any amendments or supplements to any of the foregoing, shall include
any copy thereof filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR").
The Company and each of the Selling Stockholders hereby confirm their
respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the
Commission for additional or supplemental information. No stop order
suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement is in effect and no proceedings for such
purpose have been instituted or are pending or, to the best knowledge of
the Company, are contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-
T under the Securities Act), was identical to the copy thereof delivered to
the Underwriters for use in connection with the offer and sale of the
Common Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the
time it became effective and at all subsequent times, complied and will
comply in all material respects with the Securities Act and did not and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus, as amended or
supplemented, as of its date and at all subsequent times, did not and will
not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements
thereto, made in reliance upon and in conformity with information relating
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to any Underwriter furnished to the Company in writing by the
Representative expressly for use therein. There are no contracts or other
documents required to be described in the Prospectus or to be filed as
exhibits to the Registration Statement which have not been described or
filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representative three (3) complete manually signed copies
of the Registration Statement and of each consent and certificate of
experts filed as a part thereof, and conformed copies of the Registration
Statement (without exhibits) and preliminary prospectuses and the
Prospectus, as amended or supplemented, in such quantities and at such
places as the Representative has reasonably requested.
(c) Distribution of Offering Materials By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with
the offering and sale of the Common Shares other than a preliminary
prospectus, the Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized
for issuance and sale pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement, will be validly
issued, fully paid and nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or
included in the offering contemplated by this Agreement.
(g) No Material Adverse Change. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus: (i) there has been no material adverse change, or
any development that could reasonably be expected to result in a material
adverse change, in the condition, financial or otherwise, or in the
earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change is called a
"Material Adverse Change"); (ii) the Company and its subsidiaries,
considered as one entity, have not incurred any material liability or
obligation, indirect, direct or contingent, not in the ordinary course of
business nor entered into any material transaction or agreement not in the
ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company or, except
for dividends paid to the Company or other subsidiaries,
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any of its subsidiaries on any class of capital stock or repurchase or
redemption by the Company or any of its subsidiaries of any class of
capital stock.
(h) Independent Accountants. KPMG Peat Marwick LLP, which has expressed
its opinion with respect to the financial statements (which term as used in
this Agreement includes the related notes thereto) [and supporting
schedules] filed with the Commission as a part of the Registration
Statement and included in the Prospectus, are independent public or
certified public accountants as required by the Securities Act and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (collectively, the "Exchange Act").
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and
included in the Prospectus present fairly the consolidated financial
position of the Company and its subsidiaries as of and at the dates
indicated and the results of their operations and cash flows for the
periods specified. [The supporting schedules included in the Registration
Statement present fairly the information required to be stated therein.]
Such financial statements [and supporting schedules] have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved, except as may be
expressly stated in the related notes thereto. No other financial
statements or supporting schedules are required to be included in the
Registration Statement. The financial data set forth in the Prospectus
under the captions "Prospectus Summary--Summary Consolidated Financial
Data", "Selected Consolidated Financial Data," "Capitalization" and
"Quarterly Results of Operations" fairly present the information set forth
therein on a basis consistent with that of the audited financial statements
contained in the Registration Statement.
(j) Preparation of Other Data. The data set forth in the Prospectus
under the captions "Prospectus Summary--Summary Operating Data", "--Summary
Reserve Data", "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview", "Business--Properties" and "--Natural
Gas Leases" present fairly and accurately the data specified therein as of
the dates or for the periods indicated. Such data has been prepared in
accordance with practices generally accepted in the Company's industry and,
to the extent applicable, on a basis consistent with that of the Summary
Reserve Report included as Appendix A to the Prospectus.
(k) Incorporation and Good Standing of the Company and its Subsidiaries.
Each of the Company and its subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and, in the case of the Company, to enter into
and perform its obligations under this Agreement. Each of the Company and
each subsidiary is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions (other
than the State of West Virginia) where the
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failure to so qualify or to be in good standing would not, individually or
in the aggregate, result in a Material Adverse Change. Except as set forth
in the Prospectus, all of the issued and outstanding capital stock of each
subsidiary has been duly authorized and validly issued, is fully paid and
nonassessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance or claim. The Company does not own or control, directly
or indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21 to the Registration Statement.
(l) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in
the Prospectus). The Common Stock (including the Common Shares) conforms in
all material respects to the description thereof contained in the
Prospectus. All of the issued and outstanding shares of Common Stock
(including the shares of Common Stock owned by Selling Stockholders) have
been duly authorized and validly issued, are fully paid and nonassessable
and have been issued in compliance with federal and state securities laws.
None of the outstanding shares of Common Stock were issued in violation of
any preemptive rights, rights of first refusal or other similar rights to
subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants, preemptive rights, rights of
first refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock of
the Company or any of its subsidiaries other than those accurately
described in the Prospectus. The description of the Company's stock option,
stock bonus and other stock plans or arrangements, and the options or other
rights granted thereunder, set forth in the Prospectus accurately and
fairly presents the information required to be shown with respect to such
plans, arrangements, options and rights.
(m) Stock Exchange Listing. The Common Stock (including the Common
Shares) is registered pursuant to Section 12(g) of the Exchange Act and is
listed on the Nasdaq National Market, and the Company has taken no action
designed to, or likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act or delisting the Common Stock
from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the National Association of Securities
Dealers, Inc. (the "NASD") is contemplating terminating such registration
or listing.
(n) Non-Contravention of Existing Instruments; No Further Authorizations
or Approvals Required. Neither the Company nor any of its subsidiaries is
in violation of its charter or by-laws or is in default (or, with the
giving of notice or lapse of time, would be in default) ("Default") under
any indenture, mortgage, loan or credit agreement, note, contract,
franchise, lease or other instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound
(including, without limitation, the Company's Amended and Restated Credit
Agreement with First National Bank of Chicago), or to which any of the
property or assets of the Company or any of its
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<PAGE>
subsidiaries is subject (each, an "Existing Instrument"), except for such
Defaults as would not, individually or in the aggregate, result in a
Material Adverse Change. The Company's execution, delivery and performance
of this Agreement and consummation of the transactions contemplated hereby
and by the Prospectus (i) have been duly authorized by all necessary
corporate action and will not result in any violation of the provisions of
the charter or by-laws of the Company or any subsidiary, (ii) will not
conflict with or constitute a breach of, or Default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its subsidiaries pursuant to, or require
the consent of any other party to, any Existing Instrument, except for such
conflicts, breaches, Defaults, liens, charges or encumbrances as would not,
individually or in the aggregate, result in a Material Adverse Change and
(iii) will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company or
any subsidiary. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental or regulatory
authority or agency, is required for the Company's execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been
obtained or made by the Company and are in full force and effect under the
Securities Act, applicable state securities or blue sky laws and from the
NASD.
(o) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company or any
of its subsidiaries, (ii) which has as the subject thereof any officer or
director of, or property owned or leased by, the Company or any of its
subsidiaries or (iii) relating to environmental or discrimination matters,
where in any such case (A) there is a reasonable possibility that such
action, suit or proceeding might be determined adversely to the Company or
such subsidiary and (B) any such action, suit or proceeding, if so
determined adversely, would reasonably be expected to result in a Material
Adverse Change or adversely affect the consummation of the transactions
contemplated by this Agreement. No material labor dispute with the
employees of the Company or any of its subsidiaries, or with the employees
of any principal supplier of the Company, exists or, to the best of the
Company's knowledge, is threatened or imminent.
(p) Intellectual Property Rights. The Company and its subsidiaries own
or possess sufficient trademarks, trade names, patent rights, copyrights,
licenses, approvals, trade secrets and other similar rights (collectively,
"Intellectual Property Rights") reasonably necessary to conduct their
businesses as now conducted; and the expected expiration of any of such
Intellectual Property Rights would not result in a Material Adverse Change.
Neither the Company nor any of its subsidiaries has received any notice of
infringement or conflict with asserted Intellectual Property Rights of
others, which infringement or conflict, if the subject of an unfavorable
decision, would result in a Material Adverse Change.
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<PAGE>
(q) All Necessary Permits, etc. The Company and each subsidiary possess
such valid and current certificates, authorizations or permits issued by
the appropriate local, state, federal or foreign regulatory agencies or
bodies necessary to conduct their respective businesses, and neither the
Company nor any subsidiary has received any notice of proceedings relating
to the revocation or modification of, or non-compliance with, any such
certificate, authorization or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, could result in
a Material Adverse Change.
(r) Title to Properties. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as
owned in the financial statements referred to in Section 1(A) (i) above (or
elsewhere in the Prospectus), in each case free and clear of any security
interests, mortgages, liens, encumbrances, equities, claims and other
defects, except such as do not materially and adversely affect the value of
such property and do not materially interfere with the use made or proposed
to be made of such property by the Company or such subsidiary. The real
property, improvements, equipment and personal property held under lease by
the Company or any subsidiary are held under valid and enforceable leases,
with such exceptions as are not material and do not materially interfere
with the use made or proposed to be made of such real property,
improvements, equipment or personal property by the Company or such
subsidiary.
(s) Tax Law Compliance. The Company and its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns and
have paid all taxes required to be paid by any of them and, if due and
payable, any related or similar assessment, fine or penalty levied against
any of them. The Company has made adequate charges, accruals and reserves
in the applicable financial statements referred to in Section 1(A)(i) above
in respect of all federal, state and foreign income and franchise taxes for
all periods as to which the tax liability of the Company or any of its
subsidiaries has not been finally determined.
(t) Company Not an "Investment Company". The Company has been advised of
the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after
receipt of payment for the Common Shares will not be, an "investment
company" within the meaning of Investment Company Act and will conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(u) Insurance. Each of the Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in
such amounts and with such deductibles and covering such risks as are
generally deemed adequate and customary for their businesses including, but
not limited to, policies covering real and personal property owned or
leased by the Company and its subsidiaries against theft, damage,
destruction, acts of vandalism and earthquakes. The Company has no reason
to believe that it or any subsidiary will not be able (i) to renew its
existing insurance coverage as and when such policies expire or (ii) to
obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that
would not result in a Material Adverse Change. The Company and its
subsidiaries are in good standing under the applicable workman's
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<PAGE>
compensation plan or program in each state in which the Company and its
subsidiaries have employees. Neither the Company nor any subsidiary has
been denied any insurance coverage which it has sought or for which it has
applied.
(v) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of the Common Shares.
(w) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any
other person required to be described in the Prospectus which have not been
described as required.
(x) No Unlawful Contributions or Other Payments. Neither the Company nor
any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any
contribution or other payment to any official of, or candidate for, any
federal, state or foreign office in violation of any law or of the
character required to be disclosed in the Prospectus.
(y) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(z) Compliance with Environmental Laws. Except as would not,
individually or in the aggregate, result in a Material Adverse Change (i)
neither the Company nor any of its subsidiaries is in violation of any
federal, state, local or foreign law or regulation relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including without limitation, laws and
regulations relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum and petroleum products (collectively,
"Materials of Environmental Concern"), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environment Concern (collectively,
"Environmental Laws"),
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which violation includes, but is not limited to, noncompliance with any
permits or other governmental authorizations required for the operation of
the business of the Company or its subsidiaries under applicable
Environmental Laws, or noncompliance with the terms and conditions thereof,
nor has the Company or any of its subsidiaries received any written
communication, whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Company or any of its
subsidiaries is in violation of any Environmental Law; (ii) there is no
claim, action or cause of action filed with a court or governmental
authority, no investigation with respect to which the Company has received
written notice, and no written notice by any person or entity alleging
potential liability for investigatory costs, cleanup costs, governmental
responses costs, natural resources damages, property damages, personal
injuries, attorneys' fees or penalties arising out of, based on or
resulting from the presence, or release into the environment, of any
Material of Environmental Concern at any location owned, leased or operated
by the Company or any of its subsidiaries, now or in the past
(collectively, "Environmental Claims"), pending or, to the best of the
Company's knowledge, threatened against the Company or any of its
subsidiaries or any person or entity whose liability for any Environmental
Claim the Company or any of its subsidiaries has retained or assumed either
contractually or by operation of law; and (iii) to the best of the
Company's knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that reasonably could result in a
violation of any Environmental Law or form the basis of a potential
Environmental Claim against the Company or any of its subsidiaries or
against any person or entity whose liability for any Environmental Claim
the Company or any of its subsidiaries has retained or assumed either
contractually or by operation of law.
(aa) Periodic Review of Costs and Liabilities of Environmental
Compliance. In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company and its subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties). On the basis of such review and the amount of its established
reserves, the Company has reasonably concluded that such associated costs
and liabilities would not, individually or in the aggregate, result in a
Material Adverse Change.
(bb) ERISA Compliance. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or
maintained by the Company, its subsidiaries or their "ERISA Affiliates" (as
defined below) are in compliance in all material respects with ERISA.
"ERISA Affiliate" means, with respect to the Company or a subsidiary, any
member of any group of organizations described in Sections 414(b),(c),(m)
or (o) of the Internal Revenue Code of 1986, as amended, and the
regulations and published interpretations thereunder (the "Code") of which
the Company or such subsidiary is a member. No "reportable event" (as
defined under ERISA) has occurred or is reasonably expected to occur with
respect to any "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates. No "employee
benefit plan" established or maintained by the Company, its subsidiaries or
any of their ERISA Affiliates, if such "employee benefit plan" were
terminated, would have any "amount of unfunded benefit liabilities" (as
defined under ERISA). Neither the Company, its
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subsidiaries nor any of their ERISA Affiliates has incurred or reasonably
expects to incur any liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit
plan" established or maintained by the Company, its subsidiaries or any of
their ERISA Affiliates that is intended to be qualified under
Section 401(a) of the Code is so qualified and nothing has occurred,
whether by action or failure to act, which would cause the loss of such
qualification.
(cc) Reserve Information. The historical information underlying the
estimates of the reserves of the Company supplied by the Company to Wright
& Company, Inc., independent petroleum engineers (the "Petroleum
Engineers"), for the purposes of preparing the reserve reports of the
Company referenced and included in the Prospectus (the "Reserve Reports"),
including, without limitation, production volumes, sales prices for
production, contractual pricing provisions under oil or gas sales or
marketing contracts or under hedging arrangements, costs of operations and
development, and working interest and net revenue information relating to
the Company's ownership interests in properties, was true and correct in
all material respects on the date of such Reserve Reports; the estimates of
future capital expenditures and other future exploration and development
costs supplied to the Petroleum Engineers were prepared in good faith and
with a reasonable basis; the information provided by the Petroleum
Engineers for purposes of preparing the Reserve Reports was prepared in
accordance with customary industry practices; to the best of the Company's
knowledge, the Petroleum Engineers were, as of the date of the Reserve
Reports prepared by them, and are, as of the date hereof, independent
petroleum engineers with respect to the Company; other than normal
production of reserves and intervening spot market product price
fluctuations, and except as disclosed in the Registration Statement and the
Prospectus, the Company is not aware of any facts or circumstances that
would result in a materially adverse change in the reserves in the
aggregate, or the aggregate present value of future net cash flows
therefrom, as described in the Prospectus and as reflected in the Reserve
Reports; estimates of such reserves and the present value of the future net
cash flows therefrom as described in the Prospectus and reflected in the
Reserve Reports comply in all material respects to the applicable
requirements of the Rules and Regulations.
(dd) Royalties; No Claims. Except as described or reflected in the
financial statements set forth in the Prospectus, as of the last balance
sheet reflected in the Prospectus; (1) all royalties, rentals, deposits and
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other amounts due on the oil and gas properties of the Company and its
subsidiaries have been properly and timely paid, and no proceeds from the
sale or production attributable to the oil and gas properties of the
Company and its subsidiaries are currently being held in suspense by any
purchaser thereof, except where such amounts due would not, singly or in
the aggregate, have a Material Adverse Change, and (2) there are no claims
under take-or-pay contracts pursuant to which material gas purchasers have
any make-up rights affecting the interest of the Company or any of its
subsidiaries in their oil and gas properties, except where such claims
would not, singly or in the aggregate, have a Material Adverse Change.
(ee) No Brokers or Finders. Other than as contemplated by this
Agreement, there is no broker, finder or other party that is entitled to
receive from the Company or the Selling Stockholders any brokerage or
finder's fee or other fee or commission as a result of any of the
transactions contemplated by this Agreement.
Any certificate signed by an officer of the Company and delivered to
the Representative or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. In
addition to the representations, warranties and covenants set forth in
Section 1(A), Each Selling Stockholder represents, warrants and covenants to
each Underwriter as follows:
(a) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by or on behalf of such Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification hereunder
may be limited by applicable law and except as the enforcement hereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors
or by general equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the (i) Custody
Agreement signed by such Selling Stockholder and Duane, Morris & Heckscher
LLP, as custodian (the "Custodian"), relating to the deposit of the Common
Shares to be sold by such Selling Stockholder (the "Custody Agreement") and
(ii) Power of Attorney appointing certain individuals named therein as such
Selling Stockholder's attorneys-in-fact (each, an "Attorney-in-Fact") to
the extent set forth therein relating to the transactions contemplated
hereby and by the Prospectus (the "Power of Attorney"), of such Selling
Stockholder has been duly authorized, executed and delivered by such
Selling Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(c) Title to Common Shares to be Sold; All Authorizations Obtained. Such
Selling Stockholder has, and on the First Closing Date and the Second
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Closing Date (as defined below) will have, good and valid title to all of
the Common Shares which may be sold by such Selling Stockholder pursuant to
this Agreement on such date and the legal right and power, and all
authorizations and approvals required by law to enter into this Agreement
and its Custody Agreement and Power of Attorney, to sell, transfer and
deliver all of the Common Shares which may be sold by such Selling
Stockholder pursuant to this Agreement and to comply with its other
obligations hereunder and thereunder.
(d) Delivery of the Common Shares to be Sold. Delivery of the Common
Shares which are sold by such Selling Stockholder pursuant to this
Agreement will pass good and valid title to such Common Shares, free and
clear of any security interest, mortgage, pledge, lien, encumbrance or
other claim.
(e) Non-Contravention; No Further Authorizations or Approvals Required.
The execution and delivery by such Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement and the Power of Attorney will not
contravene or conflict with, result in a breach of, or constitute a Default
under, or require the consent of any other party to any agreement or
instrument to which such Selling Stockholder is a party or by which he is
bound or under which he is entitled to any right or benefit, any provision
of applicable law or any judgment, order, decree or regulation applicable
to such Selling Stockholder of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over such
Selling Stockholder. No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental authority
or agency, is required for the consummation by such Selling Stockholder of
the transactions contemplated in this Agreement, except such as have been
obtained or made and are in full force and effect under the Securities Act,
applicable state securities or blue sky laws and from the NASD.
(f) No Registration or Other Similar Rights. Such Selling Stockholder
does not have any registration or other similar rights to have any equity
or debt securities registered for sale by the Company under the
Registration Statement or included in the offering contemplated by this
Agreement.
(g) No Further Consents, etc. No consent, approval or waiver is required
under any instrument or agreement to which such Selling Stockholder is a
party or by which he is bound or under which he is entitled to any right or
benefit, in connection with the offering, sale or purchase by the
Underwriters of any of the Common Shares which may be sold by such Selling
Stockholder under this Agreement or the consummation by such Selling
Stockholder of any of the other transactions contemplated hereby.
(h) Disclosure Made by Such Selling Stockholder in the Prospectus. All
information furnished by or on behalf of such Selling Stockholder in
writing expressly for use in the Registration Statement and Prospectus is,
and on the First Closing Date and the Second Closing Date will be, true,
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correct, and complete in all material respects, and does not, and on the
First Closing Date and the Second Closing Date will not, contain any untrue
statement of a material fact or omit to state any material fact necessary
to make such information not misleading. Such Selling Stockholder confirms
as accurate the number of shares of Common Stock set forth opposite such
Selling Stockholder's name and related footnote disclosure in the
Prospectus under the caption "Principal and Selling Stockholders" (both
prior to and after giving effect to the sale of the Common Shares).
(i) No Price Stabilization or Manipulation. Such Selling Stockholder has
not taken and will not take, directly or indirectly, any action designed to
or that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of the Common Shares.
(j) Confirmation of Company Representations and Warranties. Such Selling
Stockholder has no reason to believe that the representations and
warranties of the Company contained in Section 1(A) hereof are not true and
correct, is familiar with the Registration Statement and the Prospectus and
has no knowledge of any material fact, condition or information not
disclosed in the Registration Statement or the Prospectus which has had or
may have a Material Adverse Effect and is not prompted to sell shares of
Common Stock by any information concerning the Company which is not set
forth in the Registration Statement and the Prospectus.
Any certificate signed by or on behalf of any Selling Stockholder and
delivered to the Representative or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to each
Underwriter as to the matters covered thereby.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
(a) The Firm Common Shares. Upon the terms herein set forth, (i) the
Company agrees to issue and sell to the several Underwriters an aggregate
of 3,500,000 Firm Common Shares and (ii) each of the Selling Stockholders
agrees to sell to the several Underwriters an aggregate of 350,000 Firm
Common Shares, each Selling Stockholder selling the number of Firm Common
Shares set forth opposite such Selling Stockholder's name on Schedule B.
----------
On the basis of the representations, warranties and agreements herein
contained, and upon the terms but subject to the conditions herein set
forth, the Underwriters agree, severally and not jointly, to purchase from
the Company and the Selling Stockholders the respective number of Firm
Common Shares set forth opposite their names on Schedule A. The purchase
----------
price per Firm Common Share to be paid by the several Underwriters to the
Company and the Selling Stockholders shall be $[___] per share.
(b) The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be
made at the offices of Pennsylvania Merchant Group Ltd, Four Falls
Corporate Center, West Conshohocken, Pennsylvania (or such other place as
may be agreed to by the Company and the Representative) at 9:00 a.m. New
York time, on [___], or such other time and date not later than 1:30 p.m.
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New York time, on [___] as the Representative shall designate by notice to
the Company (the time and date of such closing are called the "First
Closing Date"). The Company and the Selling Stockholders hereby acknowledge
that circumstances under which the Representative may provide notice to
postpone the First Closing Date as originally scheduled include, but are in
no way limited to, any determination by the Company, the Selling
Stockholders or the Representative to recirculate to the public copies of
an amended or supplemented Prospectus or a delay as contemplated by the
provisions of Section 10.
(c) The Optional Common Shares; the Second Closing Date. In addition, on
the basis of the representations, warranties and agreements herein
contained, and upon the terms but subject to the conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 577,500 Optional
Common Shares from the Company at the purchase price per share to be paid
by the Underwriters for the Firm Common Shares. The option granted
hereunder is for use by the Underwriters solely in covering any over-
allotments in connection with the sale and distribution of the Firm Common
Shares. The option granted hereunder may be exercised at any time (but not
more than once) upon notice by the Representative to the Company, which
notice may be given at any time within 30 days from the date of this
Agreement. Such notice shall set forth (i) the aggregate number of Optional
Common Shares as to which the Underwriters are exercising the option,
(ii) the names and denominations in which the certificates for the Optional
Common Shares are to be registered and (iii) the time, date and place at
which such certificates will be delivered (which time and date may be
simultaneous with, but not earlier than, the First Closing Date; and in
such case the term "First Closing Date" shall refer to the time and date of
delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Representative and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional
Common Shares are to be purchased, (a) each Underwriter agrees, severally
and not jointly, to purchase the number of Optional Common Shares (subject
to such adjustments to eliminate fractional shares as the Representative
may determine) that bears the same proportion to the total number of
Optional Common Shares to be purchased as the number of Firm Common Shares
set forth on Schedule A opposite the name of such Underwriter bears to the
----------
total number of Firm Common Shares and (b) the Company agrees to sell such
number of Optional Common Shares as provided in the aforementioned notice
from the Underwriters. The Representative may cancel the option at any
time prior to its expiration by giving written notice of such cancellation
to the Company.
(d) Public Offering of the Common Shares. The Representative hereby
advises the Company and the Selling Stockholders that the Underwriters
intend to offer for sale to the public, as described in the Prospectus,
their respective portions of the Common Shares as soon after this Agreement
has been executed and the Registration Statement has been declared
effective as the Representative, in its sole judgment, has determined is
advisable and practicable.
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(e) Payment for the Common Shares. Payment for the Common Shares to be
sold by the Company shall be made at the First Closing Date (and, if
applicable, at the Second Closing Date) by wire transfer of immediately
available funds to the order of the Company. Payment for the Common Shares
to be sold by the Selling Stockholders shall be made at the First Closing
Date by wire transfer of immediately available funds to the order of the
Custodian.
It is understood that the Representative has been authorized, for
its own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for,
the Firm Common Shares and any Optional Common Shares the Underwriters have
agreed to purchase. Pennsylvania Merchant Group Ltd, individually and not
as the Representative of the Underwriters, may (but shall not be obligated
to) make payment for any Common Shares to be purchased by any Underwriter
whose funds shall not have been received by the Representative by the First
Closing Date or the Second Closing Date, as the case may be, for the
account of such Underwriter, but any such payment shall not relieve such
Underwriter from any of its obligations under this Agreement.
Each Selling Stockholder hereby agrees that (i) he will pay all
stock transfer taxes, stamp duties and other similar taxes, if any, payable
upon the sale or delivery of the Common Shares to be sold by such Selling
Stockholder to the several Underwriters, or otherwise in connection with
the performance of such Selling Stockholder's obligations hereunder and
(ii) the Custodian is authorized to deduct for such payment any such
amounts from the proceeds to such Selling Stockholder hereunder and to hold
such amounts for the account of such Selling Stockholder with the Custodian
under the Custody Agreement.
(f) Delivery of the Common Shares. The Company and the Selling
Stockholders shall deliver, or cause to be delivered, to the Representative
for the accounts of the several Underwriters certificates for the Firm
Common Shares to be sold by them at the First Closing Date, against the
irrevocable release of a wire transfer of immediately available funds for
the amount of the purchase price therefor. The Company shall also deliver,
or cause to be delivered, to the Representative for the accounts of the
several Underwriters, certificates for the Optional Common Shares the
Underwriters have agreed to purchase from the Company at the First Closing
Date or the Second Closing Date, as the case may be, against the
irrevocable release of a wire transfer of immediately available funds for
the amount of the purchase price therefor. The certificates for the Common
Shares shall be in definitive form and registered in such names and
denominations as the Representative shall have requested at least two full
business days prior to the First Closing Date (or the Second Closing Date,
as the case may be) and shall be made available for inspection on the
business day preceding the First Closing Date (or the Second Closing Date,
as the case may be) at a location in New York City as the Representative
may designate. Time shall be of the essence, and delivery at the time and
place specified in this Agreement is a further condition to the obligations
of the Underwriters.
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(g) Delivery of Prospectus to the Underwriters. Not later than 12:00
p.m. on the second business day following the date the Common Shares of
released by the Underwriters for sale to the public, the Company shall
deliver or cause to be delivered copies of the Prospectus in such
quantities and at such places as the Representative shall request.
SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
A. COVENANTS OF THE COMPANY. The Company further covenants and agrees
with each Underwriter as follows:
(a) Representative's Review of Proposed Amendments and Supplements.
During such period beginning on the date hereof and ending on the later of
the First Closing Date or such date, as in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be delivered
in connection with sales by an Underwriter or dealer (the "Prospectus
Delivery Period"), prior to amending or supplementing the Registration
Statement (including any registration statement filed under Rule 462(b)
under the Securities Act) or the Prospectus, the Company shall furnish to
the Representative for review a copy of each such proposed amendment or
supplement, and the Company shall not file any such proposed amendment or
supplement to which the Representative reasonably objects.
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Representative in writing (i) of the
receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing
of any post-effective amendment to the Registration Statement or any
amendment or supplement to any preliminary prospectus or the Prospectus,
(iii) of the time and date that any post-effective amendment to the
Registration Statement becomes effective and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or of any
order preventing or suspending the use of any preliminary prospectus or the
Prospectus, or of any proceedings to remove, suspend or terminate from
listing or quotation the Common Stock from any securities exchange upon
which the it is listed for trading or included or designated for quotation,
or of the threatening or initiation of any proceedings for any of such
purposes. If the Commission shall enter any such stop order at any time,
the Company will use its best efforts to obtain the lifting of such order
at the earliest possible moment. Additionally, the Company agrees that it
shall comply with the provisions of Rules 424(b), 430A and 434, as
applicable, under the Securities Act and will use its reasonable efforts to
confirm that any filings made by the Company under such Rule 424(b) were
received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. If, during the Prospectus Delivery Period, any event shall
occur or condition exist as a result of which it is necessary to amend or
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supplement the Prospectus in order to make the statements therein, in the
light of the circumstances when the Prospectus is delivered to a purchaser,
not misleading, or if in the opinion of the Representative or counsel for
the Underwriters it is otherwise necessary to amend or supplement the
Prospectus to comply with law, the Company agrees to promptly prepare
(subject to Section 3(A)(a) hereof), file with the Commission and furnish
at its own expense to the Underwriters and to dealers, amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representative, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Representative may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representative and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of)
the or state securities or blue sky laws or Canadian provincial Securities
laws of those jurisdictions designated by the Representative, shall comply
with such laws and shall continue such qualifications, registrations and
exemptions in effect so long as required for the distribution of the Common
Shares. The Company shall not be required to qualify as a foreign
corporation or to take any action that would subject it to general service
of process in any such jurisdiction where it is not presently qualified or
where it would be subject to taxation as a foreign corporation. The Company
will advise the Representative promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the
Common Shares for offering, sale or trading in any jurisdiction or any
initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification,
registration or exemption, the Company shall use its best efforts to obtain
the withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall maintain, at its expense, a
registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representative an
earnings statement (which need not be audited) covering the twelve-month
period ending at the end of the Company's first fiscal quarter that ends
more than one year after the effectiveness of the Registration Statement
and satisfying the provisions of Section 11(a) of the Securities Act.
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<PAGE>
(i) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission all
reports and documents required to be filed under the Exchange Act.
(j) Agreement Not To Offer or Sell Additional Securities. During the
period of 180 days following the date of the Prospectus, the Company will
not, without the prior written consent of Pennsylvania Merchant Group Ltd
(which consent may be withheld at the sole discretion of Pennsylvania
Merchant Group Ltd), directly or indirectly, sell, offer, contract or grant
any option to sell, pledge, transfer or establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Exchange Act, or
otherwise dispose of or transfer, or announce the offering of, or file any
registration statement under the Securities Act in respect of, any shares
of Common Stock, options or warrants to acquire shares of the Common Stock
or securities exchangeable or exercisable for or convertible into shares of
Common Stock (other than as contemplated by this Agreement with respect to
the Common Shares); provided, however, that the Company may issue shares of
its Common Stock or options to purchase its Common Stock, or Common Stock
upon exercise of options, pursuant to any stock option, stock bonus or
other stock plan or arrangement described in the Prospectus, but only if
the holders of such shares, options, or shares issued upon exercise of such
options, agree in writing not to sell, offer, dispose of or otherwise
transfer any such shares or options during such 180 day period without the
prior written consent of Pennsylvania Merchant Group Ltd (which consent may
be withheld at the sole discretion of the Pennsylvania Merchant Group Ltd).
(k) Future Reports to the Representative. During the period of five
years hereafter the Company will furnish to the Representative at Four
Falls Corporate Center, West Conshohocken, Pennsylvania 19428, Attention:
Richard A. Hansen: (i) as soon as practicable after the end of each fiscal
year, copies of the Annual Report of the Company containing the balance
sheet of the Company as of the close of such fiscal year and statements of
income, stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public or certified public
accountants; (ii) as soon as practicable after the filing thereof, copies
of each proxy statement, Annual Report on Form 10-K, Quarterly Report on
Form 10-Q, Current Report on Form 8-K or other report filed by the Company
with the Commission, the NASD or any securities exchange; and (iii) as soon
as available, copies of any report or communication of the Company mailed
generally to holders of its capital stock.
B. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder
further covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such Selling
Stockholder will not, without the prior written consent of Pennsylvania
Merchant Group Ltd (which consent may be withheld in its sole discretion),
directly or indirectly, sell, offer, contract or grant any option to sell
(including without limitation any short sale), pledge, transfer, establish
an open "put equivalent position" within the meaning of Rule 16a-1(h) under
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the Exchange Act, or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock, or securities
exchangeable or exercisable for or convertible into shares of Common Stock
currently or hereafter owned either of record or beneficially (as defined
in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of
the foregoing, for a period commencing on the date hereof and continuing
through the close of trading on the date 180 days after the date of the
Prospectus.
(b) Delivery of Forms W-8 and W-9. To deliver to the Representative
prior to the First Closing Date a properly completed and executed United
States Treasury Department Form W-8 (if the Selling Stockholder is a non-
United States person) or Form W-9 (if the Selling Stockholder is a United
States Person).
The Representative, on behalf of the several Underwriters, may, in its
sole discretion, waive in writing the performance by the Company or any Selling
Stockholder of any one or more of the foregoing covenants or extend the time for
their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay the Company
and the Selling Stockholders, jointly and severally, agree to pay in such
proportions as they may agree upon among themselves all costs, fees and expenses
incurred in connection with the performance of their obligations hereunder and
in connection with the transactions contemplated hereby, including without
limitation (i) all expenses incident to the issuance and delivery of the Common
Shares (including all printing and engraving costs), (ii) all fees and expenses
of the registrar and transfer agent of the Common Stock, (iii) all necessary
issue, transfer and other stamp taxes in connection with the issuance and sale
of the Common Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the state securities or blue sky laws or the provincial
securities laws of Canada, and, if requested by the Representative, preparing
and printing a "Blue Sky Survey" or memorandum, and any supplements thereto,
advising the Underwriters of such qualifications, registrations and exemptions,
(vii) the filing fees incident to, and the reasonable fees and expenses of
counsel for the Underwriters in connection with, the NASD's review and approval
of the Underwriters' participation in the offering and distribution of the
Common Shares, (viii) the fees and expenses associated with including the
Common Shares on the Nasdaq National Market, and (ix) all other fees, costs and
expenses referred to in Item 14 of Part II of the Registration Statement. Except
as provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Underwriters shall pay their own expenses, including the fees and disbursements
of their counsel.
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The Selling Stockholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to (i) fees and expenses of
counsel and other advisors for such Selling Stockholders, (ii) fees and expenses
of the Custodian and (iii) expenses and taxes incident to the sale and delivery
of the Common Shares to be sold by such Selling Stockholders to the Underwriters
hereunder (which taxes, if any, may be deducted by the Custodian under the
provisions of Section 2 of this Agreement).
This Section 4 shall not affect or modify any separate, valid
agreement relating to the allocation of payment of expenses between the Company,
on the one hand, and the Selling Stockholders, on the other hand.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Sections 1(A) and 1(B) hereof as of the date hereof and as of the First
Closing Date as though then made and, with respect to the Optional Common
Shares, as of the Second Closing Date as though then made, to the timely
performance by the Company and the Selling Stockholders of its their respective
covenants and other obligations hereunder, and to each of the following
additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the Representative
shall have received from KPMG Peat Marwick LLP, independent public or
certified public accountants for the Company, a letter dated the date
hereof addressed to the Underwriters, in form and substance satisfactory to
the Representative, containing statements and information of the type
ordinarily included in accountant's "comfort letters" to underwriters,
delivered according to Statement of Auditing Standards No. 72 (or any
successor bulletin), with respect to the audited and unaudited financial
statements and certain financial information contained in the Registration
Statement and the Prospectus (and the Representative shall have received an
additional three (3) conformed copies of such accountants' letter). In
addition, the Representative shall have received from KPMG Peat Marwick LLP
a letter which sets forth the financial statement impact, if any, of the
Company's issuance and sale of shares of Common Stock and warrants to
purchase shares of Common Stock consummated on September 15, 1997.
(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the Commission
(including the information required by Rule 430A under the Securities
Act) in the manner and within the time period required by Rule 424(b)
under the
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Securities Act; or the Company shall have filed a post-effective amendment
to the Registration Statement containing the information required by such
Rule 430A, and such post-effective amendment shall have become effective;
or, if the Company elected to rely upon Rule 434 under the Securities Act
and obtained the Representative's consent thereto, the Company shall have
filed a Term Sheet with the Commission in the manner and within the time
period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment to the Registration Statement, shall be in effect and no
proceedings for such purpose shall have been instituted or threatened by
the Commission; and
(iii) the NASD shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change or Ratings Agency Change. For the period
from and after the date of this Agreement and prior to the First Closing
Date and, with respect to the Optional Common Shares, the Second Closing
Date, in the judgment of the Representative there shall not have occurred
any Material Adverse Change.
(d) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date the Representative shall have received the
favorable opinion of Duane, Morris & Heckscher LLP, counsel for the
Company, dated as of such Closing Date, the form of which is attached as
Exhibit A (and the Representative shall have received an additional three
---------
(3) conformed copies of such counsel's legal opinion).
(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Representative shall have
received the favorable opinion of Buchanan Ingersoll, counsel for the
Underwriters, dated as of such Closing Date, with respect to the matters
set forth in paragraphs [(i), (vii) (with respect to subparagraph (i) only,
(viii), (ix), (x), (xi), (xii) and (xiii) (with respect to the captions
"Description of Capital Stock" and "Underwriting" under subparagraph (i)
only)] and [the next-to-last paragraph] of Exhibit A (and the
---------
Representative shall have received an additional three (3) conformed copies
of such counsel's legal opinion).
(f) Officers' Certificate. On each of the First Closing Date and the
Second Closing Date the Representative shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer
or President of the Company and the Chief Financial Officer or Chief
Accounting Officer of the Company, dated as of such Closing Date, to the
effect set forth in subsection (b)(ii) of this Section 5, and further to
the effect that:
(i) for the period from and after the date of this Agreement and prior
to such Closing Date, there has not occurred any Material Adverse Change;
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(ii) the representations, warranties and covenants of the Company set
forth in Section 1(A) of this Agreement are true and correct with the
same force and effect as though expressly made on and as of such Closing
Date; and
(iii) the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing Date and the
Second Closing Date the Representative shall have received from KPMG Peat
Marwick LLP, independent public or certified public accountants for the
Company, a letter dated such date, in form and substance satisfactory to
the Representative, to the effect that they reaffirm the statements made in
the letter furnished by them pursuant to subsection (a) of this Section 5,
except that the specified date referred to therein for the carrying out of
procedures shall be no more than three business days prior to the First
Closing Date or Second Closing Date, as the case may be (and the
Representative shall have received an additional three (3) conformed copies
of such accountants' letter).
(h) Opinion of Counsel for the Selling Stockholders. On the First
Closing Date the Representative shall have received the favorable opinion
of Duane, Morris & Heckscher LLP, counsel for the Selling Stockholders,
dated as of such Closing Date, the form of which is attached as Exhibit B
---------
(and the Representative shall have received an additional three (3)
conformed copies of such counsel's legal opinion).
(i) Selling Stockholders' Certificate. On each of the First Closing Date
and the Second Closing Date the Representative shall have received a
written certificate executed by each Selling Stockholder, dated as of such
Closing Date, to the effect that:
(i) the representations, warranties and covenants of such Selling
Stockholder set forth in Section 1(B) of this Agreement are true and
correct with the same force and effect as though expressly made by such
Selling Stockholder on and as of such Closing Date; and
(ii) such Selling Stockholder has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at
or prior to such Closing Date.
(j) Selling Stockholders' Documents. On the date hereof, the Company and
the Selling Stockholders shall have furnished for review by the
Representative copies of the Powers of Attorney and Custody Agreements
executed by each of the Selling Stockholders and such further information,
certificates and documents as the Representative may reasonably request.
(k) Lock-Up Agreement. On the date hereof, the Company shall have
furnished to the Representative an agreement in the form of Exhibit C
---------
hereto from each director and officer of the Company, and such agreement
shall be in full force and effect on each of the First Closing Date and the
Second Closing Date.
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<PAGE>
(l) Expense Allowance. On the First Closing Date, the Representative
shall have received from the Company the amount of $150,000 in payment of
the agreed upon non-accountable expense allowance.
(m) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, the Representative and counsel for the
Underwriters shall have received such information, documents and opinions
as they may reasonably require for the purposes of enabling them to pass
upon the issuance and sale of the Common Shares as contemplated herein, or
in order to evidence the accuracy of any of the representations and
warranties, or the satisfaction of any of the conditions or agreements,
herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representative by notice to the Company and the Selling Stockholders at any time
on or prior to the First Closing Date and, with respect to the Optional Common
Shares by notice to the Company, at any time prior to the Second Closing Date,
which termination shall be without liability on the part of any party to any
other party, except that Section 4, Section 6, Section 8 and Section 9 shall at
all times be effective and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Representative pursuant to Section 5, Section 7, Section 10,
Section 11 or Section 17, or if the sale to the Underwriters of the Common
Shares on the First Closing Date is not consummated because of any refusal,
inability or failure on the part of the Company or the Selling Stockholders to
perform any agreement herein or to comply with any provision hereof, the Company
agrees to reimburse the Representative and the other Underwriters (or such
Underwriters as have terminated this Agreement with respect to themselves),
severally, upon demand for all out-of-pocket expenses that shall have been
reasonably incurred by the Representative and the Underwriters in connection
with the proposed purchase and the offering and sale of the Common Shares,
including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, facsimile and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall not
become effective until the later of (i) the execution of this Agreement by the
parties hereto and (ii) notification by the Commission to the Company and the
Representative of the effectiveness of the Registration Statement under the
Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company or the Selling
Stockholders to any Underwriter, except that the Company and the Selling
Stockholders shall be obligated to reimburse the expenses of the Representative
and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter
to the Company or the Selling Stockholders, or (c) of any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
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SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. The Company and each of the
Selling Stockholders, jointly and severally, agrees to indemnify and hold
harmless each Underwriter, its officers and employees, and each person, if
any, who controls any Underwriter within the meaning of the Securities Act
and the Exchange Act against any loss, claim, damage, liability or expense,
as incurred, to which such Underwriter or such controlling person may
become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected
with the written consent of the Company), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as contemplated
below) arises out of or is based (i) upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information deemed to be
a part thereof pursuant to Rule 430A or Rule 434 under the Securities Act,
or the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading; or (ii) upon any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; or (iii) in whole or in part upon any inaccuracy
in the representations and warranties of the Company or the Selling
Stockholders contained herein; or (iv) in whole or in part upon any failure
of the Company or the Selling Stockholders to perform their respective
obligations hereunder or under law; or (v) any act or failure to act or any
alleged act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Common Stock or the offering contemplated
hereby, and which is included as part of or referred to in any loss, claim,
damage, liability or action arising out of or based upon any matter covered
by clause (i) or (ii) above, provided that the Company or any Selling
Stockholder shall not be liable under this clause (v) to the extent that a
court of competent jurisdiction shall have determined by a final judgment
that such loss, claim, damage, liability or action resulted directly from
any such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its gross negligence or willful misconduct; and to
reimburse each Underwriter and each such controlling person for any and all
expenses (including the fees and disbursements of counsel chosen by
Pennsylvania Merchant Group Ltd) as such expenses are reasonably incurred
by such Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that the
foregoing indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out of
or based upon any untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with written
information furnished to the Company and the Selling Stockholders by the
Underwriters expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and provided, further, that with respect to any preliminary
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prospectus, the foregoing indemnity agreement shall not inure to the
benefit of any Underwriter from whom the person asserting any loss, claim,
damage, liability or expense purchased Common Shares, or any person
controlling such Underwriter, if copies of the Prospectus were timely
delivered to the Underwriter pursuant to Section 2 and a copy of the
Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to
have been delivered, at or prior to the written confirmation of the sale of
the Common Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense. Notwithstanding any provision herein to the
contrary, the liability of each Selling Stockholder under this Agreement
shall not exceed the net proceeds (before deducting offering expenses)
received by such Selling Stockholder from the sale of Common Shares in this
offering. The indemnity agreement set forth in this Section 8(a) shall be
in addition to any liabilities that the Company and the Selling
Stockholders may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, the Selling Stockholders and each
person, if any, who controls the Company or any Selling Stockholder within
the meaning of the Securities Act or the Exchange Act, against any loss,
claim, damage, liability or expense, as incurred, to which the Company, or
any such director, officer, Selling Stockholder or controlling person may
become subject, under the Securities Act, the Exchange Act, or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected
with the written consent of such Underwriter), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as contemplated
below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the
Registration Statement, any preliminary prospectus, the Prospectus (or any
amendment or supplement thereto), in reliance upon and in conformity with
written information furnished to the Company and the Selling Stockholders
by the Underwriters expressly for use therein; and to reimburse the
Company, or any such director, officer, Selling Stockholder or controlling
person for any legal and other expense reasonably incurred by the Company,
or any such director, officer, Selling Stockholder or controlling person in
connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action. Each of the
Company and each of the Selling Stockholders, hereby acknowledges that the
only information that the Underwriters have furnished to the Company and
the Selling Stockholders expressly for use in the Registration Statement,
any preliminary prospectus or the Prospectus (or any amendment or
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<PAGE>
supplement thereto) are the statements set forth (A) as the last two
paragraphs on the inside front cover page of the Prospectus concerning
stabilization and passive market making by the Underwriters and (B) in the
table in the first paragraph and as the second, sixth and seventh
paragraphs under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct. The indemnity
agreement set forth in this Section 8(b) shall be in addition to any
liabilities that each Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
for contribution or otherwise than under the indemnity agreement contained
in this Section 8 or to the extent it is not prejudiced as a proximate
result of such failure. In case any such action is brought against any
indemnified party and such indemnified party seeks or intends to seek
indemnity from an indemnifying party, the indemnifying party will be
entitled to participate in, and, to the extent that it shall elect, jointly
with all other indemnifying parties similarly notified, by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party; provided,
however, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that a conflict may arise between the positions of the
indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and
to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel (together with local
counsel), approved by the indemnifying party (Pennsylvania Merchant Group
Ltd in the case of Section 8(b) and Section 9), representing the
indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases the
fees and expenses of counsel shall be at the expense of the indemnifying
party.
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<PAGE>
(d) Settlements. The indemnifying party under this Section 8 shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment
for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 8(c) hereof, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding
effected without its written consent if (i) such settlement is entered into
more than 30 days after receipt by such indemnifying party of the aforesaid
request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement, compromise or consent to
the entry of judgment in any pending or threatened action, suit or
proceeding in respect of which any indemnified party is or could have been
a party and indemnity was or could have been sought hereunder by such
indemnified party, unless such settlement, compromise or consent includes
an unconditional release of such indemnified party from all liability on
claims that are the subject matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION. If the indemnification provided for in
Section 8 is for any reason held to be unavailable to or otherwise insufficient
to hold harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders, on the
one hand, and the Underwriters, on the other hand, from the offering of the
Common Shares pursuant to this Agreement or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Stockholders,
on the one hand, and the Underwriters, on the other hand, in connection with the
statements or omissions or inaccuracies in the representations and warranties
herein which resulted in such losses, claims, damages, liabilities or expenses,
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholders, on the one hand, and the
Underwriters, on the other hand, in connection with the offering of the Common
Shares pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Common Shares
pursuant to this Agreement (before deducting expenses) received by the Company
and the Selling Stockholders, and the total underwriting discount received by
the Underwriters, in each case as set forth on the front cover page of the
Prospectus (or, if Rule 434 under the Securities Act is used, the corresponding
location on the Term Sheet) bear to the aggregate initial public offering price
of the Common Shares as set forth on such cover. The relative fault of the
Company and the Selling Stockholders, on the one hand, and the Underwriters, on
the other hand, shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
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<PAGE>
alleged omission to state a material fact or any such inaccurate or alleged
inaccurate representation or warranty relates to information supplied by the
Company or the Selling Stockholders, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 9
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
- ----------
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of the Securities Act and the
Exchange Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
----------
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representative, to purchase the Common Shares which such
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defaulting Underwriter or Underwriters agreed but failed or refused to purchase
on such date. If, on the First Closing Date or the Second Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Common Shares and the aggregate number of Common Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Common Shares
to be purchased on such date, and arrangements satisfactory to the non-
defaulting Underwriters and the Company for the purchase of such Common Shares
are not made within 48 hours after such default, this Agreement shall terminate
without liability of any party to any other party except that the provisions of
Section 4, Section 6, Section 8 and Section 9 shall at all times be effective
and shall survive such termination. In any such case either the non-defaulting
Underwriters or the Company shall have the right to postpone the First Closing
Date or the Second Closing Date, as the case may be, but in no event for longer
than seven days in order that the required changes, if any, to the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this
Section 10. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date this Agreement may be terminated by the Representative by notice given to
the Company and the Selling Stockholders if at any time (i) trading or quotation
in any of the Company's securities shall have been suspended or limited by the
Commission or by the Nasdaq Stock Market, or trading in securities generally on
either the Nasdaq Stock Market or the New York Stock Exchange shall have been
suspended or limited, or minimum or maximum prices shall have been generally
established on any of such stock exchanges by the Commission or the NASD; (ii) a
general banking moratorium shall have been declared by any of federal, New York
or Delaware authorities; (iii) there shall have occurred any outbreak or
escalation of national or international hostilities or any crisis or calamity,
or any change in the United States or international financial markets, or any
substantial change or development involving a prospective substantial change in
United States' or international political, financial or economic conditions, as
in the judgment of the Representative is material and adverse and makes it
impracticable to market the Common Shares in the manner and on the terms
described in the Prospectus or to enforce contracts for the sale of securities;
(iv) in the judgment of the Representative there shall have occurred any
Material Adverse Change; or (v) the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
in the judgment of the Representative may interfere materially with the conduct
of the business and operations of the Company regardless of whether or not such
loss shall have been insured. Any termination pursuant to this Section 11 shall
be without liability on the part of (a) the Company or the Selling Stockholders
to any Underwriter, except that the Company and the Selling Stockholders shall
be obligated to reimburse the expenses of the Representative and the
Underwriters pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the
Company or the Selling Stockholders, or (c) of any party hereto to any other
party except that the provisions of Section 8 and Section 9 shall at all times
be effective and shall survive such termination.
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SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representative:
Pennsylvania Merchant Group Ltd
Four Falls Corporate Center
West Conshohocken, Pennsylvania 19428-2961
Facsimile: 610-260-6230
Attention: Richard A. Hansen
with a copy to:
Buchanan Ingersoll
500 College Road East
Princeton, New Jersey 08540
Facsimile: 609-520-0360
Attention: David J. Sorin, Esq.
If to the Company:
Petroleum Development Corporation
103 East Main Street
Bridgeport, West Virginia 26330
Facsimile: 304-842-6256
Attention: Steven R. Williams
with a copy to:
Duane, Morris & Heckscher LLP
1667 K. Street, N.W., Suite 700
Washington, DC 20006-1608
Facsimile: 202-776-7801
Attention: Laurence S. Lese, Esq.
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If to the Selling Stockholders:
Duane, Morris & Heckscher LLP
1667 K. Street, N.W., Suite 700
Washington, DC 20006-1608
Facsimile: 202-776-7801
Attention: Laurence S. Lese, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, [and personal representatives], and no
other person will have any right or obligation hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 16. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL
AND DELIVER COMMON SHARES. If one or more of the Selling Stockholders shall fail
to sell and deliver to the Underwriters the Common Shares to be sold and
delivered by such Selling Stockholders at the First Closing Date pursuant to
this Agreement, then the Underwriters may at their option, by written notice
from the Representative to the Company and the Selling Stockholders, either
(i) terminate this Agreement without any liability on the part of any
Underwriter or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company
or the Selling Stockholders, or (ii) purchase the shares which the Company and
other Selling Stockholders have agreed to sell and deliver in accordance with
the terms hereof. If one or more of the Selling Stockholders shall fail to sell
and deliver to the Underwriters the Common Shares to be sold and delivered by
such Selling Stockholders pursuant to this Agreement at the First Closing Date
or the Second Closing Date, then the Underwriters shall have the right, by
written notice from the Representative to the Company and the Selling
Stockholders, to postpone the First Closing Date or the Second Closing Date, as
the case may be, but in no event for longer than seven days in order that the
required
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changes, if any, to the Registration Statement and the Prospectus or any other
documents or arrangements may be effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Section headings herein are for the convenience of the parties only and
shall not affect the construction or interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person who was adequately represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
* * * * * * * * *
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If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company and the Custodian the enclosed
copies hereof, whereupon this instrument, along with all counterparts hereof,
shall become a binding agreement in accordance with its terms.
Very truly yours,
PETROLEUM DEVELOPMENT CORPORATION
By:
------------------------------
Name:
Title:
SELLING STOCKHOLDERS
---------------------------------------
James N. Ryan or Attorney-in-Fact
---------------------------------------
Steven R. Williams or Attorney-in-Fact
---------------------------------------
Dale G. Rettinger or Attorney-in-Fact
---------------------------------------
Thomas E. Riley or Attorney-in-Fact
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representative in West Conshohocken, Pennsylvania as of the date first
above written.
PENNSYLVANIA MERCHANT GROUP LTD
Acting as Representative of the
several Underwriters named in
the attached Schedule A.
BY: PENNSYLVANIA MERCHANT GROUP LTD
By:
----------------------------
P. S. Rawlings
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SCHEDULE A
Underwriters NUMBER OF FIRM
COMMON SHARES TO
BE PURCHASED
Pennsylvania Merchant Group Ltd.................... [ ]
---------------
Total......................................... 3,850,000
<PAGE>
SCHEDULE
Selling Stockholder NUMBER OF FIRM
COMMON SHARES TO
BE SOLD
James N. Ryan
c/o Petroleum Development Corporation
103 East Main Street
Bridgeport, West Virginia 26330............. 100,000
Steven R. Williams
c/o Petroleum Development Corporation
103 East Main Street
Bridgeport, West Virginia 26330............. 100,000
Dale G. Rettinger
c/o Petroleum Development Corporation
103 East Main Street
Bridgeport, West Virginia 26330............. 100,000
Thomas E. Riley
c/o Petroleum Development Corporation
103 East Main Street
Bridgeport, West Virginia 26330............. 50,000
-------------------
Total:................................. 350,000
<PAGE>
EXHIBIT A
OPINION OF DUANE, MORRIS & HECKSCHER LLP
AS COUNSEL TO THE COMPANY
Opinion of counsel for the Company to be delivered pursuant to
Section 5(d) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
---------
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Nevada.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Underwriting
Agreement.
(iii) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in the State of Nevada and in each other
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except for such
jurisdictions (other than the State of Nevada) where the failure to so qualify
or to be in good standing would not, individually or in the aggregate, result in
a Material Adverse Change.
(iv) Each significant subsidiary (as defined in Rule 405 under the
Securities Act) has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and, to
the best knowledge of such counsel, is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually or in
the aggregate, result in a Material Adverse Change.
(v) All of the issued and outstanding capital stock of each such
significant subsidiary has been duly authorized and validly issued, is fully
paid and non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance or, to the best knowledge of such counsel, any pending or threatened
claim.
A-1
<PAGE>
(vi) The authorized, issued and outstanding capital stock of the Company
(including the Common Stock) conform to the descriptions thereof set forth in
the Prospectus. All of the outstanding shares of Common Stock (including the
shares of Common Stock owned by Selling Stockholders) have been duly authorized
and validly issued, are fully paid and nonassessable and, to the best of such
counsel's knowledge, have been issued in compliance with the registration and
qualification requirements of federal and state securities laws. The form of
certificate used to evidence the Common Stock is in due and proper form and
complies with all applicable requirements of the charter and by-laws of the
Company and the Revised Statutes of the State of Nevada. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be shown
with respect to such plans, arrangements, options and rights.
(vii) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to subscribe for
or purchase securities of the Company arising (i) by operation of the charter or
by-laws of the Company or the Revised Statutes of the State of Nevada or (ii)
to the best knowledge of such counsel, otherwise.
(viii) The Underwriting Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company, enforceable
in accordance with its terms, except as rights to indemnification thereunder may
be limited by applicable law and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles.
(ix) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company pursuant to
the Underwriting Agreement against payment of the consideration set forth
therein, will be validly issued, fully paid and nonassessable.
(x) Each of the Registration Statement and the Rule 462(b) Registration
Statement, if any, has been declared effective by the Commission under the
Securities Act. To the best knowledge of such counsel, no stop order suspending
the effectiveness of either of the Registration Statement or the Rule 462(b)
Registration Statement, if any, has been issued under the Securities Act and no
proceedings for such purpose have been instituted or are pending or are
contemplated or threatened by the Commission. Any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b) under the
Securities Act has been made in the manner and within the time period required
by such Rule 424(b).
(xi) The Registration Statement, including any Rule 462(b) Registration
Statement, the Prospectus, and each amendment or supplement to the Registration
Statement and the Prospectus, as of their respective effective or issue dates
(other than the financial statements and
A-2
<PAGE>
supporting schedules included or incorporated by reference therein or in
exhibits to or excluded from the Registration Statement, as to which no opinion
need be rendered) comply as to form in all material respects with the applicable
requirements of the Securities Act.
(xii) The Common Shares have been approved for listing on the Nasdaq
National Market.
(xiii) The statements (i) in the Prospectus under the captions "Risk
Factors--Governmental Regulation", "--Anti-Takeover Provisions", "--Shares
Eligible for Future Sale", "Management's Discussion and Analysis and Results of
Operations--Liquidity", "Business--Governmental Regulation". "Business--Legal
Proceedings", "Certain Transactions", "Description of Capital Stock", "Shares
Eligible for Future Sale" and "Underwriting" and (ii) in Item 15 of the
Registration Statement, insofar as such statements constitute matters of law,
summaries of legal matters, the Company's charter or by-law provisions,
documents or legal proceedings, or legal conclusions, has been reviewed by such
counsel and fairly present and summarize, in all material respects, the matters
referred to therein.
(xiv) To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
(xv) To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto;
and the descriptions thereof and references thereto are correct in all material
respects.
(xvi) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance of the
Underwriting Agreement and consummation of the transactions contemplated thereby
and by the Prospectus, except as required under the Securities Act, applicable
state securities or blue sky laws and from the NASD.
(xvii) The execution and delivery of the Underwriting Agreement by the
Company and the performance by the Company of its obligations thereunder (other
than performance by the Company of its obligations under the indemnification
section of the Underwriting Agreement, as to which no opinion need be rendered)
(i) have been duly authorized by all necessary corporate action on the part of
the Company; (ii) will not result in any violation of the provisions of the
charter or by-laws of the Company or any subsidiary; (iii) will not constitute a
breach of, or Default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to, (A) the Company's Credit Agreement with First
National Bank of Chicago, as lender, or (B) to the best knowledge of such
A-3
<PAGE>
counsel, any other material Existing Instrument; or (iv) to the best knowledge
of such counsel, will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company or any
subsidiary.
(xviii) The Company is not, and after receipt of payment for the Common
Shares will not be, an "investment company" within the meaning of Investment
Company Act.
(xix) Except as disclosed in the Prospectus under the caption "Shares
Eligible for Future Sale" to the best knowledge of such counsel, there are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by the Underwriting Agreement.
(xx) To the best knowledge of such counsel, neither the Company nor any
subsidiary is in violation of its charter or by-laws or any law, administrative
regulation or administrative or court decree applicable to the Company or any
subsidiary or is in Default in the performance or observance of any obligation,
agreement, covenant or condition contained in any material Existing Instrument,
except in each such case for such violations or Defaults as would not,
individually or in the aggregate, result in a Material Adverse Change.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
derived therefrom, included in the Registration Statement or the Prospectus or
any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the Revised
Statutes of the State of Nevada, the Business Laws of the Commonwealth of
Pennsylvania or the federal law of the United States, to the extent they deem
proper and specified in such opinion, upon the opinion (which shall be dated the
First Closing Date or the Second Closing Date, as the case may be, shall be
satisfactory
A-4
<PAGE>
in form and substance to the Underwriters, shall expressly state
that the Underwriters may rely on such opinion as if it were addressed to them
and shall be furnished to the Representative) of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel for the
Underwriters; provided, however, that such counsel shall further state that they
believe that they and the Underwriters are justified in relying upon such
opinion of other counsel, and (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company and public
officials.
A-5
<PAGE>
EXHIBIT B
OPINION OF DUANE, MORRIS & HECKSCHER LLP
AS COUNSEL FOR THE SELLING STOCKHOLDERS
The opinion of such counsel pursuant to Section 5(h) shall be rendered
to the Representative at the request of the Company and shall so state therein.
References to the Prospectus in this Exhibit B include any supplements thereto
---------
at the Closing Date.
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of, and is a valid and binding agreement of, such
Selling Stockholder, enforceable in accordance with its terms, except as rights
to indemnification thereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(ii) The execution and delivery by such Selling Stockholder of, and the
performance by such Selling Stockholder of his obligations under, the
Underwriting Agreement and his Custody Agreement and its Power of Attorney will
not contravene or conflict with, result in a breach of, or constitute a default
under any agreement of such Selling Stockholder, or, to the best of such
counsel's knowledge, violate or contravene any provision of applicable law or
regulation, or violate, result in a breach of or constitute a default under the
terms of any other agreement or instrument to which such Selling Stockholder is
a party or by which it is bound, or any judgment, order or decree applicable to
such Selling Stockholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Stockholder.
(iii) Such Selling Stockholder has good and valid title to all of the
Common Shares which may be sold by such Selling Stockholder under the
Underwriting Agreement and has the legal right and power, and all authorizations
and approvals required to enter into the Underwriting Agreement and its Custody
Agreement and its Power of Attorney, to sell, transfer and deliver all of the
Common Shares which may sold by such Selling Stockholder under the Underwriting
Agreement and to comply with his other obligations under the Underwriting
Agreement, its Custody Agreement and its Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of such Selling
Stockholder has been duly authorized, executed and delivered by such Selling
Stockholder and is a valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms, except as rights to indemnification
thereunder may be limited by applicable law and except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
B-1
<PAGE>
(v) Assuming that the Underwriters purchase the Common Shares which are
sold by such Selling Stockholder pursuant to the Underwriting Agreement for
value, in good faith and without notice of any adverse claim, the delivery of
such Common Shares pursuant to the Underwriting Agreement will pass good and
valid title to such Common Shares, free and clear of any security interest,
mortgage, pledge, lien encumbrance or other claim.
(vi) To the best of such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any court or
governmental authority or agency, is required for the consummation by such
Selling Stockholder of the transactions contemplated in the Underwriting
Agreement, except as required under the Securities Act, applicable state
securities or blue sky laws, and from the NASD.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the Revised
Statutes of the State of Nevada, the laws of the Commonwealth of Pennsylvania or
the federal law of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion (which shall be dated the First
Closing Date or the Second Closing Date, as the case may be, shall be
satisfactory in form and substance to the Underwriters, shall expressly state
that the Underwriters may rely on such opinion as if it were addressed to them
and shall be furnished to the Representative) of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel for the
Underwriters; provided, however, that such counsel shall further state that they
believe that they and the Underwriters are justified in relying upon such
opinion of other counsel, and (B) as to matters of fact, to the extent they deem
proper, on certificates of the Selling Stockholders and public officials.
B-2
<PAGE>
EXHIBIT C
[Date]
Pennsylvania Merchant Group Ltd
[As Representatives of the Several Underwriters]
Four Falls Corporate Center
West Conshohocken, Pennsylvania 19428-2961
RE: ______________________ (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain
shares of Common Stock of the Company ("Common Stock") or securities convertible
into or exchangeable or exercisable for Common Stock. The Company proposes to
carry out a public offering of Common Stock (the "Offering") for which you will
act as the representative[s] of the underwriters. The undersigned recognizes
that the Offering will be of benefit to the undersigned and will benefit the
Company by, among other things, raising additional capital for its operations.
The undersigned acknowledges that you and the other underwriters are relying on
the representations and agreements of the undersigned contained in this letter
in carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not, without the prior written consent of Pennsylvania
Merchant Group Ltd (which consent may be withheld in its sole discretion),
directly or indirectly, sell, offer, contract or grant any option to sell
(including without limitation any short sale), pledge, transfer, establish an
open "put equivalent position" within the meaning of Rule 16a-1(h) under the
Securities Exchange Act of 1934, or otherwise dispose of any shares of Common
Stock, options or warrants to acquire shares of Common Stock, or securities
exchangeable or exercisable for or convertible into shares of Common Stock
currently or hereafter owned either of record or beneficially (as defined in
Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through the
close of trading on the date 180 days after the date of the Prospectus. The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock held by the undersigned except in compliance with the foregoing
restrictions.
C-1
<PAGE>
With respect to the Offering only, the undersigned waives any
registration rights relating to registration under the Securities Act of any
Common Stock owned either of record or beneficially by the undersigned,
including any rights to receive notice of the Offering.
This agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives, and assigns of
the undersigned.
_____________________________________
Printed Name of Holder
By: _________________________________
Signature
_____________________________________
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf
of an entity)
C-2
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION
-------------------------
OF
--
YELLOW WING URANIUM CORPORATION
-------------------------------
KNOW TO ALL MEN BY THESE PRESENTS:
That we, the undersigned, have this day voluntarily associated ourselves
together for the purpose of forming a corporation under and pursuant to the
general corporation laws of the state of Nevada, and we do hereby certify:
FIRST: That the name of this corporation shall be -
-----
YELLOW WING URANIUM CORPORATION
-------------------------------
SECOND: The principal place of business and office of this corporation
------
shall be located at 1112 Fremont Street, in the city of Las Vegas, County of
Clark, State of Nevada; but the company may maintain such other office or
offices and may make such changes thereof, in and out of the State of Nevada, as
may be prescribed in the by-laws or resolutions of the stockholders or Board of
Directors, and at any such offices, both in and out of the State of Nevada, the
holders of a majority of the stock issued and outstanding, or a majority of the
Board of Directors, or Executive Committee shall have power to hold meetings,
elections and sessions and to transact any and all business and to keep the
books, documents, and assets of the company.
THIRD: The nature of the business, objects and purposes of this
-----
corporation shall be to engage in any lawful business, whether specifically
outlined hereinafter or not and, further;
1. To search for, prospect and explore for ores and mining minerals and
to locate mining claims, grounds, or lodes in the United States of America or
the territories thereof, or in foreign countries, record the same, pursuant to
the mining laws of the United States or other countries; and to acquire maining
and mineral rights or interest therein when desirable; to mine, quarry, work,
and develop mining grounds, claims or lodes, mining and mineral rights, to
crush, concentrate, smelt, refine, dress, amalagamate and prepare for market
ores, metals and minerals substances or all kinds, and to do all other acts and
things necessary or conductive to the company's objects, including the erection
of buildings or works, and the installing of machinery and appliances of every
description whenever required; to mortgage any mining grounds, claims or lodes,
mining and mineral rights, or other property belonging to said company, and to
issue bonds of the company whenever it may be determined to do so.
To purchase, acquire by lease, license or otherwise, mining grounds, claims
or lodes, mining and mineral rights, concessions or grants, or any interest
therein, and to obtain patents therefor when desirable.
To buy, sell and deal in ores and minerals, plants, machinery, tools,
implements, groceries, provisions, clothing, boots and shoes, furnishing
articles, hardware, wooden and metallic ware, with all other articles, and
things in any wise required or capable of being used in connection with mining
operations, and to make and manufacture such articles when required.
To construct, carry out, maintain, improve, equip, manage, control or
superintend any roads, ways, private railways, private tramways, bridges,
reservoirs, watercourses, aqueducts, wharves, piers, docks, bulkheads, mills,
crushing, concentrating and smelting works, hydraulic works, factories, dwelling
houses, and warehouses; to purchase vessels or other means of transportation
except railroads, other than private railroads and equip and operate the same as
required for the uses and purposes of the company, and also to do any other acts
and things relating to mining.
<PAGE>
2. To acquire, own, work, lease, mortgage, sell and dispose of any mines,
mining rights and metalliferous land, and any interest therein, and to explore,
work, exercise, develop and turn, to account the same.
To crush, win, get, quarry, smelt, calcine, refine, dress, amalgamate,
manipulate and prepare for market, ore, metal and mineral substances of all
kinds, and to carry out any other metal lurgical operations which may seem
conducive to any of the company objects, including non-metallic substances, and
the location of placer as well as lode mining claims.
To buy, sell, manufacture and deal in minerals, plants, machinery,
implements, conveniences, provisions and things capable of being used in
connection with metallurgical operations, or re-quired by workmen and employed
by the company.
To conduct, carry out, maintain, improve manage, work, control and
superintend any roads, ways, tramways, railways, bridges, reservoirs,
watercourses, aqueducts, wharves, furnaces, sawmills, crushing works, hydraulic
works, electrical works, factories, warehouses, ships and other works and
conveniences which may be necessary directly or indirectly, in connection with
any of the objects of the company and to contribute thereto, subsize or
otherwise aid or take part in any such operations.
3. To mine, mill, stamp, reduce, smelt, purchase and sell ores and
minerals and other products and to construct such buildings and works as may be
deemed proper therefor or for any fo the purposes hereinafter mentioned, to
locate purchase, hire, contract for or otherwise acquire, hold, use, sell, lease
or otherwise dispose of any mines, minerals, lands mining property, mill sites,
tunnel sites or interests in the same, and such other property as may be
advantageous for the development of the same; to issue stock to the amount of
the value thereof in, payment therefor; to manufacture, purchase, acquire,
erect, hold, use, sell and dispose of any mining or milling smelting machinery
and tools materials suitable for or applicable to any such purpose, and to do
perform any and every act, work and labor necessary or advisable for the due
economical and skillful working of such mine or mines and for the milling,
smelting, reduction, extraction, transportation and sale of such ores or
minerals.
4. To purchase or otherwise own and deal in stocks, bonds, mortgages,
debentures, securities and obligations of every nature, and to acquire, own,
hold, lease, manage, dispose of and deal in real and personal property of every
kind and nature, both within and without the State of Nevada; to receive,
collect and dispose of interest, dividends and income upon, for an from any of
the stocks, bonds, mortgages, debentures, securities, obligations, and other
property held or owned by it, and to exercise in respect of all such stocks,
bonds, mortgages, debentures, securities, and obligations of individual owners
thereof; to do any and all acts and things tending to increase the value of the
property at any time held by the corporation; to furnish capital, materials,
etc. in the organization and development of corporations and business
enterprises; to borrow for use in its corporate business, and to secure the same
by obligation, pledges or otherwise to issue bonds and debentures, and to secure
the same by pledges or deeds of trust or mortgages of or upon the whole or any
part of the property held by the corporation an to sell or pledge such bonds and
debentures for corporate purposes as and when the Board of Directors shall
determine.
To build upon or otherwise improve and develop real estate owned or held by
the corporation, and to examine and guarantee the title of lands.
To act as agent for leasing, managing, mortgaging, buying, selling and
improving the real estate, and to act as agent in buying and selling stocks,
bonds, mortgages, debentures, securities and obligations of every nature and to
collect interest or dividends thereon; to act as agent in the management and
investment of estates or funds of any nature, with full powers of agency in the
premises, and to act under appointments made by power of attorney or otherwise
in any matter, transaction or thing whatsoever; to guarantee the payment of
<PAGE>
principal and interest of mortgages and other securities, and in general, to
make any contract or guarantee which the directors may deem avisable.
5. To manufacture, sell and lease to other corporations and to public and
private consumers gas and oil machines, appliances and devices of all kinds, for
the production, supply and use of light, heat, power and all goods, wares,
merchandise, property and substances now used in the production thereof, or
incidental thereto or that may be invented, discovered or become known therein
and to manufacture, contract for and furnish light, heat and power to other
persons, firms and corporations, public or private.
6. To acquire by purchase or otherwise, own, hold, buy, sell, convey,
lease, mortgage or encumber real estate or other property, personal or mixed.
To survey, subdivide, plat, improve and develop lands for purposes of sale
or otherwise, and to do and perform all things needful and lawful for the
development and improvement of the same for residence, trade or business.
To purchase, construct, lease, operate and maintain electric lighting and
power plants, buildings, constructions, machinery, appliances, equipment,
fixtures, easements and appurtenances.
To purchase, construct, lease, operate and maintain telephone lines and
lines for electric light and power purposes.
To furnish, construct, for electric light and power purposes and all
appliances incident or necessary thereto.
To purchase, construct, lease, operate and maintain tramsways, rights of
way, easements and adburtenances.
To construct, purchases or otherwise acquire, maintain, repair and operate
waterworks, and to sell, lease, lease or rent water and water rights and
privileges.
To buy, sell and generally trade in, store, carry and transport all kinds
of goods, wares merchandise, provisions and supplies.
7. To operate commissaries, and to apply for and receive licenses or
permits of all kinds and characters permissible by law or when required by laws.
8. To loan money secured by mortgages on personal property or real
estate, also to buy, sell and deal in bonds, notes loans secured by mortgages or
other liens on personal or real estate; also to purchase, hold, improve, sell or
exchange real estate; also to purchase, sell and deal in notes, bonds, stocks,
securities or investments of any kind, with full power to borrow such moneys as
it may require for the purpose of its business.
9. To acquire, by purchase or otherwise, and to build, own, control,
operate and maintain mills and works for the crushing, sampling and treating of
mineral bearing ores, and for the smelting reduction and extraction of all kinds
of mineral-bearing ores, and to buy, sell, assay, hold, store, ship and deal in
such ores and their products.
10. To acquire water by purchase, development or otherwise, to
construction reservoirs or water towers, erect pumping machinery, laying of
water mains, gates, valves and hydrants to furnish and sell water to
manufactories, private corporations and individuals for fire protection
manufacturing and domestic use, and to collect payment or rentals for the same.
11. To purchase, lease, hire or otherwise acquire real and personal
property, improved and unimproved, of every kind and description, and to sell,
dispose of, lease, convey and mortgage said property or any part thereof.
<PAGE>
To acquire, hold, lease, manage, operate, develop, control, build, erect,
maintain for the purposes of said company, construct, reconstruct or purchase,
either directly or through ownership of stock in any corporation, any lands,
buildings, offices, stores, warehouses, mills, shops, factories plants, gas
houses, machinery, rights, easements, permits, priviledges, franchises and
licenses, and all other things which may at any time be necessary to convenient
in the judgment of the Board of Directors for the purposes of the company.
To sell, lease, hire or otherwise dispose of the lands, buildings or other
property of the company, or any part thereof.
12. To purchase, hold, sell and transfer the shares of its own capital
stock, provided, however, that it shall not use funds or property for the
purposes of its own shares of capital stock when such use would cause any
impairment of its capital, and provided, further, that shares of its own capital
stock belonging to it or so purchase, shall not be voted upon directly or
indirectly, nor shall such shares be considered as outstanding for the purposes
of any stockholders' meeting.
13. To purchase, acquire, hold and dispose of stock, bonds, and other
obligations, including judgments, interest, accounts, or debts of any
corporation, domestic or foreign (except moneyed or transportation or banking or
insurance corporations) owning or controlling articles which are or might become
useful in the business of this company, and to purchase, acquire hold or dispose
of stocks or other obligations, including judgments, interests, accounts or
debts of any corporations, domestic or foreign (except moneyed or transportation
or banking or insurance corporations) engaged in business similar to that of
this company or engaged in the manufacture, use or sale of the property, or in
construction or operation of works necessary or useful in the business of this
company, or in which, or in connection with which, business or manufactured
articles, products or property of this company may be used, or of any
corporation with which this company may be associated.
14. To acquire and engage in the acquisition of oil leases, oil
properties, of every kind and character, and to explore in any place for oil, to
produce the same, and to build refineries, or to engage in all or any of the
facets pertaining to oil, gas or related business.
FOURTH: The total authorized capital of this corporation shall be Two
------
Hundred Fifty Thousand ($250,000) Dollars, dividend into Twenty-five Million
(25,000,000) shares of common capital stock of the par value One (1) Cent per
share.
FIFTH: The members of the governing board shall be styled "directors" and
-----
the number thereof shall not be less than three nor more than nine, which number
shall hereafter be determined at the first meeting of the stockholders. The
Board of Directors or stock holders may increase the number of said Directors.
The names and addresses of the first board of Directors are as follows:
Lowell Potter, 2007, Fairfield, Las Vegas, Nevada
Ralph I. Barber, 419 Olmenite, Henderson, Nevada
Meville Rains, 1260 Denver, Boulder City, Nevada
SIXTH: The stock of this corporation shall be fully paid and non-
-----
assessable.
SEVENTH: The private property of the stockholders, directors or officers
-------
of this company shall not be subject to the debts of this corporation in any
way, or to any extent whatsoever.
EIGHTH: No limit shall be specified for the duration of this corporation,
------
but it shall be perpetual.
<PAGE>
NINTH: The corporation may, in its by-laws, confer powers and duties upon
-----
its directors and officers in addition to the powers and authorities expressly
conferred upon them by the Statutes.
The corporation reserves the right to amend or change or repeal any
provisions of this certificate in the number required by law, or hereby
prescribed by statutes, and all rights conferred upon stockholders, herein
granted are granted subject to this reservation.
The corporation may from time to time determine whether and to what extent,
and the times and places and upon what conditions the books and assets of the
corporation, or any of them, (other than the stock ledger) shall be open to the
inspection of the stockholders, and no stockholder shall have any right to
inspect any account, book or document of the company, except as conferred by law
or by its resolution of the directors or stockholders.
TENTH: Any resolution, contract or action in writing, signed by the
-----
holders of a majority of the stock issued and outstanding or by the Board of
Directors or by the Executive Committee shall constitute legal action by the
said stockholders, or by the said Board of Directors or the said Executive
Committee, with the same force and effect as if the same had been dully approved
by legal vote at a regular meeting and legal session of the stockholders or
Board of Directors or Executive Committee, and the secretary shall enter he same
in the proper corporate book under the proper date.
IN WITNESS WHEREOF, the said Incorporators have hereunto set
<PAGE>
their hands this 24th day of March, 1955.
--------
/s/ Lowell Potter
-----------------------------------------
/s/ Ralph I. Barber
----------------------------------------
/s/ Meville Rains
----------------------------------------
STATE OF NEVADA)
)SS:
COUNTY OF CLARK)
On this 24th day of March, 1955, before me, the undersigned, personally
-------
appeared LOWELL POTTER, RALPH I. BARBER and MELVILLE RAINS, known to be to be
the persons described in and who executed the foregoing instrument, and who
acknowledged to me that they executed the same freely and voluntarily and for
the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
/s/ Ruby Shaffer
-------------------------------------------
Notary Public in and for said
County and State
My Commission Expires, January 8, 1957
<PAGE>
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
YELLOW WING URANIUM
-------------------
FILED AT THE REQUEST OF
Woodburn, Forman, Wedge, Blakey, Folsom & Hug
Attorneys at Law
One East First Street, Reno, Nevada
-----------------------------------
November 21, 1969
-----------------
/s/ John Koontz
---------------------------------
John Koontz, Secretary of State
/s/ John R. Woodburn
----------------------------
By Deputy Secretary of State
No. 400-55
------
Filing Fee $ 20.00
-------
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION OF YELLOW WING URANIUM CORPORATION
Pursuant to the provisions of Section 78.385 of the Private Corporation
Code of Nevada the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation.
FIRST: The name of the corporation is
-----
YELLOW WING URANIUM CORPORATION
SECOND: The following Amendments of the Articles of Incorporation was
------
adopted by the shareholders of the Corporation on November 19th, 1969, in the
number prescribed by the statues of the State of Nevada:
Article First was amended to read as follows:
"The name of the corporation is PETROLEUM DEVELOPMENT CORPORATION."
Article Second was amended to read as follows:
"The principal place of business and office of the corporation is to be
located in the State of Nevada, in the City of Reno, County of Washoe; but the
company may maintain such other office or offices and may make such changes
thereof, in and out of the State of Nevada, as may be prescribed in the By-Laws
or resolutions of the stockholders, or Board of Directors, and at any such
offices, both in and out of the State of Nevada, the holders of a majority of
the stock issued and outstanding, or a majority of the Board of Directors, or
Executive Committee shall have power to hold meetings, elections and sessions
and to transact any and all business and to keep the books, documents and assets
of the company."
Article Third was amended to read as follows:
"The nature of the business, objects and purposes of the surviving
Corporation shall be to engage in any lawful business, whether specifically
outlined hereafter or not are:
1. To buy, own, acquire, sell, retain, deal in, or otherwise dispose of
absolutely or contingently petroleum and/or gas property and interests (whether
like or different) and any right, title or interest therein and to do all other
acts and things required to be done in connection therewith either within or
without the States of Nevada and California.
-1-
<PAGE>
To explore, prospect, drill fork produce, market, sell and deal in and with
petroleum, mineral, animal, vegetable, and other oils, asphaltum, natural gas,
gasoline, naphene, hydrocarbons, oil shales, sulphur, salt, clay, coal,
minerals, mineral substances, metals, ores of every kind or other mineral or
non-mineral, liquid, solid, or volatile substances and products, by-products,
combinations, and derivatives thereof, and to buy, lease, hire, contract for,
invest in, and otherwise acquire, and to own, hold, maintain, equip operate, and
otherwise dispose of oil, gas, mineral, and mining lands, wells, mines,
quarries, rights, royalties, overriding royalties, oil payments, and other oil,
gas and mineral interests, claims, locations, patents, concessions, easements,
rights of way, franchises, real and personal property, and all interests
therein, tanks, reservoirs, warehouses, storage facilities, elevators,
terminals, markets, docks, piers, wharves, drydocks, bulkheads, pipelines,
pumping stations, tank cars, trains, automobiles, trucks, cars, tankers, ships,
tugs, barges, boats, vessels, aircraft, and other vehicles, crafts, or machinery
for use on land, water, or air, for prospecting, exploring, and drilling for,
producing, gathering, manufacturing, refining, purchasing leasing, exchanging,
or otherwise acquiring, selling, exchanging, trading for, or otherwise disposing
of such mineral and non-mineral substances; and to do engineering and
contracting and to design, construct, drill, bore, sink, develop, improve,
extend, maintain, operate, and repair wells, mines, plants, works, machinery,
appliances, rigging, casing, tools, storage and transportation lines and systems
for this corporation and other persons, associations, or corporations.
2. To purchase or otherwise own and deal in stocks, bonds, mortgages,
debentures, securities and obligations of every nature, and to acquire, own,
oils, lease, manage, dispose of and deal in real and personal property of every
kind and nature, both within and without the State of Nevada; to receive,
collect and dispose of interest, dividends and income upon, of and from any of
the stocks, bonds, mortgages, debentures, securities, obligations and other
property held or owned by it, and to exercise in respect of all such stocks,
bonds, mortgages, debentures, securities and obligations of individual owners
thereof; to do any and all acts and things tending to increase the value of the
property at any time held by the corporation; to furnish capital, materials,
etc., in the organization and development of the corporations and business
enterprises; to borrow for use in its corporate business, and to secure the same
b obligations, pledges, mortgages or otherwise; to issue bonds and debentures,
and to secure the same by pledges or deeds of trust or mortgages of or upon the
whole for any part of the property held by the corporation and to sell or pledge
such bonds and debentures for corporate purposes as and when the Board of
Directors shall determine.
3. To purchase, hold, sell and transfer the shares of its own capital
stock, provided, however that it shall not use the funds or property for the
purchase of its own shares of capital stock when such use would cause any
impairment of its capital and to it or so purchased, shall not be voted upon
directly or indirectly, more shall such shares be considered outstanding for the
purposes of any stockholders' meeting."
Article Fourth was amended to read as follows:
"The total authorized capital of the surviving corporation shall be Two
Hundred Fifty Thousand Dollars ($250,000) divided
-2-
<PAGE>
into Twenty-Five Million shares (25,000,000) shares of common capital stock of
the par value of One Cent (1c) per share.
All common stock of the par value of Twenty Cents (20c) per share issued
and outstanding of Yellow Wing Uranium Corporation prior to November 1, 1969,
shall be surrendered and converted into the common stock of the surviving
corporation at the rate of One (1) share of the stock of Petroleum Development
Corporation for Twenty (20) shares of the common stock of Yellow Wing Uranium
Corporation."
Article Fifth was amended to read as follows.
"The members of the governing board shall be styled directors and the
number thereof shall not e less than three (3) nor more than Nine (9)."
Article Sixth was amended to read as follows:
"The stock of this corporation shall be fully paid and nonassessable. No
shareholder of this corporation shall by reason his holding shares of any class
have any pre-emptive or preferential right to purchase or subscribe to any
shares of any class of this corporation, now or hereafter to be authorized, or
any shares or other securities convertible into or carrying options or warrants
to purchase shares of any class, now or hereafter to be authorized, whether or
not the issuance of any such shares or other securities, would adversely affect
the dividend or voting rights of such holders, other than such rights, if any,
as the Board of Directors, in its discretion from time to time may grant, and at
such price as the Board of Directors in its discretion may fix; and the Board of
Directors may issue shares of any class of this corporation or other securities
convertible into or carrying options or warrants to purchase shares of any class
without offering any such shares of any class, either in whole or in part, to
the existing shareholders of any class."
THIRD: The number of shares of the Corporation outstanding at the time of
-----
such adoption was Twenty-Three Million Seven Hundred Seventy Thousand One
Hundred Fifty-Nine (23,770,159), the number of shares entitled, to vote thereon
was Twenty-Three Million
-3-
<PAGE>
Seven Hundred Seventy Thousand One Hundred Fifty-Nine (23,770,159).
FOURTH: The number of shares, voted FOR such Amendments was 13,299,210
------ --------------
shares, the number of shares votes AGAINST was none .
----------
Dates this 19th day of November, 1969.
YELLOW WING URANIUM CORPORATION
By: /s/ Lowell Potter
-------------------------------------------
President
By: /s/ Donald G. Oliver
-------------------------------------------
Secretary
STATE OF NEVADA )
) ss
COUNTY OF CLARK )
----------
I, Ann Daane , a notary public, do hereby certify that on this
-------------------
19th day of November, 1969, personally appeared before me Lowell Potter and
Donald G. Oliver, who, being by me first duly sworn, declared that they are the
President and Secretary, respectively, of Yellow Wing Uranium Corporation, that
they signed the foregoing document as President and Secretary of the
Corporation, and that the statements therein contained are true.
/s/ Ann Daane
------------------------------------------
Notary Public, residing at:
Las Vegas, Nev
My Commission Expires: /s/ Ann Daane Notary Seal
Notary Public State of Nevada
Clark County
My Commission Expires Nov. 16, 1971
-4-
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
PETROLEUM DEVELOPMENT CORPORATION
------------------------------------------------------------
Name of Corporation
We, the undersigned, Steven R. Williams, President and
----------------------------------------------
President or Vice President
Roger J. Morgan of Petroleum Development Corporation
---------------------------- ----------------------------------------
Secretary or Assistant Secretary Name of Corporation
do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 22nd day of November, 1991, adopted a resolution to amend the
original articles as follows:
Article Four (4) is hereby amended to read as follows:
The total authorized capital of this corporation shall be Two Hundred Fifty
Thousand Dollars ($250,000), consisting of Twenty-two Million Two Hundred
Fifty Thousand (22,250,000) voting shares of common capital stock of the
par value of One Cent (1 cent) per share and Two Million Seven Hundred
Fifty Thousand (2,750,000) nonvoting shares of Class A common stock of the
par value of One Cent (1 cent) per share. Each class of shares shall be
identical in all respects, except that the Class A shares (1) carry no
right to vote for the election of directors of the corporation and no right
to vote on any matter presented to the shareholders for their vote or
approval and (2) are convertible at the option of the holder thereof into
shares of voting common stock on a one-for-one basis.
The number of shares of the corporation and entitled to vote on an
amendment to the Articles of Incorporation is 7,399,539; that the said change(s)
and amendment have been consented to and approved by a majority vote of the
stockholders holding at least a majority of each class of stock outstanding and
entitled to vote thereon.
/s/ Steven R. Williams
-------------------------------
President or Vice President
/s/ Roger J. Morgan
-------------------------------
Secretary or Assistant Secretary
State of West Virginia
SS
County of Harrison
On August 26th 1997, personally appeared before me, a Notary Public,
--------
Steven R. Williams, President, and Roger J. Morgan, Secretary, who acknowledged
that they executed the above instrument.
/s/ Misty L. Finch
-------------------------------
Signature of Notary
Notary Seal
<PAGE>
Exhibit 3.2
Adopted July 15, 1997
-------------
BY-LAWS
OF
PETROLEUM DEVELOPMENT CORPORATION
(A Nevada Corporation)
ARTICLE I
OFFICES
1.01 Principal Offices. The Board of Directors shall fix the location
of the principal executive office of the Corporation at any place within or
outside the State of Nevada. If the principal executive office is located
outside the State and the Corporation has no principal office in Nevada, the
Board of Directors shall fix and designate the office of its Agent for service
as its Nevada office.
1.02 Other Offices. The officers or the Board of Directors may, at any
time, establish branch or subordinate offices at any place or places where the
Corporation is qualified to do business, and may change the location of any
office of the Corporation.
ARTICLE II
MEETING OF SHAREHOLDERS
2.01 Place of Meeting. Meetings of shareholders shall be held at any
place within or outside the State of Nevada designated by the Board of Directors
upon proper notice. In the absence of any such designation, shareholders'
meetings shall be held at the principal executive office of the Corporation.
2.02 Annual Meetings. Unless held at a time and date designated each
year by the Board of Directors in accordance with applicable law, an annual
meeting of shareholders shall be held on the last day of the week of July of
each year at 10:00 o'clock a.m. (L.T.), provided, however, that should such day
fall upon a legal holiday, then the annual meeting of shareholders shall be held
at the same time and place on the next day thereafter ensuing which is a full
business day. At the annual meeting, Directors shall be elected and any other
proper business may be transacted.
2.03 Special Meetings.
(a) A special meeting of the shareholders may be called at any time by
the Board of Directors, or by the Chairman of the Board, by the President, by
one or more shareholders holding shares which, in the aggregate, entitle them to
cast not less than ten percent (10%) of the votes at any such meeting.
(b) If a special meeting is called by any person or persons other than
the Board of Directors, the request shall be in writing specifying the time of
such meeting and the general nature of the business proposed to be transacted,
and shall be delivered personally or sent by registered mail or by telegraphic
or other facsimile transmission to the Chairman of the Board, the President, any
Vice President, or the Secretary of the Corporation. The officer receiving the
request shall cause notice to be promptly given to the shareholders entitled to
vote, in accordance with the provisions of paragraph 2.01, 2.04 and 2.05 of
this Article II, that a meeting will be held at the time requested by the person
or persons calling the meeting,
<PAGE>
not less than thirty five (35) nor more than sixty (60) days after the receipt
of the request. If the notice is not given within twenty (20) days after the
receipt of the request, the person or persons requesting the meeting may give
the notice. Nothing contained in this paragraph 2.03 shall be construed as
limiting, fixing or affecting the time when a meeting of shareholders called by
action of the Board of Directors may be held.
2.04 Notice of Shareholders' Meetings.
(a) All notices of meetings of shareholders shall be sent or otherwise
given in accordance with paragraph 2.05 not less than ten (10) nor more than
sixty (60) days before the date of the meeting being noticed. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a special
meeting, the general nature of the business to be transacted, or (ii) in the
case of the annual meeting, those matters which the Board of Directors or the
other person or persons calling the meeting, at the time of giving the notice,
intend to present for action by the shareholders. The notice of any meeting at
which Directors are to be elected shall include the names of any nominees which,
at the time of the notice, management intends to present for election.
(b) If action is proposed to be taken at any meeting for approval of
(i) a contract or transaction in which a Director has a direct or indirect
financial interest, (ii) an amendment of the Articles of Incorporation, (iii) a
reorganization of the Corporation, pursuant to, or (iv) a voluntary dissolution
of the Corporation as defined by the code of Nevada, the notice shall also state
the general nature of such proposals.
2.05 Manner of Giving Notice and Affidavit of Notice.
(a) Notice of any meeting of shareholders shall be given either
personally or by first class mail, telegraphic, express mail, or other written
communication, charges prepaid, addressed to each shareholder at the address of
such shareholder appearing on the books of the Corporation or more recently
given by the shareholder to the Corporation for the purpose of notice. If no
such address appears on the Corporation's books or has been so given, notice
shall be deemed to have been properly given to such shareholder if sent by first
class mail or telegraphic or other written communication to the Corporation's
principal executive office to the attention of such shareholder, or if published
at least once in a newspaper of general circulation in the county where such
office is located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by telegram or other means
of written communication.
(b) If any notice addressed to a shareholder at the address of such
shareholder appearing on the books of the Corporation is returned to the
Corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at such address, all future notices or reports shall be deemed to have been duly
given without further mailing if the same shall be available to the shareholder
upon written demand of the shareholder at the principal executive office of the
Corporation for a period of one (1) year from the date of the giving of such
notice.
(c) An affidavit of the mailing or other means of giving any notice of
any shareholders' meeting shall be executed by the Secretary, Assistant
Secretary or any transfer agent of the Corporation giving such notice, and shall
be filed and maintained in the minute book of the Corporation.
<PAGE>
2.06 Quorum. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote at the subject meeting of shareholders
shall constitute a quorum for the transaction of business. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum, if any action taken (other
than adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
2.07 Adjourned Meeting and Notice Thereof.
(a) Any shareholders' meeting, annual or special, whether or not a
quorum is present, may be adjourned from time to time by the vote of a majority
of the shares represented at such meeting, either in person or by proxy, but in
the absence of a quorum, no other business may be transacted at such meeting,
except as provided in paragraph 2.06.
(b) When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than forty five (45) days from the
date set for the original meeting, in which case the Board of Directors shall
set a new record date. Notice of any such adjourned meeting, if required, shall
be given to each shareholder of record entitled to vote at the adjourned meeting
in accordance with the provisions of paragraph 2.04 and 2.05. At any adjourned
meeting, the Corporation may transact any business which might have been
transacted at the original meeting.
2.08 Voting.
(a) The shareholders entitled to vote at any meeting of shareholders
shall be determined in accordance with the provisions of paragraph 2.11, subject
to the provisions of the Nevada Code (relating to voting shares held by a
fiduciary, in the name of the Corporation or in joint ownership). Such vote may
be by voice vote or by ballot; provided, however, that all elections for
Directors must be by ballot upon demand by a shareholder at such election made
before the voting begins. Any shareholder entitled to vote on any matter (other
than the election of Directors) may vote part of the shares in favor of the
proposal and refrain from voting the remaining shares or vote them against the
proposal, but if the shareholder fails to specify the number of shares such
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares such shareholder is
entitled to vote. If a quorum is present, the affirmative vote of a majority of
the shares represented at the meeting, entitled to vote and voting on any matter
(other than the election of Directors) shall be the act of the shareholders,
unless the vote of a greater number or voting by classes is required by the Code
or the Articles of Incorporation.
(b) At a shareholders' meeting involving the election of
Directors, no shareholder shall be entitled to cumulate votes
(i.e., cast for any candidate a number of votes greater than the
number of the shareholder's shares). The candidates receiving
the highest number of votes, up to the number of Directors to be
elected, shall be elected.
2.09 Waiver of Notice or Consent by Absent Shareholders.
(a) The transactions of any meeting of shareholders,
either annual or special, however called and noticed and wherever
<PAGE>
held shall be a valid as though had at a meeting duly held after
regular call and notice, if a quorum be present either in person
or by proxy, and if, either before or after the meeting, each
person entitled to vote but not present in person or by proxy,
signs a written waiver of notice, a consent to the holding of the
meeting, or an approval of the minutes thereof. The waiver of
notice, consent or approval need not specify either the business
to be transacted or the purpose of any annual or special meeting
of shareholders, except that if action is taken or proposed to be
taken for approval of any of those matters specified in paragraph
2.04(b), the waiver of notice shall state the general nature of
such proposal. All such waivers, consents and approvals shall be
filed with the corporate records or made a part of the minutes of
the meeting.
(b) Attendance of a person at a meeting shall constitute
a waiver of notice and presence at such meeting unless such
person objects at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or
convened, except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by
the Code to be included in the notice of the meeting but not so
included if such objection is expressly made at the meeting.
2.10 Record Date for Shareholder Notice, Voting and Giving
Consents.
(a) For purposes of determining the shareholders entitled
to notice of any meeting, to vote, or to give consent to
corporate action without a meeting, the Board of Directors may
fix, in advance, a record date which shall not be more than sixty
(60) days nor less than ten (10) days prior to the date of any
such meeting, nor more than sixty (60) days prior to such action
without a meeting, and in such case, only shareholders of record
at the close of business on the date so fixed are entitled to
notice and to vote or to give consents, as the case may be,
notwithstanding any transfer of any shares on the books of the
Corporation after the record date fixed at aforesaid, except as
otherwise provided in a Nevada General Corporation Law.
(b) If the Board of Directors does not so fix a record
date:
(i) the record date for determining shareholders
entitled to notice of, or to vote at, a meeting of
shareholders shall be at the close of business on the
business day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is
held; and
(ii) the record date for determining shareholders
entitled to give consent to corporate action in writing
without a meeting, (A) when no prior action by the Board has
been taken, shall be the day on which the first written
consent is given, or (B) when prior action of the Board has
been taken, shall be at the close of business on the day on
which the Board adopts the resolution relating thereto, or
the sixtieth (60th) day prior to the date of such other
action, whichever is later.
2.11 Proxies. Every person entitled to vote for Directors
or on any other matter shall have the right to do so either in
person or by one or more agents authorized by a written proxy
<PAGE>
signed by such person and filed with the Secretary of the
Corporation. A proxy shall be deemed signed if the shareholder's
name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the
shareholder or the shareholder's attorney-in-fact. A validly
executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) revoked by the
person executing it, prior to the vote pursuant thereto, by a
writing delivered to the Corporation stating that the proxy is
revoked, or by a subsequent proxy executed by the person
executing the prior proxy and presented to the meeting, or by
such person's attendance at the meeting and voting in person; or
(ii) written notice of the death or incapacity of the maker of
such proxy is received by the Corporation before the vote
pursuant thereto is counted; provided, however, that no such
proxy shall be valid after the expiration of eleven (11) months
from the date of such proxy, unless otherwise provided in the
proxy.
2.12 Inspectors of Election.
(a) Before any meeting of shareholders, the Board of
Directors may appoint any persons other than nominees for office
to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the
chairman of the meeting may, and on the request of any
shareholder or a shareholder's proxy shall, appoint inspectors of
election at the meeting. The number of inspectors shall be
either one (1) or three (3). If inspectors are appointed at the
meeting on the request of one or more shareholders or proxies,
the holders of a majority of shares or their proxies present at
the meeting, shall determine whether one (1) or three (3)
inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the
chairman of the meeting may, and upon the request of any
shareholder or shareholder's proxy shall, appoint a person to
fill the vacancy.
(b) The inspectors shall:
(i) determine the number of shares outstanding and
the voting power of each, the shares represented at the
meeting, the existence of a quorum, and the authenticity,
validity and effect of proxies;
(ii) receive votes, ballots or consents;
(iii) hear and determine all challenges and questions
in any way arising in connection with the right to vote;
(iv) count and tabulate all votes or consents;
(v) determine when the polls shall close;
(vi) determine the result; and
(vii) do any other acts that may be proper to conduct
the election or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
<PAGE>
3.01 Powers.
(a) Subject to the provisions of the Nevada Code, any
limitations in the Articles of Incorporation, and these By-Laws
relating to action required to be approved by the shareholders or
by the outstanding shares, the business and affairs of the
Corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board of Directors.
(b) Without prejudice to such general powers but subject
to the same limitations, it is hereby expressly declared that the
Directors shall have the power and authority to:
(i) select and remove all officers, agents and
employees of the Corporation, prescribe such powers and
duties for them as are not inconsistent with law, the
Articles of Incorporation, or these By-Laws, fix their
compensation, and require from them security for faithful
service;
(ii) change the principal executive office or the
principal business office of the Corporation from one
location to another; cause the Corporation to be qualified
to conduct or do business in any state, territory,
dependency, or foreign country; designate any place within
or without the State for the holding of any shareholders'
meeting or meetings, including annual meetings; adopt, make
or use a corporate seal, prescribe the forms of certificates
of stock, and alter the form of such seal and of such
certificates;
(iii) authorize the issuance of options and warrants
to purchase shares of stock of the Corporation, from time to
time, upon such terms as may be lawful, in consideration of
money paid, labor done, services actually rendered, debts or
securities cancelled, or tangible or intangible property
actually received; and
(iv) borrow money and incur indebtedness for the
purposes of the Corporation, and cause to be executed and
delivered therefor, in the corporate name, promissory notes,
bonds, debentures, deeds of trust, mortgages, pledges,
hypothecations, or other evidences of debt and securities
therefor.
3.02 Number and Qualifications of Directors. The number
of members of the Board of Directors shall be designated from time
to time by a resolution of the Board of Directors and, in absence
of such designation, the number of Directors shall be seven (7).
Except as hereinafter provided in the case of vacancies, Directors
shall be elected by the shareholders, and each Director shall be
elected for three-year term and until his successor shall be elected,
subject to removal as provide by statue.
3.03 Classes. The Board of Directors shall be divided into
three classes. At each annual meeting of the shareholders, the
successors to the Directors of the class whose term shall expire
in that year shall be elected for a term of three years so that
the term of office of one class of Directors shall expire in
each year. The number of Directors in each class shall be as
nearly equal as possible so that, except for temporary vacancies,
the number in any class shall not exceed the number in any other
class by more than one.
<PAGE>
3.04 Vacancies.
(a) Vacancies in the Board of Directors may be filled by
a majority of the remaining Directors, though less than a quorum,
or by a sole remaining Director, except that a vacancy created by
the removal of a Director by the vote or written consent of the
shareholders or by court order may be filled only by the vote of
a majority of the shares represented and voting at a duly held
meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required
quorum), or by the unanimous written consent of all shares
entitled to vote for the election of Directors. Each Director so
elected shall hold office until the next annual meeting of the
shareholders and until a successor has been elected and
qualified.
(b) A vacancy or vacancies in the Board of Directors shall
be deemed to exist in the case of the death, resignation or
removal of any Director, or if the Board of Directors, by
resolution, declares vacant the office of Director who has been
declared of unsound mind by an order of Court or convicted of a
felony, or if the authorized number of Directors is increased, or
if the shareholders fail, at any meeting of shareholders at which
any Director or Directors are elected, to elect the full
authorized number of Directors to be voted for at the meeting.
(c) The shareholders may elect a Director or Directors at
any time to fill any vacancy or vacancies not filled by the
Directors, but any such election by written consent, other than
to fill a vacancy created by removal, shall require the consent
of a majority of the outstanding shares entitled to vote.
(d) Any Director may resign upon giving written notice to
the Chairman of the Board, the President, the Secretary or the
Board of Directors. A resignation shall be effective upon the
giving of the notice, unless the notice specifies a later time
for its effectiveness. If the resignation of a Director is
effective at a future time, the Board of Directors may elect a
successor to take office when the resignation becomes effective.
(e) No reduction of the authorized number of Directors
shall have the effect of removing any Director prior to the
expiration of his term of office.
3.05 Place of Meeting and Telephonic Meetings. Regular
meetings of the Board of Directors may be held without notice at
any time and at any place within or outside the State of Nevada
that may be designated by these By-Laws, or from time to time by
resolution of the Board. In the absence of the designation of a
place, regular meetings shall be held at the principal executive
office of the Corporation. Special meetings of the Board shall
be held at any place that has been designated in the notice of
the meeting or, if not stated in the notice, at the principal
executive office of the Corporation. Any meeting, regular or
special, may be held by conference telephone or similar
communications equipment, so long as all Directors participating
in such meeting can hear one another, and all such Directors
shall be deemed to be present in person at such meeting.
3.06 Annual Meetings. Immediately following each annual
meeting of shareholders, the Board of Directors shall hold a
regular meeting for purposes of organization, any desired
election of officers, and the transaction of other business.
Notice of such meeting shall not be required.
<PAGE>
3.07 Other Regular Meetings. Other regular meetings of the
Board of Directors may be held not less than quarterly as shall
from time to time be fixed by the Board of Directors. Such
regular meetings may be held without notice but provided notice
and an agenda shall be furnished to all Directors when time
permits.
3.08 Special Meetings.
(a) Special meetings of the Board of Directors for any
purpose or purposes may be called at any time by the Chairman of
the Board, the President, any Vice President, the Secretary or
any two (2) Directors.
(b) Notice of the time and place of special meetings shall
be delivered personally or by telephone to each Director or sent
by first class mail or telegram, charges prepaid, addressed to
each Director at his or her address as it is shown upon the
records of the Corporation. In case such notice is mailed, it
shall be deposited in the United States mail at least four (4)
days prior to the time of the holding of the meeting. In case
such notice is delivered personally, or by telephone or telegram,
it shall be deliver personally or by telephone or to the
telegraph company at least forty eight (48) hours prior to the
time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated to either the
Director or to a person at the office of the Director who the
person giving the notice has reason to believe will promptly
communicate it to the Director. The notice need not specify the
purpose of the meeting nor the place if the meeting is to be held
at the principal executive office of the Corporation.
3.09 Quorum. A majority of the authorized number of
Directors shall constitute a quorum for the transaction of
business, except to adjourn as hereinafter provided. Every act
or decision done or made by a majority of the Directors present
at a meeting duly held at which a quorum is present shall be
regarded as the act of the Board of Directors. A meeting at
which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of Directors, if any
action taken is approved at least a majority of the required
quorum for such meeting.
3.10 Waiver of Notice. The transactions of any meeting
of the Board of Directors, however called and noticed and
wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice if a quorum is present and if,
either before or after the meeting, each of the Directors not
present signs a written waiver of notice thereof. The waiver of
notice or consent need not specify the purpose of the meeting.
All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Notice of a meeting shall also be deemed given to any Director
who attends the meeting without protesting, prior thereto or at
its commencement, the lack of notice to such Director.
3.11 Adjournment. A majority of the Directors present,
whether or not constituting a quorum, may adjourn any meeting to
another time and place.
3.12 Notice of Adjournment. Notice of the time and place
of holding an adjourned meeting need not be given, unless the
meeting is adjourned for more than twenty four (24) hours, in
which case notice of such time and place shall be given, prior to
<PAGE>
the time of the adjourned meeting, to the Directors who were not
present at the time of the adjournment.
3.13 Action Without Meeting. Any action required or
permitted to be taken by the Board of Directors may be taken
without a meeting if all members of the Board shall individually
or collectively consent in writing to such action. Such action
by written consent shall have the same force and effect as a
unanimous vote of the Board of Directors. Such written consent
or consents shall be filed with the minutes of the proceedings of
the Board.
3.14 Fees and Compensation of Directors. Directors and
members of committees may receive such compensation, if any, for
their services, and such reimbursements of expenses as may be
fixed or determined by resolution of the Board of Directors.
Nothing herein contained shall be construed to preclude any
Director from serving the Corporation in any other capacity as an
officer, agent, employee, or otherwise, and receiving
compensation for such services.
ARTICLE IV
COMMITTEES
4.01 Committees of Directors. The Board of Directors may,
by resolution adopted by a majority of the authorized number of
Directors, designate one (1) or more committees, each consisting
of two (2) or more Directors, to serve at the pleasure of the
Board. The Board may designate one (1) or more Directors as
alternate members of any committee who may replace any absent
member or members at any meeting of the committee. The
appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of
Directors. Any such committee, to the extent provided in the
resolution of the Board, shall have all the authority of the
Board, except with respect to:
(a) the approval of any action which, under the Code,
also requires shareholders' approval or approval of the
outstanding shares;
(b) the filling of vacancies on the Board of
Directors or on any committee;
(c) the fixing of compensation of the Directors for
serving on the Board or on any committee;
(d) the amendment or repeal of by laws or the
adoption of new by laws;
(e) the amendment or repeal of any resolution of the
Board of Directors which, by its express terms, is not so
amendable or repealable;
(f) the appointment of any other committees of the
Board of Directors or the members thereof.
4.02 Meetings and Action of Committees. Meetings and
action of committees shall be governed by, and be held and taken
in accordance with, the provisions of Article III of these By-
Laws, paragraph 3.05 (place of meetings and telephonic meetings),
paragraph 3.07 (regular meetings), paragraph 3.08 (special
meetings and notice), paragraph 3.09 (quorum), paragraph 3.10
<PAGE>
(waiver of notice), paragraph 3.11 (adjournment), paragraph 3.12
(notice of adjournment), and paragraph 3.13 (action without
meeting), with such changes in the context of those Sections as
are necessary to substitute the committee and its members for the
Board of Directors and its members, except that the time of
regular meetings of committees may be determined by resolution of
the Board of Directors as well as the committee, special meetings
of committees may also be called by resolution of the Board of
Directors, and notice of special meetings of committees shall
also be given to all alternate members who shall have the right
to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not
inconsistent with the provisions of these By-Laws.
ARTICLE V
OFFICERS
5.01 Officers. The officers of the Corporation shall be
a Chairman of the Board or a President, or both, a Secretary, and
a Chief Financial Officer. The Corporation may also have, at the
discretion of the Board of Directors, one or more Vice
Presidents, a Treasurer, one or more Assistant Secretaries, one
or more Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of paragraph 5.03 of
this Article V. Any number of officers may be held by the same
person.
5.02 Election of Officers. The officers of the
Corporation, except such officers as may be appointed in
accordance with the provisions of paragraph 5.03 or paragraph
5.05 of this Article V, shall be chosen by the Board of
Directors, and each shall serve at the pleasure of the Board,
subject to the rights, if any, of an officer under any contract
of employment.
5.03 Subordinate Officers, Etc. The Board of Directors may
appoint, and may empower the President to appoint, such other
officers as the business of the Corporation may require, each of
whom shall hold office for such period, have such authority, and
perform such duties as are provided in the By-Laws or as the
Board of Directors may from time to time determine.
5.04 Removal and Resignation of Officers.
(a) Subject to the rights, if any, of an officer under any
contract of employment, any officer may be removed, either with
or without cause, by the Board of Directors, at any regular or
special meeting thereof, or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such
power of removal may be conferred by the Board of Directors.
(b) Any officer may resign at any time by giving written
notice to the Corporation. Any such resignation shall take
effect upon the giving of such notice or at any later time
specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective. Any such resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which
the officer is a party.
5.05 Vacancies in Offices. A vacancy in any office because
<PAGE>
of death, resignation, removal, disqualification or any other
cause shall be filled in the manner prescribed in these By-Laws
for regular appointments to such office.
5.06 Chairman of the Board. The Chairman of the Board, if
such an officer be elected, shall, if present, preside at all
meetings of the Board of Directors and exercise and perform such
other powers and duties as may be, from time to time, assigned to
him by the Board of Directors or prescribed by the By-Laws,
including, without limitation, the designation of Chief Executive
Officer ("CEO").
5.07 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 such be the
general manager and 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
the officers of the Corporation. He shall preside at all
meetings of the shareholders and, in the absence of the Chairman
of the Board, or if there be none, at all meetings of the Board
of Directors. He 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.
5.08 Vice Presidents. In the absence or disability of the
President, the Vice Presidents, if any, in order of their rank as
fixed by the Board of Directors, or, if not ranked, a Vice
President designated by the Board of Directors, shall perform all
the duties of the President, and when so acting shall have all
the powers of, and be subject to, all the restrictions upon the
President. The Vice Presidents shall have such other powers and
perform such other duties as from time to time may be prescribed
for them respectively by the Board of Directors, the By-Laws, or
the President, or Chairman of the Board if there is no President.
5.09 Secretary.
(a) The Secretary shall keep or cause to be kept at the
principal executive office, or such other place as the Board of
Directors may designate, a book of minutes of all meetings and
actions of Directors, committees of Directors, and shareholders,
with the time and place of holding, whether regular or special,
and, if special, how authorized, the notice thereof given, the
names of those present at Directors' and committee meetings, the
number of shares present or represented at shareholder's
meetings, and the proceedings thereof.
(b) The Secretary shall keep or cause to be kept at the
principal executive office, or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the
Board of Directors, a share register or a duplicate share
register showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the
number and date of certificates issued for the same, and the
number and date of cancellation of every certificate surrendered
for cancellation.
(c) The Secretary shall give, or cause to be given, notice
of all meetings of the shareholders and of the Board of Directors
required by the By-Laws or by law to be given, and shall keep the
seal of the Corporation, if one be adopted, in safe custody, and
shall have such other powers and perform such other duties as may
<PAGE>
be prescribed by the Board of Directors or by the By-Laws.
5.10 Treasurer and Chief Financial Officer.
(a) The Treasurer and Chief Financial Officer shall keep
and maintain, or cause to be kept and maintained, adequate and
correct books and records of accounts of the properties and
business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses,
capital, retained earnings and shares. The book of accounts
shall be open at all reasonable times to inspection by any
Director.
(b) The Chief Financial Officer shall cause to be
deposited all moneys and other valuables in the name and to the
credit of the Corporation with such depositaries as may be
designated by the Board of Directors. He shall cause the funds
of the Corporation to be disbursed as he may be properly directed
from time to time, shall render to the President and Directors,
whenever they request it, an account of all his transactions as
Chief Financial Officer and of the financial condition of the
Corporation, and shall have other powers and perform such other
duties as may be prescribed by the Board of Directors or by By-
Laws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS
6.01 Agents, Proceedings and Expenses. For the purposes
of this Article, "agent" means any person who is or was a
Director, officer, employee, or other agent of this Corporation,
or is or was serving at the request of this Corporation as a
Director, officer, employee, or other agent of another foreign or
domestic corporation, partnership, joint venture, trust or other
enterprise, or was a Director, officer, employee, or agent of a
foreign or domestic corporation which was a predecessor
corporation of this Corporation or of another enterprise at the
request of such predecessor corporation; "proceeding" means any
threatened, pending or completed action or proceeding, whether
civil, criminal, administrative, or investigative; and "expenses"
includes, without limitation, attorneys' fees and any expenses of
establishing a right to indemnification under paragraph 6.04 or
paragraph 6.05(c) of this Article VI.
6.02 Actions Other Than by the Corporation. This
Corporation shall indemnify any person who was or is a party, or
is threatened to be made a party, to any proceeding (other than
an action by or in the right of this Corporation to procure a
judgment in its favor) by reason of the fact that such person is
or was an agent of this Corporation, against expenses,
judgements, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding, if that
person acted in good faith and in a manner that person reasonably
believed to be in the best interests of this Corporation, and, in
the case of a criminal proceeding, had no reasonable cause to
believe the conduct of that person was unlawful. The termination
of any 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 the person reasonably believed to be
in the best interests of this Corporation or that the person had
reasonable cause to believe that the person's conduct was
<PAGE>
unlawful.
6.03 Actions by the Corporation. This 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
by or in the right of this Corporation to procure a judgment in
its favor by reason of the fact that that person is or was an
agent of this Corporation, against expenses actually and
reasonably incurred by that person in connection with the defense
or settlement of that action if that person acted in good faith,
in a manner that person believed to be in the best interests of
this Corporation, and with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would
use under similar circumstances. No indemnification shall be
made under this paragraph 6.03:
(a) in respect of any claim, issue or matter as to
which that person shall have been adjudged to be liable to
this Corporation in the performance of that person's duty to
this Corporation, unless and only to the extent that the
court in which that proceeding is or was pending shall
determine upon application that, in view of all the
circumstances of the case, that person is fairly and
reasonably entitled to indemnity for the expenses which the
court shall determine;
(b) of amounts paid in settling or otherwise
disposing of a threatened or pending action, with or without
court approval; or
(c) of expenses incurred in defending a threatened or
pending action which is settled or otherwise disposed of
without court approval.
6.04 Successful Defense by Agent. To the extent that an
agent of this Corporation has been successful on the merits in
defense of any proceeding referred to in paragraph 6.02 or 6.03
of this Article VI, or in defense of any claim, issue, or matter
therein, the agent shall be indemnified against expenses actually
and reasonably incurred by the agent in connection therewith.
6.05 Required Approval. Except as provided in paragraph
6.04 of this Article, any indemnification under this Article
shall be made by this Corporation only if authorized in the
specific case upon a determination that indemnification of the
agent is proper in the circumstances because the agent has met
the applicable standard of conduct set forth in paragraph 6.02 or
6.03 of this Article VI, by:
(a) a majority vote of a quorum consisting of
Directors who are not parties to the proceeding;
(b) approval by the affirmative vote of a majority of
the shares of this Corporation represented and voting at a
duly held meeting at which a quorum is present (which shares
voting affirmatively also constitute at least a majority of
the required quorum), or by the written consent of holders
of a majority of the outstanding shares entitled to vote
(for this purpose, the shares owned by the person to be
indemnified shall not be entitled to vote thereon); or
(c) the court in which the proceeding is or was
pending, upon application made by this Corporation or the
agent or the attorney or other person rendering services in
<PAGE>
connection with the defense, whether or not such application
by the agent, attorney, or other person is opposed by this
Corporation.
6.06 Advance of Expenses. Expenses incurred in defending
any proceeding may be advanced by this Corporation before the
final disposition of the proceeding upon receipt of an
undertaking by or on behalf of the agent to repay the amount of
the advance unless it shall be determined ultimately that the
agent is entitled to be indemnified as authorized in this Article
VI.
6.07 Other Contractual Rights. Nothing contained in this
Article VI shall affect any right to indemnification to which
persons other than Directors and officers of this Corporation or
any subsidiary hereof may be entitled by contract or otherwise.
6.08 Limitations. No indemnification or advance shall be
made under this Article VI, except as provided in paragraph 6.04
or paragraph 6.05(c), in any circumstance where it appears:
(a) that it would be inconsistent with a provision of
the Articles, these By-Laws, a resolution of the
shareholders, or an agreement in effect at the time of the
accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other
amounts were paid which prohibits or otherwise limits
indemnification; or
(b) that it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
6.09 Insurance. This Corporation may, upon a determination
by the Board of Directors, purchase and maintain insurance on
behalf of any agent of the Corporation against any liability
which might be asserted against or incurred by the agent in such
capacity, or which might arise out of the agent's status as such,
whether or not this Corporation would have the power to indemnify
the agent against that liability under the provisions of this
Article VI.
6.10 Fiduciaries of Corporate Employee Benefit Plan. This
Article VI does not apply to any proceeding against any trustee,
investment manager, or other fiduciary of an employee benefit
plan in that person's capacity as such even though that person
may also be an agent of this Corporation as defined in paragraph
6.01 of this Article VI. This Corporation may, however, upon
approval in accordance with paragraph 6.05, indemnify and
purchase and maintain insurance on behalf of any fiduciary to the
extent permitted by the laws of the State of Nevada.
6.11 Amendment to Nevada Law. In the event that Nevada law
regarding indemnification of Directors, officers, employees and
other agents of corporations, as in effect at the time of
adoption of these By-Laws, is subsequently amended in any way
increase the scope of permissible indemnification beyond that set
forth herein, the indemnification authorized by this Article VI
shall be deemed to be coextensive with that afforded by the
Nevada law as so amended.
ARTICLE VII
CORPORATE LOANS AND GUARANTEES TO DIRECTORS, OFFICERS AND
<PAGE>
EMPLOYEES
7.01 Limitation on Corporate Loans and Guarantees. Except
as provided in paragraph 7.02 of this Article VII this
Corporation shall not make any loan of money or property to, or
guarantee any obligation of:
(a) any Director or officer of the Corporation or of
its parent or any subsidiary, or
(b) any person, upon the security of shares of this
Corporation or of its parent, unless the loan or guaranty is
otherwise adequately secured,
except by the vote of the holders of a majority of the shares of
all classes, regardless of limitations or restrictions on voting
rights, other than shares held by the benefited Directors,
officer or person.
7.02 Permissible Corporate Loans and Guarantees. This
Corporation may lend money to, guarantee any obligation of, or
otherwise assist any officer or other employee of this
Corporation or of any subsidiary, including any Director, officer
or employee who is also a Director, pursuant to an employee
benefit plan (including, without limitation, any stock purchase
or stock option plan) available to executives or other employees,
whenever the Board determines that such loan or guaranty may
reasonably be expected to benefit the Corporation. Such loan,
guaranty or other assistance may be with or without interest and
may be unsecured or secured in such manner as the Board shall
approve, including, without limitation, a pledge of shares of the
Corporation. This Corporation may advance money to a Director,
officer or employee of the Corporation or of its parent or any
subsidiary for expenses reasonably anticipated to be incurred in
the performance of the duties of such Director, officer or
employee, provided that, in the absence of such advance, such
Director, officer or employee would be entitled to be reimbursed
for such expenses by such Corporation, its parent or any
subsidiary.
ARTICLE VIII
GENERAL CORPORATE MATTERS
8.01 Record Date for Purposes Other Than Notice and Voting.
(a) For purposes of determining the shareholders entitled
to receive payment of any dividend or other distribution or
allotment of any rights or entitled to exercise any rights in
respect of any other lawful action (other than for the purposes
prescribed by paragraph 2.11 of Article II of these By-Laws), the
Board of Directors may fix, in advance, a record date, which
shall not be more than sixty (60) days prior to any such action,
and in such case only shareholders of record at the close of
business on the date so fixed are entitled to receive the
dividend, distribution or allotment of rights or to exercise the
rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Corporation after the record date
fixed as aforesaid, except as otherwise provided in Nevada
General Corporation Law.
(b) If the Board of Directors does not so fix a record
date, the record date for determining shareholders for any such
<PAGE>
purpose shall be at the close of business on the day on which the
Board adopts the resolution relating thereto, or the sixtieth
(60th) day prior to the date of such action, whichever is later.
8.02 Checks, Drafts, Evidences of Indebtedness. All
checks, drafts or other orders for payment of money, notes or
other evidences of indebtedness, issued in the name of or payable
to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be
determined by resolution of the Board of Directors. Such
signature(s) or endorsement(s) may be by facsimile or printed
signature of the officer.
8.03 Corporate Contracts and Instruments; How Executed.
The Board of Directors, except as otherwise provided in these By-
Laws, may authorize any officer(s) or agent(s) to enter into any
contract or execute any instrument in the name of and on behalf
of the Corporation, and such authority may be general or confined
to specific instances; and, unless authorized or ratified by the
Board of Directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to
bind the Corporation by any contract or engagement, to pledge its
credit, or to render it liable for any purpose or to any amount.
8.04 Certificates for Shares. A certificate or
certificates for shares of the capital stock of the Corporation
shall be issued to each shareholder when any such shares are
fully paid, and the Board of Directors may authorize the issuance
of certificates for shares as partly paid, provided that such
certificates shall state the amount of the consideration to be
paid therefor and the amount paid thereon. All such statements
or references thereto appearing on the face of the certificate
shall be conspicuous. All certificates shall be signed in the
name of the Corporation by the Chairman of the Board, the
President, a Vice President, the Secretary, or any Assistant
Secretary certifying the number of shares and the class or series
of shares owned by the shareholder. Any or all of the signatures
on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to
be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with
the same effect as if such person were an officer, transfer agent
or registrar at the date of issue.
8.05 Lost Certificates. Except as hereinafter provided in
this paragraph 8.05, no new certificate for shares shall be
issued in lieu of an old certificate unless the old certificate
is surrendered to the Corporation and cancelled at the same time
as such issuance. The Board of Directors may, if any share
certificate or certificate for any other security is lost, stolen
or destroyed, authorize the issuance of a new certificate in lieu
thereof, upon such terms and conditions as the Board may require,
including provision for indemnification of the Corporation
secured by a bond or other adequate security sufficient to
protect the Corporation against any claim that may be made
against it, including any expense or liability, on account of the
alleged loss, theft or destruction of such certificate or the
issuance of such new certificate.
8.06 Representation of Shares of Other Corporations. The
Chairman of the Board, the President, any Vice President, or any
other person authorized by resolution of the Board of Directors
or by any of the foregoing designated officers, is authorized to
<PAGE>
vote on behalf of the Corporation any and all shares of any other
corporation or corporations, foreign or domestic, standing in the
name of the Corporation. The authority herein granted to said
officers to vote or represent, on behalf of the Corporation, any
and all shares held by the Corporation in any other corporation
or corporations may be exercised by any such officer in person or
by any person authorized to do so by proxy duly executed by said
officer.
8.07 Construction and Definitions. Unless the context
requires otherwise, the general provisions, rules of
construction, and definitions in the Nevada General Corporation
Law shall govern the construction of these By-Laws. Without
limiting the generality of the foregoing, the singular numbers
includes the plural, the plural number includes the singular, and
the term "person" includes both a corporation and a natural
person.
ARTICLE IX
RECORDS AND REPORTS
9.01 Maintenance and Inspection of Share Register.
(a) The Corporation shall keep at its principal executive
office, or at the office of its transfer agent or registrar if
one or the other has been appointed and as determined by
resolution of the Board of Directors, a record of its
shareholders, giving the names and addresses of all shareholders
and the number and class of shares held by each shareholder.
(b) A shareholder or shareholders of the Corporation
holding at least ten percent (10%), in the aggregate, of the
outstanding voting shares of the Corporation may (i) inspect and
copy the records of shareholders' names and addresses and
shareholdings during usual business hours upon five (5) business
days' prior written demand upon the Corporation, and/or (ii)
obtain from the transfer agent of the Corporation, upon written
demand and upon the tender of such transfer agent's usual charges
for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of
Directors, and their shareholdings as of the most recent record
date for which such list has been compiled, or as of a date
specified by the requesting shareholder or shareholders
subsequent to the date of demand. Such list shall be made
available to such shareholder or shareholders by the transfer
agent on or before the later of the fifth (5th) business day
after the demand is received or the date specified in the demand
as the date as of which the list is to be compiled. The record
of shareholders shall also be open to inspection upon the written
demand of any shareholder or holder of a voting trust at any time
during usual business hours, for a purpose reasonably related to
such holder's interests as a shareholder or as the holder of a
voting trust certificate. Any inspection and copying under this
paragraph 9.01 may be made in person or by an agent or attorney
of the shareholder or holder of a voting trust certificate making
such demand.
9.02 Maintenance and Inspection of By-Laws. The
Corporation shall keep at its principal executive office, or, if
its principal executive office is not in the State of Nevada, at
its principal business office in such State, if any, the original
or a copy of the By-Laws as amended to date, which shall be open
to inspection by any shareholder upon the written demand of any
<PAGE>
such shareholder at all reasonable times during usual business
hours. If the principal executive office of the Corporation is
outside this state and the Corporation has no principal business
office in this state, the Secretary shall, upon the written
request of any shareholder, furnish to such shareholder a copy of
the By-Laws as amended to date.
9.03 Maintenance and Inspection of Other Corporate Records.
The accounting books, records, and minutes of proceedings of the
shareholders, the Board of Directors, and any committee or
committees of the Board of Directors shall be kept at such place
or places designated by the Board of Directors, or, in the
absence of such designation, at the principal executive office of
the Corporation. The minutes shall be kept in written form, and
the accounting books and records shall be kept either in written
form or in any other form capable of being converted into written
form. Such minutes, accounting books, and records shall be open
to inspection upon the written demand of any shareholder or
holder of a voting trust certificate, at any reasonable time
during usual business hours, for a purpose reasonably related to
such holder's interests as a shareholder or as the holder of a
voting trust certificate. Such inspection may be made in person
or by an agent or attorney, and shall include the right to copy
and made extracts. The foregoing rights of inspection shall
extend to the records of each subsidiary corporation of the
Corporation.
9.04 Inspection by Directors. Every Director shall have
the absolute right at any reasonable time to inspect all books,
records and documents of every kind and the physical properties
of the Corporation and each of its subsidiary corporations. Such
inspection by a Director may be made in person or by agent or
attorney, and the right of the inspection includes the right to
copy and make extracts.
9.05 Annual Report to Shareholders. The Chairman of the
Board or the President shall make an annual report to the
shareholders, but nothing herein shall be interpreted as
prohibiting the Board of Directors from issuing such annual or
other periodic reports to the shareholders of the Corporation as
they consider appropriate.
9.06 Financial Statements.
(a) A copy of any annual financial statement and any
income statement of the Corporation for each quarterly period of
each fiscal year, and any accompanying balance sheet of the
Corporation as of the end of each such period, which have been
prepared by the Corporation shall be kept on file in the
principal executive office of the Corporation for twelve (12)
months from their respective dates, and each such statement shall
be exhibited at all reasonable times to any shareholder
requesting an examination of any such statement or a copy thereof
shall be mailed to any such shareholder.
(b) If a shareholder or shareholders holding at least ten
percent (10%), in the aggregate, of the outstanding shares of any
class of stock of the Corporation make a written request to the
Corporation for an income statement of the Corporation for the
three (3) month, six (6) month, or nine (9) month period of the
current fiscal year having ended more than thirty (30) days prior
to the date of the request, and a balance sheet of the
Corporation as of the end of such period, the Chief Financial
Officer shall cause such statement to be prepared, if not already
<PAGE>
prepared, in written form. Such minutes, accounting books, and
records shall be open to inspection upon the written demand of
any shareholder or holder of a voting trust certificate, at any
reasonable time during usual business hours, for a purpose of
reasonably related to such holder's interests as a shareholder or
as the holder of a voting trust certificate. Such inspection may
be made in person or by an agent or attorney, and shall include
the right to copy and make extracts. The foregoing rights of
inspection shall extend to the records of each subsidiary
corporation of the Corporation.
9.07 Annual Statement of General Information. The
Corporation shall each year during the calendar month in which
its Articles of Incorporation were originally filed with the
Nevada Secretary of State, or at any time during the immediately
preceding five (5) calendar months, file with the Secretary of
State of the State of Nevada, on the prescribed form, a statement
setting for the authorized number of Directors, the names and
complete business or residence addresses of all incumbent
Directors, the names and complete business or residence addresses
of the Chief Executive Officer, Secretary and Chief Financial
Officer, the street address of its principal executive office or
principal business office in this state (if any), and the general
type of business constituting the principal business activity of
the Corporation, together with a designation of the agent of the
Corporation for the purpose of service of process, as provided by
law.
ARTICLE X
AMENDMENTS
10.01 Amendment by Shareholders. New By-Laws may be adopted
or these By-Laws may be amended or repealed by the majority vote
of the holders of a majority of the outstanding shares entitled
to vote.
10.02 Amendment by Directors. Subject to the rights of the
shareholders as provided in paragraph 10.01 of this Article, the
Board of Directors may adopt, amend or repeal By-Laws, and By-
Laws may be adopted, amended or repealed by the Board of
Directors at any regular or special meeting of the Directors so
long as written notice is duly given to the Directors of the
proposed change as required hereby.
ARTICLE XI
REPEALER
By the adoption of these By-Laws, the Board of Directors
intends to and does hereby repeal the By-Laws adopted by this
Corporation dated August 2, 1985, and all amendments and
additions thereto.
<PAGE>
Exhibit 5.1
DUANE, MORRIS & HECKSCHER LLP
ATTORNEYS AT LAW
ONE LIBERTY PLACE
PHILADELPHIA, PA 19103-7396
(215) 979-1000
FAX
(215) 979-1020
122 E. 42nd STREET, SUITE 3300 1667 K STREET N.W., SUITE 700
NEW YORK, NY 10168 WASHINGTON, D.C. 20006-1608
305 NORTH FRONT STREET, 5th FLOOR 1201 MARKET STREET, SUITE 1500
HARRISBURG, PA 17108-1003 WILMINGTON, DE 19801-0195
735 CHESTERBROOK BOULEVARD 314 S. STATE STREET
WAYNE, PA 19087-5638 DOVER, DE 19901
968 POSTAL ROAD, SUITE 200 51 HADDONFIELD ROAD, SUITE 340
ALLENTOWN, PA 18109-0400 CHERRY HILL, NJ 08002-4810
777 SOUTH FLAGLER DRIVE, SUITE 800W ONE GATEWAY CENTER, SUITE 1210
WEST PALM BEACH, FL 33401 NEWARK, NJ 07102
September 25, 1997
The Board of Directors of
Petroleum Development Corporation
103 East Main Street
Bridgeport, WV 26330
RE: PETROLEUM DEVELOPMENT CORPORATION
---------------------------------
Gentlemen:
We have acted as counsel to Petroleum Development Corporation (the
"Company") in connection with the preparation and filing with the Securities and
Exchange Commission under the Securities Act of 1993, as amended, of a
registration statement on Form S-2 (the "Registration Statement") relating to
the offer and sale by the Company of up to 4,077,500 shares of Common Stock and
up to 350,000 shares of Common Stock by certain selling stockholders ("Selling
Stockholders") aggregating up to 4,427,500 shares (the "Shares") of Common
Stock, $.01 par value, of the Company.
As counsel to the Company, we have supervised all corporate proceedings in
connection with the preparation and filing of the Registration Statement. We
have also examined the Company's Articles of Incorporation and By-laws, as
amended to date, the corporate minutes and other proceedings and the records
relating to the authorization, sale and issuance of the Shares, and such other
documents and matters of law as we have deemed necessary or appropriate in order
to render this opinion.
Based upon the foregoing, it is our opinion that:
(i) the Shares to be issued and sold by the Company have been duly and
validly authorized and, when sold in the manner contemplated by the underwriting
agreement (the "Underwriting Agreement") filed as an exhibit to the Registration
Statement and upon receipt by the Company of payment therefor as provided in the
Underwriting Agreement, will be legally issued, fully paid and non-assessable;
and
(ii) the Shares to be sold by the Selling Stockholders are duly and validly
authorized, legally issued, fully paid and non-assessable.
We are not admitted to practice in the State of Nevada. Therefore, in
giving the foregoing opinion, we have relied exclusively on the opinion of
Woodburn and Wedge, addressed to us, dated September 25, 1997, with respect to
the laws of the State of Nevada, upon which, in our opinion, both you and we are
entitled to rely.
We hereby consent to the use of this opinion in the Registration Statement,
and we further consent to the reference to our name in the Prospectus under the
caption "Legal Matters."
Sincerely,
/s/ Duane, Morris & Hecksher LLP
KMS/mss
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, Made as of the 1st day of July, 1988, between PETROLEUM
DEVELOPMENT CORPORATION, a Nevada corporation, having its principal place of
business at 103 East Main Street, Bridgeport, West Virginia 26330, party of the
first part, herein sometimes referred to as the "Company," and JAMES N. RYAN, of
Bridgeport, West Virginia, party of the second part, herein sometimes
referred to as the "Employee."
1. TERMS OF EMPLOYMENT
-------------------
Section 1.01. The Company hereby employees the Employee and the Employee
------------
hereby accepts employment with the Company for a period of seven (7) years
beginning on the 1st day of July, 1988; subject, however, to provisions for
termination as hereinafter provided.
2. DUTIES
------
Section 2.01. The Employee is hereby employed by Company to serve as its
------------
Chairman and Chief Executive Officer of the Company, in which capacity he shall
perform reasonable duties of such office as shall be appropriate to the office
and as may be determined from time to time by the Board of Directors. The
Employee shall devote so much of his productive time, ability and attention as
may be deemed reasonable or necessary to the business of the Company during the
term of his employment. The Employee shall not directly or indirectly render
any services of a business, commercial or professional nature, to any other
person or organization, whether for compensation or otherwise, without the prior
approval of the Board of Directors, except that Employee may provide services
to exploratory and drilling partnerships and oil and gas wells, to the extent
that such services do not conflict or interfere with the business of the
Company.
Section 2.02. Employee shall not be required to relocate his residence in
------------
order to perform his obligations under this Agreement, nor shall Employee be
required to travel from his residence materially more than he has in the two
years immediately preceding the commencement of the term of this Agreement.
3. COMPENSATION
------------
Section 3.01. As compensation for services rendered under this Agreement,
------------
the Employee shall be entitled to receive from the Company a basic salary of
$135,000 per year payable in equal monthly installments on the final day of each
month during the period of employment. In addition, for each year during the
term of this Agreement in which Company's net pre-tax earnings, as defined
herein exceed the sum of $300,000, the Company shall pay Employee an annual
bonus, based upon the amount of such net earnings in each such year, an amount
equal to two and one-half percent (2.5%) of corporate net pre-tax earnings.
7-1-88
<PAGE>
Net earnings shall be calculated for the purposes of this Agreement by the
independent auditors then retained by the Company and shall be computed without
deduction for depreciation or depletion, and on net income of the Company before
deduction of all income taxes payable.
The basic salary provided herein may be increased, but shall not be reduced
unless dire economic circumstances as declared by the Board requires reduced
salaries for all senior executive employees of the Company. Increases shall be
fixed by the Board of Directors from time to time during the term of this
Agreement to reflect changes in the cost of living, the financial success of
the company, and the performance of the Employee.
Section 3.02. The Company shall reimburse Employee for all reasonable
------------
out-of-pocket promotional, entertainment, travel and other business expense
incurred by Employee in connection with his conduct of business for the Company.
Such expenses shall be reimbursed regardless of whether or not they are
determined to be deductible to Company for federal and state income tax
purposes. The Company shall provide Employee with the use of an automobile
satisfactory to both the Company and Employee, and the Company shall pay the
necessary expenses of operation of such automobile.
4. BENEFITS
--------
Section 4.01. The Company agrees that it will include the Employee under
------------
any hospital, surgical, or medical benefit plan or policy heretofore or
hereafter adopted. The payment of the premiums for the Employee and his
dependents to be determined by the rules and regulations heretofore or hereafter
adopted by the Company for senior corporate executives. At the termination of
Employee's services, the Company agrees to assign such policy to the Employee.
In addition to including Employee and his dependents in such plan, the Company
will pay all reasonable hospital, surgical, medical, (including eye
examinations, treatment and prescriptive lenses), dental expenses and
prescriptions of Employee and his dependents not covered by such plan or policy,
and in the event the Company has adopted no such plan, the Company agrees to pay
all reasonable premiums on any insurance policy obtained by Employee to provide
such coverage(s).
Section 4.02. The Company presently has and pays premiums on key-man life
------------
insurance on the life of the Employee and shall maintain such insurance in force
during the term of this Agreement in the face amount of Four Million Dollars
($4,000,000.00), with the Company as owner and beneficiary of such policy.
Proceeds of this policy shall first be used to fund the repurchase of the common
stock of the Company from the deceased Employee's estate up to the amount of One
Million Dollars ($1,000,000.00), as more particularly set out in the current
agreement between the Company and the Employee. The balance
-2- 7-1-88
<PAGE>
of the proceeds of said policy shall be used for general corporate purposes.
Neither the Employee nor any of his beneficiaries or assigns shall have
any interest in said key-man policy or proceeds of the policy, and such policy
or the proceeds thereof shall at all times remain the property of the
Company. At the termination of the Employee's service with the Company, if
requested by the Employee, the Company shall sell such policy to the Employee at
the then cash sur render value, if any. The Employee shall be required to
submit to a complete physical examination from time to time as required by the
insurance underwriter. Such examination to be at the expense of the Company,
with the results of such examination communicated in full to the Company. The
Company also agrees to reimburse Employee for addi tional life insurance
coverage on the life of Employee in the face amount of One Million Dollars
($1,000,000.00) with a person or persons named by the Employee as either the
owner or the beneficiary as Employee shall direct.
Section 4.03. Employee shall be entitled annually and cumulatively
-------------
to four (4) weeks' vacation with pay.
Section 4.04. The Company shall reimburse the Employee for reasonable
------------
dues and expenses of membership in such club or clubs as shall be reasonably
necessary for the Employee to entertain on behalf of the Company.
Section 4.05. The Employee shall be entitled to participate in any
------------
employee stock option plan, employee incentive or other employee benefit to the
degree and in the amount fixed by the Board.
Section 4.06. The Company shall reimburse the Employee for a
------------
personally owned disability insurance policy in an amount that will return to
the Employee an amount that will monthly equal the basic monthly salary of the
Employee as the same may have been adjusted by the Board of Directors.
5. TRADE SECRETS
-------------
Section 5.01. The Employee acknowledges that he has heretofore
------------
acquired and hereafter anticipates acquiring detailed knowledge of the Company's
business affairs. In view of the nature of the services the Employee is
capable of performing for the Company, the Employee also acknowledges that
those services will have peculiar value to the Company, the loss of which
cannot be adequately compensated by money damages.
Section 5.02. The Employee therefore shall not, during the term of
------------
his employment hereunder or thereafter, divulge to any third party information
obtained in the course of his employment including, without limitation, any
information concerning the Company's business, operations, affairs, rates,
investors, customers, geological data, well logs, well locations, acreage,
reserves of gas or oil, finances, plans or policies to the extent the same are
not already matters of public knowledge.
-3- 7/1/88
<PAGE>
Section 5.03. All such information shall be regarded as secret,
------------
confidential, and proprietary to the Company and shall be used by the Employee
for no other purpose than to pursue the Company's business and affairs.
Section 5.04. In view of his unique skills and knowledge, the
------------
Employee shall not, without the Company's express prior written consent, during
the term hereof or, unless otherwise agreed in writing by the Board of Directors
of the Company, for a period of one year following the termination or
expiration of this Agreement or any renewal or extension hereof engage in any
business (as proprietor, officer, director or shareholder which is competitive
with the Company's oil and gas drilling business in West Virginia;
provided, however, that the foregoing provision shall not prohibit the Employee
from investing in a publicly held company in which he owns less than one percent
(1%) of the equity; and provided further that the foregoing provision shall not
apply in the event the Employee's employment hereunder shall terminate or be
terminated as a result of or in connection with a change of control of the
Company as defined in Paragraph 11 hereof.
Section 5.05. If the Employee competes with the Company in violation
------------
of Section 5.04 hereof or discloses or threatens to disclose any of the
information described in Section 5.02 concerning the Company, the Company shall
be deemed to be subject to irreparable injury and shall be entitled to immediate
injunctive or other similar equitable relief to restrain the Employee from so
competing with the Company or from so disclosing its proprietary information to
a third party, including any competitor of the Company. The foregoing relief
shall be in addition to any other remedies to which the Company may be entitled
under law.
Section 5.06. In the event the Company prohibits the Employee from
------------
pursuing activities of the Employee following termination of this Agreement
under the terms of Article 5.04 of this Agreement, then during such period the
Company shall continue to pay the Employee as specified in Section 3.01 during
such period as such prohibition remains in effect.
Section 5.07. In the event of termination under this Section an
------------
employee owning stock options or warrants under one or more of the company stock
option plans, the company agrees to loan to the employee funds necessary to
exercise such outstanding options. The loan will be repaid to the Company
within nine months and bear interest at the prime rate then in effect at
Pittsburgh National Bank.
6. TERMINATION FOR CAUSE
---------------------
Section 6.01. If at any time during the term hereof or any extension
------------
or renewal hereof, a court of competent jurisdiction shall determine that the
Employee has engaged in willful misfeasance or malfeasance, disregard of his
duties, or negligence related to the performance of his duties, any one of which
conditions shall be deemed
-4- 7/1/88
<PAGE>
cause for dismissal, then Board of Directors may by vote of a majority of a
quorum terminate his employment.
7. TERMINATION OTHER THAN FOR CAUSE
--------------------------------
Section 7.01. The Employee recognizes that the Company, acting
------------
through its Board of Directors, has the legal right to remove him as an officer,
either by termination of his employment or reassignment to another position, if
the best interests of the Company will be so served. Should such a removal
occur for any reason not constituting a termination for cause under the next
preceding Section above and not in connection with death or disability under
Paragraph 12, the Employee shall be entitled to continue in another position of
comparable executive status or as a consultant as designated by the Board of
Directors or appropriate committee thereof for the unexpired portion of the term
of this Agreement or any renewal or extension hereof. In the event that the
Company does not designate an alternative position as previously indicated, it
shall pay to the Employee as liquidated damages, in full satisfaction of its
obligation hereunder (exclusive of any vested rights that may accrue to the
Employee under any profit-sharing, pension or insurance plan that may now or
hereafter be in effect), an amount equal to the balance of the salary that would
otherwise have been paid to the Employee under Section 3.01 during the unexpired
portion of the term hereof, but in any event not less than twelve (12) months'
basic salary. Such amount may be paid at the Company's election in equal
consecutive monthly installments over a period no longer than the remaining term
of this contract.
Section 7.02. In the event of the Employee's death while in the
------------
employ of the Company, the Company shall pay to Employee's designated
beneficiaries, or if no such designation, then to his spouse or to his estate,
if his spouse has predeceased him, the following: An amount equal to six (6)
months' compensation based on an average of the twelve (12) months' compensation
preceding such death.
8. PARTICIPATION IN DRILLING PROGRAMS
----------------------------------
Section 8.01. If the Company has the right to sell working interests
------------
in any drilling program, upon the request of the Employee, the Employee shall be
entitled to participate, as an investor, in such oil and gas drilling; provided
that the Board of Directors, shall first approve the terms of any such
participation.
9. ARBITRATION
-----------
Section 9.01. Any controversy or claim arising out of or relating to
------------
this contract, or the breach thereof, shall be settled by arbitration at
Clarksburg, West Virginia, in accordance with the rules of the American
Arbitration Association, then obtaining, and judgment on the award rendered may
be entered in any court having jurisdiction thereof and will be binding on the
parties.
-5- 7-1-88
<PAGE>
10. PARTIAL INVALIDITY
------------------
Section 10.1. If any provision in this Agreement is held by a court
------------
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force without being impaired or
invalid thereby
11. CHANGE IN CONTROL
-----------------
Section 11.01. If during the term hereof there shall have been a
-------------
change in control of the Company, as set forth in this and the following
paragraph, the Employee may at his election, within six (6) months after such
change of control shall have occurred and without prejudice to any of his rights
theretofore accrued or vested hereunder, voluntarily terminate his employment
hereunder. In such event, the Employee shall receive as severance compensation
an amount he would otherwise received under Section 3.01 hereof, but in any
event not exceeding three (3) years basic salary, paid over a period not to
exceed the lesser of three years as the term of this agreement.
Section 11.02. For the purposes of the preceding paragraph, "change
-------------
in control of the Company shall mean a change in control of the nature that
would be required to be reported in response to Item 5(f) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"); provided, however, that, without limitation, such a change in
control shall be deemed to have occurred if, on or after October 1, 1985, any
"person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act) is or becomes the beneficial owner, directly or indirectly, of the
securities of the Company representing 30% or more of the combined voting power
of the Company's then outstanding securities.
12. DEATH AND DISABILITY
--------------------
Section 12.01. If during the period of employment hereunder the
-------------
Employee shall have become disabled through illness or otherwise from performing
his duties hereunder, the Employee shall be entitled to a leave of absence with
full compensation for the duration of any such disability up to but not
exceeding eight (8) consecutive months.
Section 12.02. If the Employee shall have become permanently
-------------
disabled, as herein defined, or if employment hereunder terminates by reason of
the Employee's death, all future obligations of the Company hereunder,
excluding benefits provided in Section 7.02 hereof, shall, at the Company's
election, cease; provided, however, that benefits and rights theretofore
vested under any pension, profit-sharing, or insurance plan of the Company
shall remain unimpaired thereby
Section 12.03. If the Employee's death shall have occurred after the
-------------
termination of employment hereunder and if, but for his death, the Employee
would have been entitled to receive additional payments hereunder in respect of
his employment, such payments shall
-6- 7//1/88
<PAGE>
thereafter be paid as the Employee's last will and testament shall direct, or
failing such direction, to the Employee's estate
13. NO ASSIGNMENT OR ATTACHMENT
---------------------------
Section 13.01. This Agreement and the rights, interests, and
-------------
benefits hereunder shall not be assigned, transferred, pledged, or hypothecated
in any way by the Employee or by the Company and shall not be subject to
execution, attachment, or similar process. Any attempted assignment,
transfer, pledge or hypothecation or the levy of any execution, attachment or
similar process thereon shall be null and void and without effect.
14. SUCCESSORS AND ASSIGNS
----------------------
Section 14.01. This Agreement shall be binding on and inure to the
-------------
benefit of the parties hereto and their respective successors, heirs and
assigns; provided, however, that neither party may assign his or its rights
hereunder without the other's express prior written consent.
15. NOTICES
-------
Section 15.01. Any notice required to be given hereunder shall be
-------------
sufficient if in writing and submitted by certified mail, return receipt
requested, postage prepaid, if to the Employee to him as follows:
James N. Ryan
515 Shearwood Forest Drive
Bridgeport, West Virginia 26330
and if to the Company, to it at the address first above written.
16. SEVERABILITY
------------
Section 16.01. Any provision of this Agreement that is invalid,
--------------
illegal, or unenforceable in any respect in any jurisdiction shall be, as to
such jurisdiction, ineffective to the extent of such invalidity, illegality,
or unenforceability without affecting the remaining provisions hereof; and
any such invalidity, illegality, or unenforceability in any such jurisdiction
shall not invalidate or in any way affect the validity, legality or
enforceability of such provision in any other jurisdiction.
17. GOVERNING LAWS
--------------
Section 17.01. This Agreement shall be governed by, construed
-------------
under and enforced in accordance with the laws of the State of West Virginia
applicable to contracts made in that State by residents and intended to be
performed primarily in that State.
-7- 7/1/88
<PAGE>
18. BINDING EFFECT
--------------
Section 18.01. This Agreement supersedes any and all other
-------------
agreements, either oral or in writing, between the parties hereto with respect
to the employment of Employee by the Company and contains the covenants and
agreements between the parties with respect to such employment in any manner
whatsoever. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, orally or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not embodied herein,
and that no other agreement, statement or promise not contained in this
Agreement shall be valid or binding. Any modification of this Agreement will be
effective only if it is in writing signed by the party to be charged
19. LEGAL PROCEEDINGS
-----------------
Section 19.01. In the event legal proceedings are utilized to enforce
-------------
the provisions of this Agreement, the prevailing party shall be entitled to
payment of all reasonable attorneys' fees and court costs.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first hereinabove written.
EMPLOYER:
PETROLEUM DEVELOPMENT CORPORATION
A Nevada Corporation
By /s/ Steven R. Williams
------------------------------
Its President
------------------------
ATTEST:
/s/ Roger J. Morgan
- --------------------------------------
Secretary
EMPLOYEE:
/s/ James N. Ryan
------------------------------------
JAMES N. RYAN
-8- 7-1-88
<PAGE>
STATE OF WEST VIRGINIA
COUNTY OF HARRISON, TO-WIT:
The foregoing instrument was acknowledged before me this 1st day of July ,
------- ------
1988, by Steven R. Willams, President of PETROLEUM DEVELOPMENT CORPORATION,
------------------ -----------
a Nevada corporation, for and on behalf of the Corporation.
My Commission Expires: January 8, 1990
---------------------------------------
/s/ Donna L. Badgett
--------------------------------------
Notary Seal Notary Public
STATE OF WEST VIRGINIA
COUNTY OF HARRISON, TO-WIT:
The foregoing instrument was acknowledged before me this 1st day of July,
----- -----
1988, by JAMES N. RYAN.
My Commission Expires: My Commission Expires Jan. 8, 1990
--------------------------------------------
/s/ Donna L. Badgett
-------------------------------------------
Notary Public
Notary Seal
This instrument was prepared by Roger J. Morgan, Esquire YOUNG, MORGAN & CANN,
Attorneys at Law Suite One Schroath Building, Clarksburg, West Virginia 26301
-9- 7-1-88
<PAGE>
MODIFICATIONS TO EMPLOYMENT AGREEMENT
-------------------------------------
AGREEMENT, Made as of the 1st day of March, 1991, between PETROLEUM
DEVELOPMENT CORPORATION, a Nevada corporation, having its principal place of
business at 103 East Main Street, Bridgeport, West Virginia 26330, party of the
first part, herein sometimes called the "Employer," and JAMES N. RYAN,
Bridgeport, West Virginia, party of the second part, herein sometimes called
"Employee."
1. Recitals. (a) Whereas, the Employer employs the Employee
--------
under the terms of a written Employment Agreement dated as of July 1, 1988, the
terms and conditions of which Agreement are incorporated by reference and
which is hereinafter referred to herein as the "Agreement"; (b) Whereas, the
Agreement calls for a term or period of seven (7) years from July 1, 1988,
terminating on July 30, 1995; and (c) Whereas, the Board of Directors of the
Employer has authorized that the term of the Agreement be extended for three (3)
additional years so that the Agreement would terminate June 30, 1998; and
NOW THEREFORE, in consideration of the foregoing recitals and the parties
intending to be bound, agree as follows:
2. Employment Agreement Modification. Paragraph 1, Section
---------------------------------
1.01 of the Agreement be and is hereby amended and modified by striking the
words "Seven (7) years beginning on the 1st day of July, 1988," and inserting
in place and in lieu thereof the following language "beginning on the
first day of July, 1988, and ending on June 30, 1998."
3. Agreement Confirmed. In all other respects the Agreement
-------------------
and all other terms and provisions are hereby approved, ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement all as of
the day and year first hereinabove written.
PETROLEUM DEVELOPMENT CORPORATION,
a Nevada corporation
(SEAL)
ATTEST: By /s/ Dale G. Rettinger
--------------------------------
Its Executive VP
------------------------
/s/ Roger J. Morgan
- -----------------------------
Its Secretary
/s/ James N. Ryan
----------------------------------
JAMES N. RYAN
-2-
<PAGE>
MODIFICATIONS TO EMPLOYMENT AGREEMENT
(NO. 2)
AGREEMENT, Made as of the 21st day of October, 1994, between PETROLEUM
DEVELOPMENT CORPORATION, A Nevada corporation, having its principal offices and
place of business at 103 East Main Street, Bridgeport, West Virginia 26330,
party of the first part sometimes herein called "the Employer," and JAMES N.
RYAN, 515 Shearwood Forest Drive, Bridgeport, West Virginia 26330, party of the
second part, herein sometimes called "the Employee."
1. RECITAL(S). (a) Whereas, the Employer employs the Employee
----------
under the terms of a written Employment Agreement dated July 1, 1988, and
amended and modified by a subsequent agreement dated March 1, 1991, the terms
and conditions of which agreement and modification are incorporated by reference
both of which are hereinafter collectively referred to as the "Agreement";
(b) Whereas, the Board of Directors at a meeting held October 21, 1994, adopted
recommendations of the Board's Compensation Committee dated October 21, 1994, a
copy of which is attached to the minutes of said meeting, recommending certain
changes and additions be made to the Agreement; and (c) Whereas, in order to
incorporate said changes and additions into the Agreement, the Board approved
and authorized the following additional modifications to the Agreement.
Now, therefore, in consideration of the recitals herein and the parties
intending to be bound, agree as follows:
2. SUBPARAGRAPH 7.02 of the Agreement under the heading "Termination
-----------------
Other Than For Cause" be and is hereby amended to increase the amount of
such payment to the designated beneficiary(ies), his spouse or his estate
from six (6) months to twelve (12) months.
3. SUBPARAGRAPH 11.01 of the Agreement under the heading "Change of
------------------
Control," be and is hereby amended by striking the entire subparagraph and
inserting the following:
Section 11.01. If during the term hereof there shall have been a change
-------------
in control of the company, as described in this and the following
paragraph, the Employee may at his election, within six (6) months after
such change of control shall have occurred and without prejudice to any of
his rights theretofore accrued or vested hereunder voluntarily terminated
his employment hereunder. In such event the Employee shall receive a
severance compensation amounting to the basic compensation plus
an amount equal to the average bonus paid over the preceding three (3)
years as provided herein times the remaining years of this agreement, but
in any event severance compensation of not less than three (3) years basic
compensation plus an amount equal to three (3) times the average bonus
paid over the preceding three (3) year period to be Employee.
4. TERM AMENDED Paragraph 2 of the Modification of the Employment
------------
Agreement dated February 19, 1991, be and is hereby further modified by striking
language "beginning on the date of this amendment and modification and inserting
in place and in lieu thereof the following language: "beginning on the date of
this agreement and modification and ending December 31, 2000."
-2-
<PAGE>
5. DEATH AND DISABILITY In Section 12.01 of the written Employment
--------------------
Agreement dated July 1, 1988 extend the term during which an employee will be
entitled to full compensation from eight (8) months to fifteen (15) months.
6. DEFERRED COMPENSATION PLAN. The company will establish a deferred
--------------------------
compensation plan for the Employee and fund the plan with an annual contribution
of $30,000 commencing in 1994 and each year thereafter, adjusted for inflation.
In all other respects the agreements are ratified and confirmed.
IN WITNESS WHEREOF the parties hereto have set their signatures and seals
the day and year first hereinabove written.
EMPLOYER:
PETROLEUM DEVELOPMENT CORPORATION
a Nevada Corporation
(SEAL) By /s/ Steven R. Williams
----------------------------------
Its President
---------------------------------
EMPLOYEE:
/s/ James N. Ryan
------------------------------------
JAMES N. RYAN
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, Made as of the 1st day of July, 1988, between PETROLEUM
DEVELOPMENT CORPORATION, a Nevada corporation, having its principal place of
business at 103 East Main Street, Bridgeport, West Virginia 26330, party of the
first part, herein sometimes referred to as the "Company, and STEVEN R.
WILLIAMS, of Bridgeport, West Virginia, party of the second part, herein
sometimes referred to as the "employee."
1. TERMS OF EMPLOYMENT
-------------------
Section 1.01. The Company hereby employees the Employee and the Employee
------------
hereby accepts employment with the Company for a period of seven (7) years
beginning on the 1st day of July, 1988; subject, however, to provisions for
termination as hereinafter provided.
2. DUTIES
------
Section 2.01. The Employee is hereby employed to serve as President of the
------------
Company, in which capacity he shall perform reasonable duties of such office as
shall be appropriate to the office and as may be determined from time to time by
the Board of Directors. The Employee shall devote so much of his productive
time, ability and attention as may be deemed reasonable or necessary to the
business of the Company during the term of his employment. The Employee shall
not directly or indirectly render any services of a business, commercial or
professional nature, to any other person or organization, whether for
compensation or otherwise, without the prior approval of the Board of Directors,
except that Employee may provide services to exploratory and drilling
partnerships and oil and gas wells, to the extent that such services do not
conflict or interfere with the business of the Company.
Section 2.02. Employee shall not be required to relocate his residence in
------------
order to perform his obligations under this Agreement, nor shall Employee be
required to travel from his residence materially more than he has in the two
years immediately preceding the commencement of the term of this Agreement.
3. COMPENSATION
------------
Section 3.01. As compensation for services rendered under this Agreement,
------------
the Employee shall be entitled to receive from the Company a basic salary of
$93,600 per year payable in equal monthly installments on the final day of each
month during the period of employment. In addition, for each year during the
term of this Agreement in which Comp-any's net pre-tax earnings, as defined
herein, exceed the sum of $300,000, the Company shall pay Employee an annual
<PAGE>
bonus, based upon the amount of such net earnings in each such year, an amount
equal to two and one-half percent (2.5 percent) of corporate net pre-tax
earnings.
Net earnings will be pro-rated for any year during which the contract was in
effect for a partial year.
Net earnings shall be calculated for the purposes of this Agreement by the
independent auditors then retained by the Company and shall be computed without
deduction for depreciation or depletion, and on net income of the Company before
deduction of all income taxes payable.
The basic salary provided herein may be increased, but shall not be reduced
unless dire economic circumstances as declared by the Board requires reduced
salaries for all senior executive employees of the Company. Increases shall be
fixed by the Board of Directors from time to time during the term of this
Agreement to reflect changes in the cost of living, the financial success of the
company, and the performance of the Employee.
Section 3.02. The Company shall reimburse Employee for all reasonable out-
------------
of-pocket promotional, entertainment, travel and other business expense incurred
by Employee in connection with his conduct of business for the Company. Such
expenses shall be reimbursed regardless of whether or not they are determined to
be deductible to Company for federal and state income tax purposes. The Company
shall provide Employee with the use of an automobile satisfactory to both the
Company and Employee, and the Company shall pay the necessary expenses of
operation of such automobile.
4. BENEFITS
--------
Section 4.01. The Company agrees that it will include the Employee under
------------
any hospital, surgical, or medical benefit plan or policy heretofore or
hereafter adopted. The payment of the premiums for the Employee and his
dependents to be determined by the rules and regulations heretofore or hereafter
adopted by the Company for senior corporate executives. At the termination of
Employee's services, the Company agrees to assign such policy to the Employee.
In addition to including Employee and his dependents in such plan, the Company
will pay all reasonable hospital, surgical, medical, (including eye
examinations, treatment and prescriptive lenses), dental expenses and
prescriptions of Employee and his dependents not covered by such plan or policy,
and in the event the Company has adopted no such plan, the Company agrees to pay
all reasonable premiums on any insurance policy obtained by Employee to provide
such coverage(s).
Section 4.02. The Employee shall be required to submit to a complete
------------
physical examination from time to time as required by the insurance underwriter.
Such examination to be at the expense of the
-2- 7/1/88
<PAGE>
Company, with the results of such examination communicated in full to the
Company. The Company agrees to reimburse Employee for life insur ance coverage
on the life of Employee in the face amount of One Million Dollars
($1,000,000.00) with a person or persons named by the Employee as either the
owner or the beneficiary as employee shall direct.
Section 4.03. Employee shall be entitled annually and cumulatively
-------------
to tour (4) weeks' vacation with pay.
Section 4.04. The Company shall reimburse the Employee for reasonable dues
------------
and expenses of membership in such club or clubs as shall be reasonably
necessary for the Employee to entertain on behalf of the Company.
Section 4.05. The Employee shall be entitled to participate in any
------------
employee stock option plan, employee incentive or other employee benefit to the
degree and in the amount fixed by the Board.
Section 4.06. The Company shall reimburse the Employee for a personally
------------
owned disability insurance policy in an amount that will return to the Employee
an amount that will monthly equal the basic monthly salary of the Employee as
the same may have been adjusted by the Board of Directors.
5. TRADE SECRETS
-------------
Section 5.01. The Employee acknowledges that he has heretofore acquired
------------
and hereafter anticipates acquiring detailed knowledge of the Company's business
affairs. In view of the nature of the services the Employee is capable of
performing for the Company, the Employee also acknowledges that those services
will have peculiar value to the Company, the loss of which cannot be adequately
compensated by money damages.
Section 5.02. The Employee therefore shall not, during the term of his
------------
employment hereunder or thereafter, divulge to any third party information
obtained in the course of his employment including, without limitation, any
information concerning the Company's business, operations, affairs, rates,
investors, customers, geological data, well logs, well locations, acreage,
reserves of gas or oil, finances, plans or policies to the extent the same are
not already matters of public knowledge.
Section 5.03. All such information shall be regarded as secret,
------------
confidential, and proprietary to the Company and shall be used by the Employee
for no other purpose than to pursue the Company's business and affairs.
Section 5.04. In view of his unique skills and knowledge, the Employee
------------
shall not, without the Company's express prior written
-3- 7/1/88
<PAGE>
consent, during the term hereof or, unless otherwise agreed in writing by the
Board of Directors of the Company, for a period of one year following the
termination of this Agreement or any renewal or extension hereof engage in any
business (as proprietor, officer, director or shareholder) which is competitive
with the Company's oil and gas drilling business in West Virginia; provided,
however, that the fore going provision shall not prohibit the Employee from
investing in a publicly held company in which he owns less than one percent (1%)
of the equity; and provided further that the foregoing provision shall not apply
in the event the Employee's employment hereunder shall terminate or be
terminated as a result of or in connection with a change of control of the
Company as defined in Paragraph 11 hereof.
Section 5.05. If the Employee competes with the Company in violation of
------------
Section 5.04 hereof or discloses or threatens to disclose any of the information
described in Section 5.02 concerning the Com pany), the Company shall be deemed
to be subject to irreparable injury and shall be entitled to immediate
injunctive or other similar equitable relief to restrain the Employee from so
competing with the Company or from so disclosing its proprietary information to
a third party, including any competitor of the Company). The foregoing relief
shall be in addition to any other remedies to which the Company may be entitled
under law.
Section 5.06. In the event the Company prohibits the Employee from
------------
pursuing activities of the Employee following termination of this Agreement
under the terms of Article 5.04 of this Agreement, then during such period the
Company shall continue to pay the Employee as specified in Section 3.01 during
such period as such prohibition remains in effect.
Section 5.07. In the event of termination under this Section an employee
------------
owning stock options or warrants under one or more of the company stock option
plans, the company agrees to loan to the employee funds necessary to exercise
such outstanding options. The loan will be repaid to the Company within nine
months and bear interest at the prime rate then in effect at Pittsburgh National
Bank.
6. TERMINATION FOR CAUSE
---------------------
Section 6.01. If at any time during the term hereof or any extension or
------------
renewal hereof, a court of competent jurisdiction shall determine that the
Employee has engaged in willful misfeasance or malfeasance, disregard of his
duties, or negligence related to the performance of his duties, any one of which
conditions shall be deemed cause for dismissal, then the Board of Directors may
by the vote of a majority of a quorum terminate his employment.
7. TERMINATION OTHER THAN FOR CAUSE
--------------------------------
Section 7.01. The Employee recognizes that the Company, acting through its
------------
Board of Directors, has the legal right to remove
-4- 7/1/88
<PAGE>
him as an officer, either by termination of his employment or re assignment to
another position, if the best interests of the Company will be so served.
Should such a removal occur for any reason not constituting a termination for
cause under the next preceding Section above and not in connection with death or
disability under Paragraph 12, the Employee shall be entitled to continue in
another position of comparable executive status or as a consultant as designated
by the Board of Directors or appropriate committee thereof for the unexpired
portion of the term of this Agreement or any renewal or extension hereof. In
the event that the Company does not designate an alternative position as
previously indicated, it shall pay to the Employee as liquidated damages, in
full satisfaction of its obligation hereunder (exclusive of any vested rights
that may accrue to the Employee under any profit-sharing, pension or insurance
plan that may now or hereafter be in effect), an amount equal to the balance of
the salary that would otherwise have been paid to the Employee under Section
3.01 during the unexpired portion of the term hereof, but not in any event less
than twelve (12) months' basic salary. Such amount may be paid at the Company's
election in equal consecutive monthly installments over a period no longer than
the remaining term of this contract.
Section 7.02. In the event of the Employee's death while in the employ of
------------
the Company, the Company shall pay to Employee's designated beneficiaries, or if
no such designation, then to his spouse or to his estate, if his spouse has
predeceased him, the following: An amount equal to six (6) months' compensation
based on an average of the twelve (12) months' compensation preceding such
death.
8. PARTICIPATION IN DRILLING PROGRAMS
----------------------------------
Section 8.01. If the Company has the right to sell working interests in
------------
any drilling program, upon the request of the Employee, the Employee shall be
entitled to participate, as an investor, in such oil and gas drilling; provided
that the Board of Directors, shall first approve the terms of any such
participation.
9. ARBITRATION
-----------
Section 9.01. Any controversy or claim arising out of or relating to this
------------
contract, or the breach thereof, shall be settled by arbitration at Clarksburg,
West Virginia, in accordance with the rules of the American Arbitration
Association, then obtaining, and judgment on the award rendered may be entered
in any court having jurisdiction thereof and will be binding on the parties.
10. PARTIAL INVALIDITY
------------------
Section 10.1. If any provision in this Agreement is held by a court of
------------
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force without being impaired or
invalid thereby.
-5- 7/1/88
<PAGE>
11. CHANGE IN CONTROL
-----------------
Section 11.01. If during the term hereof there shall have been a change in
-------------
control of the Company, as set forth in this and the following paragraph, the
Employee may at his election, within six (6) months after such change of control
shall have occurred and without prejudice to any of his rights theretofore
accrued or vested hereunder, voluntarily terminate his employment hereunder. In
such event, the Employee shall receive as severance compensation an amount he
would otherwise received under Section 3.01 hereof, but in any event not
exceeding three (3) years basic salary, paid over a period not to exceed the
lesser of three years as the term of this Agreement.
Section 11.02. For the purposes of the preceding paragraph, "change in
-------------
control of the Company" shall mean a change in control of the nature that would
be required to be reported in response to Item 5(f) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"); provided, however, that, without limitation, such a change in
control shall be deemed to have occurred if, on or after October 1, 1985, any
"person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act) is or becomes the beneficial owner, directly or indirectly, of the
securities of the Company representing 30% or more of the combined voting power
of the Company's then outstanding securities.
12. DEATH AND DISABILITY
--------------------
Section 12.01. If during the period of employment hereunder the Employee
-------------
shall have become disabled through illness or otherwise from performing his
duties hereunder, the Employee shall be entitled to a leave of absence with full
compensation for the duration of any such disability up to but not exceeding
eight (8) consecutive months.
Section 12.02. If the Employee shall have become Permanently disabled, as
-------------
herein defined, or if employment hereunder terminates by reason of the
Employee's death, all future obligations of the Company hereunder, excluding
benefits provided in Section 7.02 hereof, shall, at the Company's election,
cease; provided, however, that benefits and rights theretofore vested under
any pension, profit-sharing, or insurance plan of the Company shall remain
unimpaired thereby.
Section 12.03. If the Employee's death shall have occurred after the
-------------
termination of employment hereunder and if, but for his death, the Employee
would have been entitled to receive additional payments hereunder in respect of
his employment, such payments shall thereafter be paid as the Employee's last
will and testament shall direct, or failing such direction, to the Employee's
estate.
13. NO ASSIGNMENT OR ATTACHMENT
---------------------------
Section 13.01. This Agreement and the rights, interests, and benefits
-------------
hereunder shall not be assigned, transferred, pledged, or
-6- 7/1/88
<PAGE>
hypothecated in any way by the Employee or by the Company and shall not be
subject to execution, attachment, or similar process. Any attempted assignment,
transfer, pledge or hypothecation or the levy of any execution, attachment or
similar process thereon shall be null and void and without effect.
14. SUCCESSORS AND ASSIGNS
----------------------
Section 14.01. This Agreement shall be binding on and inure to the benefit
-------------
of the parties hereto and their respective successors, heirs and assigns;
provided, however, that neither party may assign his or its rights hereunder
without the other's express prior written consent.
15. NOTICES
-------
Section 15.01. Any notice required to be given hereunder shall be
-------------
sufficient if in writing and submitted by certified mail, return receipt
requested, postage prepaid, if to the Employee to him as follows:
Steven R. Williams
137 Ashford Drive
Bridgeport, West Virginia 26330
and if to the Company, to it at the address first above written.
16. SEVERABILITY
------------
Section 16.01. Any provision of this Agreement that is invalid, illegal,
-------------
or unenforceable in any respect in any jurisdiction shall be, as to such
jurisdiction, ineffective to the extent of such invalidity, illegality, or
unenforceability without affecting the remaining provisions hereof; and any
such invalidity, illegality, or unenforceability in any such jurisdiction shall
not invalidate or in any way affect the validity, legality or enforceability of
such provision in any other jurisdiction.
17. GOVERNING LAWS
--------------
Section 17.01. This Agreement shall be governed by, construed under and
-------------
enforced in accordance with the laws of the State of West Virginia applicable to
contracts made in that State by residents and intended to be performed primarily
in that State.
18. BINDING EFFECT
--------------
Section 18.01. This Agreement supersedes any and all other agreements,
-------------
either oral or in writing, between the parties hereto with respect to the
employment of Employee by the Company and contains the covenants and agreements
between the parties with respect to such
-7- 7/1/88
<PAGE>
employment in any manner whatsoever. Each party to this Agreement acknowledges
that no representations, inducements, promises or agree ments, orally or
otherwise, have been made by any party, or anyone acting on behalf of any party,
which are not embodied herein, and that no other agreement, statement or promise
not contained in this Agreement shall be valid or binding. Any modification of
this Agreement will be effective only if it is in writing signed by the party to
be charged.
19. LEGAL PROCEEDINGS
-----------------
Section 19.01. In the event legal proceedings are utilized to enforce the
-------------
provisions of this Agreement, the prevailing party shall be entitled to payment
of all reasonable attorneys' fees and court costs.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first hereinabove written.
EMPLOYER:
PETROLEUM DEVELOPMENT CORPORATION,
a Nevada corporation
By /s/ Dale G. Rettinger
---------------------------------
Its Exec. V. P. & Treasurer
--------------------------
ATTEST:
/s/ Roger J. Morgan
- ----------------------------
Secretary
EMPLOYEE:
/s/ Steven R. Williams
-----------------------------------
STEVEN R. WILLIAMS
-8-
<PAGE>
STATE OF WEST VIRGINIA
COUNTY OF HARRISON, TO-WIT,
The foregoing instrument was acknowledged before me this 1st day of July, 1988,
---- -----
by Dale G. Rettinger PETROLEUM DEVELOPMENT CORPORATION, a Nevada corporation,
-------------------
for and on behalf of the Corporation.
My Commission Expires: April 19, 1993
--------------
Notary Seal /s/ Pamela J. Pitts
-----------------------------------
Notary Public
STATE OF WEST VIRGINIA
COUNTY OF HARRISON, TO-WIT:
The foregoing instrument was acknowledged before me this 1st day of July, 1988,
--- ----
by STEVEN R. WILLIAMS.
My Commission Expires: April 19, 1993
------------------------------------
Notary Seal /s/ Pamela J. Pitts
--------------------------------------
Notary Public
This instrument was prepared by Roger J. Morgan, Esquire YOUNG, MORGAN & CANN,
Attorneys at Law Suite One Schroath Building, Clarksburg, West Virginia 26301
-9- 7/1/88
<PAGE>
MODIFICATIONS TO EMPLOYMENT AGREEMENT
-------------------------------------
AGREEMENT, Made as of the 1st day of March, 1991, between PETROLEUM
DEVELOPMENT CORPORATION, a Nevada corporation, having its principal place of
business at 103 East Main Street, Bridgeport, West Virginia 26330, party of the
first part, herein sometimes called the "Employer," and STEVEN R. WILLIAMS,
Bridgeport, West Virginia, party of the second part, herein sometimes called
"Employee."
1. Recitals, (a) Whereas, the Employer employs the Employee under the
--------
terms of a written Employment Agreement dated as of July 1, 1988, the terms
and conditions of which Agreement are incorporated by reference and which is
hereinafter referred to herein as the "Agreement"; (b) Whereas, the Agreement
calls for a term or period of seven (7) years from July 1, 1988, terminating on
July 30, 1995; and (c) Whereas, the Board of Directors of the Employer has
authorized that the term of the Agreement be extended for three (3) additional
years so that the Agreement would terminate June 30, 1998; and
NOW THEREFORE in consideration of the foregoing recitals and the parties
intending to be bound, agree as follows:
2. Employment Agreement Modification. Paragraph 1, Section 1.01 of the
---------------------------------
Agreement be and is hereby amended and modified by striking the words "Seven (7)
years beginning on the 1st day of July, 1988," and inserting in place and in
lieu thereof the following language "beginning on the first day of July, 1988,
and ending on June 30, 1998."
3. Agreement Confirmed. In all other respects the Agreement and
--------------------
all other terms and provisions are hereby approved, ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement all as of
the day and year first hereinabove written.
PETROLEUM DEVELOPMENT CORPORATION,
a Nevada corporation
(SEAL)
ATTEST:
By: /s/ Dale G. Rettinger
-----------------------------------
/s/ Roger J. Morgan
- -------------------
Exec. V.P. & Treasurer
--------------------------------
Its
/s/ Steven R. Williams
---------------------------------
STEVEN R. WILLIAMS
-2-
<PAGE>
MODIFICATION TO EMPLOYMENT AGREEMENT
(NO. 2)
AGREEMENT, Made as of the 21st day of October, 1994, between
PETROLEUM DEVELOPMENT CORPORATION, A Nevada corporation, having its principal
offices and place of business at 103 East Main Street, Bridgeport, West Virginia
26330, party of the first part sometimes herein called "the Employer," and
STEVEN R. WILLIAMS, 137 Ashford Drive, Bridgeport, West Virginia 26330, party of
the second part, herein sometimes called "the Employee."
1. RECITAL(S). (a) Whereas, the Employer employs the Employee under
----------
the terms of a written Employment Agreement dated July 1, 1988, and amended and
modified by a subsequent agreement dated March 1, 1991, the terms and conditions
of which agreement and modification are incorporated by reference both of which
are hereinafter collectively referred to as the "Agreement"; (b) Whereas, the
Board of Directors at a meeting held October 21, 1994, adopted recommendations
of the Board's Compensation Committee dated October 21, 1994, a copy of which is
attached to the minutes of said meeting, recommending certain changes and
additions be made to the Agreement; and (c) Whereas, in order to incorporate
said changes and additions into the Agreement, the Board approved and authorized
the following additional modifications to the Agreement.
Now, therefore, in consideration of the recitals herein and the parties
intending to be bound, agree as follows:
-1-
<PAGE>
2. SUBPARAGRAPH 7.02 of the Agreement under the heading "Termination Other
-----------------
Than For Cause" be and is hereby amended to increase the amount of such payment
to the designated beneficiary(ices), his spouse or his estate from six (6)
months to twelve months.
3. SUBPARAGRAPH 11.01 of the Agreement under the heading "Change of
------------------
Control," be and is hereby amended by striking
the
entire subparagraph and inserting the following:
Section 11.01. If during the term hereof there shall have been a change in
-------------
control of the company, as described in this and the following paragraph,
the Employee may at his election, within six (6) months after such change
of control shall have occurred and without prejudice to any of his rights
theretofore accrued or vested hereunder voluntarily terminated his
employment hereunder. In such event the Employee shall receive a severance
compensation amounting to the basic compensation plus an amount equal
to the average bonus paid over the preceding three (3) years as provided
herein times the remaining years of this agreement, but in any event
severance compensation of not less than three (3) years basic compensation
plus an amount equal to three (3) times the average bonus paid over the
preceding three (3) year period to be Employee.
4. TERM AMENDED Paragraph 2 of the Modification of the employment
------------
Agreement dated February 19, 1991, be and is hereby further modified by striking
language "beginning on the date of this amendment and modification and inserting
in place and in lieu thereof the following language: "beginning on the date of
this agreement and modification and ending December 31, 2000."
-2-
<PAGE>
5. DEATH AND DISABILITY. In Section 12.01 of the written employment
--------------------
Agreement dated July 1, 1988 extend the term during which an employee will be
entitled to full compensation from eight (8) months to fifteen (15) months.
6. DEFERRED COMPENSATION PLAN. The company will establish a deferred
--------------------------
compensation plan for the Employee and fund the plan with an annual contribution
of $30,000 commencing in 1994 and each year thereafter, adjusted for inflation.
In all other respects the agreements are ratified and confirmed.
PETROLEUM DEVELOPMENT CORPORATION,
IN WITNESS WHEREOF the parties hereto have set their signatures and
seals the day and year first hereinabove written.
EMPLOYER:
PETROLEUM DEVELOPMENT CORPORATION
a Nevada corporation
(SEAL)
By /s/ James N. Ryan
-------------------------------------
Its CEO
------------------------------
EMPLOYEE:
/s/ Steven R. Williams
---------------------------------
STEVEN R. WILLIAMS
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, Made as of the 1st day of July, 1988, between PETROLEUM
DEVELOPMENT CORPORATION, a Nevada corporation, having its principal place of
business at 103 East Main Street, Bridgeport, West Virginia 26330, , party
of the first part, herein sometimes referred to as the "Company", and DALE G.
RETTINGER, of Bridgeport, West Virginia, party of the second part, herein
sometimes referred to as the "Employee."
1. TERMS OF EMPLOYMENT
-------------------
Section 1.01. The Company hereby employees the Employee and the Employee
------------
hereby accepts employment with the Company for a period of seven (7) years
beginning on the 1st day of July, 1988; subject, however, to provisions for
termination as hereinafter provided.
2. DUTIES
Section 2.01. The Employee is hereby employed by Company to serve as its
------------
Executive Vice President - Finance and Treasurer of the Company, in which
capacity he shall perform reasonable duties of such office as shall be
appropriate to the office and as may be determined from time to time by the
Board of Directors. The Employee shall devote so much of his productive time,
ability and attention as may be deemed reasonable or necessary to the business
of the Company during the term of his employment. The Employee shall not
directly or indirectly render any services of a business, commercial or
professional nature, to any other person or organization, whether for
compensation or otherwise, without the prior approval of the Board of Directors,
except that Employee may provide services to exploratory and drilling
partnerships and oil and gas wells, to the extent that such services do not
conflict or interfere with the business of the Company.
Section 2.02. Employee shall not be required to relocate his residence in
------------
order to perform his obligations under this Agreement, nor shall Employee be
required to travel from his residence materially more than he has in the two
years immediately preceding the commencement of the term of this Agreement.
3. COMPENSATION
------------
Section 3.01. As compensation for services rendered under this
------------
Agreement, the employee shall be entitled to receive from the Company a basic
salary of $93,600 per year payable in equal monthly installments on the final
day of each month during the period of employment. In addition, for each year
during the term of this Agreement in which Company's net pre-tax earnings, as
defined herein, exceed the sum of $300,000, the Company shall pay Employee an
annual bonus, based upon the amount of such net earnings in each such year,
7/1/88
<PAGE>
an amount equal to two and one-half percent (2.5%) of corporate net pre-tax
earnings.
Net earnings will be pro-rated for any year during which the contract was
in effect for a partial year
Net earnings shall be calculated for the purposes of this Agreement by the
independent auditors then retained by the Company and shall be computed without
deduction for depreciation or depletion, and on net income of the Company before
deduction of all income taxes payable.
The basic salary provided herein may be increased, but shall not be reduced
unless dire economic circumstances as declared by the Board requires reduced
salaries for all senior executive employees of the Company. Increases shall be
fixed by the Board of Directors from time to time during the term of this
Agreement to reflect changes in the cost of living, the financial success of the
company, and the performance of the Employee.
Section 3.02. The Company shall reimburse Employee for all reasonable out-
------------
of-pocket promotional, entertainment, travel and other business expense incurred
by Employee in connection with his conduct of business for the Company. Such
expenses shall be reimbursed regardless of whether or not they are determined to
be deductible to Company for federal and state income tax purposes. The Company
shall provide Employee with the use of an automobile satisfactory to both the
Company and Employee, and the Company shall pay the necessary expenses of
operation of such automobile.
4. BENEFITS
--------
Section 4.01. The Company agrees that it will include the Employee under
------------
any hospital, surgical, or medical benefit plan or policy heretofore or
hereafter adopted. The payment of the premiums for the Employee and his
dependents to be determined by the rules and regulations heretofore or hereafter
adopted by the Company for senior corporate executives. At the termination of
Employee's services, the Company agrees to assign such policy to the Employee.
In addition to including Employee and his dependents in such plan, the Company
will pay all reasonable hospital, surgical, medical, (including eye
examinations, treatment and prescriptive lenses), dental expenses and
prescriptions of Employee and his dependents not covered by such plan or policy,
and in the event the Company has adopted no such plan, the Company agrees to pay
all reasonable premiums on any insurance policy obtained by Employee to provide
such coverage(s).
Section 4.02. The Employee shall be required to submit to a complete physical
- ------------
examination from time to time as required by the insurance underwriter. Such
examination to be at the expense of the Company, with the results of such
examination communicated in full to the Company. The Company agrees to
reimburse Employee for life insur-
-2-
<PAGE>
ance coverage on the life of Employee in the face amount of One Million Dollars
($1,000,000.00) with a person or persons named by the Employee as either the
owner or the beneficiary as Employee shall direct.
Section 4.03. Employee shall be entitled annually and cumulatively
-------------
to four (4) weeks' vacation with pay.
Section 4.04. The Company shall reimburse the Employee for reasonable dues
------------
and expenses of membership in such club or clubs as shall be reasonably
necessary for the Employee to entertain on behalf of the Company.
Section 4.05. The Employee shall be entitled to participate in any
------------
employee stock option plan, employee incentive or other employee benefit to the
degree and in the amount fixed by the Board.
Section 4.06. The Company shall reimburse the Employee for a personally
------------
owned disability insurance policy in an amount that will return to the Employee
an amount that will monthly equal the basic monthly salary of the Employee as
the same may have been adjusted by the Board of Directors.
5. TRADE SECRETS
-------------
Section 5.01. The Employee acknowledges that he has heretofore acquired
------------
and hereafter anticipates acquiring detailed knowledge of the Company's business
affairs. In view of the nature of the services the Employee is capable of
performing for the Company, the Employee also acknowledges that those services
will have peculiar value to the Company, the loss of which cannot be adequately
compensated by money damages.
Section 5.02. The Employee therefore shall not, during the term of his
------------
employment hereunder or thereafter, divulge to any third party information
obtained in the course of his employment including, without limitation, any
information concerning the Company's business, operations, affairs, rates,
investors, customers, geological data, well logs, well locations, acreage,
reserves of gas or oil, finances, plans or policies to the extent the same are
not already matters of public knowledge.
Section 5.03. All such information shall be regarded as secret,
------------
confidential, and proprietary to the Company and shall be used by the Employee
for no other purpose than to pursue the Company's business and affairs.
Section 5.04. In view of his unique skills and knowledge, the Employee
------------
shall not, without the Company's express prior written consent, during the term
hereof or, unless otherwise agreed in writing by the Board of Directors of the
Company, for a period of one year following the termination of this Agreement or
any renewal or exten-
-3- 7/1/88
<PAGE>
sion hereof engage in any business (as proprietor, officer, director or
shareholder) which is competitive with the Company's oil and gas drilling
business in West Virginia; provided, however, that the foregoing provision shall
not prohibit the Employee from investing in a publicly held company in which he
owns less than one percent (1%) of the equity; and provided further that the
foregoing provision shall not apply in the event the Employee's employment
hereunder shall terminate or be terminated as a result of or in connection with
a change of control of the Company as defined in Paragraph 11 hereof.
Section 5.05. If the Employee competes with the Company in violation of
------------
Section 5.04 hereof or discloses or threatens to disclose any of the information
described in Section 5.02 concerning the Company), the Company shall be deemed
to be subject to irreparable injury and shall be entitled to immediate
injunctive or other similar equitable relief to restrain the Employee from so
competing with the Company or from so disclosing its proprietary information to
a third party, including any competitor of the Company). The foregoing relief
shall be in addition to any other remedies to which the Company may be entitled
under law.
Section 5.06. In the event the Company prohibits the Employee from
------------
pursuing activities of the Employee following termination of this Agreement
under the terms of Article 5.04 of this Agreement, then during such period the
Company shall continue to pay the Employee as specified in Section 3.01 during
such period as such prohibition remains in effect.
Section 5.07. In the event of termination under this Section an employee
------------
owning stock options or warrants under one or more of the company stock option
plans, the company agrees to loan to the employee funds necessary to exercise
such outstanding options. The loan will be repaid to the Company within nine
months and bear interest at the prime rate then in effect at Pittsburgh National
Bank.
6. TERMINATION FOR CAUSE
---------------------
Section 6.01. If at any time during the term hereof or any extension or
------------
renewal hereof, a court of competent jurisdiction shall determine that the
Employee has engaged in willful misfeasance or malfeasance, disregard of his
duties, or negligence related to the performance of his duties, any one of which
conditions shall be deemed cause for dismissal, then the Board of Directors may
by the vote of a majority of a quorum terminate his employment.
7. TERMINATION OTHER THAN FOR CAUSE
--------------------------------
Section 7.01. The Employee recognizes that the Company, acting through its
------------
Board of Directors, has the legal right to remove him as an officer, either by
termination of his employment or reassignment to another position, if the best
interests of the Company will be so served. Should such a removal occur for any
reason not
-4- 7/1/88
<PAGE>
constituting a termination for cause under the next preceding Section above and
not in connection with death or disability under Paragraph 12, the Employee
shall be entitled to continue in another position of comparable executive status
or as a consultant as designated by the Board of Directors or appropriate
committee thereof for the unexpired portion of the term of this Agreement or any
renewal or extension hereof. In the event that the Company does not designate
an alternative position as previously indicated, it shall pay to the Employee as
liquidated damages, in full satisfaction of its obligation hereunder (exclusive
of any vested rights that may accrue to the Employee under any profit-sharing,
pension or insurance plan that may now or hereafter be in effect), an amount
equal to the balance of the salary that would otherwise have been paid to the
Employee under Section 3.01 during the unexpired portion of the term hereof, but
not in any event less than twelve (12) months' basic salary. Such amount may be
paid at the Company's election in equal consecutive monthly installments over a
period no longer than the remaining term of this contract.
Section 7.02. In the event of the Employee's death while in the employ of
------------
the Company, the Company shall pay to Employee's designated beneficiaries, or if
no such designation, then to his spouse or to his estate, if his spouse has
predeceased him, the following: An amount equal to six (6) months' compensation
based on an average of the twelve (12) months' compensation preceding such
death.
8. PARTICIPATION IN DRILLING PROGRAMS
----------------------------------
Section 8.01. If the Company has the right to sell working interests in
------------
any drilling program, upon the request of the Employee, the Employee shall be
entitled to participate, as an investor, in such oil and gas drilling; provided
that the Board of Directors, shall first approve the terms of any such
participation
9. ARBITRATION
-----------
Section 9.01. Any controversy or claim arising out of or relating to this
------------
contract, or the breach thereof, shall be settled by arbitration at Clarksburg,
West Virginia, in accordance with the rules of the American Arbitration
Association, then obtaining, and judgment on the award rendered may be entered
in any court having jurisdiction thereof and will be binding on the parties.
10. PARTIAL INVALIDITY
------------------
Section 10.1. If any provision in this Agreement is held by a court of
------------
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force without being impaired or
invalid thereby.
11. CHANGE IN CONTROL
-----------------
Section 11.01. If during the term hereof there shall have been a change in
-------------
control of the Company, as set forth in this and the
-5- 7/1/88
<PAGE>
following paragraph, the Employee may at his election, within six (6) months
after such change of control shall have occurred and without prejudice to any of
his rights theretofore accrued or vested here-under, voluntarily terminate his
employment hereunder. In such event, the Employee shall receive as severance
compensation an amount he would otherwise received under Section 3.01 hereof,
but in any event not exceeding three (3) years basic salary, paid over a period
not to exceed the lesser of three years as the term of this Agreement.
Section 11.02. For the purposes of the preceding paragraph, "change in
-------------
control of the Company" shall mean a change in control of the nature that would
be required to be reported in response to Item 5(f) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"); provided, however, that, without limitation, such a change in
control shall be deemed to have occurred if, on or after October 1, 1985, any
"person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act) is or becomes the beneficial owner, directly or indirectly, of the
securities of the Company representing 30% or more of the combined voting power
of the Company's then outstanding securities.
12. DEATH AND DISABILITY
--------------------
Section 12.01. If during the period of employment hereunder the Employee
-------------
shall have become disabled through illness or otherwise from performing his
duties hereunder, the Employee shall be entitled to a leave of absence with full
compensation for the duration of any such disability up to but not exceeding
eight (8) consecutive months.
Section 12.02. If the Employee shall have become permanently disabled, as
-------------
herein defined, or if employment hereunder terminates by reason of the
Employee's death, all future obligations of the Company hereunder, excluding
benefits provided in Section 7.02 hereof, shall, at the Company's election,
cease; provided, however, that benefits and rights theretofore vested under
any pension, profit-sharing, or insurance plan of the Company shall remain
unimpaired thereby.
Section 12.03. If the Employee's death shall have occurred after the
-------------
termination of employment hereunder and if, but for his death, the Employee
would have been entitled to receive additional payments hereunder in respect of
his employment, such payments shall thereafter be paid as the Employee's last
will and testament shall direct, or failing such direction, to the Employee's
estate.
13. NO ASSIGNMENT OR ATTACHMENT
---------------------------
Section 13.01. This Agreement and the rights, interests, and benefits
-------------
hereunder shall not be assigned, transferred, pledged, or hypothecated in any
way by the Employee or by the Company and shall not be subject to execution,
attachment, or similar process. Any attempted assignment, transfer, pledge or
hypothecation or the levy of
-6-
<PAGE>
any execution, attachment or similar process thereon shall be null and void and
without effect.
14. SUCCESSORS AND ASSIGNS
----------------------
Section 14.01. This Agreement shall be binding on and inure to the benefit
-------------
of the parties hereto and their respective successors, heirs and assigns;
provided, however, that neither party may assign his or its rights hereunder
without the other's express prior written consent.
15. NOTICES
-------
Section 15.01. Any notice required to be given hereunder shall be
-------------
sufficient it in writing and submitted by certified mail, return receipt
requested, postage prepaid, if to the Employee to him as follows:
Dale G. Rettinger
114 Driftwood Drive
Bridgeport, West Virginia 26330
and if to the Company, to it at the address first above written.
16. SEVERABILITY
------------
Section 16.01. Any provision of this Agreement that is invalid, illegal,
-------------
or unenforceable in any respect in any jurisdiction shall be, as to such
jurisdiction, ineffective to the extent of such invalidity, illegality, or
unenforceability without affecting the remaining provisions hereof; and any such
invalidity, illegality, or unenforceability in any such jurisdiction shall not
invalidate or in any way affect the validity, legality or enforceability of such
provision in any other jurisdiction.
17. GOVERNING LAWS
--------------
Section 17.01. This Agreement shall be governed by, construed under and
-------------
enforced in accordance with the laws of the State of West Virginia applicable to
contracts made in that State by residents and intended to be performed primarily
in that State.
18. BINDING EFFECT
--------------
Section 18.01. This Agreement supersedes any and all other agreements,
-------------
either oral or in writing, between the parties hereto with respect to the
employment of Employee by the Company and contains the covenants and agreements
between the parties with respect to such employment in any manner whatsoever.
Each party to this Agreement acknowledges that no representations, inducements,
promises or agreements, orally or otherwise, have been made by any party, or
anyone
-7-
<PAGE>
acting on behalf of any party, which are not embodied herein, and that no other
agreement, statement or promise not contained in this Agreement shall be valid
or binding. Any modification of this Agreement will be effective only if it is
in writing signed by the party to be charged.
19. LEGAL PROCEEDINGS
-----------------
Section 19.01. In the event legal proceedings are utilized to enforce the
-------------
provisions of this Agreement, the prevailing party shall be entitled to payment
of all reasonable attorneys' fees and court costs.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first hereinabove written.
EMPLOYER:
PETROLEUM DEVELOPMENT CORPORATION,
a Nevada corporation
By /s/ Steven R. Williams
--------------------------------
Its /s/ President
----------------
ATTEST:
/s/ Roger J. Morgan
- ---------------------
Secretary
EMPLOYEE:
/s/ Dale G. Rettinger
-----------------------------------
Dale G. Rettinger
-8- 7/1/88
<PAGE>
STATE OF WEST VIRGINIA
COUNTY OF HARRISON, TO-WIT:
The foregoing instrument was acknowledge before me this 1st day of July , 1988,
--- -----
by Steven R. Williams , President of PETROLEUM DEVELOPMENT CORPORATION, a
-------------------- -----------
Nevada corporation, for on behalf of the Corporation.
My Commission Expires: August 23, 1994
---------------------------
Notary Seal /s/ Naomi L. Powell
---------------------
STATE OF WEST VIRGINIA
COUNTY OF HARRISON, TO-WIT:
The foregoing instrument was acknowledged before me this 1st day of
-----
July , 1988, by DALE G. RETTINGER.
-------
My Commission Expires: August 23, 1994
--------------------------------
Notary Seal /s/ Naomi L. Powell
---------------------
This instrument was prepared by Roger J. Morgan, Esquire YOUNG, MORGAN & CANN,
Attorneys at Law Suite One Schroath Building, Clarksburg, West Virginia 26301
-9-
<PAGE>
MODIFICATIONS TO EMPLOYMENT AGREEMENT
-------------------------------------
AGREEMENT, Made as of the 1st day of March, 1991, between PETROLEUM
DEVELOPMENT CORPORATION, a Nevada corporation, having its principal place of
business at 103 East Main Street, Bridgeport, West Virginia 26330, party of the
first part, herein sometimes called the "Employer," and DALE G. RETTINGER,
Bridgeport, West Virginia, party of the second part, herein sometimes called
"Employee."
1. Recitals. (a) Whereas, the Employer employs the Employee under the
--------
terms of a written Employment Agreement dated as of July 1, 1988, the terms
and conditions of which Agreement are incorporated by reference and which is
hereinafter referred to herein as the "Agreement"; (b) Whereas, the Agreement
calls for a term or period of seven (7) years from July 1, 1988, terminating on
July 30, 1995; and (C) Whereas, the Board of Directors of the Employer has
authorized that the term of the Agreement be extended for three (3) additional
years so that the Agreement would terminate June 30, 1998; and
NOW THEREFORE, in consideration of the foregoing recitals and the parties
intending to be bound, agree as follows:
2. Employment Agreement Modification. Paragraph 1, Section 1.01 of the
---------------------------------
Agreement be and is hereby amended and modified by striking the words "Seven (7)
years beginning on the 1st day of July, 1988," and inserting in place and in
lieu thereof the following language "beginning on the first day of July,
1988, and ending on June 30, 1998."
3. Agreement Confirmed. In all other respects the Agreement and all other
-------------------
terms and provisions are hereby approved, ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement all as of
the day and year first hereinabove written.
PETROLEUM DEVELOPMENT CORPORATION,
a Nevada Corporation
By /s/ Steven R. Williams
------------------------
Its President
------------
(SEAL)
ATTEST:
/s/ Roger J. Morgan
- ---------------------
Secretary
/s/ Dale G. Rettinger
-----------------------
Dale G. Rettinger
<PAGE>
MODIFICATION TO EMPLOYMENT AGREEMENT
(NO. 2)
AGREEMENT, Made as of the 21st day of October, 1994, between PETROLEUM
DEVELOPMENT CORPORATION, A Nevada corporation, having its principal offices and
place of business at 103 East Main Street, Bridgeport, West Virginia 26330,
party of the first part sometimes herein called "the Employer, and DALE G.
RETTINGER, 114 Driftwood Road, Bridgeport, West Virginia 26330, party of the
second part, herein sometimes called "the Employee".
1. RECITAL(S). (a) Whereas, the Employer employs the Employee under
----------
the terms of a written Employment Agreement dated July 1, 1988, and amended and
modified by a subsequent agreement dated March 1, 1991, the terms and conditions
of which agreement and modification are incorporated by reference both of which
are hereinafter collectively referred to as the "Agreement"; (b) Whereas, the
Board of Directors at a meeting held October 21, 1994, adopted recommendations
of the Board's Compensation Committee dated October 21, 1994, a copy of which is
attached to the minutes of said meeting, recommending certain changes and
additions be made to the Agreement; and (c) Whereas, in order to incorporate
said changes and additions into the Agreement, the Board approved and authorized
the following additional modifications to the Agreement.
Now, therefore, in consideration of the recitals herein and the parties
intending to be bound, agree as follows:
<PAGE>
2. SUBPARAGRAPH 7.02 of the Agreement under the heading "Termination Other
-----------------
Than For Cause" be and is hereby amended to increase the amount of such payment
to the designated beneficiary(ies), his spouse or his estate from six (6) months
to twelve (12) months.
3. SUBPARAGRAPH 11.01 of the Agreement under the heading "Change of
------------------
Control" be and is hereby amended by striking the entire subparagraph and
inserting the following:
Section 11.01 If during the term hereof there shall have been a change in
-------------
control of the company, as described in this and the following paragraph,
the Employee may at his election, within six (6) months after such change
of control shall have occurred and without prejudice to any of his rights
theretofore accrued or vested hereunder voluntarily terminated his
employment hereunder. In such event the Employee shall receive a severance
compensation amounting to the basic compensation plus an amount equal
to the average bonus paid over the preceding three (3) years as provided
herein times the remaining years of this agreement, but in any event
severance compensation of not less than three (3) years basic compensation
plus an amount equal to three (3) times the average bonus paid over the
preceding three (3) year period to be Employee.
4. TERM AMENDED. Paragraph 2 of the Modification of the Employment Agreement
------------
dated February 19, 1991, be and is hereby further modified by striking language
"beginning on the date of this amendment and modification and inserting in place
and in lieu thereof the following language: "beginning on the date of this
agreement and modification and ending December 31, 2000."
-2-
<PAGE>
5. DEATH AND DISABILITY. In Section 12.01 of the written Employment
--------------------
Agreement dated July 1, 1988 extend the term during which an employee will be
entitled to full compensation from eight (8) months to fifteen (15) months.
6. DEFERRED COMPENSATION PLAN. The company will establish a deferred
--------------------------
compensation plan for the Employee and fund the plan with an annual contribution
of $30,000 commencing in 1994 and each year thereafter, adjusted for inflation.
In all other respects the agreements are ratified and confirmed.
IN WITNESS WHEREOF the parties hereto have set their signatures and seals the
day and year first hereinabove written.
EMPLOYER:
PETROLEUM DEVELOPMENT CORPORATION
A Nevada corporation
By /s/ James N. Ryan
--------------------
Its CEO
----
(SEAL)
EMPLOYEE:
/s/ Dale G. Rettinger
------------------------
DALE G. RETTINGER
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT shall be effective as of the 1st day of April,
1996, between RILEY NATURAL GAS COMPANY, a West Virginia corporation and wholly
owned subsidiary of Petroleum Development Corporation (hereinafter called
"RNG"), THOMAS E. RILEY (hereinafter called "Riley") and PETROLEUM DEVELOPMENT
CORPORATION, a Nevada corporation (hereinafter called "PDC") as Guarantor.
1. CONTRACT. RNG hereby employs and Riley hereby accepts employment upon
--------
the terms and conditions hereinafter set forth.
2. TERM. The term of this Agreement shall be for four (4) years, ending
----
on March 31, 2000. This agreement shall thereafter automatically renew for
additional one (1) year terms on April 1st of each year, provided that after the
initial 4-year term hereof, either party may terminate this agreement on six (6)
months notice to be given in the manner provided in Paragraph 9 hereof.
3. SERVICES TO BE RENDERED. Riley is to be employed full-time as
-----------------------
President of Riley Natural Gas Company, a West Virginia corporation, and a
wholly-owned subsidiary of PDC, and shall additionally be employed, for the
compensation set forth in paragraph 4 hereinbelow, as Vice President, Gas
Marketing and Business Development of PDC.
Riley's responsibilities will be subject to the review of the Board of
Directors of RNG, but are anticipated to include, but not be limited to the
overall management of PDC's natural gas marketing activities, identification and
evaluation of potential acquisition opportunities and opportunities for PDC's
drilling programs, and such other duties and responsibilities as may be directed
by the Board of Directors to enhance the value of PDC.
Riley shall, at all times perform his duties in consultation with and under
the supervision of the Board of Directors of RNG and PDC. Riley agrees to use
his best efforts and business time and attention to the diligent, faithful and
loyal discharge of the functions and duties of his employment hereunder and to
the proper, efficient and successful operation of both PDC's and RNG's business
and will not engage in any other ventures or enterprises which will be a
substantial invasion upon such time, provided that Riley may pursue his
activities for Krooked Kreek so long as such activities do not interfere with
his ongoing activities working for PDC or RNG. Riley shall at all times comport
himself in such a manner that his conduct will not reasonably be expected to
substantially prejudice or injure the reputation of PDC or RNG in any way.
4. COMPENSATIONS AND BENEFITS. As compensation for Riley's services to be
rendered as set out herein, and in recognition of his expertise and experience
in the natural gas marketing business, RNG shall pay the following amounts:
<PAGE>
(a) Salary. Riley shall be paid a base annual salary of Seventy Thousand
and 00/100 Dollars ($70,000) per year, payable in twelve (12) equal monthly
installments.
(b) Guaranteed Bonus. Riley shall be paid a guaranteed bonus of $40,000
annually on or before the anniversary date of this Agreement. This amount may,
at Riley's direction, be wholly or partially paid to Donna R. Riley pursuant to
a separate employment agreement between Donna R. Riley and RNG.
(c) Performance Bonus. Riley may additionally be eligible for an annual
performance bonus based on his contribution to PDC, and the overall financial
success and status of PDC. The payment and amount of the performance bonus
shall be determined on an annual basis by PDC's Compensation Committee, subject
to the review and approval of the Board of Directors.
(d) Benefits. Riley shall be entitled to all benefit programs offered to
other PDC employees, including without limitation health insurance, vacation and
sick leave and retirement programs. For the purpose of such benefit programs,
Riley will be considered to have begun employment as of the initial date of his
employment with RNG, April 1, 1987.
5. RELATIONSHIP BETWEEN THE PARTIES. It is distinctly and particularly
understood and agreed between the parties hereto that Riley shall perform this
contract as an employee and nothing contained shall be construed to be
inconsistent with this relationship or status.
6. AGREEMENT BINDING ALL ASSIGNS. This Agreement shall bind the parties,
their respective heirs, executors, administrators and assigns, but nothing
contained herein shall be construed as an authorization or right by any party to
assign their rights or obligations hereunder.
7. ARBITRATION. Any controversy or claim arising out of, or relating to
this Agreement, or its breach, shall be settled by arbitration in the State of
West Virginia in accordance with the then governing rules of the American
Arbitration Association. Judgement upon the award rendered may be entered and
enforced in any court of competent jurisdiction.
8. GUARANTEE BY PDC. To further induce Riley to enter into this
Employment Agreement with RNG, PDC hereby guarantees performance of all duties
and obligations of RNG hereunder, waives notice of default. This guaranty is
made in accordance with a resolution of PDC's Board of Directors.
-2-
<PAGE>
9. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered or
certified mail, to the following addresses:
Riley Natural Gas Company
P. O. Box 280
West Milford, WV 26451
Thomas E. Riley
Route 1 Box 198
Lost Creek, WV 26385
Petroleum Development Corporation
P. O. Box 26
Bridgeport, WV 26330
10. MISCELLANEOUS.
(a) Entire Agreement. This writing constitutes the entire agreement
between the parties hereto and supersedes any prior understanding or agreements
among them respecting the subject matter. There are no extraneous
representations, arrangements, undertakings, or agreement, oral or written,
among the parties hereto, except those fully expressed herein.
(b) Amendments. No amendments, changes, alterations, modifications,
additions or qualifications to the terms of this Agreement shall be made or
binding unless made in writing and signed by all the parties hereto, except as
otherwise provided herein.
(c) Waiver. The failure of either party to enforce at any time any of the
provisions of this Agreement shall not be construed as a waiver of such
provisions or of the right of such party thereafter to enforce any such
provisions.
(d) Invalidity. The invalidity or unenforcability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respect as if such invalid or
unenforceable provision were omitted.
(e) Choice of Law. This Agreement shall be interpreted and construed in
accordance with the laws of the State of West Virginia.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date and year first above written.
EMPLOYER:
RILEY NATURAL GAS COMPANY
a West Virginia corporation
By /s/ Thomas E. Riley
----------------------
Its President
----------------
GUARANTOR:
PETROLEUM DEVELOPMENT CORPORATION
a Nevada corporation
By /s/ James N. Ryan
---------------------
Its CEO
--------------
EMPLOYEE:
/s/ Thomas E. Riley
----------------------------------
THOMAS E. RILEY
This instrument prepared by:
Gregory A. Morgan, Esquire
YOUNG, MORGAN & CANN, Attorneys at Law
Suite One, Schroath Building, Clarksburg, West Virginia 26301
-4-
<PAGE>
Exhibit 10.5
PETROLEUM DEVELOPMENT CORPORATION
DEFERRED COMPENSATION PLAN
Effective December 29, 1994
---------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I, Definitions
1.01 Beneficiary 1
1.02 Board 1
1.03 Bonus Compensation 1
1.04 Corporation 1
1.05 Contingent Deferred Obligation 1
1.06 Deferred Compensation 1
1.07 Disability 1
1.08 Hardship 1
1.09 IRC 2
1.10 Net Profits 2
1.11 Participant 2
1.12 Plan 2
1.13 Plan Administrator 2
1.14 Retirement 2
1.15 Trust 2
1.16 Voluntary Bonus Compensation Agreement 2
1.17 Year 3
1.18 Year-End Bonus 3
ARTICLE II, Allocation of Bonus to Participants
2.01 Year-End Bonus 3
2.02 Amount of Year-End Bonus 3
2.03 Other Bonus Compensation 3
2.04 Payment of Deferred Compensation 3
ARTICLE III, Accounts and Investments
3.01 Accounts 3
3.02 Establishment of Trust 4
3.03 Allocation to Accounts 4
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION
DEFERRED COMPENSATION PLAN
Preamble
--------
This Plan is an unfunded deferred compensation arrangement for a select group of
management or highly-compensated personnel. The purpose of the Plan is to enable
Plan Participants to defer a portion of their compensation and receive benefits
at retirement, separation from service, death, or in the event of financial
hardship due to unforeseeable emergencies.
ARTICLE I
Definitions
-----------
1.01 "Beneficiary" means the person(s) or entity designated by a Participant to
receive death benefits, if any, which are payable from the Plan.
1.02 "Board" means the Board of Directors of the Corporation.
1.03 "Bonus Compensation" means an amount in excess of a Participant's regular
salary to which a Participant becomes entitled (i) as a Year-End bonus; or (ii)
at any other time during a Year.
1.04 "Corporation" means Petroleum Development Corporation, a Nevada
corporation, and its corporate successors.
1.05 "Contingent Deferred Obligation" means the total amount of the
Corporation's contingent liability for payment of deferred benefits under the
Plan.
1.06 "Deferred Compensation" means the amount of Bonus Compensation, the
payment of which is deferred under this Plan pursuant to Article II.
1.07 "Disability" means a mental or physical disability which prevents a
Participant from engaging in any gainful employment and which the federal Social
Security Administration has determined is a disability for purposes of receiving
Social Security disability benefits.
1.08 "Hardship" means a Participant's severe financial hardship resulting from a
sudden or unexpected (i) illness or accident of the Participant or the
Participant's spouse or dependent; (ii) loss of Participant's property due to
casualty; or (iii) other similar extraordinary and unforeseeable circumstances
arising as a result of events outside of the Participant's control. The
existence of a "Hardship" shall be determined pursuant to the particular facts
and circumstances applicable to each individual case. However, under no
circumstances shall a "Hardship" be deemed to exist to the extent that the
hardship can be relieved through:
<PAGE>
(1) reimbursement through insurance or otherwise; or
(2) liquidation of the Participant's assets, provided that such
liquidation would not itself cause a Hardship; or
(3) termination of a Voluntary Bonus Compensation Agreement, which
provides for the deferral of compensation under this Plan; or
(4) the Participant's election to receive his Year-End Bonus as
immediately payable cash compensation.
1.09 "IRC" means the Internal Revenue Code of 1986, as it may be amended from
time to time, and includes regulations and rulings thereunder.
1.10 "Net Profits" means the net income for a Year as shown by or included in
Corporation's consolidated statement of income.
1.11 "Participant" means those executive employees of the Corporation who have
been designated by the Board as eligible to participate in the Plan.
1.12 "Plan" means this Deferred Compensation Plan as it may be amended from time
to time.
1.13 "Plan Administrator" means the person, persons, or entity designated by the
Board to administer the Plan.
1.14 "Retirement" occurs when a Participant has actually retired from his
employment with the Corporation. Termination of employment prior to the time
that the Participant is entitled to receive retirement benefits from the tax
qualified plans maintained by the Corporation shall not be deemed to be
Retirement.
1.15 "Trust" means the trust established by the Corporation for purposes of
satisfying the Corporation's Contingent Deferred Obligation and for paying
expenses associated with the Plan. The Trust is intended to be an employer
grantor trust as defined in IRC (S)(S)671-679. The declaration or agreement of
Trust shall, together with this instrument, constitute the governing documents
of the Plan.
1.16 "Voluntary Bonus Compensation Agreement" means an agreement between
the Participant and the Corporation pursuant to which the Participant has
elected (i) to defer the receipt of his Bonus Compensation, other than his Year-
End Bonus, under this Plan; or (ii)- to receive his Year-End Bonus as cash
compensation, payable as soon as practical following the close of the Year in
which it was earned. A Voluntary Bonus Compensation Agreement shall remain in
effect only with respect to a single Year. If the Participant fails to execute
and deliver a Voluntary Bonus Compensation Agreement to the Plan Administrator,
(i) his Year-End Bonus shall continue to be deferred under this Plan; and (ii)
any other Bonus Compensation shall not be deferred, but shall be paid during the
Year for which it was earned.
2
<PAGE>
1.17 "Year" means the Corporation's fiscal year as now constituted or as it
may be changed hereafter from time to time.
1.18 "Year-End Bonus" means the Bonus Compensation, if any, to which the
Participant may become entitled at the end of a Year. A Participant's Year-End
Bonus is automatically treated as Deferred Compensation unless a Participant
elects otherwise prior to the Year in which the Year-End Bonus was earned.
ARTICLE II
Allocation of Bonus to Participants
-----------------------------------
2.01. Year-End Bonus. For each Year, the Corporation shall declare a Year-End
--------------
Bonus for each Participant, receipt of which shall be automatically deferred
pursuant to this Plan, unless, prior to beginning of that Year, the Participant
entered into a Voluntary Bonus Compensation Agreement under which he irrevocably
elected to receive his Year-End Bonus as cash compensation, payable as soon as
practicable following the end of the Year. For the Year in which this Plan first
becomes effective, the Participant shall have no right to elect to receive cash
compensation in lieu of the automatic deferral of his Year-End Bonus under this
Plan.
2.02 Amount of Year-End Bonus. The amount of the Participant's Year-End
------------------------
Bonus shall be a minimum of $30,000, or such greater amount as may be declared
by the Board.
2.03 Other Bonus Compensation. For each Year, a Participant shall have the
------------------------
right to elect to defer the amount of his Bonus Compensation, if any, (other
than his Year-End Bonus, which shall be deferred or not pursuant to section
2.01) under this Plan. Such an election shall be effective only if the
Participant has executed and filed with the Plan Administrator a Voluntary Bonus
Compensation Agreement, prior to the beginning of the Year in which the Bonus
Compensation would otherwise be payable.
2.04 Payment of Deferred Compensation. Payment of the Bonus Compensation
--------------------------------
deferred under this Plan (adjusted for gains and losses and expenses as
applicable) shall be deferred until such Participant's retirement, other
termination of employment, Disability, death, or Hardship, as hereinafter
provided.
ARTICLE III
Accounts and Investments
------------------------
3.01 Accounts. The Plan Administrator shall cause an account to be kept in
--------
the name of each Participant and each Beneficiary of a deceased Participant,
which shall reflect the value of the Participant's Deferred Compensation,
adjusted for investment gains and losses, if any, and Plan expenses not directly
paid by the Corporation.
3
<PAGE>
3.02 Establishment of Trust. As soon as practical following the adoption of
----------------------
this Plan, the Corporation shall establish one or more Trusts. In any Year in
which the Corporation has Net Profits, the Corporation shall deposit into the
Trust an amount equal to the Bonus Compensation deferred for that Year under the
Plan (and for any prior Year for which no deposit was made because the
Corporation had no Net Profits) where it shall be invested and re-invested in
accordance with the terms of he Trust.
3.03 Allocation to Accounts. The income and gains and losses, both realized
----------------------
and unrealized, from investments made pursuant to section 3.02, net of any
expenses properly chargeable thereto shall be determined annually at, the close
of the Year by the Plan Administrator or his designee. An amount equal to the
net income or loss as so determined shall be allocated among the accounts of the
Participants concerned in proportion to the values of their respective account
balances. Amounts so allocated shall increase or decrease, as the case may be,
the future benefits receivable by such Participants or their Beneficiaries.
3.04 Valuation Upon Distribution Event. Upon the Participant's Retirement,
---------------------------------
death, Disability, or termination of employment with the Corporation for any
other reason, or in the event the Participant is to receive a Hardship
distribution, the Plan Administrator shall determine the fair market value,
determined as of the date of such event and in accordance with section 3.03, of
the Participant's account.
3.05 Installment Payments. If the Participant (or his Beneficiary) is to
--------------------
receive installment distributions of the amount determined in section 3.04 the
undistributed amount of the Participant's account shall continue to be credited
or debited, as the case may be, with an allocated share of the Plan's investment
gains and losses, and expenses.
3.06 Ownership of Assets. Title to or equitable ownership of any assets,
-------------------
whether cash or investments, which the Corporation may set aside or earmark to
meet its Contingent Deferred Obligation hereunder, shall at all times remain in
the Corporation (or, if applicable, the Trust established pursuant to section
3.02). No Participant or Beneficiary shall under any circumstances acquire any
property interest in any specific assets of the Corporation or the Trust.
3.07. Rights of Creditors. Funds invested hereunder shall continue for all
-------------------
purposes to be a part of the general funds of the Corporation, except as they
may be deposited in the Trust, where they shall nonetheless remain subject to
the claims of the Corporation's creditors. No person other than the Corporation,
or if applicable, the Trust, shall by virtue of the provisions of this Plan,
have any interest in such funds. To the extent that any Participant,
Beneficiary, or other person or entity acquires a right to receive payments from
the Corporation under this Plan, such right shall be no greater than the right
of any unsecured general creditor of the Corporation.
4
<PAGE>
ARTICLE IV
Distributions Form of Payment and Beneficiaries
-----------------------------------------------
4.01 Commencement of Distributions Except as provided in section 4.05
-----------------------------
(relating to Hardship distributions), distribution shall commence or be made to
the Participant (or if applicable, his Beneficiary) as soon as practical
following the earliest of:
(a) the Participant's Retirement;
(b) the date on which the Participant is determined to be suffering
from a Disability;
(c) the Participant's death; or
(d) the Participant's termination of employment with the Corporation
for reasons other than Retirement, death, or Disability.
4.02 Normal Form of Payment. Unless the Participant elects otherwise pursuant
----------------------
to section 4.03, the Participant's Plan benefit shall be payable (i) in the
event of the Participant's Retirement or Disability, in five annual
installments; (ii) in the event of the Participant's death or termination of
employment for reasons other than death, Disability, or Retirement, in a single
lump sum. Distributions (either in the form of a lump sum or annual installment)
for any year shall be made as soon as practical following the end of such year.
4.03 Election of Alternative Form of Retirement Disability or Death
--------------------------------------------------------------
Distributions
- -------------
(a) In lieu of the normal form of payment designated in section 4.02,
when first becoming a Participant hereunder, a Participant may elect in a signed
writing filed with the Plan Administrator to have his benefits payable at
Retirement or Disability, as may apply, distributed in one of the following
alternative forms: (i) ten annual installments; or (ii) a single lump sum
payment. The Participant may also elect in the same manner for any benefit
payable as a result of his death to be distributed in one of the following forms
in lieu of the normal form designated in section 4.02: (i) ten annual
installments; or (ii) five annual installments. The election of an alternative
form of Disability or Death distribution shall be irrevocable. The Participant
may elect to change the form of his Retirement distribution to the normal form
of payment described in section 4.02, or to an alternative form provided in this
section 4.03 by filing a signed and written election with the Plan Administrator
no later than one year before the Participant's Retirement.
(b) A Participant shall have no right to elect an alternative form of
distribution with respect to a distribution made because of the Participant's
termination of employment for reasons other than death, Retirement, or
Disability.
5
<PAGE>
4.04 Participant's Death After Installment Distribution
------------------------------------------------------
Commences. If the Participant dies after the distribution of his interest in
- ---------
installments has commenced, the Plan Administrator may elect to either
immediately distribute the Participant's remaining interest to the Participant's
Beneficiary; or to continue distributions pursuant to the form of distribution
in effect as of the Participant's death.
4.05 Distributions Due to Hardship.
-----------------------------
(a) A Participant may request a distribution due to Hardship by submitting
a signed and written request to the Plan Administrator, together with evidence
demonstrating that the circumstances in question constitute a Hardship. The
Plan Administrator shall have the authority to require such evidence as, in its
sole discretion, it deems necessary to determine if a Hardship distribution is
warranted and shall have the sole and exclusive discretion to make such
determination. The amount of distribution due to a Hardship shall be limited to
the amount sufficient to meet the emergency constituting the Hardship, The
allowed Hardship distribution shall be paid in a single lump sum as soon as
practical following the Plan Administrator's determination that a Hardship
exists.
(b) A Participant who has commenced receiving installment payments from the
Plan may request acceleration of such payments in the event of a Hardship. The
Plan Administrator may permit accelerated payments to the such extent that such
acceleration does not exceed the amount necessary to meet the emergency
constituting the Hardship.
4.06 Designation of Beneficiaries. Each Participant shall have the right to
----------------------------
designate beneficiaries who are to succeed to the Participant's contingent right
to receive future payment of Plan benefits in the event of the Participant's
death. No designation of beneficiaries shall be valid unless in writing signed
by the Participant, dated, and filed with the Plan Administrator.
Beneficiaries may be changed without the consent of any prior beneficiaries.
4.07 Failure of Beneficiary Designation. If a Participant fails to designate a
----------------------------------
Beneficiary or the designated Beneficiary does not survive the Participant,
distribution shall be made to the surviving person or persons in the first of
the following classes of successive preference:
The Participant's
(a) spouse;
(b) children, per stirpes;
(c) parents;
(d) brothers and sisters;
(e) estate.
6
<PAGE>
ARTICLE V
Plan Administration
-------------------
5.01. Plan Administrator. The Board shall designate a Plan Administrator to
------------------
administer the Plan. The Plan Administrator shall have sole discretionary
responsibility to interpret and construe the terms of the Plan and for
determining eligibility for Plan benefits. The books and records to be
maintained for the purpose of the Plan shall be maintained by the Plan
Administrator at the Corporation's expense and subject to the supervision and
control of the Board. All expenses of administering the Plan shall be paid by
the Corporation either from funds set aside or earmarked under the Plan or from
other funds.
5.02 Accounts Valuation and Expenses. The Plan Administrator shall establish
-------------------------------
and maintain accounts for each Participant and Beneficiary of a deceased
Participant. Such accounts shall be valued at fair market value as of the last
day of each Year and may be valued more frequently if the Plan Administrator, in
its sole discretion, determines that additional valuation(s) are necessary or
appropriate for the proper administration of the Plan. The account shall reflect
the amount of the Participant's Deferred Compensation, adjusted for investment
gains and losses, and shall be reduced by an allocated share of administrative
expenses and investment not paid directly by the Corporation. Each Participant
(or Beneficiary of a deceased Participant) shall receive a statement of his
account balance following any valuation.
5.03. Protective Provisions. No member of the Board or the Plan Administrator,
---------------------
or the trustee of the Trust (and no officer or employee of any of them) shall be
liable to any person for any action taken or omitted in connection with the
administration of this Plan unless attributable to his own fraud or willful
misconduct; nor shall the Corporation be liable to any person for any such
action unless attributable to fraud or wilful misconduct on the part of a
director, officer or employee of the Corporation.
ARTICLE VI
Amendment and Termination of the Plan
-------------------------------------
6.01. Amendment. The Plan may be amended in whole or in part from time to time
---------
by the Board.
6.02 Termination. The Corporation hopes to continue this Plan indefinitely, but
------------
nonetheless reserves the right to terminate the Plan in whole or in part at any
time and without liability for such termination or discontinuance. Upon Plan
termination or discontinuance, all deferrals into the Plan shall cease and
benefits shall be paid at the times and in the manners specified in Article IV.
7
<PAGE>
6.03 No Effect on Existing Rights. An amendment to or the termination of the
----------------------------
Plan shall not adversely affect the rights of a Participant (or the Beneficiary
of a deceased Participant) with respect to Deferred Compensation theretofore
allocated to the Participant's (or Beneficiary's) Plan account.
6.04 Notice. Notice of every amendment or of the Plan's termination or
------
discontinuance shall be given in writing to each Participant and Beneficiary, to
the Plan Administrator, and to the trustee of the Trust.
ARTICLE VII
Miscellaneous
-------------
7.01 No Modification of Employment Rights. Neither the establishment of the
------------------------------------
Plan nor any modification thereof, nor the payment of any benefits shall be
construed as giving any Participant or Beneficiary or any other person or entity
any legal or equitable right against the Corporation except as expressly
provided in the Plan. The terms of employment of any Participant shall not be
modified or affected by the Plan.
7.02 Assignment Prohibited. Plan benefits shall not be assigned, sold,
---------------------
transferred, or encumbered prior to their actual receipt by a Participant or
Beneficiary, Any attempt to assign, sell, transfer or encumber a Plan benefit
shall be null and void. A Participant's or Beneficiary's rights under this Plan
shall not be subject to attachment, garnishment or other legal process.
7.03. Pronouns. When used in this instrument, (i) the masculine pronoun shall
--------
include the feminine; and (ii) the singular form shall include the plural form,
where applicable, and vice versa.
7.04 No Representations. The Corporation does not represent or guarantee (i)
------------------
that any particular federal or state income, payroll, personal property, or
other tax consequences will result from participation in the Plan; and (ii)
successful investment of Deferred Compensation.
7.05 Severability. If a court of competent jurisdiction declares that any
------------
provision of the Plan is unenforceable or invalid, the remaining Plan provisions
shall remain fully effective.
7.06 Applicable Law. Except as the Corporation may be required
--------------
to comply with the corporate laws of its state of incorporation, this Plan shall
be construed in accordance with the laws of the state of West Virginia, where it
is made.
7.07 Counterparts. This instrument may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original.
8
<PAGE>
The establishment of a Deferred Compensation Plan was authorized by the
Board of Directors of Petroleum Development Corporation at the November 21, 1994
meeting, and this Deferred Compensation Plan was approved by the Board on
December 29, 1994.
By: /s/ Steven R. Williams
-----------------------------
Steven R. Williams
President
Attest: /s/ Roger J. Morgan
------------------------
Roger J. Morgan
Secretary
9
<PAGE>
Exhibit 10.6
STOCK REDEMPTION AGREEMENT
--------------------------
THIS AGREEMENT, Made this 15th day of October, 1991, between JAMES N. RYAN,
of 515 Sherwood Forest, Bridgeport, West Virginia 26330, party of the first
part, herein sometimes referred to as "the Executive," and PETROLEUM
Development CORPORATION, a Nevada corporation, with offices at 103 East Main
Street, Bridgeport, West Virginia 26330, party of the second part, herein
sometimes referred to as "the Corporation."
WHEREAS, the Executive is one of the principal operating officers of the
Corporation and is a substantial owner of shares of the Corporation; and
WHEREAS, the Board of Directors has determined that it is in the best
interest of the Corporation that the stock owned by the Executive be acquired by
the Corporation upon his death and not offered to the public; and
WHEREAS, the Corporation has arranged to provide funds necessary to
acquire a part or all of the stock of such deceased Executive through an
insurance policy or policies on the life of the Executive; and
WHEREAS, the Agreement replaces a similar agreement between the Executive
and the Corporation dated July 1, 1977.
IT IS THEREFORE AGREED:
1. INSURANCE. The Corporation has acquired and carries insurance on the
---------
life of the Executive in the face amount of One Million Dollars ($1,000,000.00),
naming itself the beneficiary of such policy or policies. Said policy(ies)
shall be maintained in effect by
<PAGE>
the Corporation in an amount at least as great as the face amount presently in
effect. Proceeds received thereunder shall be held by the Corporation in trust
for the initial or primary purpose of carrying out the Corporation's obligations
under this Agreement. The Corporation shall have the right to take out
additional insurance on the life of the Executive and when the Board of
Directors determines that additional insurance may be necessary and in the
interest of the Corporation in order to carry out its obligations under this
Agreement. The Corpora tion shall pay all premiums on such insurance and shall
render proof of payment of the Executive within fifteen (15) days after the
payment of premiums. Said life insurance policy is more particularly described
on Exhibit "A," which is hereto attached and by reference made a part hereof.
2. OWNERSHIP. The Corporation shall be the sole owner of said insurance
---------
policy or policies and to any premiums or dividends declared and unpaid upon
said policy or policies.
3. PURCHASE OF STOCK UPON DEATH. Upon the death of the Executive, the
----------------------------
Corporation shall purchase with the proceeds of the insurance from the policy or
policies described on Exhibit "A" from the estate of the decedent or his
surviving spouse, if any, at the option of the estate of the decedent or his
surviving spouse, shares of stock to the Corporation now owned or hereafter
acquired by the Executive, to the extent, and on the terms and conditions
otherwise set forth herein. The purchase price of such share of stock shall be
the value computed in accordance with the terms of the next succeeding
paragraph. Upon
-2-
<PAGE>
written demand of the personal representative of the decedent's estate the
Corporation shall purchase that number of shares, including shares subject to
outstanding options or warrants owned by the Executive at the time of his death
up to an aggregate sale price of One Million Dollars ($1,000,000.00). The
Corporation shall not be required to purchase any shares which would have a
value in excess of One Million Dollars ($1,000,000.00). The personal
representative of the Executive shall have a period of one (1) year from the
date of the death of such deceased Executive to give notice and demand of the
purchase of the shares of stock.
4. PURCHASE PRICE. The purchase price of each share of stock shall be the
--------------
mean average of the market price of such shares (daily NASDAQ closing "asking"
price if stock is traded OTC) of the stock during the ninety (90) days next
preceding the written demand upon the corporation to purchase such shares.
The purchase price for shares of options and warrants to purchase shares of
stock owned by decedent shall be the market price determined in the same manner
less the exercise price of such options and warrants.
5. PAYMENT OF PURCHASE PRICE. The purchase price for the shares of common
-------------------------
stock to be purchased shall be paid by the Corporation to the estate of the
deceased Executive within thirty (30) days after notification of the Corporation
by the personal representative of the Executive in writing that (a) the personal
representative had qualified as such, and (b) the number of shares, warrants,
options or rights to
-3-
<PAGE>
purchase which the estate would require the Corporation to purchase out of the
proceeds of said insurance policies, or as soon thereafter as the Corporation
has received the insurance proceeds.
6. RESTRICTIONS ON SALE. In the event and to the extent that the personal
--------------------
representative of the Corporation elects not to sell any or all of the shares of
stock which the personal representative could sell pursuant to the provisions of
this Agreement, the personal representative and other beneficiaries, heirs, and
assigns of the decedent shall be precluded from selling such shares of stock to
anyone for a period of two (2) years after the date of he Executive's death,
except that said shares may be transferred into the names of decedent's heirs
and beneficiaries and the stock sold under Rules 144 of the Securities Act of
1933, as amended. All certificates representing such shares shall be legended to
reflect the restriction herein contained and the Corporation's transfer agent
shall be issued appropriate "stop transfer" instructions.
7. DELIVERY OF STOCK. Upon the payment of the purchase or redemption
-----------------
price to the estate of the Executive determined as aforesaid, the legal
representative of the decedent shall assign and deliver certificates
representing the specified number of shares, options and warrants to the
Corporation.
8. PURCHASE OF INSURANCE POLICY UPON WITHDRAWAL OF PARTY.
-----------------------------------------------------
In the event that the Executive terminates employment with the
Corporation or disposes of all or substantially all of his stock in the
Corporation, the Executive shall have the right to purchase from the
-4-
<PAGE>
Corporation the insurance policy or policies of his life for a price equal to
the cash surrender value of such policy as of the date of his termination or
final stock disposition. Such right to purchase may be exercised and the price
paid within ninety (90) days after occurrence of termination or disposition.
Upon payment therefor, the Corporation shall deliver the policy to the Executive
and execute any necessary instruments of transfer.
In the event the Executive fails to exercise his right granted herein to
purchase the policy or policies upon his termination or final stock disposition,
the Corporation may then cancel all Insurance policies covering the life of such
Executive.
9. TERM. This Agreement shall terminate upon the occurrence of any of the
----
following events:
(a) Cessation of business by the Corporation;
(b) Bankruptcy, receivership or dissolution of the Corporation;
(c) Voluntary agreement of all parties then bound hereby; and
Until this Agreement is terminated as provided herein, the Corporation
shall have the obligation to maintain in effect the insurance policies described
in Paragraph 1 hereof. In the event of the cancellation or failure to renew all
or any portion of such policies, the Corporation shall replace such policies or
portion thereof without any interruption in coverage.
10. The Agreement dated July 1, 1977, between the Corporation, the
Executive and a third party be and is hereby in all respects
-5-
<PAGE>
cancelled and annulled, not affect any rights or obligations of either of the
Executive, his personal representative, or of the Corporation.
11. BENEFIT. This Agreement shall be binding upon each of the parties,
-------
their respective heirs, legal representatives, successors or assigns. The
Executive in furtherance of this Agreement shall execute a will directing his
personal representative to act pursuant to this Agreement and to execute such
documents as may be necessary to effectuate the purposes hereof, but failure to
execute such will shall not affect any rights or obligations of either the
Executive, his personal representative, or of the Corporation.
12. ARBITRATION OF DISPUTES. In the event the parties hereto are unable
-----------------------
to resolve, amicably, any dispute arising out of or in any way related to this
Agreement or the right or remedy arising from it, such party shall have the
right to invoke the remedy of arbitration by noticing his determination to do so
to the other party. The notice shall fairly and fully set forth the conditions
of the noticing party, in the nature of a complaint and shall appoint one (1)
arbitrator. Within ten (10) days thereafter the party opposed shall designate
one (1) arbitrator. Opposition shall be the nature of an answer in an action at
law. The arbitration shall thereafter be carried out upon the terms and
conditions, rules and regulations then pertaining to the American Arbitration
Association at Clarksburg, West Virginia. In the event of disagreement between
the arbitrators a third arbitrator shall be designated by the American
Arbitration Association. Judgment on the
-6-
<PAGE>
arbitrators' award may be entered as a judgment in any court of record having
jurisdiction.
IN WITNESS WHEREOF, the Executive has hereunto signed his name, and said
Corporation has caused its corporate name to be signed hereto and its corporate
seal hereunto affixed, by its proper officers heretofore duly authorized, the
day and year first above written.
EXECUTIVE:
/s/ James N. Ryan (SEAL)
------------------------------
JAMES N. RYAN
CORPORATION:
PETROLEUM DEVELOPMENT CORPORATION,
a Nevada corporation
(CORPORATE SEAL)
By /s/ Steven R. Williams
----------------------------------
Its President
--------------------------
ATTEST:
/s/ Roger J. Morgan
- ----------------------------
Secretary
STATE OF WEST VIRGINIA
COUNTY OF HARRISON, TO-WIT:
The foregoing instrument was acknowledged before me this 8th day of
-----
October, 1991, by JAMES N. RYAN.
My commission expires July 31, 2001 .
--------------------------
(Notarial Seal)
/s/ Marjorie Ann Desmond
-------------------------
Notary Public
-7-
<PAGE>
STATE OF WEST VIRGINIA
COUNTY OF HARRISON, TO-WIT:
The foregoing instrument was acknowledged before me this
8th day of October, 1991, by Steven R. Williams , President of PETROLEUM
- ---- ------------------- ----------
DEVELOPMENT CORPORATION, a Nevada corporation, on behalf of the corporation.
My commission expires July 31, 2001 .
-------------------------
(Notarial Seal)
/s/ Marjorie Ann Desmond
--------------------------------
Notary Public
This instrument prepared by:
Roger J. Morgan, Esquire
YOUNG, MORGAN & CANN, Attorneys at Law
Suite One, Schroath Building, Clarksburg, West Virginia 26301
-8-
<PAGE>
Exhibit 10.7
STOCK REDEMPTION AGREEMENT
--------------------------
THIS AGREEMENT, Made this 15th day of October, 1991, between STEVEN R.
WILLIAMS, of 137 Ashford Drive, Bridgeport, West Virginia 26330, party of the
first part, herein sometimes referred to as "the Executive," and PETROLEUM
DEVELOPMENT CORPORATION, a Nevada corporation, with offices at 103 East Main
Street, Bridgeport, West Virginia 26330, party of the second part, herein
sometimes referred to as "the Corporation.
WHEREAS, the Executive is one of the principal operating officers of the
Corporation and is a substantial owner of shares of the Corporation; and
WHEREAS, the Board of Directors has determined that it is in the best
interest of the Corporation that the stock owned by the Executive be acquired by
the Corporation upon his death and not offered to the public; and
WHEREAS, the Corporation has arranged to provide funds necessary to
acquire a part or all of the stock of such deceased Executive through an
insurance policy or policies on the life of the Executive.
IT IS THEREFORE AGREED;
1. INSURANCE. The Corporation has acquired and carries insurance on the
---------
life of the Executive in the face amount of One Million Dollars ($1,000,000.00),
naming itself the beneficiary of such policy or policies. Said policy(ies)
shall be maintained in effect by the Corporation in an amount at least as great
as the face amount presently in effect. Proceeds received thereunder shall be
held by the
<PAGE>
Corporation in trust for the initial or primary purpose of carrying out the
Corporation's obligations under this Agreement. The Corporation shall have the
right to take out additional insurance on the life of the Executive and when the
Board of Directors determines that additional insurance may be necessary and in
the interest of the Corporation in order to carry out its obligations under this
Agreement. The Corporation shall pay all premiums on such insurance and shall
render proof of payment of the Executive within fifteen (15) days after the
payment of premiums. Said life insurance policy is more particularly described
on Exhibit "A," which is hereto attached and by reference made a part hereof -
2. OWNERSHIP. The Corporation shall be the sole owner of said insurance
---------
policy or policies and to any premiums or dividends declared and unpaid upon
said policy or policies.
3. PURCHASE OF STOCK UPON DEATH. Upon the death of the Executive, the
----------------------------
Corporation shall purchase with the proceeds of the insurance from the policy or
policies described on Exhibit "A" from the estate of the decedent or his
surviving spouse, if any, at the option of the estate of the decedent or his
surviving spouse, shares of stock to the Corporation now owned or hereafter
acquired by the Executive, to the extent, and on the terms and conditions
otherwise set forth herein. The purchase price of such share of stock shall be
the value computed in accordance with the terms of the next succeeding
paragraph. Upon written demand of the personal representative of the decedent's
estate the Corporation shall purchase that number of shares, including shares
-2-
<PAGE>
subject to outstanding options or warrants owned by the Executive at the time of
his death up to an aggregate sale price of One Million Dollars ($1,000,000.00).
The Corporation shall not be required to purchase any shares which would have a
value in excess of One Million Dollars ($1,000,000.00). The personal
representative of the Executive shall have a period of one (1) year from the
date of the death of such deceased Executive to give notice and demand of the
purchase of the shares of stock.
4. PURCHASE PRICE. The purchase price of each share of stock shall be the
--------------
mean average of the market price of such shares (daily NASDAQ closing "asking"
price if stock is traded OTC) of the stock during the ninety (90) days next
preceding the written demand upon the corporation to purchase such shares.
The purchase price for shares of options and warrants to purchase shares of
stock owned by decedent shall be the market price determined in the same manner
less the exercise price of such options and warrants.
5. PAYMENT OF PURCHASE PRICE. The purchase price for the shares of common
-------------------------
stock to be purchased shall be paid by the Corporation to the estate of the
deceased Executive within thirty (30) days after notification of the Corporation
by the personal representative of the Executive in writing that (a) the personal
representative had qualified as such, and (b) the number of shares, warrants,
options or rights to purchase which the estate would require the Corporation to
purchase out
-3-
<PAGE>
of the proceeds of said insurance policies, or as soon thereafter as the
Corporation has received the insurance proceeds.
6. RESTRICTIONS ON SALE. In the event and to the extent that the personal
--------------------
representative of the Corporation elects not to sell any or all of the shares of
stock which the personal representative could sell pursuant to the provisions of
this Agreement, the personal representative and other beneficiaries, heirs, and
assigns of the decedent shall be precluded from selling such shares of stock to
anyone for a period of two (2) years after the date of the Executive's death,
except that said shares may be transferred into the names of decedent's heirs
and beneficiaries and the stock sold under Rules 144 of the Securities Act of
1933, as amended. All certificates representing such shares shall be legended to
reflect the restriction herein contained and the Corporation's transfer agent
shall be issued appropriate "stop transfer" instructions.
7. DELIVERY OF STOCK. Upon the payment of the purchase or redemption
-----------------
price to the estate of the Executive determined as aforesaid, the legal
representative of the decedent shall assign and deliver certificates
representing the specified number of shares, options and warrants to the
Corporation.
8. PURCHASE OF INSURANCE POLICY UPON WITHDRAWAL OF PARTY.
-----------------------------------------------------
In the event that the Executive terminates employment with the Corporation or
disposes of all or substantially all of his stock in the Corporation, the
Executive shall have the right to purchase from the Corporation the insurance
policy or policies of his life for a price
-4-
<PAGE>
equal to the cash surrender value of such policy as of the date of his
termination or final stock disposition. Such right to purchase may be exercised
and the price paid within ninety (90) days after occurrence of termination or
disposition. Upon payment therefor, the Corporation shall deliver the policy to
the Executive and execute any necessary instruments of transfer.
In the event the Executive fails to exercise his right granted herein to
purchase the policy or policies upon his termination or final stock disposition,
the Corporation may then cancel all insurance policies covering the life of such
Executive.
9. TERM. This Agreement shall terminate upon the occurrence
the following events:
(a) Cessation of business by the Corporation;
(b) Bankruptcy, receivership or dissolution of the Corporation;
(c) Voluntary agreement of all parties then bound hereby; and
Until this Agreement is terminated as provided herein, the Corporation
shall have the obligation to maintain in effect the insurance policies described
in Paragraph 1 hereof. In the event of the cancellation or failure to renew all
or any portion of such policies, the Corporation shall replace such policies or
portion thereof without any interruption in coverage.
10. BENEFIT. This Agreement shall be binding upon each of the parties,
-------
respective heirs, legal representatives, successors or assigns. The Executive
in furtherance of this Agreement shall
-5-
<PAGE>
execute, a will directing his personal representative to act pursuant to this
Agreement and to execute such documents as may be necessary to effectuate the
purposes hereof, but failure to execute such will shall not affect any rights or
obligations of either the Executive, his personal representative, or of the
Corporation.
11. ARBITRATION OF DISPUTES. In the event the parties hereto are unable to
-----------------------
resolve, amicably, any dispute arising out of or in any way related to this
Agreement or the right or remedy arising from it, such party shall have the
right to invoke the remedy of arbitration by noticing his determination to do so
to the other party. The notice shall fairly and fully set forth the conditions
of the noticing party, in the nature of a complaint and shall appoint one (1)
arbitrator. Within ten (10) days thereafter the party opposed shall designate
one (1) arbitrator. Opposition shall be the nature of an answer in an action at
law. The arbitration shall thereafter be carried out upon the terms and
conditions, rules and regulations then pertaining to the American Arbitration
Association at Clarksburg, West Virginia. In the event of disagreement between
the arbitrators a third arbitrator shall be designated by the American
Arbitration Association. Judgment on the arbitrators, award may be entered as a
judgment in any court of record having jurisdiction.
IN WITNESS WHEREOF, the Executive has hereunto signed his name, and said
Corporation has caused its corporate name to be signed hereto and its corporate
seal hereunto affixed, by its proper officers heretofore duly authorized, the
day and year first above written.
-6-
<PAGE>
EXECUTIVE:
/s/ Steven R. Williams (SEAL)
-------------------------
STEVEN R. WILLIAMS
CORPORATION:
PETROLEUM DEVELOPMENT CORPORATION,
a Nevada corporation
(CORPORATE SEAL)
By /s/ James N. Ryan
-----------------------------
James N. Ryan
Its CEO
--------------
ATTEST:
/s/ Roger J. Morgan
- ---------------------
Secretary
-7-
<PAGE>
STATE OF WEST VIRGINIA
COUNTY OF HARRISON, TO-WIT;
The foregoing instrument was acknowledged before me this 19th day of October,
1991, by STEVEN R. WILLIAMS.
My commission expires July 31, 2001
----------------
(Notarial Seal)
Marjorie Ann Desmond
---------------------
Notary Public
STATE OF WEST VIRGINIA
COUNTY OF HARRISON, TO-WIT:
The foregoing instrument was acknowledged before me this 27th day
-------
of October, 1991, by James N. Ryan, CEO of PETROLEUM DEVELOPMENT CORPORATION,
--------------- ----
a Nevada corporation, on behalf of the corporation.
My commission expires July 31, 2001
-------------------
Marjorie Ann Desmond
---------------------
Notary Public
This instrument prepared by:
Roger J. Morgan, Esquire
YOUNG, MORGAN & CANN, Attorneys at Law
Suite One, Schroath Building, Clarksburg, West Virginia 26301
-8-
<PAGE>
Exhibit 10.8
STOCK REDEMPTION AGREEMENT
--------------------------
THIS AGREEMENT, Made this 15th day of October, 1991, between DALE G.
RETTINGER, of 114 Driftwood Drive, Bridgeport, West Virginia 26330, party of the
first part, herein sometimes referred to as "the Executive," and PETROLEUM
DEVELOPMENT CORPORATION, a Nevada corporation, with offices at 103 East Main
Street, Bridgeport, West Virginia 26330, party of the second part, herein
sometimes referred to as "the Corporation."
WHEREAS, the Executive is one of the principal operating officers of the
Corporation and is a substantial owner of shares of the Corporation; and
WHEREAS, the Board of Directors has determined that it is in the best
interest of the Corporation that the stock owned by the Executive be acquired by
the Corporation upon his death and not offered to the public; and
WHEREAS, the Corporation has arranged to provide funds necessary to
acquire a part or all of the stock of such deceased Executive through an
insurance policy or policies on the life of the Executive.
IT IS THEREFORE AGREED:
1. INSURANCE. The Corporation has acquired and carries insurance on the
---------
life of the Executive in the face amount of One Million Dollars ($l,000,000.00),
naming itself the beneficiary of such policy or policies. Said policy(ies)
shall be maintained in effect by the Corporation in an amount at least as great
as the face amount presently in effect. Proceeds received thereunder shall be
held by the
<PAGE>
Corporation in trust for the initial or primary purpose of carrying out the
Corporation's obligations under this Agreement. The Corporation shall have the
right to take out additional insurance on the life of the Executive and when the
Board of Directors determines that additional insurance may be necessary and in
the interest of the Corporation in order to carry out its obligations under this
Agreement. The Corporation shall pay all premiums on such insurance and shall
render proof of payment of the Executive within fifteen (15) days after the
payment of premiums. Said life insurance policy is more particularly described
on Exhibit "A," which is hereto attached and by reference made a part hereof
2. OWNERSHIP. The Corporation shall be the sole owner of said insurance
---------
policy or policies and to any premiums or dividends declared and unpaid upon
said policy or policies.
3. PURCHASE OF STOCK UPON DEATH. Upon the death of the Executive, the
----------------------------
Corporation shall purchase with the proceeds of the insurance from the policy or
policies described on Exhibit "A" from the estate of the decedent or his
surviving spouse, if any, at the option of the estate of the decedent or his
surviving spouse, shares of stock to the Corporation now owned or hereafter
acquired by the Executive, to the extent, and on the terms and conditions
otherwise set forth herein. The purchase price of such share of stock shall be
the value computed in accordance with the terms of the next succeeding
paragraph. Upon written demand of the personal representative of the decedent's
estate the Corporation shall purchase that number of shares, including shares
-2-
<PAGE>
subject to outstanding options or warrants owned by the Executive at the time of
his death up to an aggregate sale price of One Million Dollars ($1,000,000.00).
The Corporation shall not be required to purchase any shares which would have a
value in excess of One Million Dollars ($1,000,000.00). The personal
representative of the Executive shall have a period of one (1) year from the
date of the death of such deceased Executive to give notice and demand of the
purchase of the shares of stock.
4. PURCHASE PRICE. The purchase price of each share of stock shall be the
--------------
mean average of the market price of such shares (daily NASDAQ closing "asking"
price if stock is traded OTC) of the stock during the ninety (90) days next
preceding the written demand upon the corporation to purchase such shares.
The purchase price for shares of options and warrants to purchase shares of
stock owned by decedent shall be the market price determined in the same manner
less the exercise price of such options and warrants.
5. PAYMENT OF PURCHASE PRICE. The purchase price for the shares of common
-------------------------
stock to be purchased shall be paid by the Corporation to the estate of the
deceased Executive within thirty (30) days after notification of the Corporation
by the personal representative of the Executive in writing that (a) the personal
representative had qualified as such, and (b) the number of shares, warrants,
options or rights to purchase which the estate would require the Corporation to
purchase out
-3-
<PAGE>
of the proceeds of said insurance policies, or as soon thereafter as the
Corporation has received the insurance proceeds.
6. RESTRICTIONS ON SALE. In the event and to the extent that the personal
--------------------
representative of the Corporation elects not to sell any or all of the shares of
stock which the personal representative could sell pursuant to the provisions of
this Agreement, the personal representative and other beneficiaries, heirs, and
assigns of the decedent shall be precluded from selling such shares of stock to
anyone for a period of two (2) years after the date of the Executive's death,
except that said shares may be transferred the names of decedent's heirs and
beneficiaries and the stock sold under Rules 144 of the Securities Act of 1933,
as amended. All certificates representing such shares shall be legended to
reflect the restriction herein contained and the Corporation's transfer agent
shall be issued appropriate "stop transfer" instructions.
7. DELIVERY OF STOCK. Upon the payment of the purchase or redemption
-----------------
price to the estate of the Executive determined as aforesaid, the legal
representative of the decedent shall assign and deliver certificates
representing the specified number of shares\\1\\ options and warrants to the
Corporation.
8. PURCHASE OF INSURANCE POLICY UPON WITHDRAWAL OF PARTY. In the event
-----------------------------------------------------
that the Executive terminates employment with the Corporation or disposes of all
or substantially all of his stock in the Corporation, the Executive shall have
the right to purchase from the Corporation the insurance policy or policies of
his life for a price
-4-
<PAGE>
equal to the cash surrender value of such policy as of the date of his
termination or final stock disposition. Such right to purchase may be exercised
and the price paid within ninety (90) days after occurrence of termination or
disposition. Upon payment therefor, the Corporation shall deliver the policy to
the Executive and execute any necessary instruments of transfer.
In the event the Executive fails to exercise his right granted herein to
purchase the policy or policies upon his termination or final stock disposition,
the Corporation may then cancel all insurance policies covering the life of such
Executive.
9. TERM. This Agreement shall terminate upon the occurrence the following
events:
(a) Cessation of business by the Corporation;
(b) Bankruptcy, receivership or dissolution of the Corporation;
(c) Voluntary agreement of all parties then bound hereby; and
Until this Agreement is terminated as provided herein, the Corporation
shall have the obligation to maintain in effect the insurance policies described
in Paragraph 1 hereof. In the event of the cancellation or failure to renew all
or any portion of such policies, the Corporation shall replace such policies or
portion thereof without any interruption in coverage.
10. BENEFIT. This Agreement shall be binding upon each of the parties,
-------
their respective heirs, legal representatives, successors or assigns. The
Executive in furtherance of this Agreement shall
-5-
<PAGE>
execute a will directing his personal representative to act pursuant to this
Agreement and to execute such documents as may be necessary to effectuate the
purposes hereof, but failure to execute such will shall not affect any rights or
obligations of either the Executive, his personal representative, or of the
Corporation.
11. ARBITRATION OF DISPUTES. In the event the parties hereto are unable
-----------------------
to resolve, amicably, any dispute arising out of or in any way related to this
Agreement or the right or remedy arising from it, such party shall have the
right to invoke the remedy of arbitration by noticing his determination to do so
to the other party. The notice shall fairly and fully set forth the conditions
of the noticing party, in the nature of a complaint and shall appoint one (1)
arbitrator. Within ten (10) days thereafter the party opposed shall designate
one (1) arbitrator. Opposition shall be the nature of an answer in an action at
law. The arbitration shall thereafter be carried out upon the terms and
conditions, rules and regulations then pertaining to the American Arbitration
Association at Clarksburg, West Virginia. In the event of disagreement between
the arbitrators a third arbitrator shall be designated by the American
Arbitration Association. Judgment on the arbitrators' award may be entered as a
judgment in any court of record having jurisdiction.
IN WITNESS WHEREOF, the Executive has hereunto signed his name, and said
Corporation has caused its corporate name to be signed
-6-
<PAGE>
hereto and its corporate seal hereunto affixed, by its proper officers
heretofore duly authorized, the day and year first above written.
EXECUTIVE:
/s/ Dale G. Rettinger (SEAL)
DALE G. RETTINGER
CORPORATION:
PETROLEUM DEVELOPMENT CORPORATION,
a Nevada corporation
(CORPORATE SEAL)
By: /s/ James N. Ryan
Its CEO
ATTEST:
/s/ Roger J. Morgan
Secretary
STATE OF WEST VIRGINIA
COUNTY OF HARRISON, TO-WIT:
The foregoing instrument was acknowledged before me this 20th day of
October, 1991, by DALE G. RETTINGER.
My commission expires July 31, 2001.
(Notarial Seal) /s/ Marjorie Ann Desmond
Notary Public
-7-
<PAGE>
STATE OF WEST VIRGINIA
COUNTY OF HARRISON, TO-WIT:
The foregoing instrument was acknowledged before me this 20th day of
October, 1991, by James N. Ryan, CEO, of PETROLEUM DEVELOPMENT CORPORATION, a
Nevada corporation, on behalf of the corporation.
My commission expires July 31, 2001
(Notarial Seal) /s/ Marjorie Ann Desmond
Notary Public
This instrument prepared by:
Roger J. Morgan, Esquire
YOUNG, MORGAN & CANN, Attorneys at Law
Suite One, Schroath Building, Clarksburg, West Virginia 26301
-8-
<PAGE>
Exhibit 10.9
PETROLEUM DEVELOPMENT CORPORATION
Employee Incentive Stock Option Plan
1990
1. PURPOSE
-------
This Employee Incentive Stock Option Plan (the "PLAN") is intended as an
incentive and to encourage ownership by certain officers and key executive
employees of Petroleum Development Corporation (the "CORPORATION") or of its
subsidiary corporations as that term is defined in Article 3, below (the
"SUBSIDIARIES") so that they may acquire or increase their proprietary interest
in the success of the Corporation and Subsidiaries, and to encourage them to
remain in the employ of the Corporation or of the Subsidiaries. It is further
intended that options issued pursuant to this Plan shall constitute incentive
stock options within the meaning of the Economic Recovery Tax Act of 1981.
2. ADMINISTRATION
--------------
The Plan shall be administered by a committee appointed by the Board of
Directors of the Corporation (the "Committee"). The Committee shall consist of
not less than three members of the Corporation's Board of Directors. The Board
of Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, howsoever caused, shall be filled by the
Board of Directors. The Committee shall select one of its members as Chairman,
and shall hold meetings at such times and places as it may determine. The
majority of the Committee at which a quorum is present, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be the
valid acts of the Committee. The Committee shall from time to time at its
discretion make recommendations to the Board of Directors with respect to the
key executive employees who shall be granted options and the amount of stock to
be optioned to each.
The interpretation and construction by the Committee of any provisions of
the Plan or of any option granted under it shall be final unless otherwise
determined by the Board of Directors. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
<PAGE>
3. ELIGIBILITY
-----------
The persons who shall be eligible to receive options shall be such key
executive employees (including officers, whether or not they are directors) or
the Corporation or its Subsidiaries (as such term is defined in Section 425 of
the Internal Revenue Code of 1954) existing from time to time as the Board of
Directors shall select from time to time from among those nominated by the
Committee. An optionee may hold more than one option, but only on the terms and
subject to the restrictions hereafter set forth. No person shall be eligible to
receive an option for a larger number of shares than is recommended for him by
the Committee.
4. STOCK
-----
"The stock subject to the options shall be shares of the Corporation's
authorized but unissued or re-acquired $.01 par value common stock hereafter
sometimes called Capital Stock. The aggregate number of shares which may be
issued under options shall not exceed 500,000 shares of Capital Stock. The
number of shares with respect to which option rights may be granted to any
individual under any and all options which are issued to him by the Corporation
as Incentive Stock Options shall not exceed the lesser of 200,000 shares or, in
any one year, $100,000 or stock at its fair market value determined at the time
of grant of the option plus a carry-over amount as defined by the Internal
Revenue Code. The carry-over amount is one-half of the amount by which $100,000
exceeds the value at time of grant of the stock for which ISO's were issued in
the preceding three years but not before 1981. The limitations established by
each of the preceding sentences shall be subject to adjustment as provided in
Article 5 (i) of the Plan.
In the event that any outstanding option under the Plan for any reason
expires or is terminated, the shares of Capital Stock allocable to the
unexercised portion of such option may again be subjected to an option under the
Plan.
5. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Stock options granted pursuant to the Plan shall be authorized by the Board
of Directors and shall be evidenced by agreements in such form as the Committee
shall from time to time recommend and the Board of Directors shall from time to
time approve, which agreements shall comply with and be subject to the following
terms and conditions.
-2-
<PAGE>
(a) Optionee's Agreement.
--------------------
Each optionee shall agree to remain in the employ of and to render to the
Corporation or Subsidiaries his services for a period of (one year from the date
of the option to earn the right to exercise one-half and two years from the date
of the option to earn the right to exercise the second one-half of the options
granted), but such agreement shall not impose upon the Corporation or
Subsidiaries any obligation to retain the optionee in their employ for any
period.
(b) Number of Shares.
----------------
Each option shall state the number of shares to which it pertains.
(c) Option Price.
------------
Each option shall state the option price, which shall be not less than 100%
of the fair market value of the shares of Capital Stock of the Corporation on
the date of the granting of the option. During such time as such stock is
listed upon an established stock exchange the fair market value per share shall
be the closing price of the Capital Stock in the New York over-the-counter
market on the day the option is granted, as reported by the National Association
of Securities Dealers, Inc., discounted for restrictions on such stock as
determined by investment and/or banking institutions. Such restrictions subject
to a discount factor on the marketability limitations on unregistered
securities. The discount factor will not be applicable to options to purchase
stock previously registered with the Securities and Exchange Commission. If the
stock is listed upon an established stock exchange or exchanges such fair market
value shall be deemed to the highest closing price of the Capital Stock on such
stock exchange or exchanges on the day the option is granted or if no sale of
the Corporation's Capital Stock shall have been made on any stock exchange on
that day on the next preceding day on which there was a sale of such stock.
Subject to the foregoing the Board of Directors and the Committee in fixing the
option price shall have full authority and discretion and be fully protected in
doing so.
-3-
<PAGE>
(d) Medium and Time of Payment.
--------------------------
The option price shall be payable in United States dollars upon the
exercise of the option and may be paid in cash or the same class of stock of the
Corporation.
(e) Term and Exercise of Options.
----------------------------
No option shall be exercisable either in whole or in part prior to one year
from the date it is granted. Options are exercisable one-half after one year and
one-half after two years from date of grant. No option shall be exercisable
after the expiration of five years from the date it is granted. Not less than
one hundred shares may be purchased at any one time unless he number purchased
is the total number at the time purchasable under the option. During the
lifetime of the optionee, the option shall be exercisable only by him and shall
not be assignable or transferable by him and no other person shall acquire any
rights therein. To the extent not exercised, installments shall accumulate
and be exercisable, in whole or in part, in any subsequent period but not later
than five years from the date the option is granted.
(f) Termination of Employment Except Death.
--------------------------------------
In the event that an optionee shall cease to be employed by the Corporation
or Subsidiary for any reason other than his death and shall be no longer in the
employ of any of them, subject to the condition that no option shall be
exercisable after the expiration of five years from the date it is granted, such
optionee shall have the right to exercise the option at any time within three
months after such termination of employment to the extent his right to exercise
such option had accrued pursuant to Article 5 (e) of the Plan and had not
previously been exercised at the date of such termination. Options not accruing
pursuant to Article 5 (e) of the Plan expire upon such termination. Whether
authorized leave of absence or absence for military or governmental service
shall constitute termination of employment, for the purposes of the Plan, shall
be determined by the Committee, which determination, unless overruled by the
Board of Directors, shall be final and conclusive.
-4-
<PAGE>
(g) Death of Optionee and Transfer of Option.
----------------------------------------
If the optionee shall die while in the employ of the Corporation or a
Subsidiary or within a period of three months after the termination of his
employment with the Corporation and all Subsidiaries and shall not have fully
exercised the option, an option may be exercised, subject to the condition that
no option shall be exercisable after the expiration of five years from the date
it is granted, to the extent that the optionee's right to exercise such option
had accrued pursuant to Article 5 (e) of the Plan at the time of his death and
had not previously been exercised, at any time within one year after the
optionee's death by the executors or administrators of the optionee or by
any person or persons who shall have acquired the option directly from the
optionee by bequest or inheritance.
No option shall be transferable by the optionee otherwise than by will or
the laws of descent and distribution.
(h) Recapitalization.
----------------
Subject to any required action by the stockholders, and number of shares of
Capital Stock covered by each outstanding option, and the price per share
thereof in each such option, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Capital Stock of the Corporation
resulting from the subdivision or consolidation of shares or the payment of a
stock dividend (but only on the Capital Stock) or any other increase or decrease
in the number of such shares effected without receipt of consideration by
the Corporation,
Subject to any required action by the stockholders, if the Corporation
shall be the surviving corporation in any merger or consolidation, each
outstanding option shall pertain to and apply to the securities to which a
holder of the number of shares of Capital Stock subject to the option would have
been entitled. A dissolution or liquidation of the Corporation or a merger
or consolidation in which the Corporation is not the surviving corporation,
shall cause each outstanding option to terminate, provided that each optionee
shall,
-5-
<PAGE>
in such event, have the right immediately prior to such dissolution or
liquidation, or merger or consolidation in which the Corporation is not the
surviving corporation, to exercise his option in whole or in part without regard
to the installment provisions of Article 5 (e) of the Plan.
In the event of a change in the Capital Stock of the Corporation as
presently constituted, which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par value
or without par value, the shares resulting from any such change shall be deemed
to be the Capital Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive, provided that each option granted pursuant to this Plan shall not be
adjusted in a manner that causes the option to fail to continue to qualify as an
incentive stock option within the meaning of the Economic Recovery Tax Act of
1981.
Except as hereinbefore expressly provided in this Article 5 (i), the
optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class or by reason
of any dissolution, liquidation, merger, or consolidation or spin-off of assets
or stock of another corporation, and any issue by the Corporation of shares of
stock of any class, or securities convertible into shares of stock of any class,
or securities convertible into shares of stock of any class, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number or
price of shares of Capital Stock subject to the option.
The grant of an option pursuant to the Plan shall not affect in any way the
right or power of the Corporation to make adjustments, reclassification,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all of any part of
its business or assets.
-6-
<PAGE>
(i) Rights as a Stockholder.
-----------------------
An optionee or a transferee of an option shall have no rights as a
stockholder with respect to any shares covered by his option until the date of
the issuance of a stock certificate to him for such shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for which the
record date is prior to the date such stock certificate is issued, except as
provided in Article 5 (i) hereof.
(j) Modification Extension and Renewal of Options.
---------------------------------------------
Subject to the terms and conditions and within the limitations of the Plan,
the Board of Directors may modify, extend or renew outstanding options granted
under the Plan, or accept the surrender of outstanding options (to the extent
not heretofore exercised) and authorize the granting of new options in
substitution therefor (to the extent not theretofore exercised). The Board of
Directors shall not, however, modify any outstanding options so as to specify a
lower price or accept the surrender of outstanding options and authorize the
granting of new options in substitution therefore specifying a lower price.
Notwithstanding the foregoing however, no modification of any option shall,
without the consent of the optionee, alter or impair any rights or obligations
under any option theretofore granted under the Plan.
(k) Investment Purpose.
------------------
Each option under the Plan shall be granted to the condition that the
purchases of stock thereunder shall be for investment purposes, and not with a
view to resale or distribution except that in the event the stock subject to
such option is registered under the Securities Act of 1933, as amended, or in
the event a resale of such stock without such registration would otherwise be
permissible, such condition shall be inoperative if in the option of counsel for
the Corporation such condition is not required under the Securities Act of 1933
or any other applicable law, regulation, or rule of any governmental agency.
-7-
<PAGE>
(l) Other Provisions.
----------------
The option agreements authorized under the Plan shall contain such other
provisions, including, without limitation, restrictions upon the exercise of the
option, as the Committee and the Board of Directors of the Corporation shall
deem advisable. Any such option agreement shall contain such limitations and
restrictions upon the exercise of the option as shall be necessary in order that
such option will be an "incentive stock option" as defined in the Economic
Recovery Tax Act of 1981 or to conform to any change in the law.
6. TERM OF PLAN
------------
Options may be granted pursuant to the Plan from time to time within a
period of five years from the date the Plan is adopted, or the date the Plan is
approved by the Stockholders, whichever is earlier.
7. INDEMNIFICATION OF COMMITTEE
----------------------------
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorney's fees actually and necessarily incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any option granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Corporation) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such Committee member is liable
for negligence or misconduct in the performance of his duties; provided that
within 60 days after institution of any such action, suit or proceeding a
Committee member shall in writing offer the Corporation the opportunity, at its
own expense, to handle and defend the same.
-8-
<PAGE>
8. AMENDMENT OF THE PLAN
---------------------
The Board of Directors of the Corporation may, insofar as permitted by law,
from time to time, with respect to any shares at the time not subject to
options, suspend or discontinue the Plan or revise or amend it in any respect
whatsoever except that, without approval of the stockholders, no such revision
or amendment shall change the number of shares subject to the Plan, change the
resignation of the class of employees eligible to receive options, decrease the
price at which options may be granted, or remove the administration of the Plan
from the Committee. Furthermore, the Plan may not, without the approval of the
stockholders, be amended in any manner that will cause options issued under it
to fail to meet the requirements of incentive stock options as defined in the
Economic Recovery Tax Act of 1981.
9 APPLICATION OF FUNDS
--------------------
The proceeds received by the Corporation from the sale of Capital Stock
pursuant to options will be used for general corporate purposes.
10. NO OBLIGATION TO EXERCISE OPTION
--------------------------------
The granting of an option shall impose no obligation upon the optionee to
exercise such option.
11. APPROVAL OF STOCKHOLDERS
------------------------
The Plan shall not take effect until approved by the holders of a majority
of the outstanding shares of Capital Stock of the Corporation, which approval
must occur within the period beginning twelve months before and ending twelve
months after the date the Plan is adopted by the Board of Directors.
Date Plan adopted by Board of Directors - 1-5-90
Date Plan approved by Stockholders - 8-17-90
-9-
<PAGE>
Exhibit 10.10
Petroleum DEVELOPMENT CORPORATION
Employee Incentive Stock Option Plan
1997
1. PURPOSE
-------
This Employee incentive Stock Option Plan (the "PLAN") is intended as an
incentive and to encourage ownership by certain officers and key executive
employees of Petroleum Development Corporation (the "CORPORATION") or of its
subsidiary corporations as that term is defined in Article 3, below (the
"SUBSIDIARIES")so that they may acquire or their proprietary interest in the
success of the Corporation and Subsidiaries, and to encourage them to remain in
the employ of the Corporation or of the Subsidiaries. It is further that options
issued pursuant to this Plan shall constitute incentive stock options within the
meaning of the Economic Recovery Tax Act of 1981.
2. ADMINISTRATION
--------------
The Plan shall be administered by a committee appointed by the Board of
Directors of the Corporation ("the "Committee"). The Committee shall consist of
not less than three members of the Corporation's Board of Directors. The Board
of Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, howsoever caused, shall be filled by the
Board of Directors. The Committee shall select one of its members as Chairman,
and shall hold meetings at such times and places as it may determine. The
majority of the Committee at which a quorum is present, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be the
valid acts of the Committee. The Committee shall from time to time at its
discretion make recommendations to the Board of Directors with respect to the
key executive employees who shall be granted options and the amount of stock to
be optioned to each.
The interpretation and construction by the Committee of any provisions of
the Plan or of any option granted under it shall be final unless otherwise
determined by the Board of Directors. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
1
<PAGE>
3. ELIGIBILITY
-----------
The persons who shall be eligible to receive options shall be such key
executive employees (including officers, whether or not they are directors) or
the Corporation or its Subsidiaries (as such term is defined in Section 425 of
the Internal Revenue Code of 1954) existing from time to time as the Board of
Directors shall select from time to time from among those nominated by the
Committee. An optionee may hold more than one option, but only on the terms and
subject to the restrictions hereafter set forth. No person shall be eligible to
receive an option for a larger number of shares than is recommended for him by
the Committee.
4. STOCK
-----
"The stock subject to the options shall be shares of the Corporation's
authorized but unissued or re-acquired $.01 par value common stock hereafter
sometimes called Capital Stock. The aggregate number of shares which may be
issued under options shall not exceed 500,000 shares of Capital Stock. The
number of shares with respect to which option rights may be granted to any
individual under any and all options which are issued to him by the Corporation
as Incentive Stock Options shall not exceed the lesser of 200,000 shares or, in
any one year, $100,000 or stock at its fair market value. The limitations
established by each of the preceding sentences shall be subject to adjustment as
provided in Article 5 (i) of the Plan."
In the event that any outstanding option under the Plan for any reason
expires or is terminated, the shares of Capital Stock allocable to the
unexercised portion of such option may again be subjected to an option under the
Plan.
5. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Stock options granted pursuant to the Plan shall be authorized by the Board
of Directors and shall be evidenced by agreements in such form as the Committee
shall from time to time recommend and the Board of Directors shall from time to
time approve, which agreements shall comply with and be subject to the following
terms and conditions.
2
<PAGE>
(a) Optionee's Agreement.
--------------------
Each optionee shall agree to remain in the employ of and to render to the
Corporation or Subsidiaries his services for a period of (one year from the date
of the option to earn the right to exercise one-half and two years from the date
of the option to earn the right to exercise the second one-half of the options
granted), but such agreement shall not impose upon the Corporation or
Subsidiaries any obligation to retain the optionee in their employ for any
period.
b. Number of Shares.
----------------
Each option shall state the number of shares to which it pertains.
(c) Option Price.
------------
Each option shall state the option price, which shall be not less than 100%
of the fair market value of the shares of Capital Stock of the Corporation on
the date of the granting of the option. During such time as such stock is listed
upon an established stock exchange the fair market value per share shall be the
closing price of the Capital Stock in the New York over-the-counter market on
the day the option is granted, as reported by the National Association of
Securities Dealers, Inc., discounted for restrictions on such stock as
determined by investment and/or banking institutions. Such restrictions subject
to a discount factor on the marketability limitations on unregistered
securities. The discount factor will not be applicable to options to purchase
stock previously registered with the Securities and Exchange Commission. If the
stock is listed upon an established stock exchange or exchanges such fair market
value shall be deemed to the highest closing price of the Capital Stock on such
stock exchange or exchanges on the day the option is granted or if no sale of
the Corporation's Capital Stock shall have been made on any stock exchange on
that day on the next preceding day on which there was a sale of such stock.
Subject to the foregoing the Board of Directors and the Committee in fixing the
option price shall have full authority and discretion and be fully protected in
doing so.
(d) Medium and Time of Payment.
--------------------------
The option price shall be payable in United States dollars upon the
exercise of the option and may be paid in cash or the same class of stock of the
Corporation.
3
<PAGE>
(e) Term and Exercise of Options.
----------------------------
No option shall be exercisable either in whole or in part prior to one year
from the date it is granted. Options are exercisable one-half after one year
and one-half after two years from date of grant. No option shall be exercisable
after the expiration of ten years from the date it is granted. Not less than one
hundred shares may be purchased at any one time unless the number purchased is
the total number at the time purchasable under the option. During the lifetime
of the optionee, the option shall be exercisable only by him and shall not be
assignable or transferable by him and no other person shall acquire any rights
therein. To the extent not exercised, installments shall accumulate and be
exercisable, in whole or in part, in any subsequent period but not later than
ten years from the date the option is granted.
(f) Termination of Employment Except Death.
--------------------------------------
In the event that an optionee shall cease to be employed by the Corporation
or Subsidiary for any reason other than his death and shall be no longer in the
employ of any of them, subject to the condition that no option shall be
exercisable after the expiration of ten years from the date it is granted, such
optionee shall have the right to exercise the option at any time within three
months after such termination of employment to the extent his right to exercise
such option had accrued pursuant to Article 5 (e) of the Plan and had not
previously been exercised at the date of such termination. Options not accruing
pursuant to Article 5 (e) of the Plan expire upon such termination. Whether
authorized leave of absence or absence for military or governmental service
shall constitute termination of employment, for the purposes of the Plan, shall
be determined by the Committee, which determination, unless overruled by the
Board of Directors, shall be final and conclusive.
(g) Death of Optionee and Transfer of Option.
----------------------------------------
If the optionee shall die while in the employ of the Corporation or a
Subsidiary or within a period of three months after the termination of his
employment with the Corporation and all Subsidiaries and shall not have fully
exercised the option, an option may be exercised, subject to the condition that
no option shall be exercisable after the expiration of ten years from the date
it is granted, to the extent that the optionee's right to exercise such option
had accrued pursuant to Article 5(e) of the Plan at the time of his death and
had not previously been exercised, at any time within one year after the
optionee's death by the executors or administrators of the optionee or by any
person or persons who shall have acquired the option directly from the optionee
by bequest or inheritance.
4
<PAGE>
No option shall be transferable by the optionee otherwise than by will or
the laws of descent and distribution.
(h) Recapitalization.
----------------
Subject to any required action by the stockholders, and number of shares of
Capital Stock covered by each outstanding option, and the price per share
thereof in each such option, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Capital Stock of the Corporation
resulting from the subdivision or consolidation of shares or the payment of a
stock dividend (but only on the Capital Stock) or any other increse or decrease
in the number of such shares effected without receipt of consideration by the
Corporation.
Subject to any required action by the stockholders, if the Corporation
shall be the surviving corporation in any merger or consolidation, each
outstanding option shall pertain to and apply to the securities to which a
holder of the number of shares of Capital Stock subject to the option would have
been entitled. A dissolution or liquidation of the Corporation or a merger or
consolidation in which the Corporation is not the surviving corporation, shall
cause each outstanding option to terminate, provided that each optionee shall,
in such event, have the right immediately prior to such dissolution or
liquidation, or merger or consolidation in which the Corporation is not the
surviving corporation, to exercise his option in whole or in part without regard
to the installment provisions of Article 5 (e) of the Plan.
In the event of a change in the Capital Stock of the Corporation as
presently constituted, which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par value
or without par value, the shares resulting from any such change shall be deemed
to be the Capital Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or securities
of the Corporation, such adjustments shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive, provided
that each option granted pursuant to this Plan shall not be adjusted in a manner
that causes the option to fall to continue to qualify as an incentive stock
option within the meaning of the Economic Recovery Tax Act of 1981.
5
<PAGE>
Except as hereinbefore expressly provided in this Article 5 (i), the
optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class or by reason
of any dissolution, liquidation, merger, or consolidation or spin-off of assets
or stock of another corporation, and any issue by the Corporation of shares of
stock of any class, or securities convertible into 55 of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
price of shares of Capital Stock subject to the option.
The grant of an option pursuant to the Plan shall not affect in any way the
right or power of the Corporation to make adjustments, reclassification,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all of any part of
its business or assets.
(i) Rights as a Stockholder.
-----------------------
An optionee or a transferee of an option shall have no rights as a
stockholder with respect to any shares covered by his option until the date of
the issuance of a stock certificate to him for such shares. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
Article 5 (i) hereof
(j) Modification, Extension and Renewal of Options.
----------------------------------------------
Subject to the terms and conditions and within the limitations of the Plan,
the Board of Directors may modify, extend or renew outstanding options granted
under the Plan, or accept the surrender of outstanding options (to the extent
not heretofore exercised) and authorize the granting of new options in
substitution therefor (to the extent not theretofore exercised). The Board of
Directors shall not, however, modify any outstanding options so as to specify a
lower price or accept the surrender of outstanding options and authorize the
granting of new options in substitution therefore specifying a lower price.
6
<PAGE>
(k) Investment Purpose.
------------------
Each option under the Plan shall be granted to the condition that the
purchases of stock thereunder shall be for investment purposes, and not with a
view to resale or distribution except that in the event the stock subject to
such option is registered under the Securities Act of 1933, as amended, or in
the event a resale of such stock without such registration would otherwise be
permissible, such condition shall be inoperative if in the option of counsel for
the Corporation such condition is not required under the Securities Act of 1933
or any other applicable law, regulation, or rule of any governmental agency.
(l) Other Provisions.
----------------
The option agreements authorized under the Plan shall contain such other
provisions, including, without limitation, restrictions upon the exercise of the
option, as the Committee and the Board of Directors of the Corporation shall
deem advisable. Any such option agreement shall contain such limitations and
restrictions upon the exercise of the option as shall be necessary in order that
such option will be an "incentive stock option" as defined in the Economic
Recovery Tax Act of 1981 or to conform to any change in the law.
6. TERM OF PLAN
------------
Options may be granted pursuant to the Plan from time to time within a
period of ten years from the date the Plan is adopted, or the date the plan is
approved by the Stockholders, whichever is earlier.
7. INDEMNIFICATION OF COMMITTEE
----------------------------
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorney's fees actually and necessarily incurred in connection with the defense
of any action suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any option granted
thereunder, and against all amounts paid by them in settlement thereof provided
such settlement is approved by legal counsel selected by the Corporation) or
paid by them in satisfaction of a judgement in any such action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Committee member is liable for
negligence or misconduct in the performance of his duties; provided that within
60 days after institution of any such action, suit or proceeding a Committee
member shall in writing offer the Corporation the opportunity, at its own
expense, to handle and defend the same.
7
<PAGE>
8. AMENDMENT OF THE PLAN
---------------------
The Board of Directors of the Corporation may, insofar as permitted by law,
from time to time, with respect to any shares at the time not subject to options
suspend or discontinue the Plan or revise or amend it in any respect whatsoever
except that, without approval of the stockholders, no such revision or amendment
shall change the number of shares subject to the Plan, change the designation of
the class of employees eligible to receive options, decrease the price at which
options may be granted or remove the administration of the Plan from the
Committee.
9. APPLICATION OF FUNDS
--------------------
The proceeds received by the Corporation from the sale of Capital Stock
pursuant to options will be used for general corporate purposes.
10. NO OBLIGATION TO EXERCISE OPTION
--------------------------------
The granting of an option shall impose no obligation upon the optionee to
exercise such option.
11. APPROVAL OF STOCKHOLDERS
------------------------
The Plan shall not take effect until approved by the holders of a majority
of the outstanding shares of Capital Stock of the Corporation, which approval
must occur within the period beginning twelve months before and ending twelve
months after the date the Plan is adopted by the Board of Directors.
Date Plan adopted by Board of Directors - April 21, 1997
Date Plan approved by Stockholders - July 15, 1997
8
<PAGE>
Exhibit 10.11
July 15, 1997
(Name)
(Address, City, State, Zip)
NOTICE OF GRANT OF INCENTIVE STOCK OPTION
Dear (Salutation):
At the direction of the Board of Directors, you are hereby notified that
the Board has granted to you an option, pursuant to the 1997 Incentive Stock
Option Plan adopted by the Board of Directors of the Company on April 21, 1997
and ratified and approved by the Stockholders of Petroleum Development
Corporation at the Annual meeting on (Date of Annual Meeting).
------------------------
The option granted to you is to purchase _________ shares of the common
capital stock of Petroleum Development Corporation at the price of $_____per
share. The date of the grant of this option is the date of this notice.
Your stock option is in all respects limited and conditioned as provided in
the 1997 Incentive Stock Option Plan, including, but not limited to the
following:
(a) Your option may be exercised on half (1/2) after one (1) year of
continued employment and one half (1/2) after two (2) years of
continued employment from the date of this notice. All options
granted under this notice expire on (date).
------
(b) Your option may be exercised by you, but only by you, at any time
during the term referred to in (a) above during your lifetime
prior to three months following the termination of your
employment;
(c) In the event of your death while you are an employee, or within
three months from the date of termination of your employment,
your option may be exercised at any time within one year after
your death by your executors or administrators or by any person
or persons who shall have acquired the option directly from you
by bequest or inheritance, subject to provisions in (a) above.
(d) Your option is not transferable, otherwise than by will or the
laws of descent and distribution.
(e) The stock when issued pursuant to the within option will be
restricted and only transferable in accordance with the rules and
regulations then appertaining of the Securities and Exchange
Commission and the rules promulgated under the pursuant to the
Securities Act of 1933.
<PAGE>
1~
Page 2
At the time or times when you wish to exercise this option, in whole
or in part, under the terms of the 1997 Incentive Stock Option Plan, please
complete the attached "Notice of Exercise of Stock Option" form.
PETROLEUM DEVELOPMENT CORPORATION
ATTEST:
BY:
- --------------------------------- -----------------------------------
<PAGE>
Exhibit 10.12
PETROLEUM DEVELOPMENT CORPORATION
PROFIT SHARING PLAN
(PLAN NUMBER 002)
EFFECTIVE JANUARY 1, 1992
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION
PROFIT SHARING PLAN
EFFECTIVE JANUARY 1, 1992
TABLE OF CONTENTS
-----------------
Article Page
- ------- ----
Preamble 1
I. Purpose 2
II. Definitions 3
III. Participation 14
IV. Company Contributions to the Fund 16
V. Allocation of Company Contributions
and Forfeitures 19
VI. Participants' Account 23
VII. Distribution 25
VIII. Vesting 36
IX. Administration 39
X. The Fund 44
XI. Amendment or Termination of the Plan 46
XII. Top-Heavy Provisions 48
XIII. Withdrawals During Employment 58
XIV. General Provisions 59
Schedule A: Determination of Highly
Compensated Employees 63
<PAGE>
PETROLEUM DEVELOPMENT CORPORATION
PROFIT SHARING PLAN
WHEREAS, Petroleum Development Corporation (the Company") desires to adopt
a written profit sharing plan, effective January 1, 1992, for certain of its
employees, which plan is intended to comply with the requirements of the
Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of
1986, as amended from time to time;
NOW, THEREFORE, the Company establishes the Petroleum Development
Corporation Profit Sharing Plan, effective January 1, 1992, as hereinafter set
forth:
-1-
<PAGE>
ARTICLE I
PURPOSE
-------
1.1 Petroleum Development Corporation, desiring to provide systematically
for the payment of benefits to its employees on account of retirement, death, or
total disability, to reward loyalty and service, and to strengthen the bond
between its employees and itself, herewith adopts this plan known as the
Petroleum Development Corporation Profit Sharing Plan.
-2-
<PAGE>
ARTICLE II
DEFINITIONS
-----------
Except where otherwise clearly indicated by context, the masculine shall
include the feminine and the singular shall include the plural, and vice-versa.
2.1 "Account" shall mean the separate entries maintained in the records of
-------
the Trustee which represent the individual interest of a Participant in the Fund
to which are credited Company contributions and gains and losses thereon.
2.2 "Affiliated Company shall mean (a) any parent or subsidiary of the
------------------
Company (or company under common control with the Company) which is a member of
the same controlled group of corporations (within the meaning of section 1563(a)
of the Code) as the Company; (b) any member of an affiliated service group, as
determined under section 414(m) of the Code, of which the Company is a member;
(c) any trade or business under common control with the Company, as determined
under section 414(c) of the Code; and (d) any entity required to be aggregated
with the Company pursuant to regulations under section 414(0) of the Code. "50
--
percent Affiliated Company" shall mean an Affiliated Company, but with the
- --------------------------
phrase "more than 50 percent " substituted for the phrase "at least 80 percent"
in section 1563(a) of the Code.
2.3 "Annual Additions" shall mean for any Participant the sum of
----------------
-3-
<PAGE>
(a) employer contributions,
(b) any forfeitures
allocated for a given Limitation Year to the Participant's accounts under this
Plan and any other defined contribution plan(s) maintained by the Company or a
50 percent Affiliated Company.
2.4 "Board of Directors" shall mean the board of directors of the Company
------------------
2.5 "Break in Service" shall mean receiving credit for not more than 500
----------------
Hours of Service during the 12-month period of any Plan Year.
(a) Notwithstanding the foregoing, if an employee is absent for one or
more of the following reasons, he shall be credited with an Hour of Service,
solely for purposes of this Section, for each Hour of Service for which he would
have received credit if he had continued in the active employ of the Company
during the period of absence:
(1) layoff for a period not in excess of one year;
(2) leave of absence with approval of the Committee for a period
not in excess of one year, unless such period is extended by the Committee;
-4-
<PAGE>
(3) military service such that his right to reemployment is
protected by law.
(b) If an employee is absent from work by reason of pregnancy,
childbirth, or adoption, or for purposes of the care of such employee's child
immediately after birth or adoption, such employee shall be credited, solely for
purposes of this Section, with the Hours of Service which would have been
credited to such individual but for such absence, or, if such hours cannot be
determined, at the rate of eight hours per normal workday, except that the total
number of hours treated as Hours of Service under this Subsection shall not
exceed 501.
(c) The hours described in Subsection (b) shall be treated as Hours of
Service:
(1) only in the Plan Year in which the absence from work begins,
if an employee would be prevented from incurring a Break in Service in such Plan
Year solely because the period of absence is treated as Hours of Service under
Subsection (b); or
(2) in any other case, in the immediately following Plan Year.
2.6 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
2.7 "Committee" or "Profit Sharing Committee" shall mean the persons
--------- ------------------------
appointed by the Board of Directors to supervise the administration of the Plan,
as hereinafter provided.
-5-
<PAGE>
2.8 "Company" shall mean Petroleum Development Corporation and its
-------
successors.
2.9 "Compensation" shall mean, for a given Plan Year, the total wages paid
------------
to a Participant by the Company which are required to be reported on the
Participant's Form W-2 for purposes of income tax withholding at the source,
increased by the Participant's salary reduction contributions under section
402(a)(8) of the Code.
Annual Compensation shall not be more than $200,000, and in subsequent Plan
Years the limit on annual Compensation shall be the amount set by the Internal
Revenue Service in accordance with section 401(a) (17) of the Code. In the case
of a Plan Year which is less than 12 months long, the dollar limit on
Compensation shall be determined by multiplying the annual limit by a fraction,
the numerator of which is the number of full calendar months occurring in the
short Plan Year and the denominator of which is 12.
If, in a given Plan Year, a Participant is a five- percent (5 percent)
owner of the Company or one of the 10 Highly Compensated Employees who receive
the most pay from the Company and all Affiliated Companies, and if any of such
Participant's family members are also Participants in the Plan, the Participant
and his family member(s) shall be treated as one Participant for purposes of
applying the dollar limit on Compensation described in the preceding paragraph.
If, after the Compensation of the
-6-
<PAGE>
family members has been added up, the dollar limit of the preceding paragraph
has been exceeded, each family member's pro-rata share of the dollar limit shall
be determined, and that share shall be the family member's Compensation for the
Plan Year. For the purposes of this paragraph, a Participant's "family members"
are his spouse and his lineal descendants who have not attained age 19 by the
end of the Plan Year in question.
2.10 "Contribution Percentage" shall mean the percentage described in
-----------------------
Section 14.1(b).
2.11 "Credited Service shall mean that portion of an employee's employment
----------------
with the Company and all Affiliated Companies which is used to determine the
employee's vesting status hereunder, as further described in Article VIII.
2.12 "Early Retirement Age" shall mean for any Participant, age 59-1/2.
--------------------
2.13 "Early Retirement Date" shall mean the first day of the month
---------------------
coincident with or next following the date on which a Participant who has
attained Early Retirement Age terminates his employment with the Company and all
Affiliated Companies.
2.14 "Effective Date" shall mean (except as otherwise set forth herein)
--------------
January 1, 1992, the effective date of this Plan.
2.15 "Eligibility Service" shall mean that portion of an employee's
-------------------
employment with the Company and all Affiliated
-7-
<PAGE>
Companies which is used to determine the employee's eligibility to participate
in the Plan, as further described in Article III.
2.16 "Employee" shall mean any person employed by the Company, officers,
--------
shareholders, or directors who are employees, but excluding persons covered by a
collective bargaining agreement, unless they are covered by a collective
bargaining agreement that specifically provides for their participation
hereunder. The term Employee shall not include any person who is a leased
employee, whether such person is a leased employee within the meaning of section
414(n) of the Code, or not.
2.17 "ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
2.18 "Fund" shall mean the fund established for this Plan, administered
----
under the Trust Agreement, out of which benefits payable under this Plan shall
be paid.
2.19 "Highly Compensated Employee" shall mean, for a given Plan Year, an
---------------------------
employee who is found to be a highly compensated employee within the meaning of
Treas. Reg. paragraph 1.414(q)- lT for that Plan Year. The determination under
Treas. Reg. paragraph 1.414(q)-lT shall be made in accordance with Schedule A.
2.20 "Hour of Service" shall mean an hour for which:
---------------
(a) an employee is directly or indirectly paid or entitled to payment
by the Company or an Affiliated Company for the performance of employment
duties; or
-8-
<PAGE>
(b) back pay, irrespective of mitigation of damages, is either awarded
or agreed to; or
(c) an employee is directly or indirectly paid or entitled to payment
by the Company or an Affiliated Company on account of a period of time during
which no duties are performed due to vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military duty, or leave of absence.
There shall be excluded from the foregoing those periods during which
payments are made or due under a plan maintained solely for the purpose of
complying with applicable workers' compensation, unemployment compensation, or
disability insurance laws. No more than 501 Hours of Service shall be credited
under Subsection (c) on account of any single continuous period during which no
duties are performed, except to the extent otherwise provided in this Plan. An
Hour of Service shall not be credited where an employee is being reimbursed
solely for medical or medically related expenses.
Hours of Service shall be credited in accordance with the rules set forth
in U.S. Department of Labor Reg. paragraph 2530.200b- 2(b) and (c).
Hours of Service shall be credited for any individual who is considered to
be a leased employee for purposes of this Plan under section 414(n) of the Code.
Notwithstanding the foregoing, the Committee may, in accordance with rules
applied in a uniform and nondiscriminatory
-9-
<PAGE>
manner, elect to credit Hours of Service using the following equivalencies:
<TABLE>
<CAPTION>
Basis Upon Which Credit Granted to
Records Are Maintained Individual for Period
- ---------------------- ---------------------
<S> <C>
shift actual hours for full shift
day 10 Hours of Service
week 45 Hours of Service
semi-monthly period 95 Hours of Service
month 190 Hours of Service
</TABLE>
2.22 "Limitation Compensation" shall mean for any Participant:
-----------------------
(a) the Participant's wages, salary, fees for professional services,
and other amounts received for personal services rendered in the course of
employment with the Company or a 50 percent Affiliated Company, to the extent
that such amounts are includable in gross income, and regardless of whether an
amount is paid in cash, including (but not limited to) commissions paid to
salesmen, compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, bonuses, fringe benefits,
reimbursements, and expense allowances; foreign earned income, whether or not
excludable from gross income under section 911 of the Code; taxable amounts
received by the Participant through accident or health insurance for personal
injury or sickness or from a self-insured medical expense reimbursement plan;
moving expenses paid or reimbursed by the
-10-
<PAGE>
Company or a 50 percent Affiliated Company in excess of any amount deductible by
the Participant; wages or payments in lieu of wages received on account of
absence from work for permanent and total disability; the amount included in the
taxable income of the Participant as a result of the grant of a non-qualified
stock option by the Company or a 50 percent Affiliated Company; and the amount
includable in the gross income of the Participant as the result of an election
described in section 83(b) of the Code.
(b) Limitation Compensation shall exclude the following:
(1) contributions made by an employer to a qualified plan to the
extent that, before the application of section 415 of the Code to that plan, the
contributions are not includable in the gross income of the Participant for the
year in which contributed;
(2) employer contributions on behalf of an employee to a
simplified employee pension plan;
(3) any distributions from a plan of deferred compensation,
except that any amounts received by an employee pursuant to an unfunded non-
qualified plan may be included in the year that such amounts are included in
gross income;
(4) amounts realized from the exercise of a non-qualified stock
option or from stock or property which is currently taxable under section 83 of
the Code;
-11-
<PAGE>
(5) amounts realized from the sale, exchange, or other
disposition of stock acquired through the exercise of a qualified or incentive
stock option; and
(6) other amounts which receive special tax benefits, such as
premiums for group term life insurance to the extent not includable in gross
income, or contributions made by an employer toward the purchase of an annuity
contract described in section 403(b) of the Code.
2.22 "Limitation Year" shall mean the Plan Year or such other 12-month
---------------
period as may be designated by the Company.
2.23 "Normal Retirement Age" shall mean for any Participant the
---------------------
Participant's 65th birthday.
2.24 "Normal Retirement Date" shall mean the first day of the month
----------------------
coincident with or next following a Participant's attainment of Normal
Retirement Age.
2.25 "Participant" shall mean an Employee entitled to participate in this
-----------
Plan under Article III and any Employee or former Employee for whom one or more
accounts are maintained under the Plan.
2.26 "Plan" shall mean the Petroleum Development Corporation Profit Sharing
----
Plan, as set forth herein and as hereafter amended from time to time.
2.27 "Plan Year" shall mean the calendar year (January 1st through December
---------
31st).
-12-
<PAGE>
2.28 "Total Disability" shall mean (a) for a Participant covered under a
----------------
long-term disability plan sponsored by the Employer, a disability of a nature
which enables the Participant to qualify for and to receive disability benefits
under such long-term disability plan; (b) for a Participant who is not covered
under a long-term disability plan sponsored by the Employer, his permanent
inability to perform his customary duties for the Employer due to a mental or
physical condition which can be expected to result in death or be of a long,
continued, and indefinite duration. Determination of whether a Participant who
is not covered under a long-term disability plan sponsored by the Employer is
suffering a Disability and the date on which the Disability commenced shall be
made solely by the Plan Administrator and shall be based on a medical
certificate from a physician or physicians found to be satisfactory by the Plan
Administrator.
2.29 "Trust Agreement" shall mean the agreement and declaration of trust
---------------
executed under this Plan.
2.30 "Trustee" shall mean the corporate trustee or one or more individuals
-------
collectively appointed and acting under the Trust Agreement.
2.31 "Valuation Date" shall mean the last day of each Plan Year and each
--------------
interim date on which the Committee determines that a valuation of the Fund
shall be made.
-13-
<PAGE>
ARTICLE III
PARTICIPATION
-------------
3.1 Date of Participation.
---------------------
(a) (1) Each person who is an Employee as of the Effective Date shall
become a Participant as of the Effective Date.
(2) Each other Employee shall become a Participant on the January
1st or July 1st coincident with or next following the date on which he attains
age 21 and completes one year of Eligibility Service.
(b) For the purposes of this Article, a "year of Eligibility Service"
shall mean a 12-month period, beginning with the date of an employee's
commencement of employment, during which the employee is credited with 1,000 or
more Hours of Service. An employee who is not credited with 1,000 Hours of
Service during his initial 12 months of employment shall complete a year of
Eligibility Service as of the end of any Plan Year in which he is credited with
1,000 or more Hours of Service. The first Plan Year in which an employee shall
have the opportunity to meet such requirement shall be the Plan Year which
includes the first anniversary of the employee's commencement of employment.
-14-
<PAGE>
3.2 Participation After Reemployment.
--------------------------------
(a) A Participant whose employment is terminated and who is later
reemployed as an Employee shall resume his participation in the Plan as of the
date of his reemployment.
(b) If an Employee attains age 21 and completes one year of
Eligibility Service but terminates his employment before becoming a Participant,
he shall become a Participant in the Plan on the January 1st or July 1st
immediately following his date of reemployment, if he is reemployed as an
Employee before he has a Break in Service. If such an individual is reemployed
after he has a Break in Service, he shall be treated as a new Employee for
purposes of this Plan.
(c) If an Employee terminates his employment before attaining age 21
and completing one year of Eligibility Service and then is reemployed, he shall
be treated as a new Employee for purposes of this Plan.
3.3 Data. Each Employee shall furnish to the Committee such data as the
----
Committee may consider necessary for the determination of the Employee's rights
and benefits under the Plan and shall otherwise cooperate fully with the
Committee in the administration of the Plan.
-15-
<PAGE>
ARTICLE IV
COMPANY CONTRIBUTIONS TO THE FUND
---------------------------------
4.1 Company Contribution. For each Plan Year, the Company shall
--------------------
contribute to the Fund as of the close of the Company's fiscal year so much of
its current earnings as the Board of Directors shall determine as of the close
of the Company's fiscal year. However, the contribution for any Plan Year shall
not exceed the maximum amount which will constitute an allowable current
deduction under the applicable provisions of the Code.
4.2 Earnings. Current earnings shall include the amount of the net
--------
earnings of the Company and all Affiliated Companies for each fiscal year, as
determined by the responsible financial officer of the Company, for federal
income tax purposes, but without deduction for federal, state, and local income
taxes and without deduction for contributions to this Plan. Current earnings
may also include the amount of net earnings of the Company and all Affiliated
Companies for each fiscal year, as determined under generally accepted
accounting principles by the responsible financial officer of the Company.
4.3 Remittance of Contributions. Company contributions for any Plan Year
---------------------------
shall be remitted to the Trustee for deposit in the Fund no later than the date
which marks the expiration of the period within which such contributions may be
-16-
<PAGE>
paid and deducted for the purpose of federal income taxes. All Company
contributions are expressly conditioned upon their deductibility for federal
income tax purposes.
4.4 Fund.
----
(a) The contributions deposited by the Company in the Fund in
accordance with this Article shall constitute a fund held for the benefit of
Participants and their eligible beneficiaries under and in accordance with this
Plan. No part of the principal or income of the Fund shall be used for, or
diverted to, purposes other than for the exclusive benefit of such Participants
and their eligible beneficiaries (including necessary administrative costs);
provided, that in the case of a contribution made by the Company (1) as a
mistake of fact; or (2) for which a tax deduction is disallowed, in whole or in
part, by the Internal Revenue Service; or (3) which is conditioned upon the
initial qualification of the Plan under section 401(a) of the Code, and an
application for determination is made to the Internal Revenue Service within the
time prescribed by law for filing the Company's tax return for the taxable year
in which the Plan was adopted (or such later date as the Secretary of the
Treasury may prescribe), but such initial qualification cannot be obtained, the
Company shall be entitled to a refund of said contributions.
(b) Any refund of contributions described in Subsection (a) must be
made (1) within one year after payment of
-17-
<PAGE>
a contribution made as a mistake of fact, or (2) within one year after
disallowance of the tax deduction, to the extent of such disallowance, or (3)
within one year of the date on which the initial qualification of the Plan is
denied by the Internal Revenue Service, as the case may be.
-18-
<PAGE>
ARTICLE V
ALLOCATION OF COMPANY CONTRIBUTIONS AND FORFEITURES
---------------------------------------------------
5.1 Eligibility for Allocation. A Participant shall share in Company
--------------------------
contributions and forfeitures under Section 5.2 for any Plan Year during which
he (a) completes at least 1,000 Hours of Service, (b) Receives Compensation, and
(c) is actively employed by the Company on the last day of the Plan Year.
Notwithstanding the foregoing, a Participant shall share in Company
contributions and forfeitures under Section 5.2 for the Plan Year in which he
retires under Article VII, dies, or suffers a Total Disability, if he receives
Compensation during such Plan Year.
5.2 Allocation.
----------
(a) As of the last day of each Plan Year, there shall be allocated to
the Account of eligible Participants the sum of any amounts contributed by the
Company to the Plan for that Plan Year and any amounts which have been forfeited
since the last day of the preceding Plan Year.
(b) The sum described in Subsection (a) shall be allocated to the
Account of each eligible Participant in the proportion that the Participant's
Compensation for that Plan Year bears to the Compensation of all eligible
Participants for such Plan Year.
-19-
<PAGE>
5.3 Maximum Allocation The provisions of this Section shall be construed
------------------
to comply with section 415 of the Code.
(a) Notwithstanding anything in this Article to the contrary, a
Participant's Annual Additions shall in no event exceed the lesser of (1)
$30,000 (or, if greater, one-quarter of the dollar limitation in effect under
section 415(b) (1) (A) of the Code) or (2) twenty-five percent (25 percent) of
such Participant's Limitation Compensation for the Limitation Year.
(b) (1) If a Participant's Annual Additions would exceed the amount
described in Subsection (a) as a result of a reasonable error in estimating the
Participant's Limitation Compensation, the excess amount shall be held in a
suspense account by the Trustee until the following Plan Year (or succeeding
Plan Years), at which time it shall be allocated in the manner described in
Section 5.2 to the Accounts of all eligible Participants before any
contributions by the Company may be made for the Plan Year. Amounts held in the
suspense account shall share in investment gains and losses of the Fund.
(2) If, in any Limitation Year, a Participant participates in
one or more other defined contribution plans maintained by the Company or a 50
percent Affiliated Company and if the Participant's Annual Additions under all
of such plans exceed the limit described in Subsection (a), in order to satisfy
such limit the Participant's Company contribution to
-20-
<PAGE>
this Plan shall be reduced before any Annual Additions to any other defined
contribution plan(s) are reduced.
(c) If in any Limitation Year a Participant in this Plan is also a
participant in one or more defined benefit plans maintained by the Company or a
50 percent Affiliated Company, the amount referred to in Subsection (c) (1)
shall be reduced, if necessary, so that the sum of the fractions described in
Subsections (c) (1) and (c) (2) does not exceed 1.0 for such Limitation Year.
(1) Defined Benefit Fraction - A fraction, the numerator of
------------------------
which is the Participant's projected annual benefit under the defined benefit
pension plans in which he has participated, determined as of the close of the
limitation years of such plans, and the denominator of which is the lesser of:
(A) 1.25 x $90,000 (as adjusted by the Internal Revenue Service to reflect cost-
of-living increases) or (B) one hundred forty percent (140 percent) of the
Participant's highest average Limitation Compensation over any three consecutive
calendar years. For the purpose of this Subsection, "projected annual benefit"
shall mean the annual benefit to which a Participant would be entitled under the
terms of a defined benefit plan if he had continued employment until his normal
retirement date under such plan and if his compensation for the purpose of such
plan had continued at the same rate.
-21-
<PAGE>
(2) Contribution Fraction - A fraction, the numerator of which is the
---------------------
sum of the Participant's Annual Additions under all defined contribution plans
sponsored by the Company and 50 percent Affiliated Companies for all limitation
years, and the denominator of which is the sum of the lesser of the following
amounts, determined for each of such limitation years and for each prior
limitation year of service with the Company or 50 percent Affiliated Company:
(A) 1.25 x $30,000 or (B) thirty-five percent (35 percent) of the Participant's
Limitation Compensation for such limitation year.
A defined benefit plan sponsored by the Company or a 50 percent Affiliated
Company to which nondeductible employee contributions are made is considered to
be a separate defined contribution plan, to the extent that the employee
contributions constitute annual additions in the current and prior limitation
years.
(d) The dollar limitations described in Subsections (a) and (c) shall
be adjusted in accordance with governmental pronouncements stating the method
and amount of such adjustments.
-22-
<PAGE>
ARTICLE VI
PARTICIPANTS' ACCOUNT
---------------------
6.1 Accounts. All contributions and earnings thereon may be invested in
--------
one commingled Fund for the benefit of all Participants. However, in order that
the interest of each Participant may be accurately determined and computed, a
separate Account shall be maintained for each Participant. This Account shall
represent the Participant's individual interest in the Fund.
6.2 Valuation. The value of the Fund shall be computed by the Trustee as
---------
of the close of business on each Valuation Date on the basis of the fair market
value of the assets of the Fund.
6.3 Apportionment of Gain or Loss The value of the Fund, as computed
-----------------------------
pursuant to Section 6.2, shall be compared with the value of the Fund as of the
preceding Valuation Date. Any difference in the value, not including
contributions made since the preceding Valuation Date, shall be the net increase
or decrease of the Fund, and such amount shall be ratably apportioned by the
Trustee on its books among the Participants' Accounts.
6.4 Accounting for Allocations. The Committee shall provide for the
--------------------------
establishment of accounting procedures for the
-23-
<PAGE>
purpose of making the allocations, valuations, and adjustments to Participants'
Accounts provided for in this Article.
-24-
<PAGE>
ARTICLE VII
DISTRIBUTION
------------
7.1 General. The interest of each Participant in the Fund shall be
-------
distributed in the manner, in the amount, and at the time provided in this
Article, except as provided in Article VIII and except in the event of the
termination of the Plan. A Participant shall not be permitted to withdraw any
amount from his Account while he is an Employee.
7.2 Normal Retirement A Participant who is employed by the Company or an
-----------------
Affiliated Company when he attains Normal Retirement Age shall immediately
become fully vested in his Account, and shall have the right to receive normal
retirement benefits on his Normal Retirement Date, if he is then retired. His
Account, valued in accordance with Section 7.7, shall be paid to him or applied
for his benefit in accordance with the provisions of this Article.
7.3 Late Retirement. A Participant who remains in the employ of the
---------------
Company beyond his Normal Retirement Date shall participate in the Plan on the
same basis as other Participants. The Participant's Account, valued in
accordance with Section 7.7, shall be paid to him or applied for his benefit
when he actually retires or, if earlier, beginning on the mandatory benefit
commencement date described in Section 7.8(b).
-25-
<PAGE>
7.4 Early Retirement. A Participant shall be eligible for early
----------------
retirement benefits upon attainment of Early Retirement Age, and his Account,
valued in accordance with Section 7.7, shall be paid to him or applied for his
benefit on the date he elects. A Participant who is eligible for early
retirement benefits may elect to receive his benefits on (a) his Early
Retirement Date, or (b) the first day of any month between his Early Retirement
Date and his Normal Retirement Date, or (c) his Normal Retirement Date.
7.5 Death.
-----
(a) If a Participant dies while he is employed by the Company or an
Affiliated Company, he shall become fully vested in his Account, and his
Account, valued in accordance with Section 7.7, shall immediately be paid to or
applied for the benefit of his beneficiary in a single-sum in cash or in kind.
(b) If a Participant dies after he has terminated his employment with
the Company and all Affiliated Companies but before he has received a full
distribution of his vested interest in his Account, valued in accordance with
Section 7.7, shall immediately be paid to or applied for the benefit of his
beneficiary in a single-sum payment.
(c) In no event shall distribution of a benefit payable under this
Section occur more than one year after the death of the Participant.
-26-
<PAGE>
7.6 Total Disability.
----------------
(a) If a Participant suffers a Total Disability prior to his
retirement and his employment is terminated because of such Total Disability, he
shall become fully vested in his Account, and his Account, valued in accordance
with Section 7.7, shall be paid to him or applied for his benefit in accordance
with the provisions of this Article following the determination of his Total
Disability. If the value of the Participant's Account is at least $3,500, his
Account shall not be paid to him or applied for his benefit until (1) he
consents in writing to such payment or application, or (2) he attains Normal
Retirement Age, or (3) he dies.
(b) Total Disability shall be determined by the Committee, which may
consult with a medical examiner selected by it. The medical examiner shall have
the right to make such physical examinations and other investigations as may be
reasonably required to determine Total Disability.
7.7 Valuation for Distribution.
--------------------------
(a) For the purposes of paying the amounts to be distributed to a
Participant or his beneficiaries under this Plan, the value of the Fund and the
amount of the Participant's interest shall be determined in accordance with the
provisions of Article VI as of the Valuation Date coincident with or immediately
preceding the date of the payment. There shall be added to such amount the
additional contributions and forfeitures,
-27-
<PAGE>
if any, which have been (or are to be) allocated to the Participant's Account
after that Valuation Date.
(b) Notwithstanding Subsection (a), for the purposes of making a
distribution required under section 401(a) (9) of the Code to a Participant who
is still employed, the Participant's Account shall be valued as follows:
(1) The amount to be distributed on the benefit commencement date
described in Section 7.8(b) shall be the value of the Participant's Account as
of the last Valuation Date in the second calendar year preceding the calendar
year in which such mandatory benefit commencement date occurs.
(2) The amount to be distributed by the end of the calendar year
which contains the mandatory benefit commencement date shall be (A) the value of
the Participant's Account as of the last Valuation Date in the calendar year
preceding the calendar year which contains the mandatory benefit commencement
date, reduced by (B) the amount distributed on the mandatory benefit
commencement date.
(3) The amount to be distributed by the end of each calendar year
after the calendar year which contains the mandatory benefit commencement date,
for so long as the Participant continues his employment, shall be the value of
the Participant's Account as of the last Valuation Date in the preceding
calendar year, not including the distribution for the preceding calendar year.
-28-
<PAGE>
(4) The value of the Participant's Account determined under
paragraph (1), (2) , or (3) shall be increased by the additional contributions
and forfeitures, if any, which are allocated to the Account after the relevant
Valuation Date, but as of dates that fall within the calendar year containing
the relevant Valuation Date.
(c) If the value of a Participant's vested interest in his Account at
the time of a distribution is at least $3,500, the value of his vested interest
in those Account at any later time shall be deemed to be at least $3,500 for
purposes of determining whether the Participant's benefit may be cashed out.
7.8 Timing of Distribution.
----------------------
(a) A Participant entitled to receive benefits under this Article
shall commence to receive benefits as soon as administratively practicable.
(b) Distribution of a Participant's benefits under this Plan shall be
made by the April 1st that follows the end of the calendar year in which the
Participant attains age 70-1/2.
(c) Assuming that a Participant has made proper application for his
benefits the Participant shall begin to receive benefits no later than the later
to occur of:
(1) the 60th day after the end of the Plan Year in which the
Participant attains Normal Retirement Age, or
-29-
<PAGE>
(2) the 60th day after the end of the Plan Year in which the
Participant's employment with the Company and all Affiliated Companies
terminates.
(d) This Section shall be construed to comply with the provisions of
section 401(a) (9) of the Code and the regulations thereunder. Such provisions
shall override any distribution options in the Plan which are inconsistent with
section 401(a)(9) of the Code.
7.9 Mode of Distribution.
--------------------
(a) A retired or terminated vested Participant's Account, valued in
accordance with Section 7.7, shall be paid to the Participant or applied for his
benefit in a single-sum in cash or in kind. Beginning on January 1, 1993, the
Participant shall have the right to elect a trustee-to-trustee transfer in
accordance with Section 7.10 if his single-sum payment is an "eligible rollover
distribution" (as defined in Section 7.10(c)).
(b) If a Participant is still employed by the Company or an Affiliated
Company when he reaches the benefit commencement date described in Section
7.8(b), he shall receive the total balance in his Account, valued at the time
described in Section 7.7(b), in a single-sum payment on the benefit commencement
date described in Section 7.8(b). After this total distribution has been made,
for so long as the Participant continues his employment with the Company or an
Affiliated Company, the Participant shall receive the total balance in his
-30-
<PAGE>
Account, valued at the time described in Section 7.7(b), no later than December
31st of the year in which he receives the total distribution and each succeeding
year. When he retires, the balance remaining in his Account shall be paid to
him or applied for his benefit in a single-sum payment.
7.10 Trustee-to-Trustee Transfer Option.
----------------------------------
(a) Beginning on January 1, 1993, a Participant or a Participant's
surviving spouse or an alternate payee under a qualified domestic relations
order (as defined in section 414(p) of the Code) who is to receive an "eligible
rollover distribution" (as defined in Subsection (c)) may elect to have the
amount of such distribution transferred directly in a trustee-to-trustee
transfer to an "eligible retirement plan" (as defined in Subsection (d)).
(b) If a Participant or surviving spouse or alternate payee is to
receive an eligible rollover distribution of more than $500, he may choose to
have part of the distribution transferred directly in a trustee-to-trustee
transfer to an eligible retirement plan and to have the remainder paid to him in
a single sum. The amount which is to be transferred must be at least $500.
(c) (1) For the purpose of this Section, an "eligible rollover
distribution" shall mean a distribution from the Plan that is a single-sum
payment. The dollar amount of an eligible rollover distribution shall not
include the portion of
-31-
<PAGE>
such distribution that is a required minimum distribution under section
401(a)(9) of the Code.
(2) A distribution of less than $200 that would otherwise be an
eligible rollover distribution within the meaning of paragraph (1) shall not be
an eligible rollover distribution if it is reasonable to expect that all such
distributions to the Participant or surviving spouse or alternate payee from the
Plan during the same calendar year will total less than $200.
(d) For the purpose of this Section, an "eligible retirement plan"
shall mean:
(1) in the case of a Participant or an alternate payee, one of the
following: an individual retirement account or an individual retirement
annuity, a qualified trust if it is part of a defined contribution plan, or an
annuity plan described in section 403(a) of the Code;
(2) in the case of a Participant's surviving spouse, an individual
retirement account or an individual retirement annuity.
(e) (1) Within a reasonable period of time before an eligible
rollover distribution is to be made, the Committee shall provide to the
Participant or surviving spouse or alternate payee an explanation of his right
to elect a trustee-to-trustee transfer and the federal tax withholding
consequences to him if he does not elect such a transfer.
-32-
<PAGE>
(2) A Participant or surviving spouse or alternate payee who
elects a trustee-to-trustee transfer must provide all information that the
Committee may require to complete the trustee-to-trustee transfer.
(3) A Participant or surviving spouse or alternate payee who is
entitled to elect a trustee-to-trustee transfer with respect to all or any
portion of a distribution from the Plan but who does not make any election shall
be deemed to have rejected the trustee-to-trustee transfer option.
7.11 Beneficiary Designation.
-----------------------
(a) Except as provided in Subsection (c) each Participant shall have
the unrestricted right at any time to designate the beneficiary or beneficiaries
who shall receive, on or after his death, his interest in the Fund. Such
designation shall be made by executing and filing with the Committee a form
provided by the Committee for that purpose.
(b) Except as provided in Subsection (c) each Participant shall have
the unrestricted right to revoke and to change, at any time and from time to
time, any beneficiary designations previously made. Such revocations and/or
changes shall be made by executing and filing with the Committee a form provided
by the Committee for that purpose.
(c) A married Participant must designate his spouse as his beneficiary
unless (1) the spouse consents in writing not to receive death benefits under
the Plan, (2) the
-33-
<PAGE>
spouse consents in writing to the specific alternate beneficiary designated by
the Participant (if any), (3) such consent acknowledges its own effect, and (4)
such consent is witnessed by a Plan representative or a notary public.
Beginning on January 1, 1992, except as specifically provided to the contrary in
this Plan, the Participant may not change his beneficiary without the consent of
his spouse, unless the original consent of the spouse expressly permits the
Participant to make changes without further consent of the spouse, or unless the
Participant's change is to name his spouse as his beneficiary.
(d) A married Participant is not required to comply with the consent
requirement of Subsection (c) if he establishes to the satisfaction of a Plan
representative that his spouse cannot be located, or if he is legally separated
or has been abandoned (within the meaning of local law) and has a court order to
that effect.
(e) No designation, revocation, or change of beneficiaries shall be
valid and effective unless and until filed with the Committee. If no
designation is made, or if the beneficiaries named in such designation
predecease the Participant, or if the beneficiaries cannot be located by the
Committee, the interest of the deceased Participant shall be paid to the
Participant's surviving spouse or, if none, to the Participant's estate.
-34-
<PAGE>
7.12 Claims for Benefits. Benefits under this Plan shall be paid when a
-------------------
properly written application is received by the Committee In the event that a
Participant fails to apply to the Committee for his benefits by his Normal
Retirement Date or by the date on which his employment terminates, if later, the
Committee shall make diligent efforts to locate such Participant.
7.13 Mailing Address. Benefit payments and notifications hereunder shall
---------------
be deemed made when nailed to the last address furnished to the Committee.
-35-
<PAGE>
ARTICLE VIII
VESTING
-------
8.1 Nonforfeitable Amounts.
----------------------
(a) A Participant shall be vested in his Account if he has earned five
or more years of Credited Service. If a Participant has earned fewer than five
years of Credited Service, he shall not be vested in his Account.
8.2 Credited Service.
----------------
(a) An employee shall earn a year of Credited Service for each Plan
Year (including years before the Effective Date) during which he is credited
with 1,000 or more Hours of Service.
8.3 Treatment of Terminated Vested Participant.
------------------------------------------
(a) In the case of a Participant whose employment with the Company and
all Affiliated Companies has terminated (other than by retirement under Article
VII, death, or Total Disability) and whose vested interest in his Account,
valued in accordance with Section 7.7, is less than $3,500, the vested portion
of his Account shall be paid to him or applied for his benefit in a single sum
as soon as administratively practicable. Beginning on January 1, 1993, the
Participant shall have the right to elect a trustee-to-trustee transfer in
accordance with Section 7.10 if his single-sum payment is an "eligible rollover
distribution" (as defined in Section 7.10(c)).
-36-
<PAGE>
(b) In the case of a Participant whose employment with the Company and
all Affiliated Companies has terminated (other than by retirement under Article
VII, death, or Total Disability) and whose vested interest in his Account,
valued in accordance with Section 7.7, is at least $3,500, the vested portion of
his Account shall be paid to him or applied for his benefit pursuant to Article
VII as if he had continued employment until his Normal Retirement Date.
However, the Committee shall make distribution to the Participant earlier than
his Normal Retirement Date if he requests earlier distribution.
8.4 Forfeitures.
-----------
(a) If a Participant is not reemployed by the Company or an Affiliated
Company before the end of the Plan Year in which occurs the earlier of
(1) the date on which he receives a distribution under this
Article, or
(2) the date on which he incurs his fifth consecutive Break in
Service,
his Account shall be closed as of the end of such Plan Year. The non-vested
amount held in the closed Account shall be forfeited and shall be reallocated in
accordance with Section 5.2.
8.5 Aggregation of Service After Reemployment. A Participant shall have
-----------------------------------------
his pre-break and post-break Credited Service
-37-
<PAGE>
aggregated hereunder when he is reemployed by the Company or an Affiliated
Company if:
(a) (1) he has a vested interest in his Account and (2) he incurs a
Break in Service; or
(b) (1) he does not have a vested interest in his Account, (2) he
incurs a Break in Service, and (3) the number of his consecutive Breaks in
Service is less than the greater of (A) the number of years of Credited Service
he had accrued prior to his Break in Service, or (B) five.
In any other case, a Participant shall receive no credit for his pre-break
Credited Service.
8.7 Effect of Post-Break Credited Service.
-------------------------------------
(a) If the number of a Participant's consecutive Breaks in Service is
equal to or greater than five, the Participant's post-break Credited Service
shall not increase the vesting percentage (if any) in that part of his Account
accrued prior to his Break in Service.
(b) If the number of a Participant's consecutive Breaks in Service is
less than five, the Participant's post-break Credited Service shall increase the
vesting percentage in that part of his Account accrued prior to his Break in
Service.
-38-
<PAGE>
ARTICLE IX
ADMINISTRATION
--------------
9.1 Administrator. The Profit Sharing Committee shall be the named
-------------
fiduciary which shall control and manage the operation of the Plan and shall be
the administrator. The Committee members may, but need not, be employees of the
Company, and they shall serve at the pleasure of the Company They shall be
entitled to reimbursement of expenses, but those members of the Committee who
are also employees of the Company shall be entitled to no compensation for their
service on the Committee. Any reimbursement of the expenses of Committee
members shall be paid directly by the Company. Vacancies on the Committee shall
be filled by the Company.
9.2 Duties and Powers of Committee.
------------------------------
(a) The Profit Sharing Committee shall have all powers necessary to
administer the Plan in accordance with its terms and applicable law, and shall
also have discretionary authority to determine eligibility for participation or
benefits and to construe the terms of the Plan. Any construction,
interpretation, or application of the Plan by the Committee shall be final,
conclusive, and binding on all persons.
(b) In addition to the duties and powers described elsewhere
hereunder, the Committee shall have the following specific duties and powers:
-39-
<PAGE>
(1) to enact uniform and nondiscriminatory rules, regulations, and
procedures necessary to carry out the provisions of the Plan;
(2) to interpret the provisions of the Plan and to resolve
questions or disputes relating to eligibility for benefits or the amount of
benefits under the Plan; and
(3) to retain such consultants, accountants, and attorneys as
may be deemed necessary or desirable to render statements, reports, and advice
with respect to the Plan, and to assist the Committee in complying with all
applicable rules and regulations affecting the Plan. Any consultants,
accountants, or attorneys may be the same as those retained by the Company.
9.3 Functioning of Committee.
------------------------
(a) The Committee shall keep accurate records and minutes of meetings,
interpretations, and decisions. The Committee shall act by majority vote of the
members, and such action shall be evidenced by a written document.
(b) The expenses incurred by the Committee in connection with the
operation of the Plan, including, but not limited to, the expenses incurred by
reason of the engagement of professional assistants and consultants, shall be
expenses of the Plan and shall be payable from the Fund at the direction of the
Committee. The Company shall have the option, but not the obligation, to pay
any such expenses, in whole or in part, and, by so doing, to relieve the Fund
from the obligation of bearing
-40-
<PAGE>
such expenses. Payment of any such expenses by the Company on one occasion
shall not bind the Company to pay any similar expenses on any subsequent
occasion.
9.4 Disputes.
--------
(a) In the event that the Committee denies, in whole or in part, a
claim for benefits by a Participant or his beneficiary, the Committee shall
furnish notice of the denial to the claimant, setting forth (1) the specific
reasons for the denial, (2) specific reference to the pertinent Plan provisions
on which the denial is based, (3) a description of any additional information
necessary for the claimant to perfect the claim and an explanation of why such
information is necessary, and (4) appropriate information as to the steps to be
taken if the claimant wishes to submit his claim for review.
(b) The notice described in Subsection (a) shall be forwarded to the
claimant within 90 days of the Committee's receipt of the claim; provided,
however, that in special circumstances the Committee may extend the response
period for up to an additional 90 days, in which event it shall notify the
claimant in writing of the extension, and shall specify the reason or reasons
for the extension.
(c) Within 60 days of receipt of a notice of claim denial, a claimant
or his duly authorized representative may petition the Committee in writing for
a full and fair review of the denial. The claimant or his duly authorized
-41-
<PAGE>
representative shall have the opportunity to review pertinent documents and to
submit issues and comments in writing to the Committee. The Committee shall
review the denial and shall communicate its decision and the reasons therefor to
the claimant in writing within 60 days of receipt of the petition; provided,
however, that in special circumstances the Committee may extend the response
period for up to an additional 60 days, in which event it shall notify the
claimant in writing prior to the commencement of the extension.
(d) If for any reason the written notice of denial described in
Subsection (a) is not furnished within 90 days of the Committee's receipt of a
claim for benefits, the claim shall be deemed to be denied. Likewise, if for
any reason the written decision on review described in Subsection (c) is not
furnished within the time prescribed, the claim shall be deemed to be denied on
review.
9.5 Qualified Domestic Relations Orders. The Committee shall have the
-----------------------------------
duty to determine whether any domestic relations order received by the Plan is a
qualified domestic relations order as defined in section 414(p) of the Code.
9.6 Indemnification of the Committee. Each member of the Committee and
--------------------------------
any other person who is an employee or director of the Company or an Affiliated
Company shall be indemnified by the Company against expenses (other than amounts
paid in settlement to which the Company does not consent) reasonably incurred
-42-
<PAGE>
by him in connection with any action to which he may be a party by reason of his
performance of administrative functions and duties under the Plan. The
foregoing right to indemnification shall be in addition to such other rights as
the Committee member or other person may enjoy as a matter of law or by reason
of insurance coverage of any kind. Rights granted hereunder shall be in
addition to and not in lieu of any rights to indemnification to which the
Committee member or other person may be entitled pursuant to the by-laws of the
Company. The foregoing indemnification provisions shall not contravene
applicable state law.
-43-
<PAGE>
ARTICLE X
THE FUND
--------
10.1 Designation of Trustee. The Company, by appropriate resolution of the
----------------------
Board of Directors, shall name and designate a Trustee and shall enter into a
Trust Agreement. The Company shall have the power, by appropriate resolution of
the Board of Directors, to amend the Trust Agreement, remove the Trustee, and
designate a successor Trustee, as provided in the Trust Agreement. All of the
assets of the Plan shall be held by the Trustee for use in accordance with this
Plan in providing for the benefits hereunder.
10.2 Exclusive Benefit. Prior to the satisfaction of all liabilities under
-----------------
the Plan in the event of termination of the Plan, no part of the corpus or
income of the Fund shall be used for or diverted to purposes other than for the
exclusive benefit of Participants and their beneficiaries except as expressly
provided in this Plan and in the Trust Agreement.
10.3 No Interest in Fund No person shall have any interest in or right to
-------------------
any part of the assets or income of the Fund, except to the extent expressly
provided in this Plan and in the Trust Agreement.
10.4 Trustee. The Trustee shall be the named fiduciary with respect to
-------
management and control of Plan assets held by it
-44-
<PAGE>
and shall have exclusive and sole responsibility for the custody and investment
thereof in accordance with the Trust Agreement.
-45-
<PAGE>
ARTICLE XI
AMENDMENT OR TERMINATION OF THE PLAN
------------------------------------
11.1 Amendment. The Company reserves the right to alter, amend, and modify
---------
the provisions of the Plan and the Trust Agreement, in whole or in part, at any
time by action of the Board of Directors; provided, however, that it shall be
impossible, except as provided in Article IV, for any part of the corpus or
income of the Fund to be used for, or diverted to, purposes other than for the
exclusive benefit of Participants and their beneficiaries.
11.2 Termination. The Plan and the Fund forming part of the Plan may be
-----------
terminated, or contributions may be completely discontinued, by the Company at
any time by action of the Board of Directors. In the event of a termination, a
partial termination, or a complete discontinuance of contributions, or in the
event that the Company is dissolved, liquidated, or adjudicated a bankrupt, the
interests of the affected Participants, their estates, and their beneficiaries
shall be fully vested, and distributions shall be made to them in cash or in
property or in any combination of cash and property. When all assets have been
paid out by the Trustee, the Fund shall cease.
11.3 Merger. The Plan shall not be merged with or consolidated with, nor
------
shall its assets be transferred to, any other qualified retirement plan unless
each Participant would
-46-
<PAGE>
receive a benefit after such merger, consolidation, or transfer (assuming the
Plan then terminated) which is of actuarial value equal to or greater than the
benefit he would have received from his Account if the Plan had been terminated
on the day before such merger, consolidation, or transfer. No amounts shall be
transferred to this Plan which would cause the Plan to be a direct or indirect
transferee of a plan to which the survivor annuity requirements of sections
401(a) (11) and 417 of the Code apply.
-47-
<PAGE>
ARTICLE XII
TOP-HEAVY PROVISIONS
--------------------
12.1 General. The following provisions shall automatically apply to the
-------
Plan and shall supersede any contrary provisions for each Plan Year in which the
Plan is a Top-Heavy Plan. It is intended that this Article shall be construed
in accordance with the provisions of section 416 of the Code.
12.2 Definitions. The following definitions shall supplement those set
-----------
forth in Article II of the Plan:
(a) "Aggregation Group" shall mean:
-----------------
(1) each plan (including a frozen plan or a plan which has been
terminated during the 60-month period ending on the Determination Date) of the
Company or an Affiliated Company in which a Key Employee is a participant,
(2) each other plan (including a frozen plan or a plan which has
been terminated during the 60-month period ending on the Determination Date) of
the Company or an Affiliated Company which enables any plan in which a Key
Employee participates to meet the requirements of section 401(a) (4) or 410 of
the Code, and
(3) each other plan (including a frozen plan or a plan which has
been terminated during the 60-month period ending on the Determination Date) of
the Company or an Affiliated Company which is included by the Committee if the
Aggregation
-48-
<PAGE>
Group, including such a plan, would continue to meet the requirements of
sections 401(a) (4) and 410 of the Code.
(b) "Determination Date" shall mean the last day of the preceding Plan
------------------
Year, except that for the first Plan Year it shall mean the last day of that
Plan Year.
(c) "Key Employee" shall mean any Employee or former Employee who at
------------
any time during the 60-month period ending on the Determination Date is
described below. The term Key Employee shall also include the beneficiaries of
such persons. Notwithstanding the foregoing, the number of persons described in
Subsection (c) (2) for the entire 60-month period shall be limited to 10.
(1) An officer of the Company having Limitation Compensation for a
Plan Year during such 60-month period greater than fifty percent (50 percent) of
the amount in effect under section 415(b) (1) (A) of the Code for the calendar
year in which such Plan Year ends.
(2) One of the 10 employees with annual Limitation Compensation
greater than the amount described in section 415(c) (1) (A) of the Code who own
(or are considered as owning, within the meaning of section 318 of the Code) the
largest interests in the Company or any Affiliated Company, provided that such
interest exceeds one-half of one percent (0.5 percent) of the total share
ownership of the Company or Affiliated Company.
-49-
<PAGE>
(3) A five-percent (5percent) owner of the Company.
(4) A one-percent (1 percent) owner of the Company who has annual
Limitation Compensation which, in the aggregate, is in excess of $150,000.
The above determinations shall be made in accordance with section 416(i) of
the Code. No more than 50 employees (or, if less, the greater of three
employees or ten percent (10 percent) of the greatest number of employees,
including leased employees within the meaning of section 414(n) of the Code,
employed by the Company and all Affiliated Companies during the 60-month period
ending on the Determination Date) shall be treated as officers.
(d) "Key Employee Ratio" shall mean the ratio for any Plan Year,
------------------
calculated as of the Determination Date of such Plan Year, determined by
comparing the amount described in Subsection (d) (1) with the amount described
in Subsection (d) (2) after deducting from each such amount any portion thereof
described in Subsection (d) (3).
(1) The sum of (A) the present value of all accrued benefits of
Key Employees under all qualified defined benefit plans included in the
Aggregation Group, (B) the balances in all of the accounts of Key Employees
under all qualified defined contribution plans included in the Aggregation
Group, and (C) the amounts distributed from all plans in such Aggregation Group
to or on behalf of any Key Employee during the period of
-50-
<PAGE>
five Plan Years ending on the Determination Date, except benefits paid on
account of death in excess of the accrued benefit or account balances
immediately prior to death.
(2) The sum of (A) the present value of all accrued benefits of all
participants under all qualified defined benefit plans included in the
Aggregation Group, (B) the balances in all of the account of all participants
under all qualified defined contribution plans included in the Aggregation
Group, and (C) the amounts distributed from all plans in such Aggregation Group
to or on behalf of any participant during the period of five Plan Years ending
on the Determination Date.
(3) The sum of (A) all rollover contributions (or fund-to-fund
transfers) to the Plan by an Employee from a plan sponsored by an employer which
is not the Company or an Affiliated Company, (B) any amount that is included in
Subsections (d) (1) and (2) for a person who is a Non-Key Employee as to the
Plan Year of reference but who was a Key Employee as to any earlier Plan Year,
and (C) any amount that is included in Subsections (d) (1) and (2) for a person
who has not performed any service for the Company during the five-year period
ending on the Determination Date.
(4) The present value of accrued benefits under all qualified defined
benefit plans included in the Aggregation Group shall be determined on the basis
of the following assumptions:
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<PAGE>
(A) interest:
(B) post-retirement mortality:
(C) pre-retirement mortality:
(D) future increases in cost of living:
The value of proportional subsidies, including subsidized preretirement
survivor's benefits, subsidized early retirement benefits, and optional forms of
payment, shall be ignored in determining the present value of accrued benefits.
(5) Solely for the purpose of determining whether the Plan, or any
other plan included in a required Aggregation Group of which this Plan is a
part, is top-heavy, the accrued benefit of an Employee other than a Key Employee
shall be determined under (A) the method, if any, that uniformly applies for
accrual purposes under all plans maintained by the Company and all Affiliated
Companies, or (B) if there is no such method, as if such benefit accrued not
more rapidly than at the slowest accrual rate permitted under the fractional
accrual method of section 411(b) (1) (C) of the Code.
(e) "Non-Key Employee" shall mean any person who is an Employee or a
----------------
former Employee in any Plan Year, but who is not a Key Employee as to that Plan
Year. The term Non-Key Employee shall also include the beneficiaries of such
persons.
(f) "Super Top-Heavy Plan" shall mean each plan in an Aggregation
--------------------
Group if, as of the applicable Determination
-52-
<PAGE>
Date, the Key Employee Ratio exceeds ninety percent (90 percent), determined in
accordance with section 416 of the Code.
(g) "Top-Heavy Plan" shall mean each plan in an Aggregation Group if,
--------------
as of the applicable Determination Date, the Key Employee Ratio exceeds sixty
percent (60 percent), determined in accordance with section 416 of the Code.
(h) "Top-Heavy Valuation Date" shall mean the most recent Valuation
------------------------
Date occurring within the 12-month period ending on the Determination Date.
12.3 Minimum Contribution for Non-Key Employees.
------------------------------------------
(a) (1) In each Plan Year in which the Plan is a Top-Heavy Plan, each
Participant who is a Non-Key Employee and who is actively employed by the
Company on the last day of such Plan Year shall receive a total minimum Company
contribution (including forfeitures) under all plans described in Section
12.2(a)(1) and (2) of not less than three percent (3 percent) of the
Participant's annual Limitation Compensation.
(2) Neither salary reduction contributions nor matching
contributions made on behalf of a Participant shall be deemed to be Company
contributions for the purpose of this Subsection.
(3) The minimum Company contribution shall be provided to each
Participant who is a Non-Key Employee actively employed by the Company on the
last day of the Plan Year, regardless of the number of Hours of Service
completed by
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<PAGE>
the Participant during the Plan Year, and regardless of the Participant's level
of compensation. Minimum Company contributions shall be allocated to Accounts.
(b) The percentage set forth in Subsection (a) (1) shall be reduced to
the percentage at which contributions, including salary reduction contributions,
matching contributions, and forfeitures, are made (or are required to be made)
for a Plan Year for the Key Employee for whom such percentage is the highest for
that Plan Year. This percentage shall be determined for each Key Employee by
dividing the contribution for such Key Employee by his Limitation Compensation
for the Plan Year (as limited by Section 12.5). All defined contribution plans
required to be included in an Aggregation Group shall be treated as one plan for
the purpose of this Section; however, this Section shall not apply to any plan
which is required to be included in an Aggregation Group if such plan enables a
defined benefit plan in the group to meet the requirements of section 401(a) (4)
or 410 of the Code.
(c) If a Participant who is a Non-Key Employee actively employed by
the Company on the last day of the Plan Year participates in both a defined
benefit plan and a defined contribution plan described in Section 12.2(a)(1) and
(2), the Company is not required to provide such Participant with both the
minimum benefit under the defined benefit plan and the minimum contribution
described above. In such event, the Participant
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<PAGE>
shall receive a total minimum Company contribution (including forfeitures) under
all plans described in Section 12.2(a)(l) and (2) of not less than five percent
(5 percent) of his annual Limitation Compensation.
12.4 Vesting.
-------
(a) Change in Schedule. Each Participant's vested interest in his
------------------
Account shall be determined in accordance with the following schedule for any
Plan Year in which the Plan is a Top-Heavy Plan Section 8.1 provides more rapid
vesting for such Participant:
<TABLE>
<CAPTION>
Years of
Credited Service Percent Vested
---------------- --------------
<S> <C>
less than 2 years 0 percent
2 years 20 percent
3 years 40 percent
4 years 60 percent
5 years 80 percent
6 years 100 percent
</TABLE>
(b) Shift Out of Top-Heavy Status If the Plan ceases to be a Top-Heavy
-----------------------------
Plan, the vesting schedule described in Section 8.1 shall again apply to all
Participants. However, a Participant shall remain at the point on the vesting
schedule set forth in Subsection (a) that he had attained immediately before the
Plan ceased to be a Top-Heavy Plan until he has sufficient years of Credited
Service to have a greater vested percentage under the schedule in Section 8.1.
(c) Special Election of Vesting Schedule. Each Participant who has at
------------------------------------
least 3 years of Credited Service when the
-55-
<PAGE>
Plan ceases to be a Top-Heavy Plan may elect to continue to have his vested
percentage computed under the Plan in accordance with the vesting schedule set
forth in Subsection (a). The period during which the election may be made shall
commence on the date on which the Participant is informed that the Plan is no
longer a Top-Heavy Plan and shall end 60 days thereafter.
12.5 $200,000 Limit. For each Plan Year in which the Plan is a Top-Heavy
--------------
Plan, the compensation of any Participant for purposes of accruing a benefit
under the Plan for that Plan Year shall not exceed $200,000 (or such greater
amount as may be prescribed by appropriate governmental authorities). In the
case of a Plan Year of duration shorter than 12 months in which the Plan is a
Top-Heavy Plan, compensation shall exclude total taxable income of any
Participant in excess of the amount determined by multiplying $200,000 (as
adjusted) by a fraction, the numerator of which is the number of full calendar
months occurring in such short Plan Year and the denominator of which is 12.
12.6 Social Security. For each Plan Year in which it is a Top-Heavy Plan,
---------------
the Plan must meet the requirements of this Article without regard to any Social
Security or similar contributions or benefits.
12.7 Adjustment to Maximum Allocation Limitation
-------------------------------------------
(a) For each Plan Year in which the Plan is (1) a Super Top-Heavy Plan
or (2) a Top-Heavy Plan and the Board of
-56-
<PAGE>
Directors does not make the election described in Subsection (b) and for which a
similar election has not been made as to another plan in the Aggregation Group,
the 1.25 factor in the defined benefit and defined contribution fractions
described in Article V shall be reduced to 1.0. The adjustment described in
this Subsection shall not apply to any Participant during any period in which
the Participant earns no additional accrued benefit under any defined benefit
plan and has no employer contributions, forfeitures, or voluntary contributions
allocated to his accounts under any defined contribution plan.
(b) If, in any Plan Year in which the Plan is a Top-Heavy Plan but not
a Super Top-Heavy Plan, the Aggregation Group described in Section 12.2(a) (1)
and (2) also includes a defined benefit plan, the Board of Directors may elect
to use a factor of 1.25 in computing the denominator of the defined benefit and
defined contribution fractions described in Article V. In the event of such an
election, the minimum Company contribution described in Section 12.3(a)(1) for
each Non-Key Employee who is not covered by a defined benefit plan shall be
increased from three percent (3 percent) to four percent (4 percent), and the
minimum Company contribution described in Section 12.3(a) for each Non-Key
Employee who is covered by a defined benefit plan shall be increased from five
percent (5 percent) to seven and one-half percent (7-1/2 percent).
-57-
<PAGE>
ARTICLE XIII
WITHDRAWALS DURING EMPLOYMENT
-----------------------------
13.1 Withdrawal of Company Contributions. A Participant shall not be
-----------------------------------
permitted to withdraw any amount from his Account while he is an Employee.
-58-
<PAGE>
ARTICLE XIV
GENERAL PROVISIONS
------------------
14.1 No Employment Rights. Neither the action of the Company in
--------------------
establishing the Plan, nor any provisions of the Plan, nor any action taken by
the Company or by the Committee shall be construed as giving to any employee of
the Company the right to be retained in its employ, or any right to payment
except to the extent of the benefits provided in the Plan to be paid from the
Fund.
14.2 Source of Benefits. All benefits payable under the Plan shall be paid
------------------
or provided for solely from the Fund, and the Company assumes no liability
responsibility therefor.
14.3 Governing Law. Except to the extent superseded by ERISA, all
-------------
questions pertaining to the validity, construction, and operation of the Plan
shall be determined in accordance with the laws of the state in which the
principal place of business of the Company is located.
14.4 Spendthrift Clause.
------------------
(a) No benefit payable at any time under this Plan and no interest or
expectancy herein shall be anticipated, assigned, or alienated by any
Participant or beneficiary, or subject to attachment, garnishment, levy,
execution, or other legal or equitable process, except for (1) an amount
necessary to satisfy a federal tax levy made pursuant to section 6331 of the
-59-
<PAGE>
Code and (2) any benefit payable pursuant to a domestic relations order which is
determined to be a qualified domestic relations order within the meaning of the
Code.
(b) Any attempt tb alienate or assign a benefit hereunder, whether
currently or hereafter payable, shall be void. No benefit shall in any manner be
liable for or subject to the debts or liability of any Participant or
beneficiary. If any Participant or beneficiary attempts to or does alienate or
assign his benefit under the Plan or any part thereof, or if by reason of his
bankruptcy or other event happening at any time such benefit would devolve upon
anyone else or would not be enjoyed by him, then the Committee may terminate
payment of such benefit and hold or apply it for the benefit of the Participant
or beneficiary.
14.5 Incapacity. If the Committee deems any Participant or beneficiary who
----------
is entitled to receive payments hereunder to be incapable of receiving or
disbursing the same by reason of youth, illness, or infirmity or incapacity of
any kind, the Committee may direct the Trustee to apply such payments directly
for the comfort, support, and maintenance of such Participant or beneficiary, or
to pay the same to any responsible person caring for the Participant or
beneficiary who is determined by the Committee to be qualified to receive and
disburse such payments for the Participant's or beneficiary's benefit; and the
receipt of such person shall be a complete acquittance for the payment of
-60-
<PAGE>
the benefit. Payments pursuant to this Section shall be complete discharge to
the extent thereof of any and all liability of the Company, the Committee, the
Trustee, and the Fund.
14.6 Participation by Affiliated Companies. With the prior consent of the
-------------------------------------
Board of Directors, an Affiliated Company may adopt this Plan for its employees
by action of its board of directors or other governing body. Each amendment to
the Plan will be binding on an Affiliated Company which has adopted the Plan,
and, by its adoption of the Plan, the Affiliated Company shall be deemed to have
appointed the Company, the Committee, and the Trustee as its exclusive agents to
exercise on its behalf all the power and authority conferred by the Plan and the
Trust Agreement upon the Company, the Committee, and the Trustee, respectively.
The authority of the Company, the Committee, and the Trustee to act as such
agents shall continue until the Affiliated Company terminates its participation
in the Plan and the benefits payable to Participants employed (or formerly
employed) by the Affiliated Company have been distributed as provided herein.
An Affiliated Company may terminate its participation in the Plan at any time by
action of its board of directors or other governing body. If the Affiliated
Company
-61-
<PAGE>
ceases to be an Affiliated Company, it may no longer participate in the Plan.
Executed this 17th day of December, 1992.
[Seal] Petroleum Development Corporation
By: /s/ Steven R. Williams
President
Attest: /s/ Roger Morgan
Secretary
-62-
<PAGE>
SCHEDULE A
DETERMINATION OF HIGHLY COMPENSATED EMPLOYEES
"Highly Compensated Employee" for a given Plan Year shall be the Highly
---------------------------
Compensated Active and Former Employees who are described below. The
determination as to whether an employee is a Highly Compensated Employee shall
be made in accordance with section 414(q), the regulations thereunder, and the
rules described below.
(a) (1) "Highly Compensated Active Employee" shall mean any employee who
performs service for the Employer during the Determination Year and who:
(A) was at any time during either the Determination Year or
the Look-Back Year a five-percent (5 percent) owner of the Employer;
(B) had Income during the Look-Back Year of $75,000 (as
adjusted by the Internal reflect cost-of-living increases);
(C) had Income during the Look-Back Year which is in excess
of $50,000 (as adjusted by the Internal Revenue Service to reflect cost-of-
living increases), provided that the employee is also in the Top-Paid Group for
the Look-Back Year;
(D) was at any time during the Look-Back Year an officer of
the Employer who had Income which is in excess of fifty percent (50 percent) of
the amount in effect under section
-63-
<PAGE>
415(b) (1) (A) of the Code for the calendar year in which the Look-Back Year
begins (or, if there is no such officer, the highest-paid officer of the
Employer);
(E) had Income during the Determination Year which is in
excess of $75,000 (as adjusted by the Internal Revenue Service to reflect cost-
of-living increases) and is one of the 100 employees who have the most Income
during the Determination Year;
(F) had Income during the Determination Year which is in
excess of $50,000 (as adjusted by the Internal Revenue Service to reflect cost-
of-living increases), provided that the employee is also in the Top-Paid Group
for the Determination Year and is one of the 100 employees who have the most
Income during the Determination Year; or
(G) was at any time during the Determination Year an officer
of the Employer who had Income which is in excess of fifty percent (50 percent)
of the amount in effect under section 415(b)(1)(A) of the Code for the calendar
year in which the Determination Year begins (or, if there is no such officer,
the highest-paid officer of the Employer) and is also one of the 100 employees
who have the most Income during the Determination Year.
For purposes of Subsections (a) (1) (D) and (a) (1) (G), no more than 50
employees (or, if less, the greater of three employees or ten percent (10
percent) of the employees) shall be treated as officers.
-64-
<PAGE>
(2) "Determination Year" shall mean the Plan Year for which the
determination of Highly Compensated Employees is being made. "Look-Back Year"
shall mean the 12 months preceding the Determination Year.
(3) "Income" shall mean Limitation Compensation, including elective
deferrals under sections 125 and 402 (a) (8) of the Code.
(4) "Top-Paid Group shall mean the group consisting of the top twenty
percent (20 percent) of employees of the Employer for the Look-Back Year or
Determination Year, when employees are ranked on the basis of Income paid during
the relevant year. Solely for purposes of determining the number of employees
to be included in such group the following employees shall not be counted:
(A) employees who have not completed six months of
employment by the end of the relevant year;
(B) employees who work fewer than 17-1/2 hours per week;
(C) employees who normally work not more than six months
during any year;
(D) employees who have not attained age 21 by the end of the
relevant year; and
(E) employees who are non-resident aliens who receive no U.S.
source income from the Employer or any Related Company.
-65-
<PAGE>
Employees covered by a collective bargaining agreement shall be counted in
determining the number of employees to be included in the Top-Paid Group unless
ninety percent (90 percent) or more of the employees of the Employer and all
Related Companies are covered by collective bargaining agreements and this Plan
covers only employees who are not covered by collective bargaining agreements.
In such a case, employees covered by a collective bargaining agreement shall not
be counted in determining the number of employees to be included in the Top-Paid
Group.
(5) "Highly Compensated Former Employee" shall mean any
employee who separated from service (or was deemed to have separated) prior to
the Determination Year, who performs no service for the Employer during the
Determination Year, and who was a Highly Compensated Active Employee for either
the separation year or any Determination Year ending on or after the employee's
55th birthday. However, an employee who separated from service prior to January
1, 1987 is a Highly Compensated Former Employee if during either (A) the year he
separated from service or (B) any year ending on or after his 55th birthday, he
was a five-percent (5 percent) owner of the Employer or had Income in excess of
$50,000.
(b) If in any Look-Back Year or Determination Year an employee is a
member of
-66-
<PAGE>
(1) the family of a five-percent (5 percent) owner of the
Employer or
(2) the family of a Highly Compensated Employee who is one of
the 10 Highly Compensated Employees who have the most Income for the relevant
year, the employee shall not be considered to be a separate employee, and the
employee's Income (and any contributions made on behalf of the employee) shall
be treated as paid to (or made on behalf of) the five-percent (5 percent) owner
or the Highly Compensated Employee.
For purposes of this Subsection, "family" means, with respect to any
Employee, the Employee's Spouse and lineal ascendants and descendants, and the
spouses of such lineal ascendants and descendants.
-67-
<PAGE>
AMENDMENT NO. 1
TO THE
TRUST AGREEMENT UNDER THE
PETROLEUM DEVELOPMENT CORPORATION
PROFIT SHARING PLAN
WHEREAS, Petroleum Development Corporation (the "Company") adopted the
Petroleum Development Corporation Profit Sharing Plan (the "Plan") for its
employees, effective January 1, 1992; and
WHEREAS, the Company entered an Agreement and Declaration of Trust,
effective January 1, 1992 (the "Trust Agreement"), with Union National Bank of
West Virginia which, through merger, is now Bank One, West Virginia, NA (the
"Trustee") as Trustee; and
WHEREAS, the Company and the Trustee now wish to amend Trust Agreement to
clarify the amount of Plan assets that be invested in common stock of the
Company;
NOW THEREFORE, the Trust Agreement is hereby amended, effective January 1,
1992, as follows:
I. Section 3.4 (b) is amended in its entirety to provide as follows:
(B) Notwithstanding the foregoing provisions of this Section,
the Trustee may invest up to 100percent of the assets of the Fund in "qualifying
employer securities", as such term as defined in Section 407(d) (5) of ERISA,
provided however that the Trustee shall not acquire or dispose of any such
qualifying employer securities without the prior consent of the Committee.
<PAGE>
IN WITNESS WHEREOF, the Company and the Trustee have caused their duly appointed
officers to execute this Amendment No. 1 this 25th day of September,
------------
1995.
PETROLEUM DEVELOPMENT CORPORATION
Attest: /s/ Dale G/ Rettinger By: /s/ Steven R. Williams
Assistant Secretary President
BANK ONE, WEST VIRGINIA, NA
Attest: /s/ T. Spadafore By: /s/ Richard W. Price
Senior Vice President Trust Officer
<PAGE>
Exhibit 10.13
TRUST AGREEMENT UNDER THE
PETROLEUM DEVELOPMENT CORPORATION
PROFIT SHARING PLAN
EFFECTIVE JANUARY 1, 1992
This AGREEMENT and DECLARATION OF TRUST, hereinafter
referred to as the "Agreement," made as of the 18th day of
----
December, 1992; by and between PETROLEUM DEVELOPMENT
CORPORATION, a Nevada corporation (the "Company"), and UNION
NATIONAL BANK OF WEST VIRGINIA, as trustee;
W I T N E S S E T H:
WHEREAS, the Company has adopted the Petroleum
Development Corporation Profit Sharing Plan (the "Plan"), which
provides for certain benefits for those of its employees who are
eligible thereunder;
WHEREAS, the Company desires to appoint Union National
Bank as trustee (the "Trustee") to act pursuant to this trust
agreement (the "Agreement") under the Plan; and
WHEREAS, the parties desire that said trust agreement
shall comply with the requirements of the Employee Retirement
Income Security Act of 1974, as amended from time to time;
NOW, THEREFORE, the Company and the Trustee do hereby
declare and agree each with the other, effective January 1, 1992,
as follows:
<PAGE>
Section I. Establishment - Amendment, Termination, and
-------------------------------------------
Transfer of the Trust.
---------------------
1.1 Establishment of Trust Fund with Trustee, and
---------------------------------------------
Acceptance of Appointment. The Company hereby establishes with
- --------------------------
the Trustee a trust consisting of such sums as shall be paid to
the Trustee under the Plan, investments thereof, and earnings
thereon. These amounts, less benefits and administrative charges
paid by the Trustee pursuant to the Agreement, are referred to
herein as the "Fund." The Fund shall be held, invested,
reinvested, and administered by the Trustee in accordance with
the Agreement. The Company hereby names the Trustee as trustee
of such trust, and the Trustee hereby accepts its appointment as
trustee hereunder.
1.2 Exclusive Purpose of Fund. The Fund shall be held
--------------------------
by the Trustee for the exclusive purpose of (a) providing
benefits to Participants in the Plan and their beneficiaries and
(b) defraying reasonable expenses of administering the Plan not
paid directly by the Company. No part of the Fund shall ever
inure to the benefit of the Company, except to the extent and in
the circumstances expressly provided in the Plan.
1.3 Amendment of Trust Agreement. The Company and the
-----------------------------
Trustee may amend the Agreement at any time by written agreement
between them. No such amendment shall divest any benefits or
divert any part of the Fund to any purpose other than providing
benefits to Participants and their beneficiaries.
1.4 Effect of Amendment of Plan. The Trustee is not a
---------------------------
-2-
<PAGE>
party to the Plan except insofar as the Trustee has assumed
duties under the Plan as specifically provided in the Agreement.
The Company retains the right to amend any provision of the Plan;
provided, however, that the allocation of responsibilities to the
Trustee shall not be amended, altered, or modified without the
prior written consent of the Trustee.
1.5 Basis of Payments to and from Fund.
----------------------------------
(a) Payments shall be made to the Fund by the
Company in accordance with the provisions of the Plan, and the
Trustee shall have no responsibility with respect to the
obligation of the Company to make any such payment.
(b) Payments of benefits shall be made to such
Participants and such beneficiaries and in such amounts as shall
be determined by the Committee under the terms of the Plan. The
Trustee shall have no authority or responsibility to review any
such determination.
(c) Payments of administrative and other proper
expenses of the Fund shall be made by the Trustee as authorized
by the Agreement, and, in any case in which such a payment
requires authorization from the Committee under the terms of the Plan, shall be
made pursuant to written directions from the
Committee.
-3-
<PAGE>
1.6 Termination Procedures.
-----------------------
(a) A termination of the Agreement not involving
a termination of the Plan may be accomplished by resignation or
removal of the Trustee as provided below.
(b) A termination involving a termination of the
Plan shall be accomplished in accordance with the terms of the
Plan.
1.7 Resignation of Trustee. The Trustee may resign
-----------------------
its duties hereunder by delivering a written resignation to the
Company. Such resignation shall take effect on the date provided
therein, but not before the 60th day after delivery thereof,
unless, prior to such 60th day, a successor trustee has been
appointed and has accepted the appointment.
1.8 Removal of Trustee. The Trustee may be removed by
-------------------
the Company at any time, upon notice to it. Such removal shall
be effected by delivering to the Trustee a resolution of the
Board of Directors removing the Trustee and by giving notice of
the appointment of a successor trustee in the manner set forth in
Section 1.9. Such notice of removal shall be effective on the
date specified therein, but not before the 60th day after
delivery thereof, unless the notice period is waived by the
Trustee.
1.9 Successor Trustee.
------------------
(a) The appointment of a successor Trustee shall
be accomplished by the delivery to the resigning or removed
-4-
<PAGE>
Trustee of (1) a resolution of the Board of Directors appointing
the successor and (2) an acceptance in writing of the office of
successor executed by the successor so appointed. The
appointment shall take effect on the date specified in the
successor's written acceptance, subject to the notice
requirements of Sections 1.7 and 1.8.
(b) Any successor Trustee named in accordance
with this Section may be either a corporation authorized and
empowered to exercise trust powers or one or more individuals.
Unless amended as provided in Sections 1.3 and 1.4, all of the
provisions set forth herein with respect to the Trustee shall
relate to each successor Trustee so appointed with the same force
and effect as if the successor Trustee had been originally named
herein.
(c) If, within 60 days after notice of
resignation has been given under the provisions of Section 1.7, a successor
Trustee has not been appointed, the resigning Trustee
or the Company may apply to any court of competent jurisdiction
for the appointment of a successor Trustee.
1.10 Transfer of Fund to Successor Trustee. Upon the appointment of a
-------------------------------------
successor Trustee, the resigning or removed
Trustee shall transfer and deliver the Fund to the successor
Trustee.
1.11 Transfer of a Portion of the Fund to Another
--------------------------------------------
Trust. The Company may direct in writing from time to time that
- ------
-5-
<PAGE>
a portion of the assets of the Fund held by the Trustee be
transferred to another trust established and maintained for the
investment of assets of the Plan. Upon transfer of assets
pursuant to such directions, the Trustee shall have no further responsibility
for the control or management of such assets, and
such assets shall no longer be deemed to be subject to any
provision of the Agreement.
Section II. Named Fiduciaries and Allocation of Respon-
-------------------------------------------
sibilities.
-----------
2.1 Named Fiduciaries. The following persons are
------------------
named as fiduciaries under the Agreement, shall be deemed to be
named fiduciaries under the Plan, and shall be the only named
fiduciaries under the Agreement:
(a) Named Fiduciaries with Respect to Control or
--------------------------------------------
Management of Assets.
---------------------
(1) The Trustee. The Trustee shall have
------------
exclusive authority and discretion to manage and control the
Fund, as provided in the Agreement, and shall have no
responsibilities other than those provided in the Agreement.
(2) The Company, as Plan Sponsor. The
-----------------------------
Company shall be responsible for all functions assigned or
reserved to it under the Agreement, including the right to remove
or replace the Trustee. Any authority assigned or reserved to
the Company under the Agreement, other than responsibilities
assigned to the Committee, shall be exercised by resolution of
-6-
<PAGE>
the Board of Directors, and shall become effective, with respect
to the Trustee, upon written notice to the Trustee signed by an
officer of the Company, advising the Trustee of such exercise.
(b) Other Named Fiduciaries -- The Committee.
----------------------------------------
The Committee of the Plan shall be such person(s) or entity as
shall be appointed to serve as the administrator of the Plan by
resolution duly adopted by the Board of Directors. Whenever a
Committee is so appointed, an officer of the Company shall advise
the Trustee of the name(s) of the person(s) or entity so
appointed, and the Trustee may assume that such person(s) or
entity remains in office until advised differently. Whenever the
Trustee must or may act upon the direction or with the approval
of the Committee, the Trustee may act upon a written
communication signed by any one or more members of the Committee,
or any agent appointed in writing by all of the members of the
Committee to act on its behalf. The Trustee shall not be
responsible for failure to act without a written communication
from the Committee.
2.2 Allocation of Responsibilities Among Fiduciaries.
-------------------------------------------------
(a) Trustee. The Trustee shall have exclusive responsibility for the
--------
control and management of the assets of
the Fund, as provided in the Agreement.
(b) Committee. The Committee shall have
----------
responsibility for and authority to control the operation
and administration of the Plan in accordance with the terms of the
-7-
<PAGE>
Plan and the Agreement, including, without limiting the
generality of the foregoing. (l) all functions assigned to the
Committee under the terms of the Agreement; (2) all functions
assigned to the Committee under the terms of the Plan (except
insofar as such terms may be inconsistent with the Agreement);
(3) determination of benefit eligibility and amount and certi-
fication thereof to the Trustee; (4) hiring of persons to provide necessary
services to the Plan; (5) issuance of directions to the
Trustee to pay any fees, taxes, charges, or other costs
incidental to the operation and management of the Plan by the
Committee; (6) the preparation and filing of all reports required
to be filed by the Plan with any agency of government; (7)
compliance with all disclosure requirements imposed by state or
federal law; and (8) maintenance of all records of the Plan other
than those required to be maintained by the Trustee.
(c) The Company. The Company shall have
------------
authority over and responsibility for (1) the design of the Plan, including the
right to amend the Plan; (2) the qualification
under applicable law of the Plan, any amendments to the Plan, and
any document relating to the Plan; (3) the funding of the Plan;
(4) the designation of all named fiduciaries as provided in the
Plan and the Agreement; and (5) the exercise of all fiduciary
functions provided in the Plan or the Agreement or necessary to
the operation of the Plan, except those functions that are
-8-
<PAGE>
assigned to other named fiduciaries pursuant to the Plan or the
Agreement.
2.3 No Joint Fiduciary Responsibilities. The Agreement
-----------------------------------
is intended to allocate to each named fiduciary the
individual responsibility for the prudent execution of the
functions assigned to him or them as a group, and none of those responsibilities
or any other responsibility shall be shared by
two or more named fiduciaries unless such sharing is provided by
a specific provision of the Plan or the Agreement. Whenever one
named fiduciary is required by the Agreement to follow the
directions of another named fiduciary, the two named fiduciaries
shall not be deemed to have been assigned a shared
responsibility, but the responsibility to give directions shall
be deemed to be the sole responsibility of the named fiduciary
giving directions, and the responsibility of the named fiduciary
receiving those directions shall be to follow them insofar as
they are on their face proper under applicable law.
2.4 Advisor to Named Fiduciary. A named fiduciary may
--------------------------
employ one or more persons to render advice concerning any
responsibility such named fiduciary has under the Agreement.
Section III. Trustee's Duties And Powers.
---------------------------
3.1 Payment of Benefits and Other Costs. Pursuant to
-----------------------------------
written directions from the Committee, the Trustee shall pay
benefits from the Fund and shall pay such expenses of the
-9-
<PAGE>
Committee as are incidental to the operation and management of
the Plan.
3.2 Maintain Accounts. The Trustee shall keep
-----------------
accounts of transactions hereunder, which shall be open to
inspection and audit by persons designated by the Committee or by
the Company.
3.3 Reports. Within 90 days after the close of each
-------
Plan Year and within 90 days after its removal or resignation,
the Trustee shall file with the Committee an account of its
administration of the Fund during such Plan Year or from the
close of the preceding Plan Year to the date of removal or
resignation. This account shall contain such information as is
required for the Committee to comply with the reporting and
disclosure provisions of ERISA. Neither the Company, the
Committee, nor any other person shall be entitled to any further accounting by
the Trustee.
3.4 Powers of Trustee.
-----------------
(a) Expect as otherwise provided in paragraph (b)
below, in executing its responsibilities as herein provided, and
in addition to those powers given by law, the Trustee may:
(1) invest and reinvest the Fund without
distinction between principal and income in any form of property
not prohibited by law (without restriction to investments
authorized by state law for fiduciaries);
-10-
<PAGE>
(2) invest all or part of the Fund in deposits
which bear a reasonable interest rate in any bank or similar
financial institution supervised by the United States or any
state;
(3) hold cash uninvested and deposit the same
with any banking, savings, or similar financial institution
supervised by the United States or any state;
(4) join in or oppose the reorganization,
recapitalization, consolidation, sale, or merger of corporations
or properties, including those in which it is interested as
Trustee, upon such terms as it deems wise;
(5) dispose of property held by it for such
prices and on such terms as it deems best, without liability on
the purchasers to see to the application of the purchase money or
to the propriety of any such disposition;
(6) borrow money for the purposes of the Plan
upon such terms as the Trustee deems advisable, and pledge all or
part of the Fund as security therefor, provided that no annuity
or life insurance contract shall be pledged except to secure a
loan to pay premiums thereon, and further provided that any
pledge of annuity or life insurance contracts shall be pro rata
among all such contracts. No persons lending to the Trustee need
see to the application of money lent or to the propriety of the
borrowing;
(7) hold investments in nominee or bearer form;
-11-
<PAGE>
(8) give proxies;
(9) if the Plan permits investment in insurance,
apply for, purchase, hold, and transfer any life insurance,
retirement income, endowment, or annuity contract, and provide
benefits by such contracts issued by duly licensed insurance
companies, in accordance with written directions from the
Committee;
(10) deduct from and charge against the Fund any
taxes paid by it which may be imposed upon the Fund or the income
thereof, or which the Trustee is required to pay with respect to
any person's interest in the Fund;
(11) receive and withdraw from the Fund reim-
bursement for reasonable expenses hereunder to the extent
permitted by law (including legal fees) and charge the Fund, upon
approval by the Committee, for the compensation and expenses of
any independent accountant or actuary who may be employed from
time to time by the Trustee, the Company or the Committee in
connection with the Plan and this trust;
(12) accept employment and thereafter act as agent
for the Company or the Committee to perform multiple or ancillary
services for the Plan, its Participants, and its beneficiaries.
Nothing done by the Trustee as agent shall enlarge or increase in
any manner the responsibilities or liabilities of the Trustee
hereunder, which shall be governed solely by the terms of the
Agreement and applicable law;
-12-
<PAGE>
(13) perform all such acts and exercise all such
rights and privileges consistent with law and the terms of the
Agreement, although not specifically mentioned herein, as the
Trustee may deem necessary to control and manage the Fund and to
carry out the purposes of the Agreement.
(b) Notwithstanding the provisions of paragraph
(a) above, the Trustee shall not acquire or dispose of any
qualifying employer securities (as defined in Section 407(d) (5)
of ERISA) without the prior consent of the Committee.
3.5 Insurance Company. If the Trustee purchases
-----------------
annuity, life insurance, or similar contracts from an insurance
company, the insurance company shall not be deemed to be a party
to the Agreement.
3.6 Reliance on Certifications.
--------------------------
(a) A certification in writing by the Trustee as
to the occurrence of any event contemplated by the Agreement or
the Plan shall be conclusive evidence thereof and the insurance
company shall be protected in relying upon such certification and
shall incur no liability for so doing. With respect to any
action under any such contract the insurance company may deal
with the Trustee as the sole owner thereof and need not see that
any action of the Trustee is authorized by the Agreement or the
Plan. Any change made or action taken by an insurance company
upon the direction of the Trustee shall fully discharge the
insurance company from all liability with respect thereto, and it
-13-
<PAGE>
need not see to the distribution or further application of any
monies paid by it to the Trustee or paid in accordance with the
direction of the Trustee.
(b) In any case in which the Trustee shall be
requested by the Committee to certify to the occurrence of an
event of which the Trustee has no personal knowledge, the Trustee
shall rely, in making such certification, upon the written
statement of the Committee concerning such event, and the Trustee
shall have no responsibility or authority to make any independent investigation
to verify any such written statement by the
Committee.
3.7 Litigation. The Trustee need not engage in
----------
litigation unless first indemnified against expense by the
Company or unless the litigation is occasioned by an alleged
breach of the Trustee's fiduciary or other legal obligations.
The Trustee may consult with any legal counsel, including counsel
for the Company or its own general counsel, with respect to
meaning or construction of the Agreement, its obligations or
duties hereunder, and any action or proceeding or question of
law. In any action taken or omitted by the Trustee in good faith
pursuant to the written advice of the Company's counsel, the
Company shall indemnify and hold the Trustee harmless against
litigation expenses and attorneys' fees occasioned by such
action.
-14-
<PAGE>
Section IV. Miscellaneous Provisions.
------------------------
4.1 Title; Number; Gender. Titles for sections are
---------------------
for general information Only, and the Agreement shall not be
construed by reference to such titles. Wherever required by
context, the singular of any word used in the Agreement shall
include the plural and the plural may be read in the singular.
Words used in the masculine shall be read and construed in the
feminine where they would so apply.
4.2 Definitions. Unless the context of the Agreement
-----------
clearly indicates otherwise, the terms defined in the Plan, when
used herein, shall have the same meaning as in the Plan.
4.3 Assignment. No benefit under the Agreement shall
----------
be subject to anticipation, assignment, or voluntary or
involuntary alienation.
4.4 Continued Employment. Nothing in the Agreement shall
--------------------
require the Company to retain any employee in its service.
4.5 Reliance. Any person dealing with the Trustee may
--------
rely upon a copy of the Agreement and any amendments thereto
certified to be true and correct by the Trustee
4.6 Amendments. The Company shall cause a copy of any
----------
amendment to the Plan to be delivered to the Trustee.
4.7 Governing Law. Construction, validity, and
-------------
administration of the Agreement shall be governed by the laws of
West Virginia, except to the extent preempted by ERISA.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the
Agreement to be executed as of the day and year first written
above.
(SEAL) PETROLEUM DEVELOPMENT CORPORATION
By: /s/ Steven R. Williams
-------------------------------
President
Attest: /s/ Dale G. Rettinger
-------------------------
Ass't Secretary
UNION NATIONAL BANK OF WEST
VIRGINIA
By: /s/ David K. Turner
---------------------------
Senior Vice President
Attest: /s/ Donald E. Marang
------------------------
Trust Investment Officer
-16-
<PAGE>
Exhibit 10.14
SAVINGS AND PROTECTION PLAN
JOINDER AGREEMENT
(EQUITABLE LIFE)
(HOURS OF SERVICE)
(1989)
<PAGE>
SAVINGS AND PROTECTION PLAN
---------------------------
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
ARTICLE PAGE
- --------- ----
<S> <C> <C>
I. Purpose 1
II. Definitions 2
III. Participation and Service 19
IV. Contributions; In-Service Withdrawals;
Loans 21
V. Allocation of Employer Contributions
and Forfeitures 41
VI. Allocation of Trust Fund Earnings 45
VII. Vesting; Benefits on Termination
of Employment 47
VIII. Benefits on Retirement or Disability 52
IX. Benefits on Death 58
X. Administration of the Plan 62
XI. Amendments and Termination of the Plan 69
XII. Top-Heavy Provisions 71
XIII. General Provisions 78
Schedule A, Savings and Protection Plan,
Joinder Agreement 83
</TABLE>
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<PAGE>
ARTICLE I
---------
PURPOSE
-------
1.1 Intention. This Plan has been adopted by the Employer to provide for
---------
the payment of benefits on account of retirement, death, or total disability to
or for the benefit of certain of its Employees who are eligible to participate
hereunder. The Plan is intended to qualify under applicable provisions of the
Code, ERISA, and similar provisions of state law as a cash or deferred profit
sharing plan.
1.2 Effective Date. The initial Effective Date of this Plan (or, as
--------------
appropriate, the Effective Date of an amendment to an existing plan) shall be
the date provided in the Joinder Agreement. No individual shall become a
Participant in the Plan unless he is an Eligible Employee on or after the
Effective Date of this Plan.
<PAGE>
ARTICLE II
----------
DEFINITIONS
-----------
Except as otherwise clearly indicated by context, the masculine shall
include the feminine, the singular shall include the plural, and vice-versa.
2.1 General. The following terms, when capitalized, shall have the
-------
meaning specified below unless the context clearly indicates to the contrary.
Additional defined terms are found in Article XII.
2.2 "Account" shall mean, with respect to a Participant, each of the
-------
separate accounts established and maintained in the records of the Recordkeeper
which represent the Participant's interest in the Trust Fund.
2.3 "Actuarial Equivalent" shall mean a benefit in a form which, as of the
--------------------
date of reference, has the same single-sum dollar value as the benefit expressed
in an alternative form. The actuarial equivalent shall be based on the factors
and assumptions utilized by the insurance company from which the Employer
directs the purchase of annuity contracts for the purpose of providing benefits
under the Plan.
2.4 "ACP Test" shall mean the test described in Section 4.3(c).
--------
2.5 "Actual Contribution Percentage" shall mean, for a specific group of
------------------------------
Eligible Employees, the average of the ratios, expressed as a percentage,
calculated separately for each Eligible Employee in the group, of:
(a) the Matching Contributions and such other Contributions which are
required or permitted to be aggregated with Matching Contributions made on
behalf of such Eligible Employee for the Plan Year
to
--
(b) such Eligible Employee's Compensation for that Plan Year; however, for
any Plan Year beginning before January 1, 1992, Compensation attributable to a
period before the Eligible Employee becomes a Participant shall not be taken
into account, and for Plan Years beginning after 1988, Compensation in this
clause shall be limited to $200,000 or such greater amount as may be described
by appropriate governmental authorities.
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<PAGE>
For purposes of this Section, an Eligible Employee is any Employee who is
directly or indirectly eligible to receive an allocation of Matching
Contributions under the Plan. In the case of an Eligible Employee who makes no
Deferrals and receives no Matching Contributions, the ratio described above
shall be zero.
For purposes of this Section, each Eligible Employee's Actual Contribution
Percentage shall be rounded to the nearer one-hundredth of one percent of the
Eligible Employee's Compensation.
At the Plan Administrator's discretion, Deferrals may be added to Matching
Contributions in computing the ratio described in the preceding paragraph.
Similarly, at the Plan Administrator's discretion, Qualified Nonelective
Contributions, if any, and Qualified Matching Contributions, if any and to the
extent not already used in determining the Actual Deferral Percentage, may be
added to Matching Contributions in computing the ratio described in the
preceding paragraph. However, Deferrals, Qualified Nonelective Contributions
and/or Qualified Matching Contributions may be added to Matching Contributions
in computing the ratio described above only if such Deferrals, Qualified
Nonelective, and/or Qualified Matching Contributions satisfy the requirements of
IRS Reg. (S)l.401(m)-l(b)(5).
If in any Plan Year a Highly Compensated Employee is an Eligible Employee
in this Plan and in any other plan(s) maintained by the Employer or Related
Company to which matching contributions (as defined in section 401(m)(4)(A) of
the Code) or Employee contributions are made, then, in determining the ratio
described above for such Highly Compensated Employee, all such contributions
shall be aggregated in determining the Aggregate Matching Contribution Rate.
If a Highly Compensated Employee participates in two or more cash or deferred
arrangements that have different plan years, all cash or deferred arrangements
with plan years ending with or within the same calendar year shall be treated as
a single arrangement.
If this Plan is treated, for purposes of section 401(a) (4) or 410(b) of
the Code, as one plan with any other plan(s) maintained by the Employer or a
Related Company to which matching contributions, Employee contributions, or
elective deferrals are made, this Plan and such other plan(s) shall be treated
as one plan in determining the Actual Contribution Percentage. For Plan Years
beginning after December 31, 1989, plans that are aggregated in order to satisfy
section 401(m) of the Code must have the same plan year.
If a Highly Compensated Employee is subject to the family aggregation rules
of Code section 414(q)(6) because he is
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<PAGE>
either a five-percent owner of the Employer or one of the 10 most highly paid
employees, the family group (as described in Section 2.29 of the Plan) shall be
treated as one Highly Compensated Employee for purposes of determining the
Actual Contribution Percentage. The Matching Contributions, amounts treated as
Matching Contributions, and the Compensation of the members of the family group
shall be combined in calculating the Actual Contribution Percentage. Except to
the extent taken into account in the preceding sentence, the Matching
Contributions, amounts treated as Matching Contributions, and Compensation of
all family members are disregarded in determining the Actual Contribution
Percentages for the groups of Highly Compensated Employees and Non-Highly
Compensated Employees.
2.6 "Actual Deferral Percentage" shall mean, for a specific group of
--------------------------
Eligible Employees, the percentage determined by averaging the Deferral rates of
such Eligible Employees. An Eligible Employee's Deferral rate shall be
determined by dividing:
(a) the sum of (1) the Eligible Employee's Deferrals (if any) for the
Plan Year, and (2) at the election of the Plan Administrator, Qualified Matching
and/or Qualified Nonelective Contributions made to this Plan (provided such
Qualified Matching and/or Qualified Nonelective Contributions satisfy the
requirements of IRS Reg. (S)l.401(k)-l(b)(5), and are not included in the
numeration of the Actual Contribution Percentage)
by
(b) the Eligible Employee's Compensation for the Plan Year; however,
for any Plan Year beginning before January 1, 1992, Compensation attributable to
a period before the Eligible Employee becomes a Participant shall not be taken
into account and, for Plan Years beginning after 1988, Compensation in this
clause shall be limited to $200,000 or such greater amount as may be described
by appropriate governmental authorities.
In determining the Actual Deferral Percentage of an Eligible Employee who
is a Highly Compensated Employee, the numerator described in clause (a) above
shall include any Excess Deferral made in the Plan Year. In the case of an
Eligible Employee who is not a Highly Compensated Employee, the numerator shall
not include any Excess Deferral.
For purposes of this Section, an Eligible Employee is any Employee who is
directly or indirectly eligible to receive an allocation of Matching
Contributions under the Plan. In the case
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<PAGE>
of an Eligible Employee who makes no Deferrals and receives no Matching
Contributions, the ratio described above shall be zero.
For purposes of this Section, each Eligible Employee's Actual Deferral
Percentage shall be rounded to the nearer one- hundredth of one percent of the
Eligible Employee's Compensation.
If in any Plan Year a Highly Compensated Employee is an Eligible Employee
in this Plan and in any other cash or deferred arrangement(s) (as described in
section 401(k) of the Code) maintained by the Employer or a Related Company
then, in determining the ratio described above for such Highly Compensated
Employee, this Plan and the other cash or deferred arrangement(s) shall be
treated as one plan. If a Highly Compensated Employee participates in two or
more cash or deferred arrangements that have different plan years, all cash or
deferred arrangements with plan years ending with or within the same calendar
year shall be treated as a single arrangement.
If this Plan is treated, for purposes of section 401(a)(4) or 410(b) of the
Code, as one plan with any other cash or deferred arrangement(s) maintained by
the Employer or a Related Company, this Plan and the other cash or deferred
arrangement(s) shall be treated as one plan in determining the Actual Deferral
Percentage. For Plan Years beginning after December 31, 1989, plans that are
aggregated must have the same plan year.
If a Highly Compensated Employee is subject to the family aggregation rules
of Code section 414(q)(6) because he is either a five-percent owner of the
Employer or one of the 10 most highly paid employees, the family group (as
described in Section 2.29 of the Plan) shall be treated as one Highly
Compensated Employee for purposes of determining the Actual Deferral Percentage.
The Deferrals, amounts treated as Deferrals, and the Compensation of the members
of the family group shall be combined in calculating the Actual Deferral
Percentage. Except to the extent taken into account in the preceding sentence,
the Deferrals, amounts treated as Deferrals, and Compensation of all family
members are disregarded in determining the Actual Deferral Percentages for the
groups of Highly Compensated Employees and Non-Highly Compensated Employees.
2.7 "ADP Test" shall mean the test described in Section 4.2(d).
--------
2.8 "Annual Additions" shall mean the sum of (a) Basic Contributions,
----------------
Matching Contributions, Deferrals, Qualified Matching Contributions, Qualified
Nonelective Contributions, Excess Deferrals, Excess Aggregate Contributions, and
Excess
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<PAGE>
Contributions, (b) forfeitures, and (c) the Participant's after-tax
contributions (excluding Rollover Contributions), if any, allocated in any
Limitation Year to a Participant's Accounts under this and any other defined
contribution plan maintained by the Employer or any Related Company. The Annual
Additions for any Limitation Year beginning before 1987 shall not be recomputed
to treat all of a Participant's own Contributions as Annual Additions.
Any Excess Aggregate Contributions, Excess Contributions, and Excess
Deferrals shall be included in determining a Participant's Annual Additions for
the Limitation Year for which such excess amounts are contributed to the Plan.
2.9 "Annuity Starting Date" shall mean (a) the first day of the period for
---------------------
which an amount is payable as an annuity under the Plan (whether by reason of
death, Retirement, or Disability), or (b) in the case of a benefit not payable
in the form of an annuity, the first day on which all events have occurred which
entitle the Participant or his spouse or beneficiary to such benefit.
2.10 "Basic Contributions" shall mean the amounts contributed to the Trust
-------------------
Fund pursuant to Item 14 of the Joinder Agreement.
2.11 "Break in Service" shall mean receiving credit for not more than 500
----------------
Hours of Service during the 12-month period of any Plan Year.
(a) Notwithstanding the foregoing, if an employee is absent for one or
more of the following reasons, he shall be credited with an Hour of Service,
solely for purposes of this Section, for each Hour of Service for which he would
have received credit if he had continued in the active employ of the Employer
during the period of absence:
(1) layoff for a period not in excess of one year;
(2) leave of absence with approval of the Plan Administrator for
a period not in excess of one year, unless such period is extended by the Plan
Administrator;
(3) military service such that his right to reemployment is
protected by law.
(b) If an employee is absent from work by reason of pregnancy,
childbirth, or adoption, or for purposes of the care of such employee's child
immediately after birth or
-6-
<PAGE>
adoption such employee shall be credited, solely for purposes of this Section,
with the Hours of Service which would have been credited to such individual but
for such absence, or, if such hours cannot be determined, at the rate of eight
hours per normal workday, except that the total number of hours treated as Hours
of Service under this Subsection (b) shall not exceed 501.
(c) the hours described in Subsection (b) shall be treated as Hours of
Service:
(1) only in the Plan Year in which the absence from work begins,
if an employee would be prevented from incurring a Break in Service in such Plan
Year solely because the period of absence is treated as Hours of Service under
Subsection (b) ; or
(2) in any other case, the immediately following Plan Year.
2.12 "Code" shall mean the Internal Revenue Code of
----
1986, as amended from time to time.
2.13 "Compensation" shall mean Compensation as described in Item 26 of the
------------
Joinder Agreement. Compensation shall include Deferrals under this Plan and
earnings deferred or waived by a Participant pursuant to a salary reduction
arrangement under this Plan or any other cash or deferred arrangement(s) or
cafeteria plan of the Employer. Compensation shall also include the earned
income of a Self-Employed Individual, as defined in section 401(c) (2) of the
Code.
Effective for Plan Years beginning after December 31, 1988, Compensation
shall not be more than $200,000 (or such greater amount as may be prescribed by
appropriate governmental authorities). In the case of a Plan Year beginning
after 1988 which is less than 12 months long, the dollar limit on Compensation
shall be determined by multiplying $200,000 by a fraction, the numerator of
which is the number of full calendar months occurring in the short Plan Year,
and the denominator of which is 12.
If, in a given Plan Year, a Participant is a five percent (5%) owner of the
Company or one of the 10 Highly Compensated Employees who receive the most pay
from the Company and all Affiliated Companies, and if any such Participant's
family members are also Participants in the Plan, the Participant and his family
member(s) shall be considered to be one Participant for purposes of applying the
dollar limit on Compensation described in the preceding paragraph. For purposes
of this paragraph, a Participant's "family members" are his
-7-
<PAGE>
spouse and his lineal descendants who have not attained age 19 by the end of the
Plan Year in question. If, as a result of the application of such rules, the
adjusted $200,000 limitation is exceeded, the limitation shall be prorated among
the affected individuals in proportion to each individual's Compensation as
determined under this Section prior to the application of the limitation.
2.14 "Contributions" shall mean (a) as to a Participant, his Deferrals and
-------------
Rollover Contributions, and (b) as to the Employer, its Basic, Matching,
Qualified Matching, Qualified Nonelective, and top-heavy minimum Contributions.
2.15 "Deferrals" shall mean Contributions made by the Employer for a
---------
Participant out of amounts which would otherwise have been paid to the
Participant as salary or wages, pursuant to a salary reduction agreement between
the Employer and the Participant.
2.16 "Disability" shall mean (a) for a Participant covered under a long-
----------
term disability plan sponsored by the Employer, a disability of a nature which
enables the Participant to qualify for and to receive disability benefits under
such long-term disability plan; (b) for a Participant who is not covered under a
long-term disability plan sponsored by the Employer, his permanent inability to
perform his customary duties for the Employer due to a mental or physical
condition which can be expected to result in death or be of a long, continued,
and indefinite duration. Determination of whether a Participant who is not
covered under a long-term disability plan sponsored by the Employer is suffering
a Disability and the date on which the Disability commenced shall be made solely
by the Plan Administrator and shall be based on a medical certificate from a
physician or physicians found to be satisfactory by the Plan Administrator.
2.17 "Early Retirement Date" shall mean the first day of the calendar
---------------------
month in which the Participant attains the age designated in Item 8 of the
Joinder Agreement and terminates employment with the Employer and all Related
Companies.
2.18 "Effective Date" shall mean the date designated in Item 2 of the
--------------
Joinder Agreement.
2.19 "Eligible Employee" shall mean any Employee eligible to participate in
-----------------
this Plan under Section 3.1.
2.20 "Employee" means any person who is employed by the Employer in an
--------
eligible classification (as designated in Item 7 of the Joinder Agreement)
including Self-Employed Individuals but
-8-
<PAGE>
excluding any person (a) who is retained as an independent contractor, or (b)
who is covered by a collective bargaining agreement unless such collective
bargaining agreement specifically provides for participation hereunder, or (c)
unless so specified in Item 7 of the Joinder Agreement, who is a part- time
employee regularly scheduled to perform fewer than 19 Hours of Service per week
and has not completed at least 1,000 Hours of Service in a Plan Year. Employees
of Related Companies shall be entitled to participate in the Plan only if such
Related Companies adopt the Plan. Unless so specified in the Joinder Agreement,
the term Employee shall not include any person who is a leased employee, whether
or not such person is a leased Employee within the meaning of section 414(n) of
the Code.
The term "leased employee" means any person (other than an employee of the
Employer) who is pursuant to an agreement between the Employer and any other
person ("leasing organization") has performed services for the Employer (or for
related persons determined in accordance with section 414(n) (6) of the Code) 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 Employer. Contributions or benefits provided to a leased employee by the
leasing organization which are attributable to services performed for the
Employer shall be treated as provided by the Employer.
A leased employee shall not be considered an employee of the Employer if:
(i) such employee is covered by a money purchase pension plan providing: (1) a
nonintegrated employer contribution rate of at least ten percent (10%) of
compensation, as defined in section 415(c) (3) of the Code, but including
amounts contributed pursuant to a salary reduction agreement which are
excludable from the employee's gross income under section 125, section
402(a)(8), section 402(h), or section 403(b) of the Code, (2) immediate
participation, and (3) full and immediate vesting; and (ii) leased employees do
not constitute more than twenty percent (20%) of the Employer's nonhighly
compensated workforce.
2.21 "Employer" shall mean the organization named in Item 1 of the
--------
Joinder Agreement, any additional organization which adopts the Plan, and any
successor entity which continues the Plan. The Employer shall, except as
otherwise provided in this Plan, act through the Plan Administrator. Where
required by the provisions of this Plan, a Related Company which has not adopted
the Plan may be treated as the Employer.
2.22 "Employer Contribution Account" shall mean the Account of each
-----------------------------
Participant to which Basic or Matching Contributions and forfeitures (if
allocated pursuant to the method
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<PAGE>
specified in Item 20(a) of the Joinder Agreement) and top-heavy minimum
Contributions, if any, are credited, together with gains and losses thereon.
2.23 "Entry Date" shall mean each date specified in Item 10 of the Joinder
----------
Agreement.
2.24 "ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
2.25 "Excess Aggregate Contributions" shall means, for a given Plan Year,
------------------------------
the excess of (a) the amount of those contributions made by or on behalf of a
Highly Compensated Employee which are taken into account for purposes of the ACP
Test in that Plan Year, over (b) the maximum amount of such contributions
permitted to be made for that Plan Year, as determined by the Plan Administrator
under Section 4.3(c).
2.26 "Excess Contributions" shall mean, for a given Plan year, the excess
--------------------
of (a) the amount of Deferrals made on behalf of a Highly Compensated Employee
in that Plan Year, over (b) the maximum amount of Salary Reduction Savings
permitted to be made for that Plan Year, as determined by the Plan Administrator
under Section 4.2(d).
2.27 "Excess Deferral" shall mean the excess of (a) the amount of Deferrals
---------------
plus any other elective deferrals (as defined in section 402(g)(3)(A) of the
Code) made on behalf of an individual in the individual's taxable year over (b)
$7,000 (as adjusted to reflect cost-of-living increases), or, if applicable, the
lesser amount described in Section 4.8(b)(3)(B)(iii).
2.28 "401(k) Account" shall mean the Account of each Participant to which
--------------
his Deferrals are credited, together with the gains and losses thereon. All
401(k) Accounts shall be fully vested at all times.
2.29 "Highly Compensated Employee" for a given Plan Year shall be the
---------------------------
Highly Compensated Active and Former Employees who are described below. The
determination as to whether an employee is a Highly Compensated Employee shall
be made in accordance with section 414(q), the regulations thereunder, and the
rules described below.
(a) (1) "Highly Compensated Active Employee" shall
mean any employee who performs service for the Employer during the Determination
Year and who:
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<PAGE>
(A) was at any time during either the Determination Year or the Look-
Back Year a five-percent (5%) owner of the Employer;
(B) had Income during the Look-Back Year which is in excess of $75,000
(as adjusted by the Internal Revenue Service to reflect cost-of-living
increases);
(C) had Income during the Look-Back Year which is in excess of $50,000
(as adjusted by the Internal Revenue Service to reflect cost-of-living
increases), provided that the employee is also in the Top-Paid Group for the
Look-Back Year;
(D) was at any time during the Look-Back Year an officer of the
Employer who had Income which is in excess of fifty percent (50%) of the amount
in effect under section 415(b) (1) (A) of the Code for the calendar year in
which the Look- Back Year begins (or, if there is no such officer, the highest-
paid officer of the Employer);
(E) had Income during the Determination Year which is in excess of
$75,000 (as adjusted by the Internal Revenue Service to reflect cost-of-living
increases) and is one of the 100 employees who have the most Income during the
Determination Year;
(F) had Income during the Determination Year which is in excess of
$50,000 (as adjusted by the Internal Revenue Service to reflect cost-of-living
increases), provided that the employee is also in the Top-Paid Group for the
Determination Year and is one of the 100 employees who have the most Income
during the Determination Year; or
(G) was at any time during the Determination Year an officer of the
Employer who had Income which is in excess of fifty percent (50%) of the amount
in effect under section 415(b) (1) (A) of the Code for the calendar year in
which the Determination Year begins (or, if there is no such officer, the
highest-paid officer of the Employer) and is also one of the 100 employees who
have the most Income during the Determination Year.
For purposes of Subsections (a) (1) CD) and (a) (1) (G), no more than 50
employees (or, if less, the greater of three employees or ten percent (10%) of
the employees) shall be treated as officers.
(2) "Determination Year" shall mean the Plan Year for which the
determination of Highly Compensated Employees is
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<PAGE>
being made. "Look-Back Year" shall mean the 12 months preceding the
Determination Year.
(3) "Income" shall mean Limitation Compensation, including elective
deferrals under sections 125 and 402(a)(8) of the Code.
(4) "Top-Paid Group" shall mean the group consisting of the top twenty
percent (20%) of employees of the Employer for the Look-Back Year or
Determination Year, when employees are ranked on the basis of Income paid during
the relevant year. Solely for purposes of determining the number of employees
to be included in such group, the following employees shall not be counted:
(A) employees who have not completed six months of employment by
the end of the relevant year;
(B) employees who are normally scheduled to work fewer than 17-
1/2 hours per week;
(C) employees who normally work not more than six months during
any year;
(D) employees who have not attained age 21 by the end of the
relevant year: and
(E) employees who are non-resident aliens who receive no U.S.
source income from the Employer or any Related Company.
Employees covered by a collective bargaining agreement shall be counted in
determining the number of employees to be included in the Top-Paid Group unless
ninety percent (90%) or more of the employees of the Employer and all Related
Companies are covered by collective bargaining agreements and this Plan covers
only employees who are not covered by collective bargaining agreements. In such
a case, employees covered by a collective bargaining agreement shall not be
counted in determining the number of employees to be included in the Top-Paid
Group.
(5) "Highly Compensated Former Employee" shall mean any employee who
separated from service (or was deemed to have separated) prior to the
Determination Year, who performs no service for the Employer during the
Determination Year, and who was a Highly Compensated Active Employee for either
the separation year or any Determination Year ending on or after the employee's
55th birthday. However, an employee who separated from service prior to January
1, 1987 is a Highly Compensated
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<PAGE>
Former Employee if during either (A) the year he separated from service or (B)
any year ending on or after his 55th birthday, he was a five-percent (5%) owner
of the Employer or had Income in excess of $50,000.
(b) If in any Look-Back Year or Determination Year an employee is a
member of
(1) the family of a five-percent (5%) owner of the Employer or
(2) the family of a Highly Compensated Employee who is one of
the 10 Highly Compensated Employees who have the most Income for the relevant
year,
the employee shall not be considered to be a separate employee, and the
employee's Income (and any contributions made on behalf of the employee) shall
be treated as paid to (or made on behalf of) the five-percent (5%) owner or the
Highly Compensated Employee.
For purposes of this Subsection, "family" means, with respect to any
Employee, the Employee's Spouse and lineal ascendants and descendants, and the
spouses of such lineal ascendants and descendants.
2.30 "Hour of Service" shall mean an hour for which:
---------------
(a) an individual is directly or indirectly paid or entitled to
payment by the Employer for the performance of service to the Employer;
(b) back pay, irrespective of mitigation of damages, is either awarded
or agreed to; or
(c) an employee is directly or indirectly paid or entitled to payment
by the Employer on account of a period of time during which no duties are
performed due to vacation, holiday, illness, incapacity (including disability),
layoff, jury duty, military duty, maternity or paternity leave of absence, or
any other leave of absence.
There shall be excluded from the foregoing those periods during which
payments are made or due under a plan maintained solely for the purpose of
complying with applicable workers' compensation, unemployment compensation, or
disability insurance laws. No more than 501 Hours of Service shall be credited
under clause (c) on account of any single, continuous period during which no
duties are performed, except to the extent provided in the Plan. Except as
otherwise provided in this Plan,
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<PAGE>
an Hour of Service shall not be credited where an employee is being reimbursed
solely for medical or medically related expenses.
Hours of Service shall include employment with Related Companies, as
described in Section 3.3.
Hours of Service shall be credited in accordance with the rules set forth
in U.S. Department of Labor Reg. (S)2530.20Ob- 2(b) and (c).
Notwithstanding the foregoing, the Plan Administrator may, in accordance
with rules applied in a uniform and nondiscriminatory manner, elect to credit
Hours of Service using the following equivalencies:
Basis Upon Which Credit Granted to
Records Are Maintained Individual for Period
---------------------- ---------------------
shift actual hours for full shift
day 10 Hours of Service
week 45 Hours of Service
semi-monthly period 95 Hours of Service
month 190 Hours of Service
Hours of Service shall be credited for any individual who is considered a
leased employee for purposes of this Plan under Section 414(n) of the Code.
Hours of Service will also be credited as required by Code section 414(o).
2.31 "Joinder Agreement" shall mean the document executed by the Employer
-----------------
which describes additional terms applicable to the Plan.
2.32 "Limitation Compensation" shall mean, with respect to any Limitation
-----------------------
Year, the amount in Subsection (a) reduced by the amount in Subsection (b)
where:
(a) is equal to the Participant's wages, salary, fees for professional
services, and other amounts received for personal services rendered in the
course of employment with the Employer or a Related Company, including, but not
limited to, commissions paid to salesmen, compensation for services on the basis
of a percentage of profits, commissions on insurance premiums, tips, bonuses,
taxable amounts received by the Participant through accident or health insurance
for personal
-14-
<PAGE>
injury or sickness or from a self-insured medical expense reimbursement plan,
moving expenses paid or reimbursed by the Employer or a Related Company in
excess of any amount deductible by the Participant, wages or payments in lieu of
wages received on account of absence from work for permanent and total
disability, the amount included in the taxable income of the Participant as a
result of the grant of a non-qualified stock option by the Employer or a Related
Company, and the amount includible in the gross income of the Participant as the
result of an election described in section 83(b) of the Code; and
(b) is equal to (1) the contributions made by the Employer to a
qualified plan to the extent that, before the application of section 415 of the
Code to that plan, the contributions are not includible in the gross income of
the Participant for the year in which contributed, (2) any distributions from a
plan of deferred compensation, except that any amounts received by an Employee
pursuant to an unfunded non-qualified plan may be included in the year that such
amounts are included in gross income, (3) amounts realized from the exercise of
a non-qualified stock option or from stock or property which is currently
taxable under section 83 of the Code, (4) amounts realized from the sale,
exchange, or other disposition of stock acquired through the exercise of a
qualified or incentive stock option, and (5) other amounts which receive special
tax benefits, such as premiums for group term life insurance to the extent not
includible in gross income, or contributions made by the Employee to a
simplified employee pension plan which are deductible by the Employee or toward
the purchase of an annuity contract described in section 403(b) of the Code,
determined in accordance with the provisions of Treas. Reg. 51.415-2(d) (1)
2.33 "Limitation Year" shall mean the Plan Year or such other 12-
---------------
consecutive month period as may be designated by the Employer in Item 5 of the
Joinder Agreement; provided, however, that for the first Limitation Year, it
shall mean the period commencing on the Effective Date and ending on the last
day of the Plan Year or such other period as designated in Item 5 of the Joinder
Agreement.
2.34 "Matching Contributions" shall mean the amounts contributed to the
----------------------
Trust Fund pursuant to Item 13 of the Joinder Agreement.
2.35 "Net Profits" shall mean the Employer's current or accumulated
-----------
worldwide profits, determined on either (a) a consolidated basis or (b) a non-
consolidated basis as to the Employer or any subsidiary or subsidiaries of the
Employer which participate in the Plan. Profits shall be calculated from
-15-
<PAGE>
financial reports of the Employer before federal and state taxes on, or measured
by, income and before contributions under this Plan.
2.36 "Non-Highly Compensated Employee" shall mean any Employee of the
-------------------------------
Employer who is not a Highly Compensated Employee.
2.37 "Normal Retirement Date" shall mean the first day of the calendar
----------------------
month in which the Participant attains the age designated in Item 9 of the
Joinder Agreement; provided, however, that if no age is specified, it shall mean
the first day of the calendar month in which the Participant attains age 65. An
Employee who continues in the employ of the Employer after attaining his Normal
Retirement Date shall continue to participate in the Plan on or after attaining
his Normal Retirement Date.
2.38 "Owner-Employee" shall mean a Self-Employed Individual who owns more
--------------
than ten percent (10%) of either the capital interest or the profits interest in
the Employer and who receives earned income from the Employer.
2.39 "Participant" shall mean any individual for whom an Account is
-----------
maintained in the Plan; provided, however, that an employee who makes a Rollover
Contribution prior to his becoming a Participant shall not be deemed a
Participant for purposes of Employer Basic and Matching Contributions or for
Deferrals or for the allocation of forfeitures, if any.
2.40 "Plan" shall mean this document, including the Joinder Agreement, as
----
it may be amended from time to time.
2.41 "Plan Administrator" shall mean the Employer or such other
------------------
individual(s) designated by the Employer to administer the Plan.
2.42 "Plan Year"shall mean the 12-consecutive-month period designated in
---------
Item 4 of the Joinder Agreement; provided, however, that for the first Plan
Year, it shall mean the period commencing on the Effective Date and ending on
the last day of the Plan Year, as designated in Item 4 of the Joinder Agreement.
2.43 "Preretirement Survivor Annuity" shall mean an annuity for the life of
------------------------------
a Participant's surviving Spouse, the Actuarial Equivalent of which is equal to
the value of the Participant's Account as of the date of the Participant's
death, reduced by the amount of any loan outstanding as of the date of the
Participant's death.
-16-
<PAGE>
2.44 "Qualified Joint and Survivor Annuity" shall mean an annuity for the
------------------------------------
life of the Participant and his Spouse which is not less than fifty percent
(50%) and not more than one hundred percent (100%) of the amount of the annuity
which is payable during the joint lives of the Participant and the Spouse and
which is the Actuarial Equivalent of a single annuity for the life of the
Participant. The term "Qualified Joint and Survivor Annuity" also includes any
annuity in a form having the effect of an annuity described in the preceding
sentence. The actual percentage of the survivor benefit will be elected by the
Participant. If no election is made by the Participant, the percentage of the
survivor benefit will be fifty percent (50%).
2.45 "Qualified Matching Contribution" shall mean a Matching Contribution
-------------------------------
made by the Employer which is allocated to the Qualified Matching Contribution
Account of a Participant who is not a Highly Compensated Employee and which the
Participant may not elect to receive in cash. Qualified Matching Contributions
shall be fully vested, and may not be distributed to the Participant earlier
than the earliest of the times specified in Section 4.8, Article VII, Article
VIII, Article IX, or Section 11.2 of the Plan.
2.46 "Qualified Matching Contribution Account" shall mean the Account to
---------------------------------------
which are credited Qualified Matching Contributions and gains and losses
thereon.
2.47 "Qualified Nonelective Contribution" shall mean a Basic Contribution
----------------------------------
made by the Employer which is allocated to the Qualified Nonelective
Contribution Account of a Participant who is not a Highly Compensated Employee
and which the Participant may not elect to receive in cash. Qualified
Nonelective Contributions shall be fully vested, and may not be distributed to
the Participant earlier than the earliest of the times specified in Section 4.8,
Article VII, Article VIII, Article IX, or Section 11.2 of the Plan.
2.48 "Qualified Nonelective Contribution Account" shall mean the Account to
------------------------------------------
which are credited Qualified Nonelective Contributions and gains and losses
thereon.
2.49 "Recordkeeper" shall mean the person or entity retained by the Plan
------------
Administrator on behalf of the Plan to provide specified administrative services
to the Plan.
2.50 "Related Company" shall mean an organization which, with the Employer,
---------------
is a member of a controlled group of corporations, a group of trades or
businesses under common control, or an affiliated group, within the meaning of
sections 414(b), 414(c) and 414(m) of the Code and, for purposes of
-17-
<PAGE>
Sections 2.32 and 5.2 of the Plan, under section 415(h) of the Code.
2.51 "Retirement" shall mean a Participant's termination of employment on
----------
or after his Normal or Early Retirement Date.
2.52 "Rollover Account" shall mean the Account of an Employee to which his
----------------
Rollover Contributions are credited, together with the gains and losses thereon.
All Rollover Accounts shall be fully vested at all times.
2.53 "Rollover Contribution" shall mean the amount transferred by or for an
---------------------
Employee to this Plan from another tax- qualified retirement plan or from a
"conduit" individual retirement account, in accordance with Section 4.6.
2.54 "Self-Employed Individual" shall mean an individual who has earned
------------------------
income for the taxable year from the trade or business for which the Plan is
established; also, individual who would have had earned income but for the fact
the trade or business had no net profits for the taxable year.
2.55 "Spouse" shall mean the spouse or surviving spouse of a Participant;
------
provided, however, that a former Spouse will be treated as the Spouse or
surviving Spouse to the extent provided under a qualified domestic relations
order, as that term is described in section 414(p) of the Code.
2.56 "Trust Fund" shall mean the fund established under the Trust
----------
Agreement.
2.57 "Trust Agreement" shall mean the trust agreement entered into for the
---------------
purpose of investing and administering the Trust Fund.
2.58 "Trustee" shall mean the Trustee appointed by the Employer under the
-------
Trust Agreement. The Trustee shall be the named fiduciary with respect to
management and control of Plan assets held by it and shall have exclusive and
sole responsibility for the custody and investment thereof in accordance with
the Trust Agreement.
2.59 "Valuation Date" shall mean the last day of each Plan Year and each
--------------
interim date on which the Recordkeeper determines that a valuation of the Trust
Fund shall be made.
2.60 "Years of Service" shall mean the number of years of an employee's
----------------
employment counted with respect to determining
-18-
<PAGE>
an employee's participation and vested status under the Plan, as further
described in Articles III and VII.
-19-
<PAGE>
ARTICLE III
-----------
PARTICIPATION AND SERVICE
-------------------------
3.1 Requirements for Participation
------------------------------
(a) An Employee who meets the requirements for participation specified
in Item 7 of the Joinder Agreement shall become eligible to participate as of
the first Entry Date coincident with or next following the date on which he
meets such requirements. No Employee shall become eligible to participate in
the Plan prior to the Effective Date of the Plan, and no Employee shall become
eligible to participate unless he is an Employee on or after the date as of
which this Plan was first established.
(b) If the Joinder Agreement requires completion of a period of
service to participate, the following rules shall apply:
(1) For the purposes of this Article, a Year of Service shall mean
a 12-consecutive-month period, beginning with the date of an Employee's
commencement of employment, during which the Employee is credited with 1,000 or
more Hours of Service. An Employee who is not credited with 1,000 Hours of
Service during his initial 12 months of employment shall complete a Year of
Service as of the end of any Plan Year in which he is credited with 1,000 or
more Hours of Service. The first Plan Year in which an Employee shall have the
opportunity to meet such requirement shall be the Plan Year which includes the
first anniversary of the Employee's commencement of employment.
(2) For the purposes of this Article, if an Employee is required
to complete a period of service which is less than a Year of Service, an
Employee must be employed with the Employer for such consecutive-month period of
service without regard to the number of Hours of Service the Employee performs
during such period.
(c) A Participant shall cease to actively participate in the Plan when
his employment terminates.
(d) A Participant whose employment is terminated and who is later
reemployed as an Employee shall resume his participation in the Plan as of the
date of his reemployment. Deferrals may resume on the first Entry Date following
his rehire, provided that he is an Eligible Employee on that date.
-20-
<PAGE>
(e) If an Employee meets the requirements for participation specified
in Item 7 of the Joinder Agreement but terminates his employment before becoming
a Participant, he shall become a Participant in the Plan on the Entry Date
immediately following his date of reemployment, if he is reemployed as an
Employee before he has a Break in Service. If such an individual is reemployed
after he has a Break in Service, he shall be treated as a new Employee for
purposes of this Plan.
(f) If an Employee terminates his employment before meeting the
requirements for participation specified in Item 7 of the Joinder Agreement and
then is reemployed, he shall be treated as a new Employee for purposes of this
Plan.
3.2 Data. Each Eligible Employee shall furnish to the Plan Administrator
----
such data as the Plan Administrator may consider necessary for the determination
of the Eligible Employee's rights and benefits under the Plan and shall
otherwise cooperate fully with the Plan Administrator in the administration of
the Plan.
3.3 Related Companies. For purposes of this Article III and Article VII,
-----------------
service with any Related Company shall be treated as if it were employment with
the Employer, and all Employees of the Employer and any Related Company shall be
treated as employed by a single Employer, but no Employee shall become a
Participant on account of being employed by such a Related Company. A
Participant shall cease to be eligible to make and receive Contributions if he
transfers to such a Related Company unless he continues simultaneously to be an
Employee.
-21-
<PAGE>
ARTICLE IV
----------
CONTRIBUTIONS: IN-SERVICE WITHDRAWAL: LOANS
--------------------------------------------
4.1 General.
-------
(a) The Joinder Agreement may authorize four types of Contributions:
(1) Deferrals; (2) Matching Contributions; (3) Basic Contributions; and (4)
Rollover Contributions; provided, however, that Rollover Contributions shall be
made in accordance with Section 4.6.
(b) The Joinder Agreement may require that the Employer's
Contributions (excluding Deferrals) shall not exceed the amount of the
Employer's Net Profits.
4.2 Participant Deferrals.
---------------------
(a) Subject to the Joinder Agreement, Participants may elect to have a
portion of their Compensation deferred and to have these Deferrals contributed
to the Plan by the Employer. Deferrals shall be withheld from a Participant's
paychecks in accordance with the rules established by the Plan Administrator. A
Participant's Deferrals cannot exceed in any one taxable year the amount
determined in Subsection (c), and Deferrals shall cease at such time as the
limit determined in Subsection (c) has been reached.
All Deferrals shall be paid by the Employer to the Trustee as soon as
practicable, but in no event more than 90 days after the date on which such
Deferrals were withheld from the Participant's Compensation; provided, however,
that in no event shall Deferrals for a Plan Year be paid by the Employer to the
Trustee later than 30 days after the end of the Plan Year.
A Participant who does not make an authorization under Subsection (a) when
he first joins the Plan may make one at any later date. The effective date of
such an authorization shall be the Entry Date following the date on which the
Plan Administrator receives the authorization form.
If the contribution rate of Participants who are Highly Compensation
Employees must be reduced as provided in this Section and/or Section 4.3, the
Plan Administrator shall advise each affected Participant of his reduced
contribution rate(s).
(b) The Recordkeeper shall establish on its books a 401(k) Account in
the name of each Participant who elects to
-22-
<PAGE>
make Deferrals. A Participant's 401(k) Account shall be credited with his
Deferrals, credited or debited with gains or losses of the Trust Fund, debited
for the purchase of life insurance, and debited for distributions.
(c) A Participant's maximum allowable Deferral shall not exceed the lowest
of:
(1) the maximum amount permitted under the Joinder Agreement;
(2) the amount which, when added to his Annual Additions for the
Limitation Year (as determined in accordance with Section 5.2 before taking the
Deferral into account) equals the Participant's maximum allowable Annual
Additions for such Limitation Year;
(3) the maximum Deferral allowable under Subsection (d); and
(4) for years beginning on or after January 1, 1987, $7,000, or such
other amount permitted under section 402(g) of the Code for such year.
(d) For Plan Years beginning on or after January 1, 1987, the Actual
Deferral Percentage of Highly Compensated Employees shall not exceed the Actual
Deferral Percentage of Non-Highly Compensated Employees by more than the
applicable amount set forth in the following ADP Test:
If the Non-Highly The Actual Deferral
Compensated Employees Percentage of the Highly
Have an Actual Compensated Employees
Deferral Percentage of: Shall Not Exceed:
---------------------- -----------------
0% 0%
More than 0% but 2.0 times the Non-
less than 2% Highly Compensated Employees'
Actual Deferral Percentage
2% to 8% The Non-Highly Compensated
Employees' Actual Deferral
Percentage plus two percentage
points
More than 8% 1.25 times the Non-Highly
Compensated Employees' Actual
Deferral Percentage
-23-
<PAGE>
(e) If the Actual Deferral Percentage of Highly Compensated Employees
for a Plan Year would exceed the maximum Deferral rate permissible, the Employer
shall, to the extent permitted under applicable Regulations promulgated by the
Secretary of the Treasury, require one or more Highly Compensated Employees who
are Participants in the Plan to adjust their Deferral rates so that the Actual
Deferral Percentage of Highly Compensated Employees will not exceed the maximum
Deferral rate permissible. The Employer shall prescribe adjustment to Deferral
rates in a uniform and nondiscriminating manner. In the alternative, the
Employer may make a Qualified Nonelective Contribution or a Qualified Matching
Contribution for Non-Highly Compensated Employees; provided, however, that such
Contribution shall not cause the Participants' annual Deferrals to exceed the
maximum allowable limits as determined in accordance with Subsection (c)
(f) (1) In the event that the Plan does not satisfy the tests set
forth in Subsection (d) as of the last day of a given Plan Year, the Employer
shall direct the Trustee to distribute to each Highly Compensated Employee his
Excess Contributions, plus any income attributable thereto. For purposes of
this Subsection, the Deferral rate of each Highly Compensated Employee shall be
reduced, beginning with the Deferral rate of the Highly Compensated Employee
with the highest Deferral rate, to the extent required to enable the Plan to
satisfy the ADP Test of Subsection (d), but not below the Deferral rate as
adjusted by this Subsection of the Highly Compensated Employee with the next
highest Deferral rate. This leveling process shall be repeated until the Plan
satisfies the ADP Test.
(2) For the purposes of this Section, in the event that the Plan
does not satisfy the ADP Test set forth in Subsection (d) as of the last day of
a given Plan Year, the income (or loss) allocable to Excess Contributions is the
sum of (A) income or loss allocable to the Participant's 401(k) Account for the
Plan Year multiplied by a fraction, the numerator of which is such Participant's
Excess Contributions for the year and the denominator of which is the
Participant's 401(k) Account balance attributable to Deferrals without regard to
any income or loss occurring during such Plan Year; and (B) ten percent of the
amount determined under (A) multiplied by the number of whole calendar months
between the end of the Plan Year and the date of distribution counting the month
of distribution if distribution occurs after the 15th of such month.
(3) Excess Contributions shall be distributed as soon as is
administratively practicable after receipt of such direction, but in no event
later than the last day of the Plan
-24-
<PAGE>
Year following the Plan Year in which the Excess Contributions were contributed
to the Plan.
(g) Excess Contributions shall be treated as Annual Additions under
the Plan.
(h) The amount of Excess Contributions to be distributed under
Subsection (f) shall be reduced by the amount of Excess Deferrals which exceed
the limits of Subsection (c) (4) that have been distributed to a Participant.
(i) No nondeductible voluntary Employee contributions shall be
permitted.
(j) In the case or a Highly Compensated Employee whose contribution
rate is determined under the family aggregation rules of Code section 414(q)(6),
the family group shall be treated as one Highly Compensated Employee for
purposes of determining the maximum permissible contribution rate under
Subsection (f). After the amount of Excess Contributions for the family group
has been determined, such amount shall be ratably apportioned among the members
of the family group on the basis of the Deferrals (and amounts treated as
Deferrals) of each family member that is combined to determine the combined
Actual Deferral Percentage.
(k) Matching Contributions which are attributable to Excess
Contributions shall be forfeited and shall be used as Matching Contributions.
4.3 Employer Contributions.
----------------------
(a) The amount of the Employer's Contributions to the Plan shall be
determined in accordance with the Joinder Agreement. In the event the Plan is
determined to be a Top-Heavy Plan or a Super Top-Heavy Plan, a minimum
Contribution for Non-Key Employees shall be made in accordance with the
provisions of Article XII. If any Related Company is prevented from making a
Contribution under this Section by reason of having (1) made an election under
Item 15(a) of the Joinder Agreement, and (2) insufficient Net Profits, a
Contribution on behalf of such Related Company may be made by the Employer or by
any other Related Company.
(b) The Recordkeeper shall establish on its books an Employer
Contribution Account in the name of each Participant. Each Participant's
Employer Contribution Account shall be credited with the Basic and/or Matching
Contributions allocated to such Participant, credited or debited with gains or
losses of the Trust Fund, and debited for distributions.
-25-
<PAGE>
(c) (1) For any Plan Year, the Actual Contribution Percentage of
Highly Compensated Employees shall not exceed the Actual Contribution Percentage
of Non-Highly Compensated Employees by more than the applicable amount set forth
in the following ACP Test:
If the Non-Highly
Compensated Employees The Actual Contribution
have an Actual Percentage of
Contribution the Highly Compensated
Percentage of: Employees Shall Not Exceed:
-------------- ---------------------------
0% 0%
More than 0% but 2.0 times the Non-Highly
less than 2% Compensated Employees' Actual
Contribution Percentage
2% to 8% The Non-Highly Compensated
Employees' Actual Contribution
Percentage plus two percentage
points
More than 8% 1.25 times the Non-Highly
Compensated Employees' Actual
Contribution Percentage
(2) If at any time before the end of a Plan Year the Plan
Administrator determines that the Plan does not satisfy the ACP Test, it may
reduce the contribution rates of one or more Participants who are Highly
Compensated Employees so that the ACP Test is satisfied. The Plan Administrator
shall prescribe such reductions in a uniform and nondiscriminatory manner.
(3) In the event that the Plan does not satisfy the ACP Test set
forth in Subsection (c) (1) as of the last day of a Plan Year, Excess Aggregate
Contributions shall be disposed of as follows:
(A) the Actual Contribution Percentage of each Highly
Compensated Employee shall be reduced, beginning with the Actual Contribution
Percentage of the Highly Compensated Employee with the highest Actual
Contribution Percentage, to the extent required to enable the Plan to satisfy
the ACP test of Section 4.3; but not below the Actual Contribution Percentage as
adjusted by this Subsection (c) of the Highly Compensated Employee with the next
highest Actual Contribution Percentage. This leveling process shall be repeated
until the Plan satisfies the ACP Test.
-26-
<PAGE>
(B) (i) In the case of each Highly Compensated Employee who
has no vested interest (determined in accordance with Article VII) in his
Employer Contribution Account as of the last day of such Plan Year, the Highly
Compensated Employee's Excess Aggregate Contributions, plus any income
attributable thereto, shall be forfeited. Such amounts shall be held in the Plan
to pay administrative expenses of the Plan and, to the extent of any such
amounts remaining after payment of the administrative expenses of the Plan, be
used as Matching Contributions.
(ii) In the case of each Highly Compensated Employee who
is partially or fully vested in his Employer Contribution Account as of the last
day of such Plan Year, a percentage of the Highly Compensated Employee's Excess
Aggregate Contributions shall be distributed to the Highly Compensated Employee,
and the remainder, if any, shall be forfeited. The percentage to be distributed
shall be equal to the Highly Compensated Employee's vested percentage,
determined in accordance with the vesting provisions of the Plan. Such
percentage of the Excess Aggregate Contributions, plus any income attributable
thereto, shall be distributed to the Highly Compensated Employee no later than
the last day of the Plan Year following the Plan Year in which the Excess
Aggregate Contributions were contributed to the Plan. The forfeited amount, plus
any income attributable thereto, shall be held in the Plan to pay administrative
expenses of the Plan and, to the extent of any such amounts remaining after
payment of the administrative expenses of the Plan, be used as Matching
Contributions.
(iii) Excess Aggregate Contributions of Participants who
are subject to the family aggregation rules of Code section 414(q)(6) shall be
allocated among the family members in proportion to the Matching Contributions
(and amounts treated as Matching Contributions) of each family member that is
combined to determine the combined Actual Contribution Percentage.
(C) The income (or loss) allocable to Excess Aggregate
Contributions is the sum of: (i) income (or loss) allocable to the portion of
the Participant's Employer Contribution Account attributable to Matching
Contributions for the taxable year multiplied by a fraction, the numerator of
which is the Participant's Excess Aggregate Contributions and the denominator of
which is the portion of such Participant's Employer Contribution Account which
is attributable to Matching Contributions without regard to any income (or loss)
occurring during such taxable year; and (ii) ten percent of the amount
determined under (i) multiplied by the number of whole calendar
-27-
<PAGE>
months between the end of the Participant's taxable year and the date of
distribution, counting the month of distribution if distribution occurs after
the 15th of such month.
(4) Excess Aggregate Contributions shall be treated as Annual
Additions under the Plan.
4.4 Time for Payment for Employer Contributions. Except as otherwise
-------------------------------------------
required in Section 4.2(a), Employer Contributions for a Plan Year with or
within the Employer's taxable year may be made at any time during such taxable
year, but in no event later than the date, including extensions, on which the
Employer's federal income tax return is due with respect to such taxable year,
or such later date as may be permitted under applicable law. If the Employer
makes a Contribution after the end of a Plan Year or taxable year, as the case
may be, it shall notify the Recordkeeper in writing that the Contribution is
made for a specified prior Plan Year or taxable year and the Recordkeeper and
the Trustee shall treat such Contribution as having been made on the last day of
such prior Plan Year or taxable year.
4.5 Additional Limitation on Participant Deferrals and Employer
------------------------------------------------------------
Contributions
- -------------
(a) In addition to the limitations imposed by other provisions of this
Plan, the sum of the Actual Deferral Percentage of the entire group of Eligible
Employees who are Highly Compensated Employees and the Actual Contribution
Percentage of that entire group may not exceed the aggregate limit described in
Subsection (b).
(b) For the purposes of this Section, the aggregate limit for any Plan
Year is the greater of the amounts described in paragraphs (1) and (2) below:
(1) This amount is the sum of:
(A) one hundred twenty-five percent (125%) of the greater of
(i) the Actual Deferral Percentage of the group of Eligible Employees who are
Non-Highly Compensated Employees in the Plan Year or (ii) the Actual
Contribution Percentage of the group of Eligible Employees who are Non-Highly
Compensated Employees in the Plan Year, and
(B) 2.0 plus the lesser of (i) or (ii) above. In no event,
however, shall this amount exceed two hundred percent (200%) of the lesser of
(i) or (ii) above.
(2) This amount is the sum of:
-28-
<PAGE>
(A) one hundred twenty-five percent (125%) of the lesser of
(i) the Actual Deferral Percentage of the group of Eligible Employees who are
Non-Highly Compensated Employees in the Plan Year or (ii) the Actual
Contribution Percentage of the group of Eligible Employees who are Non-Highly
Compensated Employees in the Plan Year, and
(B) 2.0 plus the greater of (i) or (ii) above. In no event,
however, shall this amount exceed two hundred percent (200%) of the greater of
(i) or (ii) above.
(c) For purposes of this Section, the Actual Deferral Percentage and
Actual Contribution Percentage of the group of Eligible Employees who are Highly
Compensated Employees shall be determined after any corrective distributions of
Excess Deferrals, Excess Contributions, and Excess Aggregate Contributions.
(d) If the Plan does not satisfy the aggregate limit test of this
Section as of the last day of a given Plan Year, the Actual Contribution
Percentage of the group of Eligible Employees who are Highly Compensated
Employees shall be reduced by the leveling process described in Section
4.3(c)(2).
4.6 Rollover Contributions
----------------------
(a) To the extent permitted by rules established by the Plan
Administrator and the provisions of this Section, an Employee may transfer or
have transferred directly to the Trust Fund, from any qualified retirement plan
of a former employer, all or a portion of his interest in the distributing plan;
provided, however, that the interest being transferred shall not include
nondeductible contributions made to the distributing plan by the Employee,
unless the transfer to the Trust Fund is directly from the funding agent of the
distributing plan.
(b) To the extent permitted by rules established by the Plan
Administrator and the provisions of this Section, an Employee who has
established an individual retirement account to hold distributions received from
qualified retirement plans of former employers may, with the consent of the Plan
Administrator, transfer all of the assets of such individual retirement account
to the Trust Fund.
(c) The Recordkeeper shall establish on its books a Rollover Account
in the name of each Employee who elects to make a Rollover Contribution. The
distributions transferred by or for an Employee from another qualified
retirement plan or from an individual retirement account shall be credited to a
separate account which shall be part of the Employee's Rollover Account.
-29-
<PAGE>
If the Employee is not otherwise a Participant, he shall be considered a
Participant with respect to his Rollover Account, but for no other Plan purposes
until he otherwise becomes a Participant in the Plan, pursuant to the provisions
of Section 3.1.
(d) The Trustee shall not accept a distribution from any other
qualified retirement plan or from an individual retirement account unless the
following conditions are met:
(1) the distribution being transferred must be transferred
directly from the fiduciary of the distributing plan or from the sponsor of the
individual retirement account, or it must be transferred by the Employee within
60 days after the Employee receives the distribution from such other qualified
retirement plan or individual retirement account; and
(2) distributions from a plan for a self-employed person
shall not be transferred to this Plan, unless the transfer is directly to the
Trust Fund from the fiduciary of the distributing plan.
(e) The Plan Administrator shall maintain the records required by
section 401(a) (9) of the Code and Regulations promulgated by the Secretary of
the Treasury.
4.7 Fund
----
(a) All Contributions to the Trust Fund in accordance with this
Article shall constitute a fund held for the benefit of Participants and their
Spouses and beneficiaries under and in accordance with the Plan and the Trust
Agreement. No part of the principal or income of the Trust Fund shall be used
for, or diverted to, purposes other than for the exclusive benefit of such
Participants and their Spouses and beneficiaries and the payment of
administrative expenses of the Plan and the Trust Fund; provided, however, that
in the case of a Contribution made by the Employer (1) as a mistake of fact, or
(2) for which a tax deduction is disallowed, in whole or in part, by the
Internal Revenue Service, or (3) which is conditioned upon the initial
qualification of the Plan under section 401(a) of the Code, the application for
determination relating to initial qualification is filed by the due date of the
Employer's return for the taxable in which the Plan is adopted, or such later
date as the Secretary of the Treasury may prescribe, and such initial
qualification cannot be obtained, the Employer shall be entitled to a refund of
such Contributions.
(b) Any refund of Contributions described in Subsection (a) must be
made (1) within one year after payment of
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a Contribution made as a mistake of fact, or (2) within one year after
disallowance of the tax deduction, limited to the extent of such disallowance,
or (3) within one year of the date on which the initial qualification or the
Plan is denied by the Internal Revenue Service, as the case may be.
(c) All Contributions are expressly conditioned on their deductibility
for federal income tax purposes.
4.8 Withdrawals
-----------
(a) (1) Until March 31, 1989, with the approval of the Plan
Administrator, and in accordance with rules established by the Plan
Administrator, a Participant may withdraw up to the total value of the vested
portion of his Employer Contribution, his Rollover, and his 401(k) Accounts, but
excluding amounts invested in life insurance and earnings credited to his 401(k)
Account after December 31, 1988. Except as otherwise provided in this Plan,
such withdrawal will not affect the Participant's eligibility to participate in
the Plan or his vesting service under the Plan. The Participant shall submit to
the Plan Administrator, in the manner specified by the Plan Administrator, a
written request for such withdrawal, which request shall state the amount of the
withdrawal and represent that the withdrawal is to be made for one or more of
the following purposes:
(A) purchase of a principal residence for the Participant;
(B) post-secondary educational expenses for the
Participant's children;
(C) major medical expenses of the Participant or his
immediate family which are not reimbursed under any medical insurance plan; or
(D) such other hardship as shall be approved by the Plan
Administrator and which is consistent with applicable law.
(2) A withdrawal shall be permitted under this Section only if the
Plan Administrator finds that it is necessary in light of immediate and heavy
financial needs of the Participant. The amount of the withdrawal may not exceed
the amount required to meet the immediate financial need created by the hardship
and which is not reasonably available from other resources of the Participant.
The Plan Administrator may prohibit Participants who receive hardship
distributions from making Deferrals under Section 4.2 for a stated period of
time;
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provided, however, that such suspension period shall not exceed one year from
the date of the withdrawal on account of hardship.
(b) (1) Commencing on April 1, 1989, with the approval of the Plan
Administrator, and in accordance with rules established by the Plan
Administrator, a Participant may withdraw up to the total value of the vested
portion of his Employer Contribution, his Rollover, and his 401(k) Accounts, but
excluding amounts invested in life insurance and earnings credited to his 401(k)
Account after December 31, 1988. Except as otherwise provided in this Plan,
such withdrawal will not affect the Participant's eligibility to participate in
the Plan or his vesting service under the Plan.
(2) The Employer shall elect, in Item 27 the Joinder Agreement,
the manner in which the existence of a hardship shall be determined.
(3) The Plan Administrator shall approve a hardship withdrawal
only if the Participant, at the Participant's election, meets the requirements
of either Subsection (A) or (B) as follows.
(A) The Participant must deliver with his withdrawal
application a signed statement that he has attempted to meet and has failed to
meet his immediate and heavy financial need by all of the following means:
(i) ceasing to make Deferrals to this Plan;
(ii) receiving all distributions (other than hardship
distributions) and all non-taxable loans available to him from all plans
maintained by the Employer and all Related Companies;
(iii) borrowing from commercial sources on reasonable
commercial terms;
(iv) reimbursement or compensation by insurance or
otherwise;
(v) reasonable liquidation of his assets (including the
assets of his spouse and minor children that are reasonably available to him),
to the extent that such liquidation would not itself cause an immediate and
heavy financial need.
(B) The Participant must:
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(i) obtain all distributions (other than hardship
distributions) and all non-taxable loans available to him under all plans
maintained by the Employer and all Related Companies;
(ii) suspend his Deferrals under this Plan and his
elective contributions and employee contributions under all other plans
maintained by the Employer and all Related Companies (except contributions to a
health or welfare plan and mandatory contributions to a defined benefit pension
plan) for a period of 12 months, beginning with the first payroll period that
begins after the date on which the withdrawn amount is paid to the Participant;
(iii) limit the maximum amount of Deferrals which he
may make in his taxable year following the year in which the hardship withdrawal
is taken to an amount equal to that described in Subsection 4.2(c) (4) during
the Participant's taxable year following the year of his hardship distribution
less the amount of Deferrals the Participant made during the taxable year in
which he received the hardship distribution.
If a Participant must suspend his Deferrals under this Plan for a period of
12 months as described in Subsection (B) (ii), such Participant shall again be
eligible to make Deferrals to the Plan as of the first Entry Date which next
follows the end of the 12-month suspension of Deferrals.
(c) A Participant who has attained age 59-1/2 may withdraw amounts
from his Accounts in the absence of a hardship in accordance with rules
established by the Plan Administrator.
(d) With the approval of the Plan Administrator, a Participant may
withdraw the total value of his Accounts upon:
(1) termination of the Plan without establishment of another
defined contribution plan, other than an employee stock ownership plan (as
defined in section 4975(e) or section 409 of the Code) or a simplified employee
pension plan as defined in section 408(k) of the Code;
(2) the sale of the Employer of substantially all of its assets
used in a trade or business, if the Participant making the withdrawal begins
employment with the corporation acquiring such assets; or
(3) the date of the sale by the Employer of its interest in a
subsidiary, if the withdrawal is made by a Participant who continues employment
with such subsidiary.
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(e) Withdrawals under Subsections (a), (b), and (c) may only be made
from a Participant's vested interest in his Accounts and shall not include
amounts attributable to the cash value of life insurance investments.
(f) The amount of any withdrawal shall be determined on the basis of
the value of the Participant's Accounts as of the Valuation Date coincident with
or immediately preceding the date of such withdrawal.
(g) Distribution shall be made out of the Participant's Accounts
invested in the fixed income investment fund, and then out of the balance of his
Accounts invested in other investment funds, as directed by the Plan
Administrator.
(h) A Participant may not repay any portion of his Accounts withdrawn
pursuant to the provisions of this Section.
(i) Each Participant who makes a written request for a withdrawal must
execute and deliver to the Plan Administrator written consent acknowledging that
his Spouse, if any, agrees to the withdrawal and acknowledging that such
withdrawal will reduce the amount of any benefits payable under the Plan. Such
consent must be signed by his Spouse and witnessed by a Plan representative or a
notary public.
4.9 Loans to Participants
---------------------
(a) (1) Until October 17, 1989, a Participant who is an Employee may
receive a loan from the Plan in accordance with the provisions of this
Subsection (a). A pooled loan account may be established in accordance with
Section 10.8. No loans shall be available to an Owner-Employee or shareholder
in an S Corporation.
(2) A Participant who wishes to borrow money from the Plan shall
file a written loan request with the Plan Administrator. The Plan Administrator,
in its sole discretion, shall approve or deny the loan and the Plan
Administrator shall exercise its discretion in a uniform and non-discriminatory
manner. No loan shall be granted unless the following requirements are
satisfied:
(A) A Participant must have participated in the Plan for at
least 12-consecutive months prior to making the request.
(B) A Participant can not have any other loan outstanding at
the time of such request.
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(C) The loan must be in an amount of not less than $1,000
and loans in excess of $1,000 shall be made in multiples of $250.
(D) Loans shall only be available from the Participant's
Accounts invested in the fixed income investment fund.
(E) The maximum amount that a Participant may borrow, when
aggregated with all outstanding loans of the Participant from the Plan and all
other plans qualified under section 401(a) of the Code which are sponsored by
the Employer or a Related Company, shall not exceed the lesser of:
(i) the amount set forth in the following table:
Vested Balance in
Participant's Accounts: Maximum Loan Limit:
---------------------- -------------------
$0 to $11,111 90% of vested Account balances
$11,112 to $20,000 $10,000
$20,001 to $100,000 50% of vested Account balances
$100,001 or more $50,000
(ii) $50,000 reduced by the excess, if any, of (I) the
highest outstanding loan balance during the 12-consecutive month period ending
on the day before the date on which a new loan is made, over (II) the
----
outstanding loan balance on the date of the new loan.
(F) The loan shall bear interest at a rate equal to the
interest rate in effect in the fixed income investment fund at the time such
loan is made; provided, however, that such interest rate shall not exceed the
maximum interest rate permitted by law.
(G) The loan shall be adequately secured as provided in
Subsection (a) (4)
(H) All loans shall be repaid in substantially equal monthly
or quarterly installments over the
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term of the loan through payroll deductions or in such other manner as the Plan
Administrator may determine. A Participant may repay the outstanding balance of
any loan in one lump sum at any time by notifying the Plan Administrator of his
intent to do so and by forwarding to the Plan Administrator payment in full of
the then outstanding balance, plus interest accrued through the date of payment.
(I) The loan shall be documented by such notes, evidences of
indebtedness, and other instruments executed by the Participant which the Plan
Administrator, in its discretion, requires. Each such note shall specify the
period of repayment, which shall be 12, 24, 36, 48, 54 or 60 months from the
date on which the loan is distributed; provided, however, that if the purpose of
the loan is to acquire any dwelling unit which is used within a reasonable
period of time as the principle residence of the Participant, the period of
repayment may be as long as, but shall not exceed, 180 months.
(3) Each Participant who makes a written request for a loan must
execute and deliver to the Plan Administrator, within the 90-day period ending
on the date the loan is made, a written consent acknowledging that the
Participant and his Spouse, if any, are consenting to the loan and agreeing that
a default on the loan may reduce the amount of any benefits payable to the
Participant and his Spouse, if any, under the Plan. Such consent must be
witnessed by a Plan representative or a notary public.
(4) Each loan from the Plan shall be secured by the borrowing
Participant's vested interest in his Accounts in the Plan, which security shall
give the Trustee a first lien in such interest to the extent of the entire
outstanding amount of such loan, unpaid interest thereon, and all costs of
collection. The Plan Administrator may require the Participant to provide
additional collateral as security for the loan. If the Participant's employment
terminates, the Plan terminates, the Participant dies, or the Participant files
for relief under the United States Bankruptcy Code, before the Participant has
fully repaid the loan, any balance due on the loan shall immediately become due
and payable and shall be repaid out of the Participant's vested interest in his
Accounts, and such Accounts shall be reduced accordingly. A Participant's
401(k) Account may be used as security for a loan, but, notwithstanding anything
in this Plan to the contrary, in the event of default, no recourse shall be
available against such a 401(k) Account until the 401(k) Account is otherwise
distributable.
(5) In addition to the limitations contained in Subsection (a)
(2), the Plan Administrator may further limit
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the amount of a loan made to any Participant in order to maintain a reserve
chargeable against the Participant's vested interest in his Accounts for income
taxes which may have to be withheld by the Trustee if the loan becomes a deemed
distribution to the Participant. Any such taxes required to be withheld by the
Trustee, whether or not such a reserve has been created, shall be charged to and
shall reduce the Participant's vested interest in his Accounts to the extent
possible, and any excess taxes shall be treated as an administrative expense of
the Plan which shall be reimbursed by the Participant.
(6) Loans may be processed at any time during the Plan Year, but
not less frequently than the last day of each quarter of the Plan Year.
(7) Loans shall be earmarked investments of the Participant's
Accounts pursuant to the provisions of Section 6.3.
(b) (1) Effective October 18, 1989, the Trustee is authorized to
establish a program under which assets of the Plan may be loaned to certain
Participants and beneficiaries of deceased Participants. This loan program
shall be administered by the Plan Administrator in accordance with the
provisions of this Section and in accordance with any related documents
describing procedures to be followed in the administration of the loan program
which have been made a part of the Plan.
(2) The Trustee shall not be liable for any act or omission of
the Plan Administrator in its administration of the loan program except to the
extent set forth in section 405 of ERISA.
(3) Vested Participants and beneficiaries of deceased
participants who are parties in interest," as that term is defined in section
3(14) of ERISA, shall be eligible to apply for loans from the Plan. However, no
loans shall be available to either (A) a more than five percent (5%) shareholder
in a Subchapter S corporation or (B) an Owner-Employee or a family member of an
Owner-Employee. An individual who is eligible to apply for a loan from the Plan
shall hereinafter be called a "Borrower."
(4) A pooled loan account may be established in accordance with
Section 10.8.
(5) A Borrower who wishes to borrow money from the Plan shall
file a written loan request with the Plan Administrator which request shall
specify:
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(A) the amount of the loan being requested, which shall not
be less than the amount specified in Subsection (b) (7) (B);
(B) the intended use of the loan proceeds;
(C) the intended security for the loan;
and
(D) the intended repayment period, which shall be a period
authorized under Subsection (b) (7) (I).
(6) The Plan Administrator, in its sole discretion, shall approve or
deny the loan, and the Plan Administrator shall exercise its discretion in a
uniform and non-discriminatory manner taking into consideration only those
factors which would be considered in a normal commercial setting by an entity in
the business of making similar types of loans. If a request for a loan is
denied, the Borrower may appeal the denial in the manner described in Section
10.6.
(7) In ruling on a loan application, the Plan Administrator shall not
consider the Borrower's race, color, religion, sex, age, or national origin, but
may consider his creditworthiness, collateral, and financial need. No loan
shall be granted unless the following requirements are satisfied:
(A) A Borrower can not have any other loan outstanding at
the time of such request.
(B) The loan must be in an amount of not less than $1,000
and loans in excess of $1,000 shall be made in multiples of $250.
(C) Loans shall only be available from the Borrower's
Accounts invested in the fixed income investment fund.
(D) The value of a Borrower's outstanding loans under this
Plan and all other plans qualified under section 401(a) of the Code which are
sponsored by the Employer and Related Companies shall not exceed the lesser of:
(i) $50,000 reduced by the excess of (I) the highest
outstanding loan balance during the 12 months before a new loan is made over
(II) the outstanding loan balance on the date of the new loan, or
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(ii) fifty percent (50%) of the value of the Borrower's vested
interest in the Plan, determined as of the Valuation Date on which the loan
proceeds are paid to the Borrower.
(E) If a request for a loan is approved, the loan proceeds shall be
paid to the Borrower as of the Valuation Date coincident with or immediately
following the date on which the loan is approved. Any fees or charges
associated with the processing of the loan shall be paid by the Borrower.
(F) The rate of interest to be charged on a given loan shall be
determined when that loan is approved by the Plan Administrator, and shall be a
rate selected by the Plan Administrator which the Plan Administrator deems to be
commensurate with the interest rates being charged at that time by financial
institutions which are in the business of making similar types of loans.
(G) The loan shall be adequately secured as provided in
Subsection (b) (9)
(H) All loans shall be repaid in substantially equal monthly or
quarterly installments over the term of the loan through payroll deductions or
in such other manner as the Plan Administrator may determine. A Participant may
repay without penalty the outstanding balance of any loan in one lump sum at any
time by notifying the Plan Administrator of his intent to do so and by
forwarding to the Plan Administrator payment in full of the then outstanding
balance, plus interest accrued through the date of payment.
(I) The loan shall be documented by such notes, evidences of
indebtedness, and other instruments executed by the Participant which the Plan
Administrator, in its discretion, requires. Each such note shall specify the
period of repayment, which shall be 12, 24, 36, 48, 54 or 60 months from the
date on which the loan is distributed; provided, however, that if the purpose of
the loan is to acquire any dwelling unit which is used within a reasonable
period of time as the principle residence of the Participant, the period of
repayment may be as long as, but shall not exceed, 180 months.
(8) Each Participant who makes a written request for a loan must
execute and deliver to the Plan Administrator, within the 90-day period ending
on the date the loan is made, a written consent acknowledging that the
Participant and his Spouse, if any, are consenting to the loan and agreeing that
a default on the loan may reduce the amount of
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any benefits payable to the Participant and his Spouse, if any, under the Plane
Such consent must be witnessed by a Plan representative or a notary public.
(9) Security for a loan granted pursuant to this Section must be at
least equal to the proceeds of the loan. Not more than fifty percent (50%) of
the Borrower's vested interest in the Plan, valued as of the Valuation Date on
which the loan proceeds are paid to the Borrower, may be used as security for a
loan granted pursuant to this Section, which security shall give the Trustee a
first lien in such interest to the extent of the entire outstanding amount of
such loan, unpaid interest thereon, and all costs of collection. To the extent
that the Plan Administrator determines that additional security is required, the
additional security shall consist of such collateral as the Plan Administrator
and the Borrower mutually agree upon. The value and liquidity of any additional
security shall be such that it may reasonably be anticipated that, in the event
of default, the Plan will not lose principal and interest. If the Participant's
employment terminates, the Plan terminates the Participant dies, or the
Participant files for relief under the United States Bankruptcy Code, before the
Participant has fully repaid the loan, any balance due on the loan shall
immediately become due and payable and shall be repaid out of the Participant's
vested interest in his Accounts, and such Accounts shall be reduced accordingly.
A Participant's 401(k) Account may be used as security for a loan, but,
notwithstanding anything in this Plan to the contrary, in the event of default,
no recourse shall be available against such a 401(k) Account until the 401(k)
Account is otherwise distributable.
(10) In addition to the limitations contained in Subsection (b) (7),
the Plan Administrator may further limit the amount of a loan made to any
Participant in order to maintain a reserve chargeable against the Participant's
vested interest in his Accounts for income taxes which may have to be withheld
by the Trustee if the loan becomes a deemed distribution to the Participant.
Any such taxes required to be withheld by the Trustee, whether or not such a
reserve has been created, shall be charged to and shall reduce the Participant's
vested interest in his Accounts to the extent possible, and any excess taxes
shall be treated as an administrative expense of the Plan which shall be
reimbursed by the Participant.
(11) Loans may be processed at any time during the Plan Year, but not
less frequently than the last day of each quarter of the Plan Year.
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(12) Loans shall be earmarked investments of the Participant's
Accounts pursuant to the provisions of Section 6.3.
(13) In addition to the limitations contained in this Subsection (b),
the Plan Administrator may further limit the amount of a loan made to any
Participant in order to maintain a reserve chargeable against the Participant's
vested interest in his Accounts for income taxes which may have to be withheld
by the Trustee if the loan becomes a deemed distribution to the Participant.
Any such taxes required to be withheld by the Trustee, whether or not such a
reserve has been created, shall be charged to and shall reduce the Participant's
vested interest in his Accounts and shall reduce the Participant's vested
interest in his Accounts to the extent Possible, and any excess taxes shall be
treated as an administrative expense of the Plan which shall be reimbursed by
the Participant.
(14) When the Plan Administrator forecloses on a Borrower's security,
it shall first reduce that Borrower's vested interest in the Plan by the lesser
of (A) the full amount of the unpaid balance of the loan, plus accrued interest
(determined as of the date of foreclosure), or (B) the entire portion of the
Borrower's vested interest in the Plan which is security for the loan.
(15) The Plan Administrator shall not use Matching or Basic
Contributions which were allocated to the Borrower's Account(s) less than 24
months prior to the date of foreclosure to reduce that Borrower's indebtedness
unless, as of the date of foreclosure, the Borrower has retired or terminated
his employment with the Company.
(16) When the full amount of the unpaid balance of the loan, plus
accrued interest, has been restored to the Plan, any portion of the Borrower's
security which remains shall be released and shall no longer be security for any
loan.
(17) Foreclosing on a Borrower's security shall not operate as a
waiver of the rights of the Plan Administrator, the Company, or the Plan to
pursue additional means of preventing loss to the Plan in the event of default
on a loan.
(18) If a Borrower defaults on a loan and the Plan Administrator is
entitled to foreclose on the Borrower's security, the unpaid balance of the
loan, plus accrued interest, shall be deemed to be immediately distributed to
the Borrower.
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ARTICLE V
---------
ALLOCATION OF EMPLOYER CONTRIBUTIONS AND FORFEITURES
----------------------------------------------------
5.1 Allocation. Participants for a Plan Year shall share in both the
----------
Employer's Basic and/or Matching Contributions and forfeitures for the Plan Year
in the amounts and in accordance with the methods specified in the Joinder
Agreement. Deferrals shall be allocated in accordance with Section 4.2(b).
5.2 Maximum Allocation. The provisions of this Section shall be construed
------------------
so as to comply with section 415 of the Code.
(a) Notwithstanding anything in this Plan to the contrary, a
Participant's Annual Additions shall not exceed the lesser of twenty-five
percent (25%) of such Participant's Limitation Compensation for the Limitation
Year or $30,000, or such larger amount equal to 1/4 of the defined benefit
dollar limitation as adjusted for cost-of-living increases pursuant to Code
sections 415(c)(l), 4l5(d)(l) and 4l5(d)(3).
For purposes of the $30,000 limitation in this Subsection, there shall be
treated as Employer Contributions with respect to a Participant's Accounts (1)
any amount attributable to post-retirement medical benefits and allocated for
Limitation Years beginning after December 31, 1985 to an account established for
such Participant pursuant to section 419A(d) (1) of the Code in a welfare
benefit fund, as defined in section 419(e) of the Code, by the Employer or a
Related Company and (2) any amounts allocated for Limitation Years beginning
after March 31, 1984 to such Participant's individual medical benefit account
established pursuant to section 415(1) (2) of the Code under a defined pension
or annuity plan sponsored by the Employer or a Related Company.
(b) If the amount otherwise allocable to the Accounts of a Participant
would exceed the amount described in Subsection (a) as a result of a reasonable
error in estimating the Participant's Limitation Compensation or the allocation
of forfeitures, if any, the Recordkeeper, at the direction of the Plan
Administrator, shall adjust the Participant's Accounts in accordance with the
provisions of Subsection (c).
(c) The excess amount determined under Subsection (b) that is
attributable to Basic and/or Matching Contributions, shall be held in a suspense
account by the Trustee until the following Plan Year (or succeeding Plan Years),
at which time it shall be used to reduce the Employer's Basic and/or Matching
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Contributions to the Plan in such Plan Year. Amounts held in the suspense
account shall not be permitted to share in investment gains and losses of the
Trust Fund. Amounts attributable to the Participant's Deferrals shall be
treated as after-tax contributions and shall be returned to the Participant with
interest.
(d) If in any Limitation Year a Participant in this Plan is also a
participant in one or more defined benefit plans maintained by the Employer or
any Related Company, the annual benefit referred to in Subsection (d) (1) shall
be reduced, if necessary, so that the sum of the fractions described in
Subsections (d) (1) and (d) (2) does not exceed 1.0 for such Limitation Year.
(1) Defined Benefit Fraction - a fraction, the numerator of
------------------------
which is the Participant's protected annual benefit under all defined benefit
pension plans sponsored by the Employer or a Related Company in which he has
participated, determined as of the close of the limitation years of such plans,
and the denominator of which is the lesser of:
(A) 1.25 x $90,000 (as adjusted to reflect cost-of-living
increases) or
(B) one hundred forty percent (140%) of the Participant's
highest average Limitation Compensation for the three consecutive calendar years
which result in the highest such average. For the purpose of this Subsection,
"projected annual benefit" shall mean the annual benefit to which a Participant
would be entitled under the terms of a defined benefit plan if he had continued
employment until his normal retirement date under such plan and if his
Limitation Compensation for the purpose of such plan had continued at the same
rate. For these purposes, it may be assumed that a Participant is a full-time
Employee during such period if he is currently a full-time Employee.
(2) Defined Contribution Fraction - a fraction, the numerator of which
-----------------------------
is the sum of the annual additions to the Participant's accounts under all
defined contribution plans sponsored by the Employer or any Related Company for
all limitation year, and the denominator of which is the sum of the lesser of
the following amounts, determined for each of such limitation years and for each
prior limitation year of service with the Employer or Related Company: (A) 1.25
x $30,000 or (B) thirty-five percent (35%) of
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the Participant's Limitation Compensation for such limitation year.
(e) (1) The dollar limitations described in Subsections (a) and (d)
shall be adjusted in accordance with Regulations promulgated by the Secretary of
the Treasury prescribing the method and amount of such adjustments.
(2) The dollar limitations described in Subsections (a) and (d)
shall not reduce the Annual Additions to the Accounts of any Participant under
the Plan prior to the Effective Date using the applicable maximum dollar
limitations then in effect under section 415 of the Code.
(f) (l) If the Plan was in existence on July 1, 1982, the Plan
Administrator may elect to apply Subsection (d) (2) with respect to any Plan
Year ending after December 31, 1982 by calculating the denominator under
Subsection (d) (2) using an alternate amount for all Plan Years ending before
January 1, 1983. The alternate amount shall be equal to the amount determined
for the denominator under Subsection (d) (2) as in effect for the Plan Year
ending in 1982 multiplied by the "transition fraction."
(2) The "transition fraction" shall be a fraction determined as
follows:
(A) the numerator shall consist of the lesser of: (i)
$51,875 or (ii) thirty-five percent (35%) of the Participant's Limitation
Compensation for the Plan Year ending in 1981; and
(B) the denominator shall consist of the lesser of: (i)
$41,500 or (ii) twenty-five percent (25%) of the Participant's Limitation
Compensation for the Plan Year ending in 1981.
(g) The dollar limitations described in this Section shall not reduce
any benefit which was accrued by a Participant under the Plan prior to the first
day of its Limitation Year beginning in 1987, using the applicable maximum
dollar limitations then in effect; provided, however, that this Subsection (g)
shall not apply to any Participant unless he was a Participant in the Plan on
the first day of its Limitation Year beginning in 1987. For the purpose of this
Subsection (g), no change in the Plan after May 5, 1986 shall be taken into
account.
(h) (1) The Plan Administrator may elect to apply Subsection (d) (2)
with respect to any Limitation Year ending
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after December 31, 1986 by adjusting the numerator under Subsection (d) (2) by
using an alternate amount for all Limitation Years beginning on or before
December 31, 1986. The adjustment is to subtract permanently from the numerator
or the defined contribution fraction an amount equal to the product of (A) times
(B) where:
(A) Is the sum of the defined contribution fraction and
the defined benefit fraction as of the "determination date", minus 1.0, and
(B) is the denominator of the defined contribution
fraction as of the "determination date."
(2) For purposes of (1) above, the "determination date'" is the last
day of the Plan Year beginning in 1986. In addition, the defined benefit
fraction and the defined contribution fraction are computed in accordance with
the limitations set forth in Subsections (a) and (b), taking into account the
modifications of Subsection (c).
(3) The adjustment described in this Subsection may be made only if
(A) any accruals in excess of the limits set forth in Subsections (a) and (d)
(as modified by Subsection (c)) are reduced and (B) both the defined
contribution plan in question and this Plan were in existence on May 6, 1986.
Any changes in the terms and conditions of the Plan made after May 5, 1986 may
not be recognized in making this adjustment to the defined contribution
fraction.
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ARTICLE VI
----------
ALLOCATION OF TRUST FUND EARNINGS
---------------------------------
6.1 Frequency and Method. As of each Valuation Date, the recordkeeper
--------------------
shall allocate the gains and losses of the Trust Fund (and any suspense
accounts) since the prior Valuation Date among the Participants' Accounts by
adjusting the stated value of each Account to reflect the actual value of such
Account as of the current Valuation Date, in accordance with the provisions of
this Article and Section 10.8(c).
6.2 Valuation of Trust Fund.
-----------------------
(a) As of each Valuation Date, the Recordkeeper shall value the entire
Trust Fund consisting of its separate investment funds. Earmarked investments
described in this Article shall not be taken into account in valuing the Trust
Fund.
(b) The Recordkeeper shall determine the fair market-value of Trust
Fund assets in compliance with this Section. The fair market value of each
investment fund shall be the value as established and reported by the manager of
such investment fund.
6.3 Special Rules for Earmarked Investments As of each Valuation Date,
---------------------------------------
the Recordkeeper shall determine the fair market value of earmarked investments.
All gains and losses on investments earmarked to a Participant's Account shall
be credited or debited to that Account. Investments earmarked to a
Participant's Account shall be:
(a) loans to the Participant; and
(b) individual life insurance policies purchased on behalf of the
Participant.
6.4 Account Values. The value of an Account for all purposes of this Plan
--------------
shall be its value as of the prior Valuation Date, adjusted on a pro rata basis
on the value of the Account for gains or losses of the Trust Fund, for the
period between the prior Valuation Date and the business day immediately
preceding the date in question. Earmarked investments credited or debited to an
Account under Section 6.3 shall be valued at their fair market value, which
shall be the outstanding balance of principal and interest of each loan and the
cash surrender
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<PAGE>
value of any policies of insurance owned in such Account on the business day
immediately preceding the date in question.
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<PAGE>
ARTICLE VII
-----------
VESTING: BENEFITS ON TERMINATION OF EMPLOYMENT
-----------------------------------------------
7.1 Vesting of Accounts. A Participant shall be fully vested in his
-------------------
401(k), Rollover, Qualified Matching Contribution, and Qualified Nonelective
Contribution Accounts at all times. Except as otherwise provided in this Plan, a
Participant's Employer Contribution Account shall be vested as specified in the
Joinder Agreement.
7.2 Additional Vesting of Accounts. A Participant's Employer Contribution
------------------------------
Account which is not otherwise fully vested shall become fully vested upon the
earliest to occur of:
(a) the date on which the Participant attains his Normal Retirement
Date while an Employee of the Employer or a Related Company,
(b) the date of the Participants death while an Employee of the
Employer or a Related Company, and
(c) the date on which the Participant suffers a Disability while an
Employee of the Employer or a Related Company.
7.3 Service for Vesting.
-------------------
(a) For the purposes of determining a Participant's vesting service,
an employee shall earn a Year of Service for each Plan Year (including years
before the Effective Date) during which he is credited with 1,000 or more Hours
of Service.
(b) Notwithstanding any provisions of this Plan to the contrary, an
employee shall not receive credit for purposes of this Article for service in
any Plan Year ending prior to the employees 18th birthday.
(c) Notwithstanding any provisions of this Plan to the contrary, an
employee shall not receive credit for purposes of this Article for service prior
to the date on which ERISA and the Code, as amended by ERISA, became applicable
to the Plan, if such service would have been disregarded under the rules of the
Plan with regard to Breaks in Service as in effect on the applicable date.
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<PAGE>
7.4 Treatment of Terminated Vested Participant.
------------------------------------------
(a) In the case of a Participant whose employment with the Employer
and all Related Companies has terminated, other than by Retirement, death, or
Disability, and who has a vested interest in his Accounts which is less than or
equal to $3,500, the vested benefit of such Participant, calculated in
accordance with Article VI, shall be paid to or applied for the benefit of such
Participant in a single sum as soon as is administratively practicable after the
Valuation Date immediately following the date on which such Participant's
termination of employment occurs.
(b) In the case of a Participant whose employment with the Employer
and all Related Companies has terminated, other than by Retirement, death, or
Disability, and who has a vested interest in his Accounts which exceeds $3,500,
or at the time of any prior distribution has exceeded $3,500, the vested benefit
of such Participant, calculated in accordance with Article VI, shall be paid to
or applied for the benefit of such Participant at the earliest date provided
under Article VIII as if the Participant had continued employment. Such benefit
shall be paid in a form provided under Article VIII. The Trustee shall,
however, if directed by the Plan Administrator, make a distribution to the
Participant, in a form determined under Section 8.2, earlier than the date
described above if the Participant and his Spouse, if any, requests the earlier
distribution in writing. Such request must acknowledge its own effect and must
be witnessed by a Plan representative or a notary public. The distribution
shall be made or shall commence as soon as administratively practicable after
the Valuation Date immediately following the Participant's election of an early
distribution.
7.5 Forfeitures. If a Participant terminates his employment with the
-----------
Employer and he is not reemployed by the Employer before the end of the Plan
Year in which occurs the earlier of (a) the date on which he receives a
distribution under this Article or (b) the date on which he incurs his fifth
consecutive one-year Break in Service, his Employer Contribution Account shall
be closed as of the Valuation Date on or immediately succeeding such date, and
the non-vested amount held therein shall be forfeited and shall be applied in
accordance with Item 20 of the Joinder Agreement.
7.6 Restoration of Forfeited Amounts Upon Reemployment. If a terminated
--------------------------------------------------
vested Participant has received a distribution pursuant to the provisions of
this Article VII and is reemployed by the Employer before the date on which he
incurs five consecutive one-year Breaks in Service, the amount forfeited, if
any, from his previous Employer Contribution
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<PAGE>
Account will be restored to his new Employer Contribution Account only if he
repays the full amount of the distribution which he received on his prior
termination of employment. Such amount, which shall be credited to his new
Employer Contribution Account, must be repaid prior to the earlier of (a) the
end of the Participant's fifth consecutive one-year Break in Service, or (b) the
fifth anniversary of his reemployment date with the Employer. No portion of a
repayment shall be subject to the ADP Test or ACP Test.
7.7 Restoration of Service on Reemployment. A Participant who terminates
--------------------------------------
his employment with the Employer and who incurs a Break in Service shall have
his pre-break and post- break service aggregated hereunder in the event he is
subsequently reemployed by the Employer if:
(a) (1) he has a vested interest and (2) he incurs a Break in
Service; or
(b) (1) he does not have a vested interest, (2) he first incurs a
Break in Service after the first day of the Plan Year beginning in 1985, and (3)
the number of his consecutive Breaks in Service does not exceed the greater of
(A) the number of Years of Service he had accrued prior to his Break in Service,
or (B) five; or
(c) (1) he does not have a vested interest, (2) he first incurs a
Break in Service prior to the first day of the Plan Year beginning in 1985, (3)
as of the last day of the Plan Year beginning in 1984, the number of his
consecutive one-year Breaks in Service is less than the number of Years of
Service he had accrued prior to his Break in Service, (4) he is reemployed on or
after the first day of the Plan Year beginning in 1985, and (5) as of the date
of his reemployment, the number of his consecutive Breaks in Service is less
than the greater of (A) the number of Years of Service he had accrued prior to
his Breaks in Service, or (B) five; or
(d) (1) he does not have a vested interest, (2) he first incurs a
Break in Service prior to the first day of the Plan Year beginning in 1985, (3)
he is reemployed before the first day of the Plan Year beginning in 1985, and
(4) as of the date of his reemployment, the number of his consecutive Breaks in
Service is less than the number of Years of Service he had accrued prior to his
Break in Service.
In the case of a Participant who terminates his employment with the
Employer and who is rehired by the Employer prior to incurring a Break in
Service, such Participant shall
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<PAGE>
have all of his service aggregated hereunder upon his reemployment with the
Employer.
In any other case, a reemployed Participant shall receive no credit for his
pre-break Service.
7.8 Effect of Post-Break Years of Service For Plan Years beginning after
-------------------------------------
December 31, 1984,
(a) if the number of a Participant's consecutive Breaks in Service is
equal to or greater than five, the Participant's post-break Years of Service
shall not increase the vesting percentage, if any, in that part of his Employer
Contribution Account accrued prior to his Break in Service; or
(b) if the number of a Participant's consecutive one-year Breaks in
Service is less than five, the Participant's post-break Years of Service shall
increase the vesting percentage in that part of his Employer Contribution
Account accrued prior to his Break in Service, including amounts restored on the
repayment of prior distributions under Section 7.6.
For Plan Years beginning before January 1, 1985, the Participant's post-
break Years of Service shall not increase the vesting percentage, if any, in
that part of his Employer Contribution Account accrued prior to his one-year
Break in Service.
7.9 Amendments to Vesting Schedule. If the vesting schedule of this Plan
------------------------------
is amended or if the Plan is amended in any way which directly or indirectly
affects the computation of a Participant's vested percentage, the rate of
vesting for any Participant shall not be diminished because of such amendment.
In addition, if the vesting schedule of this Plan is amended, each Participant
who is credited with not less than three Years of Service as described in
Section 7.3 of the Plan shall be permitted to elect, within a reasonable period
after the adoption of such amended vesting schedule, to have his nonforfeitable
percentage computed under the Plan without regard to such amendment. The period
during which the election may be made shall commence with the date the amended
vesting schedule is adopted and shall end on the later of:
(a) 60 day. after the amended vesting schedule is adopted;
(b) 60 days after the amended vesting schedule becomes effective; or
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<PAGE>
(c) 60 days after the Participant is given written notice of the
amended vesting schedule by the Employer.
7.10 Participation after Attaining Normal Retirement. A Participant shall
-----------------------------------------------
continue to participate in the Plan on or after attaining his Normal Retirement
Date.
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<PAGE>
ARTICLE VIII
------------
BENEFITS ON RETIREMENT OR DISABILITY
------------------------------------
8.1 Distribution of Accounts.
------------------------
A Participant's Accounts shall be distributed to him in the event of
his Retirement or in the event of his Disability in the manner, in the amount,
and at the time provided in this Article. If the Participant's Accounts are
invested in life insurance, the special distribution rules and option in Section
10.9 shall also apply.
8.2 Modes of Distribution.
---------------------
(a) A Participant may elect one of the following forms of distribution
of Retirement or Disability benefits hereunder:
(1) a single sum payment;
(2) a single life annuity with substantially equal monthly
installments payable to the Participant for his lifetime;
(3) a single life or joint and survivor annuity with a minimum
guaranteed number of monthly benefits payable to the Participant and his
designated beneficiary; or
(4) substantially equal, annual installments payable over a
period not to exceed the life expectancy or joint life expectancies of the
Participant or of the Participant and his designated beneficiary, adjusted
periodically for gains and losses.
(b) If an election is not made under Subsection (a) and spousal
consent is not received under Subsection (e), a married Participant shall
receive his Accounts in the form of a Qualified Joint and Survivor Annuity, and
an unmarried Participant shall receive his Accounts in the form of a single life
annuity.
(c) If distribution at any time under this Section is made in a form
other than a single sum, it must be distributed in installments not extending
beyond the life or life expectancy of the Participant or the joint lives or
joint life expectancies of the Participant and his designated beneficiary, as
determined in accordance with the provisions of section
-53-
<PAGE>
401(a)(9) of the Code and the Regulation promulgated by the Secretary of the
Treasury, including the incidental benefit requirements in proposed Treas. Reg.
(S)1.401(a)(9)-2. Life expectancies shall be determined under the tables set
forth in Treas. Reg. (S)l.72-9 and shall not be recalculated annually if
benefits are provided in a form other than a life annuity.
(d) No distribution shall be made under Section 8.2(a) or (b) which is
inconsistent with the provisions of section 401(a)(9) of the Code.
(e) If a married Participant elects to waive the Qualified Joint and
Survivor Annuity, the Participant's Spouse (1) must consent in writing to the
form of benefit chosen, and (2) if applicable~ must consent in writing to the
specific beneficiary designated by the Participant. The Participant may not
change the form of benefit and/or designated beneficiary without the consent of
his Spouse, unless the original consent of the Spouse expressly permits the
Participant to make changes without further consent of the Spouse. All such
consents must acknowledge their own effect and must be witnessed by a Plan
representative or a notary public. A married Participant is not required to
comply with the foregoing if he establishes to the satisfaction of a Plan
representative that his Spouse cannot be located. The election to waive the
Qualified Joint and Survivor Annuity made by the Participant and consented to by
his Spouse shall be made in the 90-day period ending on the Annuity Starting
Date. The Participant may revoke the waiver of the Qualified Joint and Survivor
Annuity in writing prior to the Annuity Starting Date without the consent of his
Spouse. Any consent which is given by the Participant's Spouse shall be valid
for such Spouse only, and will not be valid for any other Spouse of the
Participant. The elections described in this Subsection may be made any number
of times prior to the Annuity Starting Date.
(f) In the event of the death of a Participant's Spouse or other
designated beneficiary prior to the Participant's Annuity Starting Date but
after an election of a Qualified Joint and Survivor Annuity has been made
hereunder, the election shall be automatically revoked.
(g) A Participant may elect the mode of payment at any time prior to
the first day of the calendar month for which benefits are first payable to the
Participant. Such election shall be on a form prescribed by the Plan
Administrator.
(h) If the Participant elects to have his benefit paid in installments
or on a deferred basis, the Participant may thereafter elect to change the time
or manner of payment of the unpaid balance within the maximum time limits of
Subsection (g);
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<PAGE>
provided however, that reasonable advance written notice of such election is
given by the Participant to the Plan Administrator.
(i) Payment made in installments shall be made in an amount of $100 or
more.
(j) If a contingent or joint annuitant or designated beneficiary is
other than the Participants Spouse, the form of payment elected shall provide
that at least fifty percent (50%) of the benefit is payable to the Participant
over his life, in accordance with the provisions of section 401(a)(9) of the
Code and the Regulations promulgated by the Secretary of the Treasury
thereunder.
(k) With regard to any election to waive the Qualified Joint and
Survivor Annuity form of benefit, the Plan Administrator shall no less that 30
days and no more than 90 days before the Annuity Starting Date provide to the
Participant a written explanation of:
(1) the terms and conditions of the Qualified Joint and Survivor
Annuity;
(2) the Participant's right to make, and the effect of, an
election to waive the Qualified Joint and Survivor Annuity;
(3) the rights of the Participant's Spouse to consent to any
election to waive the Qualified Joint and Survivor Annuity; and
(4) the right of the Participant to revoke such election and the
effect of such revocation.
(l) If a Participant's vested benefit is less than or equal to $3,500,
the Plan Administrator may immediately distribute such benefit without such
Participant's or Spouse's consent. If a Participant's vested benefit is greater
than $3,500, such benefit may not be paid in a single-sum payment without the
consent of the Participant and the Participant's Spouse. In addition, a partial
or total distribution of benefits may not be made after the Annuity Starting
Date, regardless of the Participant's vested benefit, unless the Participant and
the Participant's Spouse consent to such a distribution. Any consent under this
Subsection (1) must acknowledge its own effect and must be witnessed by a Plan
representative or a notary public.
8.3 Timing of Distribution.
----------------------
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<PAGE>
(a) A Participant entitled to receive benefits under the Plan shall
commence to receive benefits as Soon as administratively practicable.
(b) (1) Distribution of a Participant's benefits under this Plan
shall be made (or shall commence) by the mandatory commencement date described
in paragraph (2) or (3), whichever is applicable.
(2) Until January 1, 1989, the "mandatory commencement date" for
purposes of paragraph (1) shall be the April 1st that follows the later of:
(A) the end of the calendar year in which the Participant
attains age 70-1/2, or
(B) the end of the calendar year in which the Participant's
employment with the Employer and all Related Companies terminates.
Notwithstanding the foregoing, effective for Plan Years beginning after
December 31, 1984, clause (B) shall not apply in the case of a Participant who
is a five-percent (5%) owner (as defined in section 416(i) (1) (B) of the Code)
at any time during the five-Plan-Year period ending in the calendar year in
which the Participant attains age 70-1/2.
If a Participant becomes a five-percent (5%) owner during any Plan Year
after the end of the five-Plan-Year period described above, distribution of his
benefits under this Plan shall commence not later than the April 1st that
follows the end of the calendar year which includes the last day of the Plan
Year in which the Participant becomes a five-percent (5%) owner.
(3) Beginning on January 1, 1989, the mandatory commencement
date" for purposes of paragraph (1) shall be the April 1st that follows the end
of the calendar year in which the Participant attains age 70-1/2; provided,
however, that in the case of a Participant who attains age 70-1/2 before January
1, 1988 and who is not a five-percent (5%) owner (as defined in section 416(i)
(1) (B) of the Code) at any time during the Plan Year ending during the calendar
year in which he attains age 66-1/2 or any subsequent Plan Year, the "mandatory
commencement date" shall continue to be the date described in paragraph (2).
(c) A Participant shall begin to receive benefits as soon as is
administratively practicable after the Valuation Date following the
Participant's Retirement date or the date on which he suffers a Disability, but
in no event later than 60 days
-56-
<PAGE>
after the end of the Plan Year in which he attains his formal Retirement Date
or, if later, his Retirement date; provided, however, that a Participant may
elect that distribution be made or commence at a later date. Such deferred
distribution may be made under any distribution option available under Section
8.2, but distributions must commence no later than the mandatory commencement
date described in subparagraph (b).
(d) This Section shall be construed to comply with the provisions of
section 401(a)(9) of the Code and the regulations thereunder. Such provisions
shall override any distribution options in the Plan which are inconsistent with
section 401(a) (9) of the Code.
(e) Benefits under this Plan shall be paid when a properly written
application is received by the Plan Administrator. In the event that a
Participant fails to apply to the Plan Administrator for his benefits by his
Normal Retirement Date or by the date on which his employment terminates, if
later, the Plan Administrator shall make diligent efforts to locate such
Participant. The Plan Administrator shall be under no obligation to make
payments at any time for the period in which benefits would have been payable if
the Participant had made timely application for his benefits.
(f) If a Participant suffers a Disability prior to his Retirement and
the value of his Accounts exceeds, or at the time of any prior distribution has
ever exceeded, $3,500, his Accounts shall not be paid to him or applied for his
benefit until (1) he and his Spouse, if any, consent in writing to such payment
or application, or (2) he attains what would have been his Normal Retirement
Date, or (3) he dies.
8.4 Distribution of Contracts. If the vested portion of a terminated
-------------------------
Participant's Accounts equals or exceeds the cash surrender value of any
insurance contracts held in such Accounts, the Trustee shall assign, transfer,
and set over to such terminated Participant part or all of the insurance
contracts on his life, provided, however, if directed by the Plan Administrator
at the Participant's request, the Trustee shall borrow or partially withdraw the
cash surrender value of the insurance contracts from the insurer and credit such
amount to the Participant's Accounts. If the value of the terminated
Participant's vested Accounts is less than the cash surrender value of the
insurance contracts, the terminated Participant may either (a) pay to the
Trustee the sum which, when added to the distribution, shall equal the value of
the insurance contracts being assigned or transferred, or (b) authorize the
Trustee to borrow or partially withdraw the cash surrender value of the
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<PAGE>
insurance contracts from the insurer and assign the insurance contracts to the
terminated Participant.
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<PAGE>
ARTICLE IX
----------
BENEFITS ON DEATH
-----------------
9.1 Designation of Beneficiary. Subject to the provisions of Section 9.4,
--------------------------
each Participant or former Participant may designate, revoke, and redesignate
beneficiaries to whom death benefits are payable. Such actions shall be taken
only in writing on a form provided by the Plan Administrator and shall be
effective only upon delivery to the Plan Administrator.
9.2 Distribution on Death
---------------------
(a) Except as otherwise provided in this Plan, a Participant's
Accounts shall be distributed in the event of death. In addition, and subject
to the rules of Section 10.9 relating to life insurance, on the death or
presumed death of a Participant or former Participant, the life insurance
proceeds paid to the Trustee shall be paid to, or applied for the benefit of,
the Participant or his designated beneficiary. Such payment or application
shall be made in accordance with the provisions of this Article. Any portion of
the death benefit not distributed shall be credited to the Participant's 401(k)
Account and shall be fully allocated to the fixed income investment fund.
(b) In the event an unmarried Participant fails to designate a
beneficiary, or if a Participant is pre-deceased by his designated beneficiary,
the benefits hereunder shall be paid to the administrators or executors or the
Participant's estate.
(c) Members of a class of beneficiaries shall cease to be entitled to
benefits on the Plan Administrator's determination that no members of the class
exist or the Plan Administrator's failure to locate any members of the class
after making reasonable efforts to do so.
(d) The Recordkeeper and Trustee shall be under no obligation to
commence payment on account of a Participant's death until the Plan
Administrator has notified the Recordkeeper, in writing, of the death of such
Participant or former Participant.
9.3 Required Distribution Provisions.
--------------------------------
(a) If a Participant dies prior to the commencement of benefit
payments under the Plan, the death benefit payable hereunder to a beneficiary
other than the
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<PAGE>
Participant's Spouse shall be determined as of the Valuation Date on or
immediately preceding the Participant's date or death and payments shall
commence as soon as is administratively practicable after such Valuation Date.
The Participant's entire vested interest shall be distributed within five years
of the Participant's death. The amount payable shall be adjusted in accordance
with the provisions of Section 6.4.
(b) If a Participant dies prior to the Annuity Starting Date, the
death benefit payable hereunder to a beneficiary who is the Participant's Spouse
shall be paid, if the Participant and his Spouse have filed the election
provided in Section 9.4, as of the Valuation Date on or immediately preceding
the Participant's date of death in a form provided in Section 8.2(a), and
payments shall commence as soon as is administratively practicable after such
Valuation Date; provided, however, that the Participant's Spouse can delay
payment of such benefit until any later Valuation Date, but in no event after
the later of (1) the December 31 of the calendar year in which the Participant
would have attained age 70-1/2, or (2) December 31 of the calendar year
following the calendar year in which the Participant dies. The amount payable
shall be adjusted in accordance with the provisions of Section 6.4.
(c) If a Participant dies while receiving installment payments under
this Plan, the remaining payments shall be distributed at least as rapidly as
under the method being used as of the date or the Participant's death; provided,
however, that the Trustee shall, as directed by the Plan Administrator, pay to
the Participant's designated beneficiary as a single sum the present value of
all unpaid future installments provided that the Participant's designated
beneficiary consents to such a distribution. If a Participant dies while
receiving annuity payments under this Plan, the annuity payments will be
continued in the manner previously selected by the Participant prior to the
Annuity Starting Date.
9.4 Preretirement Survivor Annuity
------------------------------
(a) Except as otherwise provided in this Plan, in the event of the
death of a Participant who has a surviving Spouse, the Participant's surviving
Spouse shall receive a Preretirement Survivor Annuity. The benefit shall
commence on the first day of the month selected by the surviving Spouse,
beginning within a reasonable time after the Participant's death and ending not
later than the December 31 of the calendar year in which the Participant would
have attained age 70-1/2, or, if later, the December 31 of the calendar year
following the calendar year in which the Participant died. In the absence of
such an election, benefits under this Section shall commence on
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the first day of the month following the date which would have been the
Participant's Normal Retirement Date. The election shall acknowledge its own
effect and shall be witnessed by a Plan representative or a notary public.
(b) A Participant may elect to waive the Preretirement Survivor
Annuity benefit at any time during the period commencing on the first day of the
Plan Year in which the Participant attains age 35 and ending on the date of the
Participant's death. In the case of a Participant who is separated from
service, the election to waive the Preretirement Survivor Annuity with respect
to benefits accrued before the date of such separation from service shall not
begin later than such date.
(c) A Participant who has a Spouse may elect to waive the
Preretirement Survivor Annuity benefit only if his Spouse (1) consents in
writing (A) not to receive the Preretirement Survivor Annuity, (B) to the form
of benefit chosen and (C) to the specific beneficiary designated by the
Participant, (2) such consent acknowledges its own effect, and (3) such consent
is witnessed by a Plan representative or a notary public. The Participant may
not change the designated beneficiary and/or form of benefit without the consent
of his Spouse; unless the original consent of the Spouse expressly permits the
Participant to make changes without further consent of the Spouse. A
Participant is not required to comply with the foregoing steps if he establishes
to the satisfaction of a Plan representative either that he has no Spouse or
that his Spouse cannot be located. The Participant may revoke the waiver of the
Preretirement Survivor Annuity without his Spouse's consent. The elections
described in Subsections (b) and (C) may be made any number of times prior to
the Participant's death.
(d) The Plan Administrator shall provide to each Participant a written
explanation of:
(1) the terms and conditions of the Preretirement Survivor
Annuity;
(2) the Participant's right to waive the Preretirement Survivor
Annuity and the effect of such waiver;
(3) the rights of the Participant's Spouse with respect to such
waiver; and
(4) the right to revoke a waiver of the Preretirement Survivor
Annuity and the effect of such revocation.
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The Plan Administrator must provide this explanation at the latest of the
following times:
(1) the period beginning with the first day of the Plan Year in
which the Participant attains age 32 and ending with close of the Plan Year
preceding the Plan Year in which the Participant attains age 35;
(2) a reasonable period after the individual becomes a
Participant, if the individual becomes a Participant after the first day of
the Plan Year in which he or she attains age 32;
(3) a reasonable period ending after the date the Plan ceases to
fully Subsidize the cost of such benefit;
(4) a reasonable period after separation from service in the
case of a Participant who separates before attaining age 35; or
(5) a reasonable period ending after such benefit applies to the
Participant.
(e) Notwithstanding any provision in this Plan to the contrary, if the
Participant's vested benefit is less than or equal to $3,500, the Plan
Administrator may immediately distribute such benefit without the consent of the
Participant's surviving Spouse. However, if the Participant's vested benefit
exceeds, or at the time of any prior distribution has exceeded, $3,500, such
benefit may not be paid in a single-sum payment without the consent of the
Participant's surviving Spouse. Such consent must be in writing, must
acknowledge its own effect, and must be witnessed by a Plan representative or a
notary public. In addition, a partial or total distribution of benefits under
this Section may not be made after the Annuity Starting Date, regardless of the
vested benefit to be paid to the Participant's surviving Spouse, without the
consent of the Participant's surviving Spouse.
(f) All distributions made under Article IX shall comply with the
provisions of section 401(a) (9) of the Code and Regulations promulgated by the
Secretary of the Treasury.
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<PAGE>
ARTICLE X
---------
ADMINISTRATION OF THE PLAN
--------------------------
10.1 Duties of the Plan Administrator. The Plan Administrator shall be the
--------------------------------
named fiduciary of the Plan and shall be responsible for the general
administration of the Plan. The Plan shall be administered on a
non~discriminatory basis in accordance with its terms. The Plan Administrator
shall have all discretionary powers and duties necessary to fulfill its
responsibilities, including, but not limited to, the following:
(a) to interpret the provisions of the Plan and to determine all
questions relating to the eligibility of employees to participate;
(b) to determine, compute, and certify to the Recordkeeper the method
in which benefits are to be paid to the Participants and their Spouse and
designated beneficiaries;
(c) to authorize all disbursements by the Trustee;
(d) to maintain all records necessary for the administration of the
Plan, including records pertaining to a Participant's designation of a
beneficiary and loans made to Participant, but excluding records maintained by
the Employer and Related Company, the Trustee or the Recordkeeper;
(e) to provide for disclosure of all information and filing or
provision of all reports and statements to Participants, Spouses, beneficiaries,
or governmental bodies as shall be required of the Plan Administrator by the
Code or ERISA or any other applicable law:
(f) to make and publish rules for the administration, regulation, or
application of the Plan;
(g) to administer the claims procedure set forth in Section 10.6;
(h) to delegate any power or duty to any person or entity in
accordance with Section 10.4;
(i) to establish reasonable procedures to determine the qualified
status of domestic relations orders which relate to the Plan, pursuant to the
provisions and requirements of section 414(p) of the Code; and
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(j) to exercise all other powers or duties granted to the Plan
Administrator by other provisions of the Plan or the Trust Agreement.
10.2 Duties of the Recordkeeper. The Recordkeeper shall be responsible for
--------------------------
those duties assigned to it by the Plan Administrator, including the valuation
of the Trust Fund and accounting of loans made to Participants, and the
Recordkeeper shall have all powers and duties necessary to fulfill its
responsibilities.
10.3 Investments and Funding Policy.
------------------------------
(a) The Trustee shall have the responsibilities to manage the
investments of the Trust Fund in accordance with the provisions of the Trust
Agreement, except to the extent such responsibility is delegated to other
persons pursuant to the Trust Agreement. Subject to the provisions of the
Joinder Agreement and applicable Plan rules, each Participant shall have the
right to select among the investments chosen by the Trustee in accordance with
the funding policy established by the Employer.
(b) The Employer shall establish a funding policy. The Employer shall
advise the Trustee and any other person to whom investment management
responsibility has been delegated of such funding policy and all other matters,
if any, as may be pertinent to their duties.
10.4 Delegation of Administrative Responsibility. The Plan Administrator
-------------------------------------------
may delegate all or any portion of its administrative responsibilities with
respect to the Plan to any other person or persons. Investment responsibilities
may be delegated only to the extent permitted under the Trust Agreement.
10.5 Compensation. Indemnity and Liability.
--------------------------------------
(a) Any fiduciary or delegate who is an Employee of the Employer shall
serve without compensation for services rendered to the Plan. Any person
responsible for Plan assets shall be bonded as required by applicable law,
provided individuals eligible to participate in the Plan include individuals
other than self-employed individuals or the sole shareholder, if applicable, of
the Employer or the Spouse of such self-employed individual or shareholder. The
Employer shall furnish the Plan Administrator and/or Recordkeeper and any such
delegate with all clerical or other assistance necessary in the performance of
their duties. The Plan Administrator is authorized to employ such legal
counsel, including legal counsel
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of the Employer, and advisors as it may deem advisable to assist in the
performance of its duties hereunder.
(b) All costs of administering the Plan, including the cost of the
bond and legal services described in Subsection (a), shall be paid, in the
discretion of the Employer, either out of Plan assets or by the Employer.
Expenses attributable to investments earmarked to a Participant's Account under
Article VII shall be charged to such Participant's Account unless otherwise paid
by the Employer. Costs associated with the distribution of benefits shall be
paid in the manner selected in Item 28 of the Joinder Agreement.
(c) To the extent permitted by applicable law, the Employer shall
indemnify and hold harmless the Plan Administrator, the Recordkeeper, the
Trustee and any delegate appointed pursuant to Section 10.4 against any and all
expenses, liabilities, and claims, including legal fees incurred to defend
against such liabilities and claims, arising out of their discharge, in good
faith, of responsibilities under or incident to the Plan. Expenses and
liabilities arising out of willful misconduct shall not be indemnified by the
Employer, Trustee and/or the Plan or Trust Fund. This indemnity shall not
preclude such further indemnities as may be available under insurance purchased
by the Employer or provided by the Employer; provided, however, that such
indemnities are permitted under applicable law. Payment with respect to any
indemnity and payment of expenses or fees shall be made only from assets of the
Employer and shall not be made directly or indirectly from the Trust Fund.
10.6 Claims Procedure.
----------------
(a) A claim by a Participant, former Participant, Spouse, beneficiary,
or any other person shall be presented to the Plan Administrator in writing
within the maximum time permitted by law or under Regulations promulgated by the
Secretary of Labor or his delegate.
(b) The Plan Administrator shall, within a reasonable time, consider
the claim and shall issue its determination thereon in writing.
(c) If the claim is granted, the appropriate distribution or payment
shall be made from the Trust Fund as soon as is administratively practicable
following such grant.
(d) If the claim is wholly or partially denied, the Plan Administrator
shall, within 90 days provide the claimant with written notice of such denial,
setting forth, in a manner calculated to be understood by the claimant:
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(1) the specific reason or reasons for such denial;
(2) specific references 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.
The 90-day period described in the preceding sentence may be extended in special
circumstances for up to an additional 90 days if the claimant is given written
notice of the extension that specifies the reason(s) for the extension.
(e) Each claimant shall have the opportunity to appeal the Plan
Administrator's denial of a claim to the Employer in writing for a full and fair
review. The claimant or his duly authorized representative:
(1) may request a review by filing a written application with the
Employer,
(2) may review pertinent documents, and
(3) may submit issues and comments in writing.
(f) The Plan Administrator may establish such time limits within which
a claimant may request review of a denied claim as are reasonable in relation to
the nature of the benefit which is the subject of the claim and to other
attendant circumstances, but which shall not be less than 60 days after receipt
by the claimant of written notice of denial of his claim.
(g) The decision by the Plan Administrator on review of a claim shall
be made not later than 60 days after its receipt of the request for review,
unless special circumstances require an extension of time for processing, in
which case a decision shall be rendered as soon as practicable, but in no event
later than 120 days after receipt of the request for review. Written notice of
the extension must be sent to the claimant prior to the commencement of the
extension.
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(h) The decision on review shall be in writing and shall include
specific reasons for the decision, written in a manner calculated to be
understood by the claimant with specific references to the pertinent Plan
provisions on which the decision is based.
(i) To the extent permitted by law, the decision of the Plan
Administrator, if no review is properly requested, the decision at the Employer
on review, as the case may be, shall be final and Binding on all parties. No
legal action for benefits under the Plan shall be brought unless and until the
claimant has exhausted his remedies under the Plan.
(j) If for any reason the written notice at denial described above is
not furnished within 90 days at the Plan Administrator's receipt of a claim for
benefits, the lain shall be deemed to be denied. Likewise, if for any reason
the written decision on review described above Is not furnished within the time
prescribed, the claim shall be deemed to be denied on review.
(k) Notwithstanding any other provision of this Section, any
controversy or claim arising out of or relating to a claim for benefits payable
by this Plan may, at the option of the claimant, be submitted for settlement by
arbitration in accordance with the Employee Benefit Plan Claims Arbitration
Rules of the American Arbitration Association, and such rules are incorporated
herein by reference. The decision of the arbitrator shall be final and binding
on all parties thereto and judgment upon the award may be entered in any court
having competent jurisdiction.
10.7 Effect of Plan Administrator Action. All actions taken and all
-----------------------------------
determinations made by the Plan Administrator in good faith shall be final and
binding upon all Participants, their Spouses and designated beneficiaries, the
Recordkeeper, the Trustee, the Plan Administrator, the Employer, any Related
Company, and any person interested in the Plan or Trust Fund.
10.8 Investment Funds.
----------------
(a) For investment purposes, the assets of the Trust Fund, other than
earmarked investments described in Sections 4.9 and 10.9, shall be invested in
accordance with the Plan Administrator's instructions among the investment funds
specified in the Joinder Agreement and any loan account authorized under Section
4.9.
(b) Each Participant may specify the extent to which his Accounts
shall be invested in each of the investment
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funds. Investment directions shall be made in writing in the manner specified
by the Plan Administrator and in accordance with the Joinder Agreement and
applicable Plan rules. In the absence of proper elections under this Article,
the affected portion of the participant's Account shall be invested in the fixed
income investment fund and all distributions shall be charged first the portion
of the Participant's Accounts invested in the fixed income investment fund and
then to the balance of his Accounts as directed by the Plan Administrator.
(c) All gains and losses with respect to an investment fund shall be
credited or debited to it, and in allocating investment gains and losses among
the Participant's Accounts, Article VI shall be applied to each investment fund
separately, with each Participant's Account receiving a pro rata portion of such
gains and losses, based on the value of each Participant's Account invested in
such investment fund.
10.9 Life Insurance Investments.
--------------------------
(a) Subject to the limitations contained in the Joinder Agreement and
this Section, individual or group life insurance policies and individual or
group annuity contracts issued by one or more insurance companies may be
purchased by the Plan. If individual policies or contracts are purchased for a
Participant, such purchases may only be made with the Participant's written
consent unless purchased pro rata for all Participants. The insured under such
an individual policy or contract may be the Participant, his Spouse or his child
or children under age 25, at the Participant's designation. The Plan
Administrator may impose restrictions on the maximum amount of insurance which a
Participant may select on his Spouse and/or children. Individual policies or
contracts shall be considered an earmarked investment of the Participant's
401(k) Account, and premiums on such policies or contracts shall be charged to
such 401(k) Account. Any death benefit payable under a policy or contract on
the life of a Participant while it is held by the Trust shall be made in
accordance with Section 9.2. Any life insurance proceeds payable under a policy
or contract issued on the life of a Participant's Spouse or child are to be paid
to, or applied for the benefit of, the Participant. Any portion of the death
benefit under such policy or contract not distributed shall be paid to the
Participant's 401(k) Account and shall be allocated to investment funds in the
same manner as Deferrals.
(b) Not later than the earlier of a Participant's Retirement or
termination of employment, the Plan Administrator shall direct the Trustee to
distribute to the Participant in kind, any individual policies or contracts as
part of his benefit under the Plan; provided, however, that if the Participant
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elects, in writing, the Plan Administrator shall direct the Trustee to convert
into cash the entire value of such policies or contracts and the Trustee shall
use the proceeds of such conversion to pay the Participant's benefit.
(c) A Participant may increase life insurance investments at
enrollment periods designated by the Plan Administrator. A Participant may
decrease or cancel insurance after reasonable advance notice at any time. Not
more than forty-nine and nine-tenths percent (49.9%) of the aggregate amount of
Contributions made on behalf of a Participant may be Invested in ordinary life
insurance Policies or contracts, and not more than twenty-five percent (25%) of
the aggregate amount of Contributions on behalf of a Participant may be invested
in term life insurance or adjustable life insurance or universal life insurance
policies or contracts. If both ordinary and term life insurance policies or
contracts are purchased, the sum of the annual term and adjustable and universal
life insurance premium, plus one-half of the ordinary life insurance premiums,
may not exceed twenty-five percent (25%) of the Contributions made on behalf of
such Participant for the Plan Year in question.
(d) Any dividends which become payable on any life insurance policies
or contracts shall be used to reduce the premium on such life insurance policies
or contracts.
(e) In the case of any conflict between the provisions of the Plan and the
terms of any life insurance policy or contract, the provisions of the Plan shall
control.
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ARTICLE XI
----------
AMENDMENTS AND TERMINATION OF THE PLAN
--------------------------------------
11.1 Amendments.
----------
(a) The Employer reserves the right to amend this Plan and all
amendments shall be in writing. Amenients to the Plan shall be effective as of
the date designated in the amendment or the amended Joinder Agreement, or in the
absence of any designation, as of the date of execution.
(b) No amendment or any other action by the Employer shall divert any
assets of the Plan to any purpose other than the exclusive benefit of the
Participants or their Spouse or beneficiaries. No amendment shall decrease the
vested percentage or amount of a Participant's Accounts.
(c) All rights under the Plan shall be determined under the terms of
the Plan as in effect at the time such determination is made.
(d) No amendment, unless it expressly provides otherwise, shall be
applied retroactively to increase the vested percentage of a former Participant
whose employment terminated before the date such amendment became effective
unless and until he or she again becomes a Participant and additional Employer
Contributions are allocated to the Participant's Accounts.
11.2 Termination of Plan: Discontinuance of Contributions
----------------------------------------------------
(a) The Plan is intended to be a permanent program, but the Employer
reserves the right at any time to terminate the Plan in whole or in part. In
the event of any termination or partial termination without the establishment of
a successor plan:
(1) an allocation of amounts being held in suspense under Section
5.2 shall be made in accordance with such Section;
(2) a Participant shall become fully vested in his Accounts or
portion of his Accounts if affected by such termination or partial termination
as the case may be; and
(3) if the Plan or any portion thereof is terminated, the Plan
Administrator shall direct the Trustee to
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liquidate the necessary portion of the Trust Fund and to distribute affected
Accounts, less a proportionate share of the expenses of term inaction, to the
persons entitled thereto in the manner specified in Article VIII.
(b) The Employer reserves the right to discontinue in whole or in
part, some or all types of Contributions to the Plan. In the event of complete
discontinuance of Contributions to the Plan, the Plan and Trust fund shall
otherwise remain in full force and effect, and all Accounts affected by such
discontinuance shall thereupon become fully vested.
11.3 Merger. The Plan shall not be merged with or consolidated with, nor
------
shall its assets be transferred to, any other qualified retirement plan unless
each Participant would receive a benefit after such merger, consolidation, or
transfer (assuming the Plan then terminated) which is of actuarial value equal
to or greater than the benefit he would have received from his Accounts if the
Plan had been terminated on the day before such merger, consolidation, or
transfer.
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ARTICLE XII
-----------
TOP-HEAVY PROVISIONS
--------------------
12.1 General. The following provisions shall apply automatically to the
-------
Plan and shall supersede any contrary provisions for each Plan Year in which the
Plan is determined to be a Top-Heavy Plan or a Super Top-Heavy Plan. This
Article shall be construed in accordance with the provisions of section 416 of
the Code.
12.2 Definitions. The following definitions shall supplement those set
-----------
forth in Article II of the Plan:
(a) "Aggregation Group" shall mean:
-----------------
(1) each plan (including a frozen plan or a plan which has been
terminated during the 60-month period ending on the Determination Date) of the
Employer or a Related Company in which a Key Employee is a participant,
(2) each other plan (including a frozen plan or a plan which
has been terminated during the 60-month period ending on the Determination Date)
of the Employer or a Related Company which enables any plan in which a Key
Employee participates to meet the requirements of sections 401(a) (4) or 410 of
the Code, and
(3) each other plan (including a frozen plan or a plan which
has been terminated during the 60-month period ending on the Determination Date)
of the Employer or a Related Company which is included by the Plan Administrator
if the Aggregation Group, including such a plan, would continue to meet the
requirements of sections 401(a) (4) and 410 of the Code.
(b) "Determination Date" shall mean the last day of the preceding Plan
------------------
Year; provided, however, that for the first Plan Year it shall mean the last day
of that Plan Year. If the Employer or a Related Company maintains any other
plan which is aggregated with this Plan under Subsection (a), the "Determination
Date" for each of such plans shall be determined in accordance with this
Subsection (b), and such plans shall then be aggregated by adding the results
for all plans as of the Determination Dates that fall within the same calendar
year.
(c) "Key Employee" shall mean any employee, former employee, or the
------------
beneficiaries of such employee or former employees, who at any time during the
60-month period ending on the Determination Date, is:
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(1) an Officer of the Employer having ~imitation Compensation
from the Employer and all Related Companies in a Plan Year during such period
greater than fifty percent (50%) of the amount in effect under section 415(b)
(1) (A of the Code for the calendar year in which such Plan Year ends;
(2) one of the 10 employees during the entire 60-month period
having Limitation Compensation from the Employer and all related Companies
greater than the amount in effect under section 415(c) (1) (A) of the Code and
who own, considered as owning within the meaning of section 318 of the Code, the
largest interests in the Employer or any related company; provided, however,
that such interest exceeds one-half percent (0.5%) of the total ownership of the
Employer or Related Company;
(3) a five-percent (5%) owner of the employer (or an employee who
is considered as owning five percent (5%) of the Employer within the meaning of
section 318 of the Code)
(4) a one-percent (1%) owner of the Employer (or an employee who
is considered as owning one percent (1%) of the Employer within the meaning of
section 318 of the Code) having Limitation Compensation from the Employer and
all Related Companies for a Plan Year during such period which is in excess of
$150,000.
The above determinations shall be made in accordance with section 416(i) of
the Code. No more than 50 employees or, if less, the greater of three employees
or ten percent (10%) of the greatest number of employees, including leased
employees within the meaning of section 414(n) of the Code, employed by Employer
and all Related Companies during the 60-month period ending on the Determination
Date, shall be treated as officers.
(d) "Non-Key Employee" shall mean any employee or former employee of
----------------
the Employer or a Related Company in any Plan Year who is not a Key Employee as
to that Plan Year, including the beneficiaries of such persons.
(e) "Super Top-Heavy Plan" shall mean each plan in an Aggregation
--------------------
Group if, as of the applicable Determination Date, the Top-Heavy Ratio exceeds
ninety percent (90%), determined in accordance with section 416 of the Code.
(f) "Top-Heavy Plan" shall mean each plan in an Aggregation Group if,
--------------
as of the applicable Determination Date, the Top-Heavy Ratio exceeds sixty
percent (60%), determined in accordance with section 416 of the Code.
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<PAGE>
(g) "Top-Heavy Ratio" shall mean the ratio for any Plan Year,
---------------
calculated as of the Determination Date of such Plan Year, determined by
comparing the amount described in Subsection (g) (1) with the amount described
in Subsection (g) (2) after deducting from each such amount any portion thereof
described in Subsection (g) (3):
(1) the sum of (A) the present value to all accrued benefits of
Key Employees under all qualified defined benefit plans included in the
Aggregation Group, (B) the balances in all of the accounts of Key Employees
under all qualified defined contribution plans included in the Aggregation
Group, and (C) the amounts distributed from all plans in such Aggregation group
to or on behalf of any Key Employee during the period of five Plan Years ending
on the Determination Date, and excluding benefits paid on account of death in
excess of the accrued benefit or account balances immediately prior to death;
(2) the sum of (A) the present value of all accrued benefits of
all participants under all qualified defined benefit plans included in the
Aggregation Group, (B) the balances in all of the accounts of all participants
under all qualified defined contribution plans included in the Aggregation Group
and (C) the amounts distributed from all plans in such Aggregation Group to or
on behalf of any participant during the period of five Plan Years ending on the
Determination Date;
(3) the sum of (A) all Rollover Contributions (or fund-to-fund
transfers) to the Plan by an Employee after December 31, 1983 from a plan
sponsored by an employer which is not the Employer or a Related Company, (B) any
amount that is included in Subsections (g) (1) and (g) (2) for a person who is a
Non-Key Employee as to the Plan Year of reference but who was a Key Employee as
to any earlier Plan Year, and (C) for Plan Years beginning after December 31,
1984, any amount that is included in Subsections (g) (1) and (g) (2) for a
person who had not performed any service for the Employer during the five-year
period ending on the Determination Date.
(4) The present value of accrued benefits under all qualified
defined benefit plans included in the Aggregation Group shall be determined on
the basis of the 1984 Unisex Mortality Table and an interest rate of seven
percent (7%). Solely for the purpose of determining if the Plan or any other
plan included in a required Aggregation Group of which this Plan is a part, is
top-heavy, the accrued benefit of an Employee other than a Key Employee shall be
determined under (A) the method, if any, that uniformly applies for accrual
purposes under all plans maintained by the Employer and all Related Companies,
or (B) if there is no such method, as if such benefit accrued not
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more rapidly than at the slowest accrual rate permitted under the fractional
accrual method of section 411(b) (1) (C) of the Code.
12.3 Minimum Contribution for Non-Key Employees.
------------------------------------------
(a) In each Plan Year in which the Plan is a Top-Heavy Plan, each
Participant who is a Non-Key Employee and who's actively employed by the
Employer on the last day of such Plan year shall receive a total minimum
Employer contribution, including forfeitures, under all plans described in
Sections 12.2(a) (1) and (a) (2) in an amount which is not less than three
percent (3%) of the Participant's Limitation Compensation. This minimum
Contribution shall be credited to a Participants Employer Contribution Account.
Such Contribution shall be made to each eligible Non Key Employee regardless of
the number of Hours of Service such Non-Key Employee completes during the Plan
Year, and regardless of the level of Compensation the Non-Key Employee receives
during such Plan Year. Salary reduction contributions to such plans made on
behalf of a Participant in Plan Years beginning after December 31, 1984 shall be
deemed to be Employer contributions for the purposes of this Subsection.
Beginning with the first Plan Year which begins after December 31, 1988, a
Participant's Deferrals and any Matching Contributions made by the Employer on
behalf of a Participant may not be used to satisfy this three percent (3%) of
Limitation Compensation contribution.
(b) The percentage set forth in Subsection (a) shall be reduced to the
percentage at which contributions, including Deferrals and forfeitures, are made
(or are required to be made) for a Plan Year for the Key Employee for whom such
percentage is the highest for that Plan Year. This percentage shall be
determined for each Key Employee by dividing the Contribution for such Key
Employee by his Limitation Compensation for the Plan Year, determined under
Section 12.5. All defined contribution plans required to be included in an
Aggregation Group shall be treated as one plan for the purposes of this Section;
provided, however, that this Section shall not apply to any plan which is
required to be included in an Aggregation Group if such plan enables a defined
benefit plan in the Aggregation Group to satisfy the requirements of section
401(a) (4) or section 410 of the Code.
(c) If a Non-Key Employee described in Subsection (a) participates in
both a defined benefit plan and a defined contribution plan described in Section
12.2(a)(1) and (a)(2), the Employer shall not be required to provide such Non-
Key Employee with both the minimum benefit under the defined benefit plan and
the minimum benefit under the defined contribution plan. In such event, the
Non-Key Employee shall receive the minimum
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contribution under Subsection (a) in an amount which is not less than five
percent (5%) of the Non-Key Employee's annual Limitation Compensation for the
Plan Year and not more than the minimum amount required to satisfy the minimum
benefit required by section 416 of the Code.
12.4 Vesting.
-------
(a) Change in Schedule. Each Participant's vested interest in his
------------------
Employer Contribution Account shall be determined in accordance with the
following schedule for any Plan Year in which the Plan is a Top-Heavy Plan
unless the schedule is set forth in the Joinder Agreement provides more rapid
vesting for such Participant:
Years of
Service Percent Vested
------- --------------
less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
(b) Shift Out of Top-Heavy Status. If a Top- Heavy Plan ceases to be
-----------------------------
a Top-Heavy Plan, the vesting schedule set forth in the Joinder Agreement shall
again apply to all Years of Service; provided, however, that a Participant shall
maintain the same vested interest in his Employer Contribution Account,
determined under the schedule in Subsection (a) as of the date on which the Plan
ceases to be a Top-Heavy Plan, until the Participant's vested percentage under
the schedule in the Joinder Agreement exceeds the percentage maintained under
the schedule in Subsection (a)
(c) Special Election of Vesting Schedule. Each Participant with at
------------------------------------
least three Years of Service (as described in Section 7.3 of the Plan) at the
time that the Plan ceases to be a Top-Heavy Plan may elect to continue to have
his vested percentage computed under the Plan in accordance with the vesting
schedule set forth in Subsection (a). The period during which the election may
be made shall commence on the date on which the Participant is informed that the
Plan is no longer a Top-Heavy Plan and shall end 60 days thereafter and the Plan
Administrator shall provide each affected Participant with a timely notice
thereof.
12.5 Compensation. For each Plan Year in which the Plan is a Top-Heavy
------------
Plan, the Limitation Compensation of any
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Participant for purposes of accruing a benefit under the Plan for that Plan Year
shall not exceed $200,000, or such greater amount as may be prescribed by
Regulation promulgated by the Secretary of the Treasury. In the case of a Plan
Year which is less than 12-consecutive months and in which the Plan is a Top-
Heavy Plan, Limitation Compensation shall exclude total taxable income of any
Participant in excess of the amount determined by multiplying, $200,000, as
adjusted, by a fraction, the numerator of which is the number of full calendar
months occurring in such short Plan Year and the denominator of which is 12.
12.6 Social Security. For each Plan Year in which the Plan is a Top-Heavy
---------------
Plan, the requirements of this Article shall be satisfied without taking to
account any Social Security or similar contributions or benefits.
12.7 Adjustment to Maximum Allocation Limitation.
-------------------------------------------
(a) For each Plan Year in which the Plan is (1) a Top-Heavy Plan or
(2) a Super Top-Heavy Plan, and the Employer does not make the election
described in Subsection (c) and for which a similar election has not been made
as to another plan in the Aggregation Group, the one hundred twenty-five percent
(125%) factor in the defined benefit and defined contribution fractions
described in Section 5.2(d) shall be reduced to 100%. The adjustment described
in this Subsection shall not apply to any Participant during any period in which
the Participant earns no additional accrued benefit under any defined benefit
plan and has no employer contributions, forfeitures, or voluntary contributions
allocated to his accounts under any defined contribution plan.
(b) In the case of any Top-Heavy Plan to which Section 5.2 applies,
"$41,500" shall be substituted for "$51,875" in the calculation of the numerator
of the transition fraction in Section 5.2(f).
(c) If, in any Plan Year in which the Plan is a Top-Heavy Plan but not
a Super Top-Heavy Plan, the Aggregation Group described in Sections 12.2(a)(l)
and (a) (2) also includes a defined benefit plan, the Employer may elect to use
a factor of 1.25 in computing the denominator of the defined benefit and defined
contribution fractions described in Article V. In the event of such an
election, the minimum Employer contribution described in Section 12.3(a) for
each Non-Key Employee who is not covered under a defined benefit plan shall be
increased to four percent (4%), and the minimum Employer contribution described
in Section 12.3(c) for each Non-Key Employee who is covered under a defined
benefit plan shall be increased to seven and one-half percent (7-1/2%).
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ARTICLE XIII
------------
GENERAL PROVISIONS
------------------
13.1 Payments
--------
(a) In the event any amount becomes payable under the Plan to a minor
or a person who, in the sole judgement of the Plan Administrator, is considered
to be unable to give a Valid receipt for the payment by reason of physical or
mental condition, the Plan Administrator may direct that such a payment be made
to any person found by the Plan Administrator, in its sole judgment, to have
assumed the care of the person in question. Any payment made pursuant to such
determination shall constitute a full release and discharge of the Plan, the
Plan Administrator, the Trustee, the Recordkeeper, the Employer, a Related
Company and their officers, directors, employees, agents, and representatives.
(b) If the Plan Administrator is unable to locate any person to whom a
benefit becomes payable under the Plan, the amount payable shall be held under
the law until it escheats under applicable law or, alternatively, the Employer
may elect that such amount be treated as a forfeiture and allocate such amount
to the Plan Participants in accordance with the provisions of Article V;
provided, however, that if the amount is treated as a forfeiture and the person
to whom the benefit is payable is subsequently located, such forfeited amount,
without any earnings thereon, shall be contributed to the Plan by the Employer
within one year of location and the amount shall be distributed to such person
in accordance with the provisions of Article VIII.
(c) If the Plan Administrator retains at the Plan's expense a private
investigator, other person or service to assist in locating a missing person,
all costs incurred for such services shall be paid from the Accounts to which
the missing person was entitled.
(d) All benefits payable under the Plan shall be paid or provided for
solely from the Trust Fund, and the Employer assumes no liability or
responsibility therefor.
13.2 Consolidation or Merger of Employer. In the event of the
-----------------------------------
consolidation or merger of the Employer with or into any other business entity,
or the sale by the Employer of its assets, the successor employer may continue
the Plan by adopting the same. If, within ninety (90) days from the effective
date of such consolidation, merger, or sale of assets such new
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<PAGE>
corporation, partnership, or Proprietorship does not adopt the Plan, the Plan
shall be terminated. Neither the Plan nor its assets or liabilities shall be
transferred to any other plan unless immediately after the merger,
consolidation, or transfer each Participant would receive, immediately after the
merger, consolidation, or transfer, a benefit which is equal to or greater than
the benefit he would have received from his Accounts if the Plan had been
terminated on the business day immediately before such merger, consolidation, or
transfer. This provision shall not be construed as prohibiting the commingling
of assets of this Plan and any other qualified plans for investment purposes.
13.3 Participating Companies. Any employer may, with the approval of the
-----------------------
Plan Administrator, adopt the Plan (as to the entire business or as to any one
or more divisions or facilities of such employer) effective as of the date it
specifies. Adoption shall be accomplished by resolution of the adopting
corporation's own board of directors or agreement of its partners or sole
proprietor. By its adoption of this Plan, a Participating Company shall be
deemed to appoint the Employer, the Plan Administrator appointed by the Employer
and the Trustee designated by the Employer its exclusive agent to exercise on
its behalf all the power and authority conferred by this Plan or by the Trust
Agreement upon the Employer, the Plan Administrator, and the Trustee all as
defined herein. The authority of the Employer, the Plan Administrator, and the
Trustee to act as such agent shall continue until the Plan is terminated as to
the Participating Company and the relevant trust fund assets have been
distributed as herein provided. The Participating Company may terminate its
participation in the Plan at any time by action of its board of directors or
agreement of its partners or sole proprietor.
13.4 Termination of Employment
-------------------------
(a) A person's employment shall not terminate on account of an
authorized leave of absence, sick leave, vacation, or on account of a military
leave described in Subsection (b), a direct transfer between the Employer and a
Related Company, or a temporary layoff for lack of work; provided, however:
(1) if a temporary layoff for lack of work continues beyond the
period allowed under applicable personnel policies of the Employer, a person's
employment shall terminate as of the last day of such period; and
(2) failure to return to work upon expiration of any leave of
absence, sick leave, vacation, or military leave within the time period allowed
under applicable
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<PAGE>
personnel policies of the Employer after recall from a temporary layoff for
lack of work shall be considered a resignation effective as of the expiration of
such leave of absence, sick leave, vacation, military leave, or temporary
layoff.
(b) Any Employee who leaves the Employer directly to perform service
in the Armed Forces of the United States or in the United States Public Health
Services under conditions entitling the Employee to reemployment rights as
provided in the laws of the United States shall be considered to be on military
leave. An Employee's military leave shall expire if such Employee voluntarily
resigns from the Employer during such leave, or if he fails to make application
for reemployment rights. In such event, the individual's employment shall
terminate by resignation on the day such military leave expired.
13.5 Corrective Contributions. To the extent required by an order of a
------------------------
court of competent jurisdiction, or a settlement, or agreement granting back
pay, the Employer shall make corrective Contributions, subject to the applicable
limitations on deductible Contributions and maximum Annual Additions, to the
Plan. On a voluntary basis, the Employer may also make such Contributions in
order to correct mistakes made in distributing or crediting amounts to one or
more Accounts. Any such Contributions shall be allocated or credited as
specified by the Employer.
13.6 Limitation on Rights of Employees. Except as provided in any
---------------------------------
applicable basic labor agreement, the Plan is strictly a voluntary undertaking
on the part of the Employer and shall not constitute a contract between the
Employer and any employee, or consideration for, or an inducement or condition
of, the employment of an employee. Except as otherwise required by law or such
an employment agreement, nothing contained in the Plan shall give any employee
the right to be retained in the service of the Employer or to interfere with or
restrict the right of the Employer, which is hereby expressly reserved, to
discharge or retire any employee at any time, with or without cause. Except as
otherwise required by law, inclusion under the Plan will not give any employee
any right or claim to any benefit hereunder except to the extent such right has
specifically become fixed under the terms of the Plan and there are Trust Funds
available to pay the benefit.
13.7 Nonalienation of Benefits.
-------------------------
(a) Except as otherwise provided in Subsection (b), the payments,
benefits, or rights of any Participant, Spouse, or beneficiary shall not be
subject to assignment, alienation, or the claim of any creditor. To the fullest
extent
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<PAGE>
permitted by law, all such payments, benefits, and rights shall be free from
attachment, alienation, garnishment\\1\\ or any other legal or equitable process
available to any creditor of such Participant, Spouse, or beneficiary. Except
as provided in Section 4.9, no Participant's Spouse or beneficiary shall have
the right to alienate, anticipate, commute, pledge, encumber, or assign any of
the benefits or payments under the Plan, except that such person shall have the
right to designate a beneficiary or beneficiaries as hereinabove provided.
(b) (1) All rights and benefits, including elections, provided to a
Participant in this Plan, shall be subject to the rights afforded to any
alternate payee under a qualified domestic relations order (as those terms are
defined in section 414(p) of the Code), including any other domestic relations
orders permitted to be treated as a qualified domestic relations order under the
provisions of the Code and ERISA The Plan Administrator shall establish a
written procedure to determine the qualified status of domestic relations orders
and to administer distributions under such qualified orders.
(2) To the extent provided under a qualified domestic relations
order, a former spouse of a Participant shall be treated as the Spouse of a
Participant for all purposes under this Plan.
(3) The Plan Administrator shall have the right to use a
Participant's Accounts to satisfy a federal tax levy assessed against the
Participant pursuant to section 6331 of the Code.
13.8 Duty to Provide Data.
--------------------
(a) The Employer, a Related Company, and every other person with an
interest in the Plan or claiming benefits under the Plan shall furnish the Plan
Administrator on a timely and accurate basis with such documents, evidence, or
information as the Plan Administrator in its discretion deems necessary or
desirable for the purpose of administering the Plan. The Plan Administrator may
postpone payment of benefits until such documents, evidence, or information has
been furnished.
(b) Every Participant and other person claiming a benefit under this
Plan shall give written notice to the Plan Administrator of his post office
address and each change of post office address. Any communication, statement,
or notice addressed to such person at his latest post office address, as filed
with the Plan Administrator will, on deposit in the United States mail with
postage prepaid, be binding upon such person for all purposes of the Plan. The
Plan Administrator, the Employer,
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<PAGE>
a Related Company, and all Plan fiduciaries shall not be obliged to search for,
or to ascertain, the whereabouts of any person who fails to give notice of his
correct address.
13.9 Service of Process. The Plan Administrator is hereby designated as
------------------
agent for the service of legal process on the Plan.
13.10 Governing Law. The Plan and Trust shall be interpreted,
-------------
administered, and enforced in accordance with the Code and ERISA, and rights of
Participants, former Participants, Spouses, beneficiaries, and all other persons
shall be determined in accordance therewith; provided, however, that, to the
extent that state law is applicable, the laws of the state in which the
Employer's principal place of business is located shall apply.
13.11 Titles. Titles are provided herein for convenience only and shall
------
not serve as a basis for interpretation or construction of the Plan or Trust
Agreement.
13.12 References. Unless the context clearly indicates to the contrary, a
----------
reference to a Plan or Trust Agreement provision, statute, regulation, or
document shall be construed as referring to any subsequently enacted, adopted,
or executed counterpart.
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<PAGE>
SCHEDULE A EQ-HS
PETROLEUM DEVELOPMENT CORPORATION
---------------------------------
SAVINGS AND PROTECTION PLAN
JOINDER AGREEMENT
The Employer desires to adopt the Savings and Protection Plan to which this
Joinder Agreement is a Schedule.
The special features applicable to the Plan are set forth in this Joinder
Agreement. These provisions shall take precedence over any contrary terms of
the Plan.
A. GENERAL INFORMATION
-------------------
(1) Name of Employer: Petroleum Development Corporation
---------------------------------
Employer is successor to: N/A
------------------
Employee's service with the Employer's predecessor shall be recognized for
eligibility, participation, and vesting purposes (choose one):
Yes_____ No_____ N/A
(2) This is (choose one):
(a) _____ new plan: Effective Date:_____________
(b) x amendment to existing plan.
--------
Effective Date of amendment: January 1. 1989
---------------
Original effective date of Plan: May 1, 1987
-----------
(3) Employer's fiscal (taxable) year: 1/1-12/31
---------
(4) Plan Year: 1/1 - 12/31 Plan Number: 001
----------- ---
(5) Limitation Year (if other than the Plan Year):
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<PAGE>
B. ELIGIBILITY. RETIREMENT AGE. AND COMPENSATION
---------------------------------------------
(6) Service Required to Participate: Eligibility service shall be
-------------------------------
calculated on the Hours of Service basis.
(7) (a) Service Requirement: To participate, an Eligible Employee (see
-------------------
Item 7(b)) must have completed (choose one):
(1) ___ ______ month(s) of service (up to 11 months)
(2) X one Year of Service
--
(If less than one Year of Service is required, an Eligible Employee must be
continuously employed for the number of months specified above. The Eligible
Employee shall not be required to complete a stated number of Hours of Service.)
(b) Covered Positions: An employee will become a Participant in the Plan
-----------------
only if he has attained age 19 (not greater than age 21), and he also meets the
following special requirements (choose as many as desired):
(1) ___ all employees, including part-time employees, as defined in
Section 2.20 of the Plan
X the employee is a salaried employee
-
X the employee is an hourly employee the employee is a
-
commissioned salesperson
the employee is a part-time employee (as defined in Section
--
2.20 of the Plan)
other: _________
--
(2) ___ the employee is a union employee (whose collective bargaining
agreement provides for participation hereunder)
the employee is a non-union employee
--
the employee is either a non-union or a union employee
--
not applicable (the Employer has no union employees)
--
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<PAGE>
(3) __ the employee is a leased employee (as defined in section 414(n) of
the Code)
(8) Early Retirement: shall be age 591/2 (not earlier than age 55).
---------------- -----
(9) Normal Retirement Date: shall be age 65 (not earlier than 60 and not later
----------------------
than 65).
(10) Entry Dates: January 1 and JulY 1 (generally, the first day of the Plan
------------ --------- ------
Year and the first day of the seventh month of the Plan Year). In
addition, the Effective Date of this Plan shall be an Entry Date in the
first Plan Year.
C. PARTICIPANT DEFERRALS AND EMPLOYER CONTRIBUTIONS
------------------------------------------------
(11) Participant Deferrals: Each Participant shall be entitled to defer
---------------------
from 2% to 20% (specify allowable whole percentages) of his Compensation for the
-- ---
period in question by electing to have the Employer contribute the Deferral to
the Participant's 401(k) Account instead of paying the deferred amount to the
Participant in cash.
(12) Participant Rollovers: Participants may make rollover contributions:
---------------------
Yes X No _____
-----
(13) Matching Contributions: Participant Deferrals with respect to which
----------------------
Matching Employer Contributions are to be made are referred to as
"Matchable Deferrals." Choose one of the following options:
(a) ___ the Employer shall not match a Participant's
---
Deferrals.
(b) X the Employer shall, at its discretion, match
---
a Participant's Deferrals in an amount to be
determined by the Employer which shall be
allocated among Participants entitled to
Contributions under Item 16 for the Plan Year
in proportion to their Matchable Deferrals
for the Plan Year. In making this allocation
(choose one):
(1) X all of a Participant's Matchable
---
Deferrals will be taken into account.
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<PAGE>
(2) ___ only a Participant's Matchable Deferrals not in excess of
$_________ or _____% of Compensation shall be taken into account.
(c) _____ the Employer shall match a Participant's Deferrals in the
following manner:
(1) X an amount which is equal to _____% of the
----
Matchable Deferrals of each Participant
entitled to Matching Contributions under
Item 16 for the Plan Year.
(2) ____ _____% of the Matchable Deferrals,
provided that such Matching Contribution
does not exceed $___________ or _____% of
the Participant's Compensation for the
period in question for each Participant
entitled to matching Contributions under
Item 16 for the Plan Year.
In no event shall a Matching Contribution under (b) or (c) above exceed the
lesser of (1) the maximum amount which may be contributed as Deferrals under
Code section 402(g) for such Plan Year, or (ii) the amount determined in (b) or
(c) above.
(14) Basic Employer Contributions (i.e., non-Matching Contributions)
----------------------------
(choose one):
(a) ___ the Employer shall not make Basic Contributions.
---
(b) X the Employer shall contribute (choose one):
---
(1) X a discretionary amount to be determined by
---
the Employer and allocated in the proportion that each
eligible Participant's Compensation for the period in
question bears to the total Compensation of all
eligible Participants for the period in question.
(2) ___ $__________ for all Participants who meet
the requirements of Item 16 for the Plan
Year.
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<PAGE>
(3) ____ an amount equal to _____% of the
Compensation of all Participants who meet
the requirements of Item 16 for the Plan
Year.
(15) Basic and Matching Contributions (choose one):
--------------------------------
(a) ____ shall not exceed the Net Profits of the
Employer.
(b) X may exceed the Net Profits of the Employer.
----
(16) Eligibility for Employer Contributions: Each Eligible Employee
--------------------------------------
employed during the Plan Year shall be eligible to share in Basic Contributions
if the Eligible Employee receives Compensation and is employed by the Employer
on the last day of the period for which such Contribution is made. Each
Participant employed during the Plan Year who made Matchable Deferrals shall be
eligible to share in Matching Contributions if the Participant is employed by
the Employer on the last day of the period for which the Contribution was made.
D. ALLOCATION OF AMOUNTS TO PARTICIPANT ACCOUNTS
---------------------------------------------
(17) Participant Deferrals: A Participant's Deferrals shall be credited to
---------------------
the Participant's 401(k) Account as of the date the Deferrals are deducted by
the Employer from the Participant's Compensation, but without any portion of the
gains or losses of the Trust Fund earnings thereon until such time as they are
invested by the Trustee.
Qualified Nonelective Contributions shall be allocated to the Qualified
Nonelective Contribution Accounts of the Eligible Employees who are not Highly
Compensated Employees in the Plan Year for which the Qualified Nonelective
Contributions are made and shall be allocated to the Qualified Nonelective
Contribution Account of each such Eligible Employee in the proportion that his
Compensation for the Plan Year bears to the Compensation of all such Eligible
Employees for the Plan Year.
(18) Matching Contributions: Matching Contributions for the period in
----------------------
question, if any, shall be credited to a Participant's Employer Contribution
Account in accordance with Item 13 as of the last day of the period for which
they are made, but without any portion of the gains or losses of the Trust Fund
or earnings thereon until such time as they are invested by the Trustee.
Qualified Matching Contributions shall be allocated to the Qualified
Matching Contribution Accounts of the Participants
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<PAGE>
who are not Highly Compensated Employees in the Plan Year for which the
Contributions shall be allocated to the Qualified Matching Contribution
Participant in the proportion that his Salary Reduction Savings for the Plan
Year bears to the Salary Reduction Savings of all such Participants for the Plan
Year.
(19) Basic Contributions: Basic Contributions shall be made as of the last
-------------------
day of the period specified by the Plan Administrator. Basic Contributions made
in accordance with Item 14(b) (1) shall be allocated to the Employer
Contribution Account of each Eligible Employee who meets the requirements of
Item 16 of the Joinder Agreement as of the last day of the period for which the
Contributions are made, in the method specified in Item 14.
(20) Forfeitures: Forfeitures, if any, shall (choose one):
-----------
(a) X be applied to increase benefits by adding them
--- to and allocating them with Basic Contributions.
If there are no Basic Contributions under this
Plan, forfeitures will be allocated to the
Employer Contribution Accounts of eligible
Participants on a pro-rata basis in the
proportion that each eligible Participant's
Compensation bears to the total Compensation of
all eligible Participants.
(b) be applied to reduce the amount the Employer is
--- required to contribute for the year.
A Participant shall be eligible to share in forfeitures if the Participant is
employed by the Employer on the last day of the period for which the forfeitures
are being made.
E. CHANGES IN PARTICIPANT DEFERRAL RATES
-------------------------------------
(21) Timing of Changes: A Participant may suspend his Deferrals at any
-----------------
time and, following a suspension, the Participant may resume making Deferrals at
such time as the Plan Administrator specifies, but in no event later than one
year following the filing of an election to resume Deferrals. In addition,
Participants may change their Deferral rate at such times as the Plan
Administrator specifies.
(22) Effective Date of Change: A change in Deferral rate shall become
------------------------
effective on the date the Plan Administrator specifies, but in no event later
than one year following the filing of an election for a new Deferral rate.
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<PAGE>
F. VESTING
-------
(23) Service for Vesting Purposes: Vesting credit shall be determined
----------------------------
under the Hours of Service method. A Participant's 401(k) and Rollover Accounts
shall at all times be fully vested. A Participant's Employer Contribution
Account shall vest as follows (choose one):
(a) X full and immediate vesting
-
(b) _____ "2-20" vesting
Vested
Years of Service Percentage
---------------- ----------
less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
(c) _____ "3-20" vesting
Vested
Years of Service Percentage
---------------- ----------
less than 3 0%
3 20%
4 40%
5 60%
6 80%
7 or more 100%
(d) _____ "cliff" vesting. Full vesting after _____ years of service
(not to exceed five), with no interim vesting.
(N.B. The schedules in (c) and (d) above may only be used if the Plan is not
"top-heavy".)
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<PAGE>
If this Plan is meant to be an amendment of an existing plan (see Item 2), and
if the vesting schedule of the predecessor plan document is to be used with
respect to account balances prior to the effective date of the amendment, that
vesting schedule must be specified below:
Years of Vesting Vested
Service Percentage
------- ----------
1 ___%
2 ___%
3 ___%
4 ___%
5 ___%
6 ___%
7 ___%
8 ___%
9 ___%
10 ___%
11 ___%
12 ___%
13 ___%
14 ___%
15 ___%
Years of Service to be excluded for vesting purposes:(specify):
G. INVESTMENTS
-----------
(24) Investment Funds: Accounts may be invested in one or more of the
----------------
following investment funds:
(a) fixed income investment fund
(b) common stock investment fund
(c) balanced investment fund
(d) aggressive stock investment fund
(e) individual life insurance policies or contracts
(25) Investment Elections: Subject to the rules established by the Plan
--------------------
Administrator, if more than one investment fund is being offered (as determined
by the Employer), Participants may choose how their Accounts are to be invested.
To the extent a Participant fails to elect an investment fund
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<PAGE>
properly, such Participants Accounts shall be invested in the fixed income
investment fund.
H. MISCELLANEOUS
-------------
(26) Compensation:
------------
(a) Compensation shall be defined as:
(1) an employee's compensation as described in
(S)414(s); or
(2) an employee's Limitation Compensation; or
X (3) an employee's total taxable income paid by the
-
Employer, exclusive of:
(A) overtime
(B) bonuses
If this Item (a) (3) is selected, notwithstanding
the foregoing, Compensation for a given Plan Year
shall be the total wages of a Participant that
would be required to be reported on the Participant's
Form W-2 for income tax purposes if, for that Plan
Year, the definition given in this Item 26(a) (3)
does not meet the compensation percentage test. The
definition given in this Item 26 (a) (3) meets
the compensation percentage test for a given
Plan Year if the compensation percentage for the
Highly Compensated Employees is not more than
the compensation percentage for all other
Eligible Employees. The compensation percentage
for a group of individuals is the average of the
ratios, calculated separately for each
individual in the group, of (a) the individual's
compensation as defined in this Item 26(a) (3)
for the Plan Year in question to (b) the total
wages that would be required to be reported on
the individual's Form W-2 for income tax
purposes for the Plan Year in question.
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<PAGE>
(b) For Plan Years beginning prior to January 1, 1992, Compensation:
(1) shall
X (2) shall not
-
include Compensation earned by an employee prior to the date on which he becomes
eligible to participate in the Plan under Section 3.1(a).
(27) Hardship Withdrawals: For purposes of Section 4.8 of the Plan, the
--------------------
determination as to whether a Participant is undergoing a hardship shall be
determined under either (a) or (b) as follows:
X (a) The Participant shall submit to the Plan Administrator a written
-
request for a hardship withdrawal. The Participant's application shall
represent that the withdrawal is to be made for one or more of the following
purposes:
(1) to pay medical expenses incurred by the
Participant or his spouse or any of his dependents, not
reimbursed by insurance or otherwise;
(2) to purchase a principal residence for the
Participant (but not to pay mortgage payments);
(3) to pay tuition and related educational fees for
the next twelve months of post-secondary education for the
Participant or his spouse or any of his children or
dependents;
(4) to prevent the eviction of the Participant from
his principal residence or to prevent the foreclosure on the
mortgage of his principal residence.
For the purposes of this Item 27(a), the term
"dependent" shall have the meaning given to it by section
152 of the Code.
A withdrawal shall not be permitted under this Item
27(a) for any reason not listed above, unless the
Commissioner of Internal Revenue expands the list of "deemed
immediate and heavy
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<PAGE>
financial needs" set forth in IRS Reg. (S)1.401(k)- 1(d)(2)(iv)(A), in which
event withdrawals shall be permitted for the additional reason(s) described by
the Commissioner.
The amount of the Participant's withdrawal may not exceed the amount
necessary to meet the Participant's hardship (including amounts necessary to pay
any federal, state or local income taxes or penalties reasonably anticipated to
result from the distribution).
_____ (b) If a Participant does not qualify for a hardship withdrawal because he
does not meet one of the requirements of Item 27(a), a hardship withdrawal may
be permitted if the Committee decides that the Participant's hardship meets
written standards set by the Committee and administered on a nondiscriminatory
basis.
(28) Distribution Costs: Costs associated with the distribution of benefits to
------------------
a Participant, Spouse, or beneficiary will be paid (choose one):
(a) _____ by the Employer.
(b) X from the amount to be distributed to the Participant, Spouse, or
-
beneficiary.
(29) Other Special Provisions: (add additional sheets, if necessary):
------------------------
Petroleum Development Corporation
- ---------------------------------- ---------------------------------
Date Employer's Name
Dale G. Rettinger,
Attest:Steven R. Williams, President By: Executive VP
----------------------------- ------------------------
Name and Title Name and Title
/s/ Steven R. Williams By: /s/ Dale G. Rettinger
- ------------------------- ------------------------
Signature Signature
-93-
<PAGE>
AMENDMENT NO. 1
To The
PETROLEUM DEVELOPMENT CORPORATION
SAVINGS AND PROTECTION PLAN
WHEREAS, Petroleum Development Corporation adopted the Petroleum
Development Corporation Savings and Protection Plan (the "Plan/11/) for its
employees, effective May 1, 1987; and
WHEREAS, the Plan has been amended from time to time, and was amended and
restated effective January 1, 1989; and
WHEREAS, the Company now wishes to further amend the Plan in order to
comply with certain requirements of the Unemployment Compensation Amendments of
1992 and the Omnibus Budget Reconciliation Act of 1993 through the adoption of
model language proposed by the Internal Revenue Service in Rev. Proc.93-12 and
Rev. Proc. 94-13 respectively; and
NOW, THEREFORE, the Plan is hereby amended, effective January 1, 1994 as
follows:
I. Section 2.13 is amended by the addition of the following paragraph at
the end of the Section:
"In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for plan years
beginning on or after January 1, 1994, the annual compensation of each employee
taken into account under the plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with section 401(a) (17) (B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination
<PAGE>
period) beginning in such calendar year. If a determination period consists of
fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied
by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in this
plan to the limitation under section 401(a) (17) of the Code shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken into account
in determining an employee's benefits accruing in the current plan year, the
compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first plan year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000."
II. Section 8.5 is added to Article VIII and shall provide as follows:
Section 8.5 Direct Rollover. This Section 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.
(a) 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
-2-
<PAGE>
exclusion for net unrealized appreciation with respect to employer securities).
(b) 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 individual
retirement annuity.
(c) 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 spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in section 414(p) of the Code,
are distributes with regard to the interest of the spouse or former spouse.
(d) A direct rollover is a payment by the plan to the eligible retirement
plan specified by the distributee.
IN WITNESS WHEREOF, Petroleum Development Corporation has authorized its
duly appointed officers to execute this Amendment No. 1 this 31st day of
December, 1994.
SEAL PETROLEUM DEVELOPMENT
CORPORATION
By: /s/ Steven R. Williams
----------------------
President
Attest: s/s Dale G. Rettinger
---------------------
Assistant Secretary
-3-
<PAGE>
AMENDMENT NO. 2
TO THE
PETROLEUM DEVELOPMENT CORPORATION 401(K) PLAN
WHEREAS, Petroleum Development Corporation (the "Company") adopted the
Petroleum Development Corporation 401(k) Plan (the "Plan") for its employees,
effective May 1, 1987; and
WHEREAS, the Plan has been amended from time to time, and was amended and
restated effective January 1, 1989; and
WHEREAS, the Company now wishes to amend the Plan further;
NOW, THEREFORE, the Plan is hereby amended, effective May 1, 1996 as
follows:
I. Subsections H.29(a), (b), and (c) are added to the Joinder Agreement
to provide as follows:
(a) Effective May 1, 1996, Riley Natural Gas Company is a Related
Company.
(b) Except for purposes of Sections C.l1, 13, and 14 of this Joinder
Agreement, all service with Riley Natural Gas Company prior to May 1, 1996 shall
be treated as if it were employment with the Employer.
(c) The first Entry Date for Employees of Riley Natural Gas Company
will be May 1, 1996.
II. Section 3.3 of the Plan is amended to include the following sentence:
For purposes of Article III, service with Riley Natural Gas Company
prior to May 1, 1996 shall be treated as if it were employment with the
Employer.
<PAGE>
IN WITNESS WHEREOF, the Company has authorized its duly appointed officers
to execute this Amendment No. 2 this 1st day of June 1996.
------- --------
[SEAL] PETROLEUM DEVELOPMENT
CORPORATION
By: /s/ Steven R. Williams
----------------------
President
Attest: /s/ Dale G. Rettinger
---------------------
Assistant Secretary
-2-
<PAGE>
Exhibit 10.15
INDEMNIFICATION AGREEMENT
--------------- ---------
THIS AGREEMENT, Made this _____ day of __________, 1996, between PETROLEUM
DEVELOPMENT CORPORATION, a Nevada corporation, with its principal offices at 103
East Main Street, Bridgeport, West Virginia 26330, hereinafter referred to as
"the Indemnitor", and (Name), Address; City, State, Zip hereinafter referred
------ --------------------------
to as "the Indemnitee."
1. RECITALS.
--------
(a) To induce the Indemnitee into continuing his services as an Officer of
this Corporation, the Indemnitor has agreed and does hereby agree on the terms
and conditions herein set out to indemnify, save and hold harmless the
Indemnitee of and from the claims, demands, actions, causes of actions,
proclaims, described herein; and
(b) The Indemnitee is willing to undertake the office of (Title) of the
-------
Indemnitor on the condition and only on the condition that he is indemnified as
herein provided.
WITNESSETH: In consideration of the premises and the sum of One Dollar
($1.00) cash in hand paid by the Indemnitee to the Indemninator, it is agreed as
follows:
1. The Indemnitor does hereby agree to indemnify, save and hold harmless
the Indemnitee who was or is threatened to be made a party to any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or at the behest of the
Indemnitor), by reason of the fact that he is or was an Officer of the
Indemnitor, or was serving at the request of
<PAGE>
the Indemnitor as an Officer, from and against all expenses (including
attorneys' fees), judgements, fines, taxes and penalties and interest thereon,
and amounts paid in settlement actually and reasonably incurred by the
Indemnitee in connection with such action or proceeding if he acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interest of the corporation, and which respect to any criminal action or
proceeding, that the Indemnitee had no reasonable cause to believe such conduct
to have been unlawful. The termination of any action or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
---------------
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interest of the corporation, and with respect to any
criminal action or proceeding that the Indemnitee did not have reasonable cause
to believe that such conduct was unlawful.
2. The Indemnitor does further agree to save and hold harmless and does
indemnify the Indemnitee from any threatened, pending or completed action or
proceeding, by or in the right of the Indemnitor to procure judgement in its
favor by reason of the fact that he was an Officer, or was serving at the
request of the Indemnitor as an Officer of the Indemnitor corporation against
expenses (including attorneys' fees) actually and reasonably incurred by the
Indemnitee in connection with the defense or settlement of such action or
proceeding if he acted in good faith and in a manner he
2
<PAGE>
reasonably believed to be in or not opposed to the best interest of the
corporation, except that no indemnification shall be required with respect to
any claim, issue or matter, including, but not limited to, taxes or interest or
penalties thereon, as to which such person shall have been adjudged to have
been liable for negligence or misconduct in the performance of his duty to the
corporation, unless and only to the extent that the Court in which such action
or proceeding was brought, shall determine upon application that, despite the
adjudication of liability, but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court shall deem to be proper.
3. To the extent that the Indemnitee as an Officer of the Indemnitor has
been successful on the merits or otherwise, in defense of any action or a
proceeding, referred to above, or in defense of any claim, issue, or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
4. Indemnification provided hereunder (unless ordered by a Court) shall be
made by the Indemnitor only as authorized in the specific case upon a
determination that the indemnification of the Indemnitee is appropriate because
he has met the applicable standard of conduct as described herein. Such
determination shall be made (i) by the Board of Directors, by a majority vote of
a quorum consisting of Directors who are not parties to such action or
proceeding; or
3
<PAGE>
(ii) if such a quorum is not obtainable, or if obtainable, a quorum of
disinterested Directors so directs by independent
legal counsel in a written opinion; (iii) by the shareholders of the Indemnitor.
5. Expenses (including attorneys' fees) incurred in defending a civil or
criminal action or proceeding may be paid by the corporation in advance of the
final disposition of such action or proceeding as authorized in the manner
provided in the next preceding Section. Upon receipt of an undertaking by or on
behalf of the Indemnitee to repay such amount unless it shall ultimately be
determined that the Indemnitee is entitled to be indemnified by the corporation
as authorized by this section.
6. The Indemnitor reserves the right to purchase and maintain insurance on
behalf of the Indemnitee against any liability or liabilities asserted against
him and incurred by him in such a capacity or arising out of his status as such,
whether or not the Indemnitor would have the power to indemnify him against such
liability under any provision of this agreement.
7. Entire Agreement. This writing contains the entire agreement between
----------------
the parties with respect to the matters set forth herein.
8. Gender. When the term "he" or "him" is used in this agreement it shall
------
be construed and is intended to include both the masculine and feminine genders.
9. Governing Law. This agreement shall be construed under the laws of the
-------------
State of West Virginia.
4
<PAGE>
10. Benefit. The benefit of this agreement and the obligations created
-------
hereby shall inure to and be binding upon
the respective heirs, personal representatives, successors and assigns of the
parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement all as
of the day and year first above written.
INDEMNITOR:
PETROLEUM DEVELOPMENT CORPORATION
a Nevada Corporation
(CORPORATE SEAL)
By_____________________________
Its President
INDEMNITEE:
(SEAL) -------------------------------
(Name)
5
<PAGE>
AMENDMENT TO INDEMNIFICATION AGREEMENT
AMENDMENT TO INDEMNIFICATION AGREEMENT ("Amendment") made as of September
22, 1997 between Petroleum Development Corporation, a Nevada corporation (the
"Indemnitor") and ___________________, an individual (the "Indemnitee").
RECITALS:
--------
WHEREAS, Indemnitor and Indemnitee are parties to that certain
Indemnification Agreement dated January 1, 1987 (the "Agreement") pursuant to
which the Indemnitee is indemnified by the Indemnitor in the Indemnitee's
capacity as a Director of the Indemnitor; and
WHEREAS, Indemnitor wishes to indemnify Indemnitee in his capacity as an
officer of Indemnitor and Indemnitee wishes to be so indemnified, and the Board
of Directors of Indemnitor has approved certain amendments to the Agreement, to
provide as set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and covenants set forth
herein, and intending to be legally bound hereby, the parties hereto agree as
follows:
1. DEFINED TERMS. Each capitalized term used in this Amendment and not
otherwise defined shall have the meaning assigned to it in the Agreement, unless
the context clearly indicates to the contrary.
2. AMENDMENTS TO RECITALS. The Recitals of the Agreement are amended so
as to provide in their entirety as follows:
"(a) To induce the Indemnitee into continuing his services as a
Director and Officer of the Corporation, the Indemnitor has agreed and
does hereby agree on the terms and conditions herein set out to
indemnify, save and hold harmless the Indemnitee of and from the
claims, demands, actions, causes of actions and proclaims described
herein.
(b) The Indemnitee is willing to undertake the position of Director and
the office of _______________ of the Indemnitor on the condition and
only on the condition that he is indemnified as herein provided."
<PAGE>
3. AMENDMENTS TO SECTION 1. Section 1 of the Agreement is amended so as
to insert the phrase "or Officer" after the word "Director" wherever such word
appears in Section 1.
4. AMENDMENT TO SECTION 2. Section 2 of the Agreement is amended so as to
insert the phrase "or Officer" after the word "Director" wherever such word
appears in Section 2.
5. AMENDMENT TO SECTION 3. Section 3 of the Agreement is amended so as to
insert the phrase "or Officer" after the word "Director" wherever such word
appears in Section 3.
6. AMENDMENT TO SECTION 4. Section 4 of the Agreement is amended so as to
insert the phrase "or Officer" after the word "Director" wherever such word
appears in Section 4.
.
7. AMENDMENT TO SECTION 6. Section 6 of the Agreement is amended and
restated so as to provide in its entirety as follows:
"The indemnification provided by this agreement shall not be deemed
exclusive of any other rights to which any shareholder, Director or
Officer may be entitled under any by-law, agreement, vote of
shareholder, members or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity
while holding such office and shall continue as to a person who has
ceased to be a Director or Officer and shall inure to the benefit of
the heirs, executors, administrators and personal representatives of
such indemnity."
8. EFFECT OF AMENDMENT. The parties acknowledge and agree that all of the
terms, provisions, covenants and conditions of the Agreement shall hereafter
continue in full force and effect in accordance with the terms thereof except to
the extent amended, modified, deleted or revised herein.
9. COUNTERPARTS. This Amendment may be executed on separate counter
parts, each of which is deemed to be an original and all of which taken together
shall constitute one and the same agreement.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first above written.
PETROLEUM DEVELOPMENT CORPORATION
By:___________________________________
James N. Ryan
Chairman and Chief Executive Officer
______________________________________
INDEMNITEE
-3-
<PAGE>
Exhibit 10.16
FORM OF RABBI TRUST AGREEMENT
THIS TRUST AGREEMENT made and entered into as of 10-1, 1995, by and between
----
Frontier Trust Company, a trust company organized under the laws of the State of
North Dakota (the "Trustee"), with offices at 3100 13th Avenue South, Fargo,
North Dakota, and Petroleum Development Corp. (the "Company"), with offices at
-----------------------------
103 E. Main St, Bridgeport, WV 26330.
W I T N E S S E T H:
--------------------
WHEREAS,
1. The Company has established a non-qualified plan of deferred
compensation (the "Plan") in order to provide deferred compensation benefits for
its eligible employees (and directors).
2. The Company desires to create a trust (the "Trust") to provide all or a
portion of the benefits under the Plan. The Trust hereby created is a grantor
trust (as that term is defined in Section 671 of the Internal Revenue Code of
1986, as amended), and the Company shall include all items of Trust income and
expenses in its income tax return for the year in which such income was earned
and such expenses were incurred.
3. The Company has, concurrent with the execution and delivery of this
Trust Agreement, delivered to the Trustee the money, life insurance policies
and/or annuity contracts listed on the attached Exhibit A, and the Trustee has
agreed to hold the same, together with any such monies, life insurance policies
or annuity contracts as the Company shall in the future determine and deliver to
the Trustee, in trust. All property, monies, securities and other assets as the
Trustee may hereafter at any time hold or acquire, including any gains or losses
thereon, shall constitute the corpus of the Trust (collectively referred to as
the "Trust Fund"). The Trust thus created has been created solely to aid in the
proper execution of the Plan and, except as otherwise provided in Sections 6.2
and 6.4, shall be availed of solely for such purposes.
4. Except as otherwise provided in Sections 6.2 and 6.4, it shall be
impossible, whether by operation or termination of the Trust, or by any other
means, for any part of the Trust Fund to be used for, or diverted to, purposes
other than the exclusive benefit of the participants in the Plan and their
beneficiaries and the payment of the expenses of the administration of the Plan
and Trust prior to the satisfaction of all liabilities for benefits and expenses
under the Plan and the Trust.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants hereinafter contained, the Company and the Trustee hereby agree
as follows:
ARTICLE I
General Provisions
------------------
Section 1.1. In cases of conflict between the provisions of the Plan and
-----------
this Trust Agreement, the terms of the Plan shall prevail over the terms of the
Trust Agreement, except that the Trust Agreement shall prevail in matters
relating to the rights and duties of the Trustee; provided, however, that the
Trustee shall be under no duty to look into the terms of the Plan, to question
any action or non-action of the Company or to see that any action or non-action
of the Company is authorized by the terms of the Plan.
<PAGE>
Section 1.2. Whenever necessary or appropriate, any masculine pronoun
-----------
used herein shall be construed to include the feminine pronoun; any singular
word so used shall be construed to include the similar plural word and any
plural word so used shall be construed to include also the singular word.
Section 1.3. The term "Participants" as used in this Trust Agreement
-----------
refers to participants in the Plan as set forth on the attached Exhibit B and
their beneficiaries unless otherwise indicated. However, for purposes of
compliance with the consent, approval and release requirements of Sections 3.3,
5.1, 5.2, 6.1 and 6.2, a beneficiary not receiving payments from the Trust shall
not be considered a Participant.
Section 1.4. Any reference herein to any date or day shall be deemed to
-----------
be a reference to the close of business on such date or day.
ARTICLE II
Trustee Responsibilities
------------------------
Section 2.1. The Company hereby transfers and sets over to the Trustee
-----------
the property specified above, the receipt of which property is hereby
acknowledged by the Trustee, upon the express terms and conditions and with the
powers and limitations hereinafter conferred and set forth.
Section 2.2. The Trustee shall have no investment management
-----------
responsibility with respect to the assets of the Trust Fund, other than certain
short-term investment responsibilities as described in Section 2.5).
Section 2.3. Subject to the investment limitations contained in Section
-----------
2.5, all decisions, other than the short-term investment responsibility
referred to in Section 2.2, regarding investment of the assets of the Trust Fund
shall be made by the Company. The Trustee shall have no responsibility to
determine either the extent to which the Trust is required to produce current
income or the degree of liquidity required to satisfy the provisions of the
Plan.
Section 2.4. If all or any portion of the Trust Fund shall be invested at
-----------
any time in life insurance or annuity contracts ("insurance contracts"), such
insurance contracts shall be assets of the Trust. The Trustee shall be the owner
and beneficiary under such insurance contracts. All rights and privileges
granted under the insurance contracts (including, but not limited to, the right
to collect the death benefit of the insurance contracts, the right to make
policy loans on the insurance contracts and the right to determine the timing
and method of payment under the insurance contracts) shall be exercised by the
Trustee as directed by the Company, except as provided in Section 4.2. The
Company is hereby authorized to serve as signatory for the Trustee to execute
insurance contract applications and death claims, and the Company shall advise
the Trustee of each action taken by it pursuant to such authority.
Section 2.5. In the administration of the Trust, subject to any
-----------
limitations stated elsewhere in this Trust Agreement, the Trustee is authorized
and empowered to take any action set forth below with respect to any asset of
the Trust Fund:
(a) To hold and continue to hold, pending other investment instructions by
the Company, all property at any time received by it in the form in which
received for such period or periods of time as the Trustee, in its sole and
absolute discretion shall determine, whether or not the same shall be authorized
by law for the investment of trust funds and whether or not the same shall be
income yielding;
2
<PAGE>
(b) To invest funds, pending other investment instructions by the Company,
in short-term investments, including but not limited to U.S. Treasury bills,
commercial paper, money market funds or tax-exempt funds, as the Trustee in its
sole and absolute discretion shall determine, whether or not the same shall be
authorized by law for the investment of trust funds and whether or not the same
shall be income yielding;
(c) To cause any asset of the Trust to be issued, held or registered in
the individual name of the Trustee, in the name of its nominee, in a securities
depository in such form that title will pass by delivery, provided the records
of the Trustee indicate the true ownership of such property;
(d) To carry insurance of such kinds and in such amounts as the Trustee,
in its sole and absolute discretion shall determine, to protect the Trust Fund
and the Trustee against any hazard;
(e) To employ such agents and counsel, including legal counsel of the
Trustee, and, upon prior notice to the Company, to commence or defend any
litigation with respect to the Trust or property of the Trust Fund, including
defending the Trustee against allegations of fiduciary liability, as the Trustee
in its sole and absolute discretion shall determine;
(f) To employ, in the administration of the Trust, such accountants,
attorneys, investment counsel and other persons as the Trustee in its sole and
absolute discretion shall determine;
(g) To invest and reinvest, pursuant to the instructions of the Company,
the assets of the Trust at any time held by it, without distinction between
income and principal, in any one or more of the mutual funds or similar
investment vehicles made available by or through The Equitable Life Assurance
Society of the United States or any of its affiliates, as the Company in its
sole and absolute discretion shall determine, whether or not the same shall be
authorized by law for the investment of trust funds and whether or not the same
shall be income producing; provided, however, that the Trustee reserves the
right to change the investment funds or investment vehicles made available under
this Trust Agreement;
(h) To sell, transfer, exchange or otherwise dispose of assets of the
Trust for purposes of making any payment at the direction of a Participant in
accordance with Section 4.2 ("Participant-directed payment");
(i) To borrow against insurance contracts which are assets of the Trust,
as directed by the Company or for purposes of making any Participant-directed
payment; and
(j) To do all other acts necessary or desirable for the proper
administration of the assets of the Trust.
Section 2.6. The Trustee shall maintain accurate records of all
-----------
transactions relating to the Trust Fund and such records shall be available at
all reasonable times for inspection by the Company. The Company, and not the
Trustee, shall be responsible for maintaining records pertaining to the Plan.
The Trustee shall submit to the Company, at least annually, a financial
accounting showing the contributions to, including gains and losses thereon, and
the withdrawals from the Trust Fund. If the Company does not file with the
Trustee objections to any such accounting within 90 days after receipt thereof,
the Company shall be deemed to have approved such accounting. Upon the
expiration of the 90 day period or upon the written approval of the Company of
any such accounting, the Trustee shall, to the extent permitted by applicable
law, be discharged from all liability to the Company for its acts or failures to
act described by such accounting.
3
<PAGE>
ARTICLE III
Fiduciary Responsibilities and Liabilities
------------------------------------------
Section 3.1. The Trustee and the Company and all other fiduciaries under
-----------
the Plan and this Trust Agreement intend that each fiduciary shall be solely
responsible for its own acts or omissions and shall be liable for the acts or
omissions of other persons only to the extent required by law:
Section 3.2. The Trustee shall have no obligations or duties with
-----------
respect to the acquisition, retention or disposition of any securities or other
property of the Trust, except (a) with respect to certain insurance contracts
described in Section 2.4 and short-term investments made pursuant to Section
2.2, and (1)) as described in Section 4.2 in connection with Participant-
directed payments. The Trustee shall not be liable, in any manner or for any
reason, for the making or retention of any investment pursuant to investment
directions of the Company or any other person authorized to make such investment
directions, and the Trustee shall not be liable for the failure to invest any or
all assets of the Trust Fund in the absence of such investment directions.
Section 3.3. The Trustee shall be entitled at any time to a judicial
-----------
settlement of its account. The Trustee may at any time settle its account by
written agreement with the Company. Such settlement of the Trustee's account
shall be with like effect as a judgment of a court having competent
jurisdiction, judicially settling such account in an action in which the Trustee
and all persons having or claiming any interest in the Trust Fund were parties.
The approval of such account shall constitute a full discharge and release of
the Trustee, both as to income and principal.
Section 3.4. Except as otherwise provided herein, the Trustee shall have
-----------
no powers, duties or responsibilities with regard to the administration of the
Plan nor shall it have any power, duty or responsibility to determine the rights
or benefits of any person having or claiming an interest under the Plan or
Trust.
Section 3.5. The Trustee shall have no liability for the adequacy of
-----------
contributions to the Plan and no responsibility to enforce the payment of such
contributions.
Section 3.6. Except as otherwise provided herein, any action to be taken
-----------
by the Trustee under the terms of this Trust Agreement shall be taken by the
Trustee only if, when and as instructed by the Company in a written instrument,
signed by the person or persons authorized by the Company to sign on its behalf,
and delivered to the Trustee. The Company shall certify to the Trustee the name
or names of any person or persons authorized to execute and present any
instrument on its behalf, and until notified by the Company that any such person
or persons is no longer authorized to act on its behalf, the Trustee may
continue to rely on the authority of any such person or persons. The Trustee
shall comply with any instructions which appear to be valid and duly authorized
by the Company and the Trustee may act without any further inquiry into any such
instruction. The Trustee shall not be liable for any loss, expense or breach of
trust which may result from any act or failure to act, if such action or
inaction is (a) in compliance with such instructions from the Company, or such
other instructions provided for in this Trust Agreement, or (1)) a result of the
failure on the part of the Company or any other party to give written
instructions properly or within a required period of time.
Section 3.7. The Trustee may from time to time consult with counsel, who
-----------
may be counsel for the Company, and shall not incur any liability or
responsibility for acting on the advice of counsel.
4
<PAGE>
Section 3.8. The Trustee shall not be liable for any loss, expense or
-----------
liability which it may incur in the administration of the Trust Fund, unless
arising from the Trustee's own gross negligence or willful misconduct, and the
Company agrees to indemnify and hold the Trustee harmless for any such loss,
expense or liability. Until otherwise paid by the Company, indemnification
amounts required to be paid pursuant to the provisions of this Section 3.8 shall
constitute a charge against the Trust Fund.
Section 3.9. The Trustee shall not be required to give any bond or other
-----------
security for the faithful performance of its duties under this Trust Agreement.
ARTICLE IV
Expenses and Payments
---------------------
Section 4.1. All payments from the Trust shall be made by the Trustee to
-----------
such persons, in such manner, at such times and in such amounts as the Company
or a Participant shall instruct in writing. If the instruction is received from
a person representing that he or she is a Participant, the Trustee shall request
written verification from the Company that the instruction is accurate in all
respects; if no verification is received within 30 days from the date of the
request, the Trustee shall make payment in accordance with the instruction until
the earlier of (a) completion of the distribution in accordance with the terms
of the instruction, or (b) receipt from the Company of a direction to terminate
distribution to the Participant.
Section 4.2. The Trustee shall be under no duty to inquire as to whether
-----------
any distribution instruction is made pursuant to the provisions of the Plan and
shall not be liable for making or refraining from making any distribution in
accordance with the provisions of Section 4.1. However, if a Participant
instructs the Trustee to make a payment from the Trust and the Trustee is unable
to comply with such instruction because the assets of the Trust are not
sufficiently liquid to permit compliance, the Trustee shall be required to take
any action authorized under Section 2.5 which the Trustee reasonably anticipates
will create sufficient liquidity for the payment of current or future amounts in
accordance with the instructions of Participants.
Section 4.3. The Company is to timely notify the Trustee in the event it
-----------
experiences financial difficulties of such nature that the Company is currently
or shortly will be bankrupt or insolvent. The Company shall designate, in
writing, the person or persons who are required to give such notice. Upon
receipt of such notice or any written allegation of the Company's bankruptcy or
insolvency from a person furnishing evidence satisfactory to the Trustee that it
is a creditor of the Company, all payments from the Trust Fund shall cease as
soon as administratively practicable following the date of such notice. The
Trustee shall resume payments only after it has determined that the Company is
no longer bankrupt or insolvent or pursuant to an order of a court of competent
jurisdiction. The Trustee shall be fully protected in making or refraining from
making any payments under this Section 4.3. For purposes of this Trust
Agreement, "insolvency" shall mean the inability of the Company to pay its debts
as they mature, and "bankruptcy" shall be deemed to occur when the Company is
subject to a pending proceeding as a debtor under the bankruptcy laws of the
United States.
5
<PAGE>
Section 4.4. In the event any controversy arises as to the person or
-----------
persons to whom any distribution is to be made or is currently being made by the
Trustee, or as to any other matter arising in the administration of the Plan,
the Trustee may retain the amount in controversy pending resolution of the
controversy. For purposes of this Section 4.4, no controversy shall be
considered resolved (a) until final adjudication of the controversy by a court
of competent jurisdiction or (b) until the Trustee has been furnished with
evidence of resolution of the controversy, has been indemnified against loss and
has determined that such evidence and indemnification are satisfactory to it.
The Trustee shall not be obligated to invest any amount retained by it under
this Section 4.4 nor shall it be liable for the payment of any interest or
income on any such amount, except to the extent of gains, if any, attributable
to the investment of such amount. Once the Trustee has made any distribution
under this Trust Agreement by mailing its check for the amount thereof, the
Trustee shall have no responsibility or liability with respect to such
distribution.
Section 4.5. The Trustee shall be entitled to receive for its services
-----------
in the administration of the Trust such compensation as set forth in the fee
schedule attached as Exhibit C hereto. The Company will be notified of any
change in fees at least 90 days prior to the effective date of the change. The
Trustee shall be entitled to reimbursement for reasonable sums which it may
expend in connection with its duties as Trustee. Until otherwise paid by the
Company, these expenses shall constitute a charge to the Trust Fund.
Section 4.6. Unless otherwise paid by the Company, the Trustee is hereby
-----------
authorized to pay from the Trust Fund all real and personal property taxes,
income taxes and other taxes of any kind levied or assessed under existing or
future laws against the Trust Fund. The Trustee shall not be personally liable
for any such taxes. If the Trustee shall so determine, the Trustee shall have
the right to institute legal action concerning any taxes levied or assessed
against the Trust.
ARTICLE V
Successor Trustee
-----------------
Section 5.1. The Trustee shall have the right to resign at any time,
-----------
provided the Trustee shall have delivered to the Company, at least 90 days in
advance, a written notice of such resignation. The Company shall have the right
to remove the Trustee as trustee hereunder, provided the Company shall have
delivered to the Trustee, at least 90 days in advance, a written notice of such
removal which includes a consent of at least two-thirds of the Participants. The
date of such resignation or removal shall be the date specified in the written
notice; provided, however, that the date of resignation or removal of the
Trustee shall be any earlier date that the Trustee and the Company agree upon.
Section 5.2. Upon the resignation or removal of the Trustee, a successor
-----------
Trustee shall be appointed by the Company subject to the approval, in writing,
of at least two-thirds of the Participants. The successor Trustee shall have all
of the powers and duties conferred herein upon the predecessor Trustee. The
predecessor Trustee shall not cease to be the Trustee until the successor
Trustee takes office or 60 days have elapsed since the effective date of its
resignation or removal, whichever occurs first.
Section 5.3. The Trustee shall deliver to the successor Trustee all
-----------
property of the Trust Fund, together with all records needed by the successor
Trustee to administer the Trust properly; provided, however, that the Trustee
shall be authorized to retain such amount as may be necessary for the payment of
its expenses incurred prior to its transfer of the Trust Fund and records to the
successor Trustee.
6
<PAGE>
Section 5.4. The Trustee shall execute, acknowledge and deliver all
-----------
documents and written instruments necessary to transfer the right, title and
interest in the Trust Fund, and all related rights and privileges, to the
successor Trustee.
ARTICLE VI
Amendment and Termination
-------------------------
Section 6.1. The Trust shall be irrevocable and may not be amended or
-----------
terminated by the Company. However, the Trust may be amended by a written
agreement between the Trustee and the Company (a) with the written consent of at
least two-thirds of the Participants on the date such amendment is proposed; (b)
as necessary to obtain a favorable ruling from the Internal Revenue Service with
respect to the tax consequences of the Plan and the Trust; (c) to conform its
provisions to the requirements of applicable laws or regulations; or (d) to
supply any omission, cure any ambiguity or correct or supplement any defective
or inconsistent provision; provided that any such amendment made without the
written consent of Participants described in clause (a) shall not adversely
affect the rights of any Participant under the Plan or Trust. Before any
amendment is made pursuant to clause (a), the Company shall deliver to the
Trustee a certification of proper compliance with the consent requirements of
this Section 6.1.
Section 6.2. After the satisfaction of all liabilities under the Plan
-----------
and Trust, any assets remaining in the Trust Fund shall be distributed by the
Trustee to the Company. The Trust shall terminate upon receipt by the Trustee
from the Company of a written release from each Participant confirming that all
such liabilities have been satisfied.
Section 6.3. Except as otherwise required by law, the interest of any
-----------
Participant in the income or principal of the Trust shall not be subject to the
assignment, alienation, pledge, attachment, or claims of the creditors of such
Participant, and shall not otherwise be voluntarily or involuntarily alienated
or encumbered by such Participant.
Section 6.4. Notwithstanding any provision herein to the contrary, the
-----------
income and principal of this Trust shall remain subject to the claims of the
Company's general creditors as if the assets of the Trust Fund were general
assets of the Company. In no event, however, shall creditors of the Company be
paid with assets of the Trust Fund unless the Trustee has been so directed by a
court, or a person appointed by a court, having competent jurisdiction over the
financial affairs of the Company in the event the Company is determined to be
insolvent or bankrupt. In addition, the Company shall be prohibited from
attempting to create a security interest in the Trust in favor of any of its
creditors.
Section 6.5. If any successor to the Company continues the Plan, it
-----------
shall automatically become a successor party to this Trust Agreement. If any
other company related to the Company adopts the Plan in accordance with the
provisions of the Plan, it shall become an additional Company and shall
automatically become a party to this Trust Agreement.
7
<PAGE>
Section 6.6. Any notice, consent, approval, certification, instruction
-----------
or other communication or document required under this Trust Agreement shall be
deemed effectively given or delivered only if it is in writing and is delivered
personally or by first class mail, addressed to the following addresses:
Company: Petroleum Development
103 East Main St.
Bridgeport, WV 26330
Attention: Dale G. Rettinger
Trustee: Frontier Trust Company
3100 13th Avenue South
Suite 303
Fargo, North Dakota 58103
Attention: Trust Administrator
The Company or Trustee may at any time change the address to which notices are
to be sent to it by giving written notice thereof in the manner provided in this
Section 6.6.
Section 6.7. This Trust Agreement shall be construed, administered and
-----------
governed in all respects under applicable federal law and, to the extent that
federal law is inapplicable, under the laws of the State of North Dakota.
Section 6.8. If any provision of this Trust Agreement shall be held by a
-----------
court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions of this Trust Agreement shall continue to be fully effective.
Section 6.9. Headings in this Trust Agreement are inserted for
-----------
convenience of reference only and are not to be considered in the construction
of its provisions.
Section 6.10. This Trust Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which shall
constitute but one and the same instrument, which may be sufficiently evidenced
by any one counterpart.
IN WITNESS WHEREOF, the Company and the Trustee have executed this Trust
Agreement, as of the day and year first above written.
Petroleum Development Corp
(Name of Employer)
Witness: /s/ Steven R. Williams by: /s/ Dale G. Rettinger
Title: Executive Vice
FRONTIER TRUST COMPANY
Witness: /s/ Penny Carlson by: /s/ David Lee Raussum
Title V.P.
8
<PAGE>
Exhibit 10.17
EXECUTION COPY
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT, dated as of March 13, 1997 (this "Agreement"), is
by and between PETROLEUM DEVELOPMENT CORPORATION, a Nevada corporation (the
"Company"), and THE FIRST NATIONAL BANK OF CHICAGO, a national banking
association (the "Bank").
RECITALS
--------
1. The Company and NBD Bank, a Michigan banking corporation formerly
known as NBD Bank, N.A. ("NBD-Michigan") have heretofore entered into a Credit
Agreement dated as of November 17, 1993, as amended by a First Amendment to
Credit Agreement dated as of September 30, 1994, by a Second Amendment to Credit
Agreement dated as of December 4, 1995, and by a Third Amendment to Credit
Agreement dated as of October 16, 1996, and as assigned by NBD-Michigan to the
Bank pursuant to the Assignment of Credit Agreement, Note and Collateral dated
as of November 1, 1996 (such Credit Agreement, as amended and assigned, the
"Original Credit Agreement").
2. The Company desires to amend and restate the Original Credit
Agreement, as evidenced by this Agreement.
3. The Company desires to obtain a secured credit facility providing
for revolving credit loans in the aggregate principal amount of $10,000,000,
which amount may be increased, at the sole and uncontrolled discretion of the
Bank, up to an aggregate principal amount of $20,000,000 in increments of not
less than $2,500,000, which credit facility may include standby letters of
credit of up to $3,000,000, to provide funds for its working capital needs, and
the Bank is willing to establish such a credit facility in favor of the Company
on the terms and conditions herein set forth.
AGREEMENT
---------
In consideration of the premises and of the mutual agreements herein
contained, the parties hereto agree as follows:
SECTION 1. Definitions.
-----------
1.1 Certain Definitions. As used herein, the following terms shall have
-------------------
the following respective meanings:
<PAGE>
"Adjusted Total Liabilities" of any person shall mean, as of any date as
--------------------------
of which the amount thereof is to be determined, the Total Liabilities of such
person less any drilling program liabilities to the extent offset by
unrestricted cash held in trust which may be used to pay such liabilities.
"Advance" shall mean any Loan and any Letter of Credit Advance.
-------
"Advance Date" shall mean each date for the making of an Advance as
------------
specified in the notice delivered by the Company under Section 3.1(a) and
permitted by this Agreement.
"Affiliate", when used with respect to any person, shall mean any other
---------
person which, directly or indirectly, controls or is controlled by or is under
common control with such person or any other person which is owned 5% or more by
such person or any Subsidiary or other Affiliate of such person. For purposes
of this definition "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), with respect to any person,
shall mean possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such person, whether through the
ownership of voting securities or otherwise.
"Alternate Base Rate" shall mean the per annum rate equal to the greater
-------------------
of (a) the Corporate Base Rate in effect from time to time, and (b) the sum of
one-half of one percent (0.5%) per annum plus the Federal Funds Rate in effect
from time to time; which Alternate Base Rate shall change simultaneously with
any change in such Corporate Base Rate or Federal Funds Rate, as the case may
be.
"Alternate Base Rate Loan" shall mean any Loan which bears interest at
------------------------
the Alternate Base Rate.
"Applicable LIBOR Rate Margin" shall mean the following margin based upon
----------------------------
the percentage of Borrowing Base utilized as adjusted on the first day of each
fiscal quarter of the Company; provided, that, the LIBOR Rate shall not be
-------- ----
adjusted pursuant to the Applicable LIBOR Rate Margin for any outstanding LIBOR
Rate Loan until after the end of the LIBOR Interest Period for such LIBOR Rate
Loan:
<TABLE>
<CAPTION>
Percentage of Borrowing LIBOR
Base Utilized Rate Margin
-------------------------------- -----------
<S> <C>
Less than 25% 2.00%
Greater than or equal to 25% but less than 75% 2.25%
Greater than or equal to 75% 2.50%
</TABLE>
; provided, however, that during the continuance of any Event of Default, the
-------- -------
Applicable LIBOR Rate Margin shall be 3.00%.
"Borrowing Base" shall mean the maximum principal amount of Advances that
--------------
can be made, and thereafter remain outstanding, with adequate Loan Safety
Factors, as shall be determined by the Bank as of the Effective Date and
adjusted by the Bank from time to time as determined by the Bank in its sole
discretion.
<PAGE>
"Business Day" shall mean any day other than a Saturday or Sunday or
------------
other day on which the Bank is not open for transaction of substantially all of
its banking functions.
"Cash Flow" of any person shall mean, for any period, the Net Income of
---------
such person for such period plus, to the extent deducted in determining such Net
Income, (i) depreciation, depletion and amortization of such person for such
period, minus, to the extent included in such Net Income, (ii) any extraordinary
or non-recurring or other gain or income item not from the normal operations of
such person, all as determined in accordance with GAAP.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
----
to time, and the regulations thereunder.
"Collateral" shall have the meaning ascribed thereto in Section 5.1(a)
----------
hereof.
"Commitment" shall mean the commitment of the Bank to make Loans and
----------
Letter of Credit Advances pursuant to Section 2.1, in amounts not exceeding in
aggregate principal amount outstanding at any time $10,000,000, as such amount
may be reduced from time to time pursuant to Section 2.2 or increased from time
to time pursuant to Section 2.3.
"Consolidated" or "consolidated" shall mean, when used with reference to
------------ ------------
any financial term in this Agreement, the aggregate for two or more Persons of
the amount signified by such term for all such Persons determined on a
consolidated basis and in accordance with GAAP.
"Contingent Liabilities" of any person shall mean, as of any date, all
----------------------
obligations of such person or of others for which such person is contingently
liable, as obligor, guarantor, surety or in any other capacity, or in respect of
which obligations such person assures a creditor against loss or agrees to take
any action to prevent any such loss (other than endorsements of negotiable
instruments for collection in the ordinary course of business), including
without limitation all reimbursement obligations of such person in respect of
any letters of credit, surety bonds or similar obligations and all obligations
of such person to advance funds to, or to purchase assets, property or services
from, any other person in order to maintain the financial condition of such
other person.
"Corporate Base Rate" shall mean the per annum rate announced by the Bank
-------------------
from time to time as its "corporate base rate" (it being acknowledged that such
announced rate may not necessarily be the lowest rate charged by the Bank to any
of its customers); which Corporate Base Rate shall change simultaneously with
any change in such announced rate.
"Current Assets" and "Current Liabilities" of any person shall mean, as
-------------- -------------------
of any date, all assets or liabilities, respectively, of such person which, in
accordance with GAAP, should be classified as current assets or current
liabilities, respectively, on a balance sheet of such person, provided, however,
-------- -------
that (a) Advances outstanding under this Agreement shall be excluded from
Current Liabilities and (b) assets which are considered current assets solely
because they are held for sale shall be excluded from Current Assets.
-3-
<PAGE>
"Deeds of Trust" shall mean the Deeds of Trust and Security Agreement
--------------
made by the Company in favor of the Bank from time to time, including without
limitation those dated as of November 17, 1993, as amended or modified from time
to time.
"Default" shall mean any Event of Default or any event or condition which
-------
might become an Event of Default with notice or lapse of time or both.
"Dollars" and "$" shall mean the lawful money of the United States of
------- -
America.
"Effective Date" shall mean the effective date specified in the final
--------------
paragraph of this Agreement.
"Environmental Laws" at any date shall mean all provisions of law,
------------------
statute, ordinances, rules, regulations, judgments, writs, injunctions, decrees,
orders, awards and standards promulgated by the government of the United States
of America or any foreign government or by any state, province, municipality or
other political subdivision thereof or therein or by any court, agency,
instrumentality, regulatory authority or commission of any of the foregoing
concerning the protection of, or regulating the discharge of substances into,
the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
-----
as amended from time to time, together with any successor statute thereto and
the regulations thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not
---------------
incorporated) which (i) together with the Company or any Subsidiary, would be
treated as a single employer under Section 414(b) or (c) of the Code or (ii) for
purposes of liability under Section 412(C)(11) of the Code, the lien created
under Section 412(n) of the Code or for a tax imposed for failure to meet
minimum funding standards under Section 4971 of the Code, a member of the same
affiliated service group (within the meaning of Section 401(m) of the Code) as
the Company or any Subsidiary, or any other trade or business described in
clause (i) above.
"Event of Default" shall mean any of the events or conditions described
----------------
in Section 8.1.
"Federal Funds Rate" shall mean the per annum rate that is equal to the
------------------
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published by the
Federal Reserve Bank of New York for such day, or, if such rate is not so
published for any day, the average of the quotations for such rates received by
the Bank from three federal funds brokers of recognized standing selected by the
Bank in its discretion;
all as conclusively determined by the Bank, such sum to be rounded up, if
necessary, to the nearest whole multiple of one one-hundredth of one percent
(1/100 of 1%), which Federal Funds Rate shall change simultaneously with any
change in such published or quoted rates.
-4-
<PAGE>
"Fixed Charge Coverage Ratio" of any person shall mean, as of any date,
---------------------------
the ratio of (i) the Cash Flow of such person to (ii) the Fixed Charges of such
person, all as determined in accordance with GAAP for the twelve-month period
ending on the date of determination.
"Fixed Charges" of any person shall mean, for any period, the sum,
-------------
without duplication, of (a) interest paid or payable during such period by such
person on Indebtedness of such person, plus (b) all payments of principal or
other sums paid or payable during such period by such person with respect to
Indebtedness of such person having a final maturity more than one year from the
date of creation of such Indebtedness, except optional prepayments on the Loans,
plus (c) all debt discount and expense amortized or required to be amortized
during such period by such person, plus (d) all obligations of such person in
respect of any interest rate or currency swap, rate cap or similar transaction
paid or required to be paid during such period by such person, plus (e) the
maximum amount of all rents and other payments (exclusive of property taxes,
property and liability insurance premiums and maintenance costs but inclusive of
any capital expenditures for maintaining the properties on which the Oil and Gas
Interests lie) paid or required to be paid by such person during such period
under any capital lease or other lease of real or personal property in respect
of which such period is obligated as a lessee or user, plus (f) all dividends
and other distributions paid or payable or otherwise accumulating during such
period on any capital stock of such person, all as determined in accordance with
GAAP.
"Future Net Income" shall mean the aggregate amount of Net Income from
-----------------
Oil and Gas Interests reasonably estimated by the Bank as of 7:00 a.m. on the
date of any determination to be receivable by the Company in the future.
"GAAP" shall mean generally accepted accounting principles applied on a
----
basis consistent with that reflected in the financial statements referred to in
Section 6.7 hereof.
"Guaranties" shall mean the guaranties entered into by each of the
----------
Guarantors for the benefit of the Bank pursuant to Section 9 of this Agreement,
as amended or modified from time to time.
"Guarantor" shall mean each Subsidiary of the Company and each person
---------
otherwise becoming a Subsidiary of the Company, or otherwise entering into a
Guaranty, from time to time.
"Hazardous Materials" includes, without limitation, any flammable
-------------------
explosives, radioactive materials, hazardous materials, hazardous waste,
hazardous or toxic substances or related materials defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
USC 9601 et seq.), the Hazardous Materials Transportation Act, as amended (49
USC 1801 et seq.), the Resource Conservation and Recovery Act, as amended (42
USC 6901 et seq.) and in the regulations adopted and publication promulgated
pursuant thereto, or any other federal, state or local governmental law,
ordinance, rule, regulation or policy.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline,
------------
natural gas and
-5-
<PAGE>
condensates and all other liquid or gaseous hydrocarbons.
"Indebtedness" of any person shall mean, as of any date, (a) all
------------
obligations of such Person for borrowed money, (b) all obligations which are
secured by any lien or encumbrance existing on property owned by such Person
whether or not the obligation secured thereby shall have been assumed by such
Person, (c) all obligations as lessee under any lease which, in accordance with
GAAP, is or should be capitalized on the books of the lessee, (d) the deferred
purchase price for goods, property or services acquired by such Person, and all
obligations of such Person to purchase such goods, property or services where
payment therefore is required regardless of whether or not delivery of such
goods or property or the performance of such services is ever made or tendered,
other than unsecured trade payables incurred in the ordinary course of business,
(e) all obligations of such Person to advance funds to, or to purchase property
or services from, any other Person in order to maintain the financial condition
of such Person, (f) all obligations of such person in respect of any interest
rate or currency swap, rate cap or other similar transaction (valued in an
amount equal to the highest termination payment, if any, that would be payable
by such person upon termination for any reason on the date of termination), and
(g) all obligations of such person or of others for which such person is
contingently liable, as guarantor, surety or in any other similar capacity, or
in respect of which obligations such person assures a creditor against loss or
agrees to take any action to prevent any such loss (other than endorsements of
negotiable instruments for collection in the ordinary course of business),
including without limitation all reimbursement obligations of such person in
respect of any letters of credit, surety bonds or similar obligations and all
obligations of such person to advance funds to, or to purchase assets, property
or services from, any other person in order to maintain the condition, financial
or otherwise, of such other person.
"Interest Payment Date" shall mean (a) with respect to any LIBOR Rate
---------------------
Loan, the last day of each Interest Period with respect to such LIBOR Rate Loan
and, in the case of any Interest Period exceeding three months, those days that
occur during such Interest Period at intervals of three months after the first
day of such Interest Period, and (b) in all other cases, the last Business Day
of each month, commencing with the first such Business Day after a Loan is made,
and ending with the Termination Date.
"Interest Period" shall mean any LIBOR Interest Period.
---------------
"Letter of Credit" shall mean a standby letter of credit having a stated
----------------
expiry date or a date upon which the draft must be reimbursed not later than
twelve months after the date of issuance and not later than the fifth Business
Day before the Termination Date issued by the Bank for the account of the
Company under an application and related documentation acceptable to the Bank
requiring, among other things, immediate reimbursement by the Company to the
Bank in respect of all drafts or other demand for payment honored thereunder and
all expenses paid or incurred by the Bank relative thereto.
"Letter of Credit Advance" shall mean any issuance of a Letter of Credit
------------------------
under Section 3.1 made pursuant to Section 2.1(b).
"Letter of Credit Documents" shall have the meaning ascribed thereto in
--------------------------
Section
-6-
<PAGE>
4.3(b).
"LIBOR Business Day" shall mean, with respect to any LIBOR Rate Loan, a
------------------
day which is both a Business Day and a day on which dealings in Dollar deposits
are carried out in the London interbank market.
"LIBOR Interest Period" shall mean, with respect to any LIBOR Rate Loan,
---------------------
the period commencing on the day such LIBOR Rate Loan is made or converted to a
LIBOR Rate Loan and ending on the day which is one, two, three or six months
thereafter, as the Company may elect under Section 3.1 or 3.4, and each
subsequent period commencing on the last day of the immediately preceding LIBOR
Interest Period and ending on the day which is one, two, three or six months
thereafter, as the Company may elect under Section 3.1 or 3.4, provided,
--------
however, that (a) any LIBOR Interest Period which commences on the last LIBOR
- -------
Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last LIBOR Business Day of the appropriate subsequent calendar
month, (b) each LIBOR Interest Period which would otherwise end on a day which
is not a LIBOR Business Day shall end on the next succeeding LIBOR Business Day
or, if such next succeeding LIBOR Business Day falls in the next succeeding
calendar month, on the next preceding LIBOR Business Day, and (c) no LIBOR
Interest Period which would end after the Termination Date shall be permitted.
"LIBOR Rate" shall mean, with respect to any LIBOR Rate Loan and the
----------
related LIBOR Interest Period, the per annum rate that is equal to the sum of:
(a) the Applicable LIBOR Rate Margin, plus
(b) the rate per annum obtained by dividing (i) the per annum rate of
interest at which deposits in Dollars for such LIBOR Interest Period and in an
aggregate amount comparable to the amount of such LIBOR Rate Loan are offered to
the Bank by other prime banks in the London interbank market at approximately
11:00 a.m. London time on the second LIBOR Business Day prior to the first day
of such LIBOR Interest Period by (ii) an amount equal to one minus the stated
maximum rate (expressed as a decimal) of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special or other
reserves) that are specified on the first day of such LIBOR Interest Period by
the Board of Governors of the Federal Reserve System (or any successor agency
thereto) for determining the maximum reserve requirement with respect to
eurocurrency funding (currently referred to as "Eurocurrency liabilities" in
Regulation D of such Board) maintained by a member bank of such System;
all as conclusively determined by the Bank, such sum to be rounded up, if
necessary, to the nearest whole multiple of one one-hundredth of one percent
(1/100 of 1%).
"LIBOR Rate Loan" shall mean any Loan which bears interest at the LIBOR
---------------
Rate.
"Lien" shall mean any pledge, assignment, hypothecation, mortgage,
----
security interest, deposit arrangement, option, conditional sale or title
retaining contract, sale and leaseback transaction, financing statement filing,
lessor's or lessee's interest under any lease, subordination
-7-
<PAGE>
of any claim or right, or any other type of lien, charge, encumbrance,
preferential arrangement or other claim or right.
"Loan" shall mean any Loan made by the Bank to the Company pursuant to
----
Section 2.1(a). Any such Loan or portion thereof may also be denominated as a
Alternate Base Rate Loan or a LIBOR Rate Loan and such Loans are referred to
herein as "types" of Loans.
"Loan Safety Factors" shall mean (i) the aggregate outstanding principal
-------------------
balance of the Advances is not to exceed the difference of (A) 50% of the
present value (discounted at a rate to be reasonably determined from time to
time in good faith by the Bank in its sole discretion) of the Future Net Income
from Proved Developed Reserves, less (B) the outstanding aggregate principal
balance of all Indebtedness of the Partnerships. The factors affecting and used
in calculating the above Loan Safety Factors shall be subject to change by the
Bank at any time and from time to time as determined by the Bank to reflect any
change of market or economic conditions, any change in the Oil and Gas
Interests, any change in any governmental regulations or policies or any other
change in any other similar event or occurrence; the Bank's determination in
such respect shall be conclusive and binding upon the parties hereto.
"Major Sales Contract" shall mean, at any time, any agreement between the
--------------------
Company and any Person for the sale of Hydrocarbons if the aggregate sales of
Hydrocarbons to such Person during the twelve months immediately preceding such
time equals or exceeds 10% of the aggregate sales of Hydrocarbons by the Company
during the twelve months immediately preceding such time.
"Mortgages" shall have the meaning ascribed thereto in Section 5.1(a).
---------
"Multiemployer Plan" shall mean any "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA or Section 414(f) of the Code.
"Net Income" of any Person shall mean, for any period, the net income (or
----------
loss) of such Person for such period taken as a single accounting period,
determined in accordance with GAAP; minus to the extent included in determining
-----
such Net Income, without duplication: (a) the income of any other person in
which any other person other than the Person has a joint interest or partnership
interest, except to the extent of the amount of dividends or other distributions
actually paid to the Person by such other person during such period, (b) the
income of any other person accrued prior to the date such other person's assets
are acquired by the Person, (c) the proceeds of any insurance policy, (d) gains
from the sale, exchange, transfer or other disposition of property or assets not
in the ordinary course of business of the Person and related tax effects in
accordance with GAAP, and (e) any extraordinary or non-recurring gains or any
other gains not from the normal operations of the Person and related tax effects
in accordance with GAAP.
"Net Income from Oil and Gas Interests" shall mean the aggregate of the
-------------------------------------
net proceeds payable to the Company from the sale of Hydrocarbons attributable
to Proved Developed Reserves which are part of the Collateral, such net proceeds
to be determined by subtracting from such proceeds the aggregate of all costs
and expenses incurred in connection with the
-8-
<PAGE>
production and sale of such Hydrocarbons and the generation of such revenues,
including without limitation: (i) all producing and operating costs, including
without limitation expenses of development, extraction, treatment, maintenance,
processing, handling, storage, marketing, transportation, delivery,
environmental remediation (if any) and sale; (ii) all taxes imposed or assessed
with respect to, or measured by, or charged against or attributable to, such
Hydrocarbons, including without limitation all applicable mineral, severance, ad
valorem, windfall profits and property taxes; (iii) capital expenditures
incurred in connection with such production and sale; and (iv) all royalties,
overriding royalties, production payments and other burdens, charges or fees to
which such Hydrocarbons, revenues or any interest therein may be subject.
"Note" shall mean the promissory note of the Company issued to the Bank
----
in the form annexed hereto as Exhibit A, evidencing borrowings under Section 2.1
---------
hereof, as amended or modified from time to time and together with any
promissory note or notes issued in exchange or replacement therefor.
"Oil and Gas Interests" shall mean all leasehold interests, mineral fee
---------------------
interests, overriding royalty and royalty interests, net revenue and net working
interests and all other rights and interests relating to Hydrocarbons, including
any reserves thereof.
"Operative Documents" shall mean this Agreement, the Note, the Security
-------------------
Documents, the Rate Hedging Agreements, and any other agreement or instrument
relating thereto.
"Overdue Rate" shall mean (a) in respect of principal of Alternate Base
------------
Rate Loans, a rate per annum that is equal to the sum of three percent (3%) per
annum plus the Alternate Base Rate, (b) in respect of principal of LIBOR Rate
Loans, a rate per annum that is equal to the sum of three percent (3%) per annum
plus the per annum rate in effect thereon until the end of the then current
Interest Period for such Loan and, thereafter, a rate per annum that is equal to
the sum of three percent (3%) per annum plus the Alternate Base Rate, and (c) in
respect of other amounts payable by the Company hereunder (other than interest),
a per annum rate that is equal to the sum of three percent (3%) per annum plus
the Alternate Base Rate.
"Partnership Agreements" shall mean all present and future partnership
----------------------
agreements and similar documents of each Partnership and all agreements and
documents executed or delivered in connection therewith.
"Partnership Debt" shall mean the aggregate amount of all Indebtedness of
----------------
the Partnerships.
"Partnerships" shall mean any partnership, joint venture or similar
------------
entity in which the Company is, directly or indirectly, a partner, general or
limited, or has any other ownership interest.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any entity
----
succeeding to any or all of its functions under ERISA.
-9-
<PAGE>
"Permitted Liens" shall mean the Liens permitted by Section 7.2(h)
---------------
hereof.
"Person" shall include an individual, a corporation, an association, a
------
partnership, a trust or estate, a joint stock company, an unincorporated
organization, a joint venture, a government (foreign or domestic), and any
agency or political subdivision thereof, or any other entity.
"Plan" shall mean, with respect to any Person, any employee benefit or
----
other plan (other than a Multiemployer Plan) maintained by such Person for its
employees and covered by Title IV of ERISA or to which Section 412 of the Code
applies.
"Pledge of Partnership Interests" shall mean the Pledge of Partnership
-------------------------------
Interests dated as of November 17, 1993, made by the Company in favor of the
Bank, as amended or modified from time to time.
"Proved Developed Reserves" shall mean all Oil and Gas Interests of the
-------------------------
Company and which, to the satisfaction of the Bank, are estimated, with
reasonable certainty, and as demonstrated by geological and engineering data
acceptable to the Bank, to be economically recoverable from existing wells
requiring no more than minor workover operations from existing completion
intervals open for production and which are producing, and have proven reserves
of, Hydrocarbons.
"Rate Hedging Agreement" shall mean an agreement, device or arrangement
----------------------
providing for payments which are related to fluctuations of interest rates,
exchange rates or forward rates, including, but not limited to, dollar-
denominated or cross-currency interest rate exchange agreements, forward
currency exchange agreements, interest rate cap or collar protection agreements,
forward rate currency or interest rate options, puts and warrants. Unless
otherwise specified, reference to "Rate Hedging Agreement" shall mean a Rate
Hedging Agreement between the Company and the Bank.
"Rate Hedging Obligations" of a person shall mean any and all obligations
------------------------
of such person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefore), under (i) any and all Rate
Hedging Agreements, and (ii) any and all cancellations, buy backs, reversals,
terminations or assignments of any Rate Hedging Agreement. Unless otherwise
specified, reference to "Rate Hedging Obligations" shall mean Rate Hedging
Obligations based on Rate Hedging Agreements between the Bank and the Company,
and such Rate Hedging Obligations shall be the aggregate net credit exposure, as
determined by the Bank in its sole discretion from time to time, resulting from
all outstanding Rate Hedging Agreements between the Company and the Bank.
"Reportable Event" shall mean a reportable event as described in Section
----------------
4043(b) of ERISA including those events as to which the thirty (30) day notice
period is waived under Part 2615 of the regulations promulgated by the PBGC
under ERISA.
"Security Agreement" shall mean the Security Agreement dated as of
------------------
November 17,
-10-
<PAGE>
1993 made by the Company in favor of the Bank, as amended or modified from time
to time.
"Security Documents" shall have the meaning ascribed thereto in Section
------------------
5.1(c).
"Subordinated Debt" shall mean, as of any date, the aggregate outstanding
-----------------
principal balance of all debt of the Company which is subordinate and junior in
right and priority of payment to the Advances and other Indebtedness of the
Company to the Bank, on terms and by written agreement satisfactory to the Bank.
"Subsidiary" of any person shall mean any other person (whether now
----------
existing or hereafter organized or acquired) in which (other than directors
qualifying shares required by law) at least a majority of the securities or
other ownership interests of each class having ordinary voting power or
analogous right (other than securities or other ownership interests which have
such power or right only by reason of the happening of a contingency), at the
time as of which any determination is being made, are owned, beneficially and of
record, by such person or by one or more of the other Subsidiaries of such
person or by any combination thereof. Unless otherwise specified, reference to
"Subsidiary" shall mean a Subsidiary of the Company.
"Tangible Net Worth" of any person shall mean, as of any date, (a) the
------------------
amount of any capital stock, paid in capital and similar equity accounts plus
(or minus in the case of a deficit) the capital surplus and retained earnings of
such person and the amount of any foreign currency translation adjustment
account shown as a capital account of such person, less (b) the net book value
of all items of the following character which are included in the assets of such
person: (i) goodwill, including without limitation, the excess of cost over book
value of any asset, (ii) organization or experimental expenses, (iii)
unamortized debt discount and expense, (iv) patents, trademarks, tradenames and
copyrights, (v) treasury stock, (vi) franchises, licenses and permits, and (vii)
other assets which are deemed intangible assets under GAAP.
"Termination Date" shall mean the earlier to occur of (a) December 31,
----------------
1999 and (b) the date on which the Commitment shall be terminated pursuant to
Section 2.2 or 8.2.
"Total Debt" of any person shall mean, as of any date as of which the
----------
amount thereof is to be determined, the total funded debt of such person, in
accordance with GAAP.
"Total Liabilities" of any person shall mean, as of any date as of which
-----------------
the amount thereof is to be determined, all obligations which, in accordance
with GAAP, are or should be classified as liabilities on a balance sheet of such
person, including, even if not classified as a liability on a balance sheet of
such person, the present value, as determined by the Bank, of all liabilities
under noncapitalized long term leases.
1.2 Other Definitions; Rules of Construction. As used herein, the terms
----------------------------------------
"Bank," "Company," and "this Agreement" shall have the respective meanings
ascribed thereto in the introductory paragraph of this Agreement. Such terms,
together with the other terms defined in Section 1.1, shall include both the
singular and the plural forms thereof and shall be construed accordingly. All
computations required hereunder and all financial terms used herein shall be
made or construed in accordance with GAAP unless such principles are
inconsistent with the
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<PAGE>
express requirements of this Agreement.
SECTION 2. The Commitment.
--------------
2.1 Advances. The Bank agrees, subject to the terms and conditions
--------
herein set forth, (a) to make Loans to the Company at any time and from time to
time from the Effective Date hereof until the Termination Date not to exceed in
aggregate principal amount at any time outstanding the lesser of (i) the
Commitment less Letter of Credit Advances and Rate Hedging Obligations and (ii)
the Borrowing Base less Letter of Credit Advances and Rate Hedging Obligations
and (b) to issue Letter of Credit Advances to the Company not to exceed in
aggregate principal amount at any time outstanding the lesser of (i) $3,000,000
less Loans and Rate Hedging Obligations and (ii) the Borrowing Base less Loans
and Rate Hedging Obligations. On the Effective Date, the Company shall issue
and deliver to the Bank a Note in the principal amount of the Commitment. Each
Loan shall be in a minimum amount of $100,000 and integral multiples of $50,000.
2.2 Termination or Reduction of Commitment. (a) The Company shall have
--------------------------------------
the right to terminate or reduce the Commitment at any time and from time to
time, provided that (i) the Company shall give notice of such termination or
--------
reduction to the Bank specifying the amount and effective date thereof, (ii)
each partial reduction of the Commitment shall be in a minimum amount of
$100,000 and in integral multiples of $50,000, (iii) no such termination or
reduction, either in whole or part and including without limitation any
termination, shall be permitted with respect to any portion of the Commitment as
to which a request for an Advance is then pending, and (iv) the Commitment may
not be terminated if any Advance is then outstanding and may not be reduced
below the principal amount of the Advances then outstanding. The Commitment or
any portion thereof so terminated or reduced may not be reinstated.
(b) For purposes of this Agreement, a Letter of Credit Advance (i)
shall be deemed outstanding in an amount equal to the sum of the maximum amount
available to be drawn under the related Letter of Credit on or after the date of
determination and on or before the stated expiry date thereof plus the amount of
any draws under such Letter of Credit that have not been reimbursed as provided
in Section 4.3 and (ii) shall be deemed outstanding at all times on and before
such stated expiry date or such earlier date on which all amounts available to
be drawn under such Letter of Credit have been fully drawn, and thereafter until
all related reimbursement obligations have been paid pursuant to Section 4.3.
As provided in Section 4.3, upon each payment made by the Bank in respect of any
draft or other demand for payment under any Letter of Credit, the amount of any
Letter of Credit Advance outstanding immediately prior to such payment shall be
automatically reduced by the amount of each Loan deemed advanced in respect of
the related reimbursement obligation of the Company.
2.3 Increase in Commitment. The Bank may from time to time, at its sole
----------------------
and uncontrolled discretion, upon written request of the Company, elect to
increase the amount of the Commitment in minimum amounts of $2,500,000 or
integral multiples thereof, provided that the Commitment shall not exceed
$20,000,000. Each such increase of the Commitment shall
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<PAGE>
be evidenced by a new Note, duly executed on behalf of the Company, reflecting
the amount of the new Commitment, in replacement of, but not in satisfaction of,
any existing Note.
2.4 Discretionary Increase of Commitment. Notwithstanding any other
------------------------------------
provisions of this Agreement, it is understood and agreed that the Bank shall at
no time be obligated to increase the Commitment, despite compliance with any
express conditions precedent thereto, and despite the fact that there may not
then exist an Event of Default.
SECTION 3. The Advances.
------------
3.1 Disbursement of Advances.
------------------------
(a) The Company shall give the Bank notice of its request for each
Advance in substantially the form of Exhibit B hereto not later than 11:00 a.m.
---------
Chicago time (i) three LIBOR Business Days prior to the date such Advance is
requested to be made if such Advance is to be made as a LIBOR Rate Loan, (ii)
five Business Days prior to the date any Letter of Credit Advance is requested
to be made, and (iii) on the date such Advance is requested to be made in all
other cases, which notice shall specify whether a LIBOR Rate Loan or Alternate
Base Rate Loan or a Letter of Credit Advance is requested and, in the case of
each requested LIBOR Rate Loan, the Interest Period to be initially applicable
to such Loan and, in the case of each Letter of Credit Advance, such information
as may be necessary for the issuance thereof by the Bank. Subject to the terms
and conditions of this Agreement, the proceeds of each such requested Loan shall
be made available to the Company by depositing the proceeds thereof, in
immediately available funds, on the Advance Date for such Loan in an account
maintained and designated by the Company at the principal office of the Bank.
Subject to the terms and conditions of this Agreement, the Bank shall, on the
date any Letter of Credit Advance is requested to be made, issue the related
Letter of Credit for the account of the Company. Notwithstanding anything
herein to the contrary, the Bank may decline to issue any requested Letter of
Credit on the basis that the beneficiary, the purpose of issuance or the terms
or the conditions of drawing are unacceptable to the Bank in its discretion.
(b) All Loans made under this Section 3.1 shall be evidenced by the
Note and all such Loans shall be due and payable and bear interest as provided
in Section 4.2. The Bank is hereby authorized by the Company to record on the
schedule attached to the Note, or in its books and records, the date, amount and
type of each Loan and the duration of the related Interest Period (if
applicable), the amount of each payment or prepayment of principal thereon, and
the other information provided for on such schedule, which schedule or books and
records, as the case may be, shall constitute prima facie evidence of the
information so recorded, provided, however, that failure of the Bank to record,
-------- -------
or any error in recording, any such information shall not relieve the Company of
its obligation to repay the outstanding principal amount of the Loans, all
accrued interest thereon and other amounts payable with respect thereto in
accordance with the terms of the Note and this Agreement. Subject to the terms
and conditions of this Agreement, the Company may borrow Loans under this
Section 3.1, prepay Loans pursuant to Section 4.1(b) and reborrow Loans under
this Section 3.1.
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<PAGE>
3.2. Conditions of Advances. The Bank shall not be obligated to make any
----------------------
Advance hereunder at any time unless:
(a) Prior to or simultaneously with the first Advance hereunder, there
shall have been delivered to the Bank the following documents, in form and
substance satisfactory to the Bank:
(i) the favorable opinion of such counsel for the Company, as shall be
approved by the Bank, with respect to the matters set forth in Sections 6.1,
6.2, 6.3, 6.4, 6.5, 6.6, 6.8, 6.9, 6.10 and 6.12 hereof and such other matters
as the Bank shall reasonably request, all in form and substance satisfactory to
the Bank;
(ii) certified copies of such corporate documents of the Company and
each Guarantor including the Company's and each Guarantor's articles of
incorporation, by-laws and good standing certificates, and such documents
evidencing necessary corporate action with respect to this Agreement, the
Advances, the Note and the Security Documents, and certifying to the incumbency
of, and attesting to the genuineness of the signatures of, those officers
authorized to act on behalf of the Company or such Guarantor, as the case may
be, as the Bank shall request;
(iii) the Security Documents required as of the Effective Date
under Section 5.1, duly executed on behalf of the Company or any Guarantor,
together with evidence of the recordation, filing and other action in such
jurisdictions as the Bank may deem necessary or appropriate with respect to the
Security Documents and evidence of the first-priority of the Bank's liens and
security interests under the Security Documents, subject only to Permitted
Liens, including without limitation such opinions of counsel required by the
Bank;
(iv) the Note duly executed on behalf of the Company;
(v) payment of the fees required by Section 4.4 as of the
Effective Date;
(vi) environmental investigations and documents requested by the Bank,
all in form and substance satisfactory to the Bank;
(vii) the Bank shall have determined that the Advances may be made
with adequate Loan Safety Factors, and such determination shall be made by the
Bank in its sole discretion and based upon the evaluation of the Loan Safety
Factors;
(viii) evidence that the Partnerships have been properly formed and
that the Company is a general partner of each Partnership;
(ix) duly executed copies of the Partnership Agreements, each in form
and substance satisfactory to the Bank and duly certified as a true and complete
copy thereof by the Company, together with evidence satisfactory to the Bank
that all transactions contemplated by, and conditions precedent to, any of the
foregoing agreements have been satisfied;
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<PAGE>
(x) copies of all agreements relating to any material Indebtedness for
borrowed money, any preferred stock, any joint ventures or partnerships, any
Major Sales Contracts or any other material documents requested by the Bank;
(xi) in the case of any Letter of Credit Advance, an application for
the related Letter of Credit and other related documentation requested by and
acceptable to the Bank appropriately completed and duly executed on behalf of
the Company; and
(xii) such other agreements, documents, conditions and
certificates as reasonably requested by the Bank.
(b) The aggregate outstanding principal amount of all such Advances
and Rate Hedging Obligations, after giving effect to each proposed Advance and
each Rate Hedging Obligation does not exceed the lesser of the Commitment or the
Borrowing Base.
(c) On and as of the date of each such Advance, the representations
and warranties contained in Section 6 hereof shall be true and correct as if
made on such date; provided, however, that for purposes of this Section 3.2(c)
-------- -------
the representations and warranties contained in Section 6.7 hereof shall be
deemed made with respect to both the financial statements referred to therein
and the most recent financial statements delivered pursuant to Section
7.1(d)(ii) and (iii).
(d) No Default has occurred and is continuing or will exist upon the
disbursement of such Advance.
3.3 Certification. Acceptance of the proceeds of any Advance hereunder
-------------
by the Company shall be deemed to be a certification by the Company at such time
with respect to the matters set forth in subparagraphs (b), (c) and (d) of
Section 3.2.
3.4 Subsequent Elections as to Loans. The Company may elect (a) to
--------------------------------
continue a LIBOR Rate Loan, or a portion thereof, as a LIBOR Rate Loan or (b)
may elect to convert a LIBOR Rate Loan, or a portion thereof, to a Alternate
Base Rate Loan or (c) elect to convert a Alternate Base Rate Loan, or a portion
thereof, to a LIBOR Rate Loan in each case by giving notice thereof to the Bank
in substantially the form of Exhibit C hereto not later than 11:00 a.m. Chicago
---------
time three LIBOR Business Days prior to the date any such continuation of or
conversion to a LIBOR Rate Loan is to be effective and not later than 11:00 a.m.
Chicago time one Business Day prior to the date such continuation or conversion
is to be effective in all other cases, provided that an outstanding LIBOR Rate
--------
Loan may only be converted on the last day of the then current Interest Period
with respect to such Loan, and provided, further, if a continuation of a Loan
-------- -------
as, or a conversion of a Loan to, a LIBOR Rate Loan is requested, such notice
shall also specify the Interest Period to be applicable thereto upon such
continuation or conversion. If the Company shall not timely deliver such a
notice with respect to any outstanding LIBOR Rate Loan, the Company shall be
deemed to have elected to convert such LIBOR Rate Loan to a Alternate Base Rate
Loan on the last day of the then current Interest Period with respect to such
Loan.
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<PAGE>
3.5 Limitation of Requests and Elections. Notwithstanding any other
------------------------------------
provision of this Agreement to the contrary, if, upon receiving a request for a
LIBOR Rate Loan pursuant to Section 3.1, or a request for a continuation of a
LIBOR Rate Loan as a LIBOR Rate Loan of the then existing type, or a request for
a conversion of a Alternate Base Rate Loan to a LIBOR Rate Loan pursuant to
Section 3.4, (a) in the case of any LIBOR Rate Loan, deposits in Dollars for
periods comparable to the Interest Period elected by the Company are not
available to the Bank in the London interbank market, or (b) the LIBOR Rate will
not adequately and fairly reflect the cost to the Bank of making, funding or
maintaining the related LIBOR Rate Loan, or (c) by reason of national or
international financial, political or economic conditions or by reason of any
applicable law, treaty or other international agreement, rule or regulation
(whether domestic or foreign) now or hereafter in effect, or the interpretation
or administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by the Bank with any
guideline, request or directive of such authority (whether or not having the
force of law), including without limitation exchange controls, it is
impracticable, unlawful or impossible for, or shall limit or impair the ability
of, (i) the Bank to make or fund the relevant Loan or to continue such Loan as a
Loan of the then existing type or to convert a Loan to such a Loan or (ii) the
Company to make or the Bank to receive any payment under this Agreement at the
place specified for payment hereunder or to freely convert any amount paid into
Dollars at market rates of exchange or to transfer any amount paid or so
converted to the address of its principal office specified in Section 10.2, then
the Company shall not be entitled, so long as such circumstances continue, to
request a Loan of the affected type pursuant to Section 3.1 or a continuation of
or conversion to a Loan of the affected type pursuant to Section 3.4. In the
event that such circumstances no longer exist, the Bank shall again consider
requests for Loans of the affected type pursuant to Section 3.1, and requests
for continuations of and conversions to Loans of the affected type pursuant to
Section 3.4.
3.6 Minimum Amounts; Limitation on Number of Loans; Etc. Except for (a)
---------------------------------------------------
Advances which exhaust the entire remaining amount of the Commitments, and (b)
payments required pursuant to Section 4.1(c) or Section 4.8, each Advance and
each continuation or conversion pursuant to Section 3.4 and each prepayment
thereof shall be in an integral multiple of $50,000, provided, however, that
-------- -------
each LIBOR Rate Loan shall be in a minimum amount of $1,000,000 and in multiples
of $1,000,000 if in excess thereof.
SECTION 4. Payments and Prepayments; Fees.
------------------------------
4.1 Principal Payments.
------------------
(a) The Advances. Unless earlier payment is required under this
------------
Agreement, the Company shall pay the outstanding principal amount of, and all
accrued interest on, the Advances on the Termination Date.
(b) Prepayments. The Company may from time to time prepay all or a
-----------
portion of the Loans without premium or penalty, provided, however, that (i) the
-------- -------
Company shall have given not less than one Business Day's prior written notice
thereof to the Bank, (ii) each
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<PAGE>
such prepayment shall be in an integral multiple of $50,000, (iii) the Company
may not prepay any portion of any Loan as to which an election for a
continuation of or a conversion to a LIBOR Rate Loan is pending pursuant to
Section 3.4, and (iv) unless earlier payment is required under this Agreement,
any LIBOR Rate Loan may only be prepaid on the last day of the then current
Interest Period with respect to such Loan. Upon the giving of such notice, the
aggregate principal amount of such Loan or portion thereof so specified in such
notice, together with such accrued interest and other amounts, shall become due
and payable on the specified prepayment date.
(c) Borrowing Base Exceeded. If it should be determined by the Bank
-----------------------
at any time and from time to time that the principal amount of the Advances and
the Rate Hedging Obligations exceeds the Borrowing Base, the Company shall
promptly, in addition to all payments of principal and interest required to be
paid on the Note, prepay the Note in an amount by which, in the determination of
the Bank, such aggregate principal amount outstanding exceeds the Borrowing
Base. If any such prepayment would be in excess of the outstanding amount of
the Loans, the Company shall deliver cash collateral to the Bank to secure the
outstanding Letters of Credit and the Rate Hedging Obligations in the amount of
such excess which is greater than the outstanding Loans and the Company hereby
grants to the Bank a first priority lien and security interest in such
collateral, and all such cash collateral shall be under the sole and exclusive
control of the Bank. All determinations made pursuant to this Section 4.1(c)
shall be made by the Bank and shall be conclusively binding on the parties.
4.2 Interest Payments. (a) The Company shall pay interest to the Bank
-----------------
on the unpaid principal amount of each Loan, on each Interest Payment Date and
at maturity (whether at stated maturity, by acceleration or otherwise), and
thereafter on demand, at the following rates per annum:
(b) During such periods that such Loan is a Alternate Base Rate
Loan, the Alternate Base Rate.
(c) During such periods that such Loan is a LIBOR Rate Loan, the LIBOR
Rate applicable to such Loan for each related LIBOR Interest Period.
(d) Notwithstanding the foregoing paragraphs (a), (b) and (c), the
Company hereby agrees to pay interest on demand at the Overdue Rate on the
outstanding principal amount of any Loan and any other amount payable by the
Company hereunder (other than interest) upon and during the continuance of any
Default, without notice from the Bank.
4.3 Letter of Credit Reimbursement Payments.
---------------------------------------
(a) (i) The Company agrees to pay to the Bank, on the day on which the
Bank shall honor a draft or other demand for payment presented or made under any
Letter of Credit, an amount equal to the amount paid by the Bank in respect of
such draft or other demand under such Letter of Credit and all expenses paid or
incurred by the Bank relative thereto. Unless the Company shall have made such
payment to the Bank on such day, upon each such payment by the Bank, the Bank
shall be deemed to have disbursed to the Company, and the
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<PAGE>
Company shall be deemed to have elected to satisfy its reimbursement obligation
by, a Loan bearing interest at the Alternate Base Rate for the account of the
Bank in an amount equal to the amount so paid by the Bank in respect of such
draft or other demand under such Letter of Credit. Such Loan shall be disbursed
notwithstanding any failure to satisfy any conditions for disbursement of any
Loan set forth in Section 3 hereof and, to the extent of the Loan so disbursed,
the reimbursement obligation of the Company under this Section 4.3 shall be
deemed satisfied; provided, however, that nothing in this Section 4.3 shall be
-------- -------
deemed to constitute a waiver of any Default or Event of Default caused by the
failure to the conditions for disbursement or otherwise.
(ii) If, for any reason (including without limitation as a result of
the occurrence of an Event of Default with respect to the Company pursuant to
Section 8.1(g)), Alternate Base Rate Loans may not be made by the Bank as
described in Section 4.3(a)(i), then the Company agrees that each reimbursement
amount not paid pursuant to the first sentence of Section 4.3(a)(i) shall bear
interest, payable on demand by the Bank, at the interest rate then applicable to
Alternate Base Rate Loans.
(b) The reimbursement obligation of the Company under this Section 4.3
shall be absolute, unconditional and irrevocable and shall remain in full force
and effect until all obligations of the Company to the Bank hereunder shall have
been satisfied, and such obligations of the Company shall not be affected,
modified or impaired upon the happening of any event, including without
limitation, any of the following, whether or not with notice to, or the consent
of, the Company:
(i) Any lack of validity or enforceability of any Letter of Credit or
any documentation relating to any Letter of Credit or to any transaction related
in any way to such Letter of Credit (the "Letter of Credit Documents");
(ii) Any amendment, modification, waiver, consent, or any
substitution, exchange or release of or failure to perfect any interest in
collateral or security, with respect to any of the Letter of Credit Documents;
(iii) The existence of any claim, setoff, defense or other right
which the Company may have at any time against any beneficiary or any transferee
of any Letter of Credit (or any persons or entities for whom any such
beneficiary or any such transferee may be acting), the Bank or any other person
or entity, whether in connection with any of the Letter of Credit Documents, the
transactions contemplated herein or therein or any unrelated transactions;
(iv) Any draft or other statement or document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
(v) Payment by the Bank to the beneficiary under any Letter of Credit
against presentation of documents which do not comply with the terms of the
Letter of Credit, including failure of any documents to bear any reference or
adequate reference to such Letter of Credit;
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<PAGE>
(vi) Any failure, omission, delay or lack on the part of the Bank or
any party to any of the Letter of Credit Documents to enforce, assert or
exercise any right, power or remedy conferred upon the Bank or any such party
under this Agreement or any of the Letter of Credit Documents, or any other acts
or omissions on the part of the Bank or any such party;
(vii) Any other event or circumstance that would, in the absence
of this clause, result in the release or discharge by operation of law or
otherwise of the Company from the performance or observance of any obligation,
covenant or agreement contained in this Section 4.3.
No setoff, counterclaim, reduction or diminution of any obligation or any
defense of any kind or nature which the Company has or may have against the
beneficiary of any Letter of Credit shall be available hereunder to the Company
against the Bank. Nothing in this Section 4.3 shall limit the liability, if
any, of the Bank to the Company pursuant to Section 10.5.
4.4 Fees. (a) The Company agrees to pay to the Bank (i) a commitment
----
fee computed at the rate of one-quarter of one percent (0.25%) per annum on the
amount by which the lesser of the Commitment or the Borrowing Base exceeds the
aggregate outstanding principal amount of the Advances and any Rate Hedging
Obligations (commitment fee on available portion of Commitment), and (ii) a
commitment fee computed at the rate of one-eighth of one percent (0.125%) per
annum on the amount by which the Commitment exceeds the Borrowing Base
(commitment fee on unavailable portion of Commitment), for the period from the
Effective Date until the Termination Date. Said fees shall be paid quarterly in
arrears, on the last Business Day of each January, April, July and October and
on the Termination Date commencing on the first such date after the Effective
Date.
(b) The Company agrees to pay to the Bank a closing fee of $11,500.
(c) The Company agrees to pay to the Bank engineering fees equal to
(i) $7,500 per year, payable in advance (and non-refundable) in semi-annual
installments of $3,750 payable on the Effective Date and each date six months
thereafter, and (ii) $3,500 for any review of the Borrowing Base more than twice
in any year.
(d) The Company agrees to pay to the Bank a facility fee each time the
Bank increases the amount of the Commitment pursuant to Section 2.3 of this
Agreement, which facility fee shall be computed at the rate of one-half of one
percent (0.50%) of the amount by which the Bank increases the amount of the
Commitment.
(e) On or before the date of issuance of any Letter of Credit, the
Company agrees to pay to the Bank a fee computed at the rate of one and one-half
percent (1.50%) per annum of the maximum amount available to be drawn from time
to time under such Letter of Credit for the period from and including the date
of issuance of such Letter of Credit to and including the stated expiry date of
such Letter of Credit. Such fees are nonrefundable and the Company shall not be
entitled to any rebate of any portion thereof if such Letter of Credit does not
remain outstanding through its stated expiry date or for any other reason. The
Company
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<PAGE>
further agrees to pay to the Bank, on demand, such other customary
administrative fees, charges and expenses of the Bank in respect of the
issuance, negotiation, acceptance, amendment, transfer and payment of such
Letter of Credit or otherwise payable pursuant to the application and related
documentation under which such Letter of Credit is issued.
4.5 Payment Method. All payments to be made by the Company hereunder
--------------
will be made in Dollars and in immediately available funds to the Bank at its
address set forth on the signature pages hereto not later than 11:00 a.m.
Chicago time on the date on which such payment shall become due. Payments
received after 11:00 a.m. Chicago time shall be deemed to be payments made prior
to 11:00 a.m. Chicago time on the next succeeding Business Day. At the time of
making each such payment, the Company shall specify to the Bank that obligation
of the Company hereunder to which such payment is to be applied, or, in the
event that the Company fails to so specify or if an Event of Default shall have
occurred and be continuing, the Bank may apply such payments as it may determine
in its sole discretion.
4.6 No Setoff or Deduction. All payments of principal of and interest
----------------------
on the Loans and other amounts payable by the Company hereunder shall be made by
the Company without setoff or counterclaim, and free and clear of, and without
deduction or withholding for, or on account of, any present or future taxes,
levies, imposts, duties, fees, assessments, or other charges of whatever nature,
imposed by any governmental authority, or by any department, agency or other
political subdivision or taxing authority.
4.7 Payment on Non-Business Day; Payment Computations. Except as
-------------------------------------------------
otherwise provided in this Agreement to the contrary, whenever any installment
of principal of, or interest on, any Loan outstanding hereunder or any other
amount due hereunder, becomes due and payable on a day which is not a Business
Day, the maturity thereof shall be extended to the next succeeding Business Day
and, in the case of any installment of principal, interest shall be payable
thereon at the rate per annum determined in accordance with this Agreement
during such extension. Computations of interest and other amounts due under
this Agreement shall be made on the basis of a year of 360 days for the actual
number of days elapsed, including the first day but excluding the last day of
the relevant period.
4.8 Additional Costs.
----------------
(a) In the event that any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect and whether or not
presently applicable to the Bank, or any interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by the Bank with any guideline, request or
directive of any such authority (whether or not having the force of law),
affects or would affect the amount of capital required or expected to be
maintained by the Bank or any corporation controlling the Bank and the Bank
determines that the amount of such capital is increased by or based upon the
existence of the Bank's obligations hereunder and such increase has the effect
of reducing the rate of return on the Bank's capital as a consequence of its
obligations hereunder to a level below that which the Bank could have achieved
but for such circumstances (taking into consideration its policies with respect
to capital adequacy) by an amount deemed by the Bank to be material, then the
Company shall pay to the Bank from time
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<PAGE>
to time, upon request by the Bank, additional amounts sufficient to compensate
the Bank for any increase in the amount of capital and reduced rate of return
which the Bank reasonably determines to be allocable to the existence of the
Bank's obligations hereunder. A statement as to the amount of such
compensation, prepared in good faith and in reasonable detail by the Bank and
submitted by the Bank to the Company, shall be conclusive and binding for all
purposes absent manifest error in computation.
(b) In the event that any applicable law, treaty or other
international agreement, rule or regulation (whether domestic or foreign) now or
hereafter in effect and whether or not presently applicable to the Bank, or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by the Bank
with any guideline, request or directive of any such authority (whether or not
having the force of law), shall (i) affect the basis of taxation of payments to
the Bank of any amounts payable by the Company under this Agreement (other than
taxes imposed on the overall net income of the Bank, by the jurisdiction, or by
any political subdivision or taxing authority of any such jurisdiction, in which
the Bank has its principal office), or (ii) shall impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended by the Bank, or
(iii) shall impose any other condition with respect to this Agreement, the
Commitment, the Note, the Loans, or any Letter of Credit, and the result of any
of the foregoing is to increase the cost to the Bank of making, funding or
maintaining any LIBOR Rate Loan or any Letter of Credit or to reduce the amount
of any sum receivable by the Bank thereon, then the Company shall pay to the
Bank, from time to time, upon request by the Bank additional amounts sufficient
to compensate the Bank for such increased cost or reduced sum receivable to the
extent, in the case of any LIBOR Rate Loan, the Bank is not compensated therefor
in the computation of the interest rate applicable to such LIBOR Rate Loan. A
statement as to the amount of such increased cost or reduced sum receivable,
prepared in good faith and in reasonable detail by the Bank and submitted by the
Bank to the Company, shall be conclusive and binding for all purposes absent
manifest error in computation.
4.9 Illegality and Impossibility. In the event that any applicable law,
----------------------------
treaty or other international agreement, rule or regulation (whether domestic or
foreign) now or hereafter in effect and whether or not presently applicable to
the Bank, or any interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof, or
compliance by the Bank with any guideline, request or directive of such
authority (whether or not having the force of law), including without limitation
exchange controls, (a) shall make it unlawful or impossible for the Bank to
maintain any Loan under this Agreement, (b) shall make it impracticable,
unlawful or impossible for, or shall in any way limit or impair ability of, the
Company to make or the Bank to receive any payment under this Agreement at the
place specified for payment hereunder, the Company shall upon receipt of notice
thereof from the Bank, repay in full the then outstanding principal amount of
each Loan so affected, together with all accrued interest thereon to the date of
payment and all amounts owing to the Bank under Section 4.8, (i) on the last day
of the then current Interest Period applicable to such Loan if the Bank may
lawfully continue to maintain such Loan to such day, or (ii) immediately if the
Bank may not continue to maintain such Loan to such day.
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<PAGE>
4.10 Indemnification. If the Company makes any payment of principal with
---------------
respect to any LIBOR Rate Loan on any other date than the last day of an
Interest Period applicable thereto (whether pursuant to Section 4.1(c), Section
4.8, Section 8.2 or otherwise), or if the Company fails to borrow any LIBOR Rate
Loan after notice has been given to the Bank in accordance with Section 3.1(a),
or if the Company fails to make any payment of principal or interest in respect
of a LIBOR Rate Loan when due, the Company shall reimburse the Bank on demand
for any resulting loss or expense incurred by the Bank, including without
limitation any loss incurred in obtaining, liquidating or employing deposits
from third parties, whether or not the Bank shall have funded or committed to
fund such Loan. A statement as to the amount of such loss or expense, prepared
in good faith and in reasonable detail by the Bank and submitted by the Bank to
the Company, shall be conclusive and binding for all purposes absent manifest
error in computation. Calculation of all amounts payable to the Bank under this
Section 4.10 shall be made as though the Bank shall have actually funded or
committed to fund the relevant LIBOR Rate Loan through the purchase of an
underlying deposit in an amount equal to the amount of such Loan in the relevant
market and having a maturity comparable to the related Interest Period and,
through the transfer of such deposit to a domestic office of the Bank in the
United States; provided, however, that the Bank may fund any LIBOR Rate Loan in
-------- -------
any manner it sees fit and the foregoing assumption shall be utilized only for
the purpose of calculation of amounts payable under this Section 4.10.
SECTION 5. Security.
--------
5.1 Security Documents. To secure amounts due under this Agreement, the
------------------
Note, any Rate Hedging Agreements with the Bank and to secure all other
Indebtedness and obligations of the Company to the Bank, whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, the Company shall:
(a) Execute and deliver to the Bank, on or before the Effective Date,
such indentures of mortgage, deeds of trust, security agreements, financing
statements and assignments of production and other agreements, including,
without limitation, the Deeds of Trust (as amended or modified from time to
time, the "Mortgages"), in form and substance satisfactory to the Bank, granting
the Bank a first-priority, perfected and enforceable lien and security interest,
subject only to the Permitted Liens, in the following (collectively, with all
other assets described in Section 5.1(c), the "Collateral"): all Oil and Gas
Interests of the Company, whether now owned or hereafter acquired, including
without limitation all leasehold, royalty, fee and mineral interests and all
other rights in connection therewith, and all interests in machinery, equipment,
materials, improvements, hereditaments, appurtenances and other property, real,
personal and/or mixed, now or hereafter a part of or obtained in or used in
connection with such properties, including, without limitation, all interests of
the Company in and to any and all Hydrocarbons and other minerals now in storage
or now or hereafter located in, under, on or produced from, such properties or
otherwise and an assignment of production from such properties to the Bank;
(b) Cause to be executed and delivered to the Bank, on or before the
Effective Date, the Guaranties executed by each Guarantor, in form and substance
satisfactory
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<PAGE>
to the Bank; and
(c) Execute and deliver to the Bank, on or before the Effective Date,
the Security Agreement, Pledge of Partnership Interests, financing statements
and other agreements (all of the foregoing, together with the Mortgages, the
Guaranties and any other security or other collateral documents delivered from
time to time pursuant to this Agreement, as amended or modified from time to
time, the "Security Documents"), in form and substance satisfactory to the Bank,
granting to the Bank a first-priority, perfected and enforceable lien and
security interest, subject only to the Permitted Liens, in all other assets,
whether real, personal or mixed, and whether now owned or hereafter existing and
wherever located, of the Company.
5.2 Additional Security Documents. If at any time requested by the
-----------------------------
Bank, the Company shall execute and deliver such additional documents, and shall
take such other action, as the Bank may reasonably consider necessary or proper
to evidence or perfect the liens and security interests described in Section 5.1
hereof.
SECTION 6. Representations and Warranties.
------------------------------
The Company and the Guarantors each represents and warrants to the Bank
that:
6.1 Corporate Existence and Power. Each of the Company and the
-----------------------------
Guarantors is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation, and is duly qualified
to do business and in good standing in each additional jurisdiction where such
qualification is necessary under applicable law. Each of the Company and the
Guarantors has all requisite corporate power to own its properties and to carry
on its business as now being conducted and as proposed to be conducted, and to
execute and deliver this Agreement, the Note and the Security Documents to which
it is a party and to engage in the transactions contemplated by this Agreement,
the Note and the Security Documents.
6.2 Corporate Authority. The execution, delivery and performance by the
-------------------
Company and each Guarantor of this Agreement, the Note, and the Security
Documents, as applicable, are within its corporate powers, have been duly
authorized by all necessary corporate action and are not in contravention of any
law, rule or regulation, or any judgment, decree, writ, injunction, order or
award of any arbitrator, court or governmental authority, or of the terms of the
Company's or such Guarantor's charter or by-laws, or of any contract or
undertaking to which it is a party or by which the Company or any Guarantor or
any of their property may be bound or affected.
6.3 Binding Effect. This Agreement is, and the Note and the Security
--------------
Documents to which the Company or any Guarantor is a party when delivered
hereunder will be, legal, valid and binding obligations of the Company and the
Guarantors enforceable against the Company and the Guarantors in accordance with
their respective terms except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and by general principles of equity
(whether applied in a proceeding at law or in equity).
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<PAGE>
6.4 Subsidiaries. Schedule 6.4 hereto correctly sets forth the
------------ ------------
corporate name, jurisdiction of incorporation and ownership of each Subsidiary
of the Company and each Guarantor. All Subsidiaries of the Company and the
Guarantors are duly organized, validly existing and in good standing under the
laws of their jurisdictions of incorporation and are duly qualified to do
business in each jurisdiction where such qualification is or may be necessary
under applicable law. All outstanding shares of capital stock of each class of
each Subsidiary of the Company and the Guarantors have been and will be validly
issued and are and will be fully paid and nonassessable and are and will be
owned, beneficially and of record, by the Company or a Guarantor, free and clear
of any Liens.
6.5 Liens. The properties of the Company and the Guarantors (including
-----
without limitation the Collateral) are not subject to any Lien except Permitted
Liens.
6.6 Litigation. There is no action, suit or proceeding pending or, to
----------
the best of its knowledge, threatened or contemplated against or affecting the
Company or any Guarantor before or by any court, governmental authority, or
arbitrator which if adversely decided might result, either individually or
collectively, in any material adverse change in the business, property,
operations or conditions, financial or otherwise, of the Company or any
Guarantor or any of their Subsidiaries and, to the best of the Company's and the
Guarantors' knowledge, there is no basis for any such action, suit or
proceeding.
6.7 Financial Condition. The consolidated balance sheet of the Company
-------------------
and its Subsidiaries and the consolidated statements of income and cash flow of
the Company and its Subsidiaries for the fiscal year ended December 31, 1995 and
reported on by KPMG Peat Marwick LLP and the interim consolidated balance sheet
and interim consolidated statements of income and cash flow of the Company and
its Subsidiaries, as of or for the nine-month period ended on September 30,
1996, contained in the Company's most recent Form 10-Q, copies of which have
been furnished to the Bank, fairly present, and the financial statements of the
Company and its Subsidiaries delivered pursuant to Section 7.1(d) will fairly
present, the consolidated financial position of the Company and its Subsidiaries
and is at their respective dates thereof, the consolidated results of operations
of the Company and its Subsidiaries for their respective periods indicated, all
in accordance with GAAP consistently applied. There has been no material
adverse change in the business, properties, operations or condition, financial
or otherwise, of the Company or any of its Subsidiaries since December 31, 1995.
There is no material Contingent Liability of the Company or any of its
Subsidiaries that is not reflected in such financial statements or in the notes
thereto.
6.8 Use of Advances. Neither the Company nor any Guarantor extends or
---------------
maintains, in the ordinary course of business, credit for the purpose, whether
immediate, incidental, or ultimate, of buying or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used for the
purpose, whether immediate, incidental, or ultimate, of buying or carrying any
such margin stock or maintaining or extending credit to others for such purpose.
After applying the proceeds of the Advances, such margin stock will not
constitute more than 25% of the value of the assets that are subject to any
provisions of this Agreement or any Security Document that may cause the
Advances to be secured, directly or indirectly by margin
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<PAGE>
stock.
6.9 Security Documents. The Security Documents create a valid and
------------------
enforceable first-priority lien on and perfected security interest in all right,
title and interest of the Company in and to the Collateral described therein,
securing all amounts intended to be secured thereby (including without
limitation all principal of and interest on the Note) subject only to the
Permitted Liens. The respective net revenue interests of the Company in and to
the Oil and Gas Interests as set forth in the Security Documents, are true and
correct and accurately reflect the interests to which the Company is legally
entitled subject only to the Permitted Liens.
6.10 Consents, Etc. No consent, approval or authorization of or
--------------
declaration, registration or filing with any governmental authority or any
nongovernmental person or entity, including without limitation any creditor or
stockholder of it, is required on the part of it in connection with the
execution, delivery and performance of this Agreement, the Note, the Security
Documents or the transactions contemplated hereby or as a condition to the
legality, validity or enforceability of this Agreement, the Note or any of the
Security Documents.
6.11 Taxes. The Company and the Guarantors have each filed all tax
-----
returns (federal, state and local) required to be filed and have each paid all
taxes shown thereon to be due, including interest and penalties, or have
established adequate financial reserves on their books and records for payment
thereof.
6.12 Title to Properties. The Company or a Guarantor has good and
-------------------
marketable title to, and a valid indefeasible ownership interest in, all of
their properties and assets (including, without limitation, the Collateral
subject to the Security Documents) free and clear of any Lien except the
Permitted Liens, and the Company is the owner of all the Collateral described in
the Security Documents to which it is a party. All wells on any of the
mortgaged premises have been drilled, operated, shut-in, abandoned or suspended
in accordance with good oil and gas field practices and in compliance with all
applicable laws, permits, statutes, orders, licenses, rules and regulations.
None of the Oil and Gas Interests of the Company or of any Partnership is
burdened with any rights of first refusal or any other rights that would
restrict the sale of the property or the transfer of good title to any such
property. All leases with respect to any Oil and Gas Interests owned by the
Company or any Partnership are in good standing and are in full force and
effect, all royalties, rents, taxes, assessments and other payments thereunder
or with respect thereto have been properly and timely paid and all conditions
necessary to keep such leases in full force have been fully performed.
6.13 ERISA. The Company, the Guarantors, their respective Subsidiaries
-----
and their Plans are in compliance in all material respects with those provisions
of ERISA and of the Code which are applicable with respect to any Plan. No
prohibited transaction (as defined in Section 406 of ERISA and Section 9975 of
the Code) and no Reportable Event has occurred with respect to any Plan. None
of the Company, any of the Guarantors, any of their Subsidiaries nor any of
their ERISA Affiliates is an employer with respect to any multiemployer plan (as
defined in Section 4001(a)(3) of ERISA). The Company, the Guarantors, their
Subsidiaries and their ERISA Affiliates have met the minimum funding
requirements under ERISA and the Code with respect to each of their respective
Plans, if any, and have not incurred any liability to the PBGC
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<PAGE>
or any Plan. There is no unfunded benefit liability with respect to any Plan.
6.14 Environmental and Safety Matters. The Company, the Guarantors and
--------------------------------
their respective Subsidiaries are each in substantial compliance with all
federal, state and local laws, ordinances and regulations relating to safety and
industrial hygiene or to the environmental condition, including without
limitation all Environmental Laws in jurisdictions in which it owns any interest
in or operates, a well, a facility or site, or arranges for disposal or
treatment of hazardous substances, solid waste, or other wastes, accepts for
transporting any hazardous substances, solid waste, or other wastes, or holds
any interest in real property or otherwise. No demand, claim, notice, suit,
suit in equity, action, administrative action, investigation or inquiry whether
brought by any governmental authority, private person or entity or otherwise,
arising under, relating to or in connection with any Environmental Law is
pending or threatened against the Company, any Guarantor or any of their
Subsidiaries, any real property in which the Company, any Guarantor or any of
their Subsidiaries holds or has held an interest or any past or present
operation of the Company, any Guarantor or any of their Subsidiaries. None of
the Company, any Guarantor nor any of their respective Subsidiaries (a) is the
subject of any federal or state investigation evaluating whether any remedial
action is needed to respond to a release of any toxic substances, radioactive
materials, hazardous wastes or related materials into the environment, (b) has
received any notice of any toxic substances, radioactive materials, hazardous
waste or related materials in, or upon any of its properties in violation of any
Environmental Law, or (c) knows of any basis for any such investigation, notice
or violation. No material release, threatened release or disposal of hazardous
waste, solid waste or other wastes is occurring or has occurred on, under or to
any real property in which the Company, any Guarantor or any of their
Subsidiaries holds any interest or performs any of its operations, in violation
of any Environmental Law.
6.15 Solvency. Each of the following is true for the Company, the
--------
Guarantors and their respective Subsidiaries on a consolidated basis: (a) the
fair saleable value of their property is (i) greater than the total amount of
their liabilities (including contingent liabilities), and (ii) greater than the
amount that would be required to pay its probable aggregate liability on their
then existing debts as they become absolute and matured; (b) their property is
not unreasonable in relation to their business or any contemplated or undertaken
transaction; and (c) they do not intend to incur, or believe that they will
incur, debts beyond their ability to pay such debts as they become due.
6.16 Disclosure. This Agreement and all other documents, certificates,
----------
reports or statements or other information furnished to the Bank in writing by
or on behalf of the Company or any Guarantor in connection with the negotiation
or administration of this Agreement or any transactions contemplated hereby when
read together do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained herein
and therein not misleading. There is no fact known to the Company or any
Guarantor which materially and adversely affects, or which in the future may (so
far as the Company or any Guarantor can now foresee) materially and adversely
affect, the business, properties, operations or condition, financial or
otherwise, of the Company, any Guarantor or any of their Subsidiaries (except
for any economic conditions which affect generally the industry in which the
Company, the Guarantors and their Subsidiaries conduct business), which has not
been set
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<PAGE>
forth in this Agreement or in the other documents, certificates, statements,
reports and other information furnished in writing to the Bank by or on behalf
of the Company or any Guarantor in connection with the transactions contemplated
hereby.
6.17 Partnerships. Schedule 6.17 hereto lists all the Partnerships and
------------ -------------
the ownership interest of the Company in each Partnership. Each Partnership is
duly organized and validly existing under the jurisdiction of its organization,
there is no default or other breach under any Partnership Agreement and the
Company has fully complied with all of its obligations thereunder.
SECTION 7. Covenants.
---------
7.1 Affirmative Covenants. Each of the Company and the Guarantors
---------------------
covenants and agrees that, until the Termination Date and thereafter until the
payment in full of the principal of and accrued interest on the Note and the
performance of all other obligations of the Company under this Agreement, the
Note and the Security Documents, unless the Bank shall otherwise consent in
writing, it shall, and shall cause each of its Subsidiaries to:
(a) Preservation of Corporate Existence, Etc. Do or cause to be done
----------------------------------------
all things necessary to preserve, renew and keep in full force and effect its
and each Partnership's legal existence, and its qualification as a foreign
corporation in good standing in each jurisdiction in which such qualification is
necessary under applicable law and the rights, licenses, permits (including
those required under Environmental Laws), franchises, patents, copyrights,
trademarks and trade names material to the conduct of its and each Partnership's
businesses; and defend all of the foregoing against all claims, actions,
demands, suits or proceedings at law or in equity or by or before any
governmental instrumentality or other agency or regulatory authority.
(b) Compliance with Laws, Etc. Comply in all material respects with
--------------------------
all applicable laws, rules, regulations and orders of any governmental
authority, whether federal, state, local or foreign (including without
limitation ERISA, the Code and Environmental Laws), in effect from time to time;
and pay and discharge promptly when due all taxes, assessments and governmental
charges or levies imposed upon it or upon its or any Partnership's income,
revenues or property, before the same shall become delinquent or in default, as
well as all lawful claims for labor, materials and supplies or otherwise, which,
if unpaid, might give rise to Liens upon such properties or any portion thereof,
except to the extent that payment of any of the foregoing is then being
contested in good faith by appropriate legal proceedings and with respect to
which adequate financial reserves have been established on its books and
records.
(c) Maintenance of Partnerships, Properties, Insurance. Maintain,
--------------------------------------------------
preserve and protect all property that is material to the conduct of its
business and keep such property in good repair, working order and condition and
from time to time make, or cause to be made all needful and proper repairs,
renewals, extensions, additions, improvements and replacements thereto necessary
in order that the business carried on in connection therewith may be properly
conducted at all times in accordance with customary and prudent business
practices for similar
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<PAGE>
businesses; comply with all applicable permits, statutes, laws, orders,
licenses, rules and regulations relating to the Oil and Gas Interests owned by
it and ensure that all wells and other properties operated by it (either for
itself or as a general partner) are operated in accordance with good oil and gas
field practices; comply with all of its duties and obligations under each
Partnership Agreement to which it is a party and take all actions to maintain
all leases and other rights in full force and effect; and, in addition to that
insurance required under the Security Documents, maintain in full force and
effect insurance with responsible and reputable insurance companies or
associations in such amounts, on such terms and covering such risks, including
fire and other risks insured against by extended coverage, as is usually carried
by companies engaged in similar businesses and owning similar properties
similarly situated and maintain in full force and effect public liability
insurance, insurance against claims for personal injury or death or property
damage occurring in connection with any of its activities or any of any
properties owned, occupied or controlled by it, in such amount as it shall
reasonably deem necessary, and maintain such other insurance as may be required
by law or as may be reasonably requested by the Bank for purposes of assuring
compliance with this Section 7.1(c).
(d) Reporting Requirements. Furnish to the Bank, in form and
----------------------
substance satisfactory to the Bank, the following:
(i) Promptly and in any event within three calendar days after
becoming aware of the occurrence of (A) any Default, (B) the commencement
of any material litigation against, by or affecting the Company or any
Guarantor and, upon request by the Bank, any material developments
therein, or (C) entering into any material contract or undertaking by the
Company or any Guarantor that is not entered into in the ordinary course
of business, (D) any development in the business or affairs of the
Company or any Guarantor which has resulted in or which is likely in the
reasonable judgment of the Company or such Guarantor, to result in a
material adverse change in the business, properties, operations or
condition, financial or otherwise of the Company or such Guarantor or any
Subsidiary or (E) default, breach or termination of any lease or (F) any
Reportable Event under, or the institution of steps by the Company, any
Guarantor or any Subsidiary to withdraw from, or the institution of any
steps to terminate, any Plan, a statement of the chief financial officer
of the Company or such Guarantor setting forth details of such Default or
such event or condition or such litigation and the action which the
Company or such Guarantor or such Subsidiary has taken and proposes to
take with respect thereto;
(ii) As soon as available and in any event within 45 days after
the end of each fiscal quarter of the Company, the consolidated and
consolidating balance sheets of the Company and its Subsidiaries as of
the end of such quarter, and the related consolidated and consolidating
statements of income and cash flow for the period commencing at the end
of the previous fiscal year and ending with the end of such quarter,
setting forth in each case in comparative form the corresponding figures
for the corresponding date or period of the preceding fiscal year, all in
reasonable detail and duly certified (subject to year-end audit
adjustments) by an appropriate officer of the Company as having been
prepared in accordance with GAAP, together with a certificate of the
chief financial officer of the Company stating (A) that no
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<PAGE>
Default has occurred and is continuing or, if a Default has occurred and
is continuing, a statement setting forth the details thereof and the
action which the Company has taken and proposes to take with respect
thereto, and (B) that a computation (which computation shall accompany
such certificate and shall be in reasonable detail) showing compliance
with Section 7.2 (a), (b), (c), (d), (e) and (f) hereof is in conformity
with the terms of this Agreement;
(iii) As soon as available and in any event within 120 days
after the end of each fiscal year of the Company, a copy of the
consolidated balance sheet of the Company and its Subsidiaries for the
fiscal year and related statements of income and cash flow with a
customary audit report thereon by KPMG Peat Marwick LLP or other
independent certified public accountants selected by the Company and
acceptable to the Bank, without qualifications unacceptable to the Bank
together with a certificate of such accountants stating that they have
reviewed this Agreement and stating further that in making their review
in accordance with GAAP nothing came to their attention that made them
believe that any Default exists, or if their examination has disclosed
the existence of any Default, specifying the nature, period of existence
and status thereof;
(iv) (A) For each privately-held Partnership, upon the request
of the Bank, promptly after the sending or filing thereof, copies of all
tax returns which such Partnership sends to or files with any federal,
state or local government of the United States of America, and (B) for
each publicly-held Partnership, upon the request of the Bank, as soon as
available and in any event within 120 days after the end of each fiscal
year of such Partnership, a copy of the consolidated balance sheet of
such Partnership for the fiscal year, and the related statements of
income and cash flow of such Partnership for such fiscal year, with a
customary audit report thereon by KPMG Peat Marwick LLP or other
independent certified public accountants selected by such Partnership and
acceptable to the Bank, without qualifications unacceptable to the Bank;
(v) Promptly after the sending or filing thereof, copies of all
reports, proxy statements and financial statements which the Company or
any of its Subsidiaries sends to or files with any of their respective
security holders or any securities exchange or the Securities and
Exchange Commission or any successor agency thereof including, without
limitation, quarterly Form 10-Qs of the Company filed with the Securities
and Exchange Commission;
(vi) As soon as possible and in any event within 30 days of the
end of each fiscal quarter of the Company, a schedule of all cash
receipts and other payments received with respect to any Oil and Gas
Interest of the Company, any Partnership or any Subsidiary and as soon as
possible and in any event within 45 days after the end of each fiscal
quarter of the Company, a schedule of all oil, gas, and other mineral
production attributable to the Oil and Gas Interests of the Company, any
Partnership or any Subsidiary;
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<PAGE>
(vii) Promptly, all title or other information received after
the Effective Date by the Company which discloses any material defect in
the title to any asset included in the Borrowing Base;
(viii) As soon as available and in any event within 90 days
after the end of each fiscal year of the Company, a reserve report
prepared by an independent engineering firm of recognized standing
acceptable to the Bank with respect to any Oil and Gas Interest of the
Company, each Partnership and each Subsidiary;
(ix) Promptly, upon the request of the Bank, reserve reports
prepared by an independent engineering firm of recognized standing
acceptable to the Bank with respect to any Oil and Gas Interest of the
Company, any Partnership or any Subsidiary for which there is any
significant variance between (A) the information for such Oil and Gas
Interest on any reserve reports furnished by the Company pursuant to
Section 7.1(d)(viii) or otherwise and (B) prior reserve reports or other
information received by the Bank with respect to such Oil and Gas
Interest;
(x) As soon as possible and in any event within 15 days after
the date of execution thereof, copies of (A) any amendment of any Major
Sales Contract, and (B) any Major Sales Contract entered into after the
Effective Date;
(xi) Promptly and in any event within 15 days after becoming
aware of the occurrence of any material breach or default under, or
repudiation or termination of, any Major Sales Contract, notice of such
event;
(xii) From time to time upon, and within 10 days of, request by
the Bank a report describing all insurance with respect to the Company
and its Subsidiaries or any of their respective property or assets as of
the end of such fiscal year, including, without limitation, liability,
casualty, and business interruption (including product liability),
insurance, in form and detail satisfactory to the Bank, certified as true
and correct by the chief financial officer of the Company or such
Subsidiary, as the case may be;
(xiii) Promptly and in any event within 10 calendar days after
receiving or becoming aware thereof, (A) a copy of any notice of intent
to terminate any Plan filed with the PBGC, (B) a statement of the chief
financial officer of the Company setting forth the details of the
occurrence of any Reportable Event with respect to any Plan, (C) a copy
of any notice the Company, any Guarantor, any of their Subsidiaries or
any ERISA Affiliate may receive from the PBGC relating to the intention
of the PBGC to terminate any Plan or to appoint a trustee to administer
any Plan, or (D) a copy of any notice of failure to make a required
installment or other payment within the meaning of Section 412(n) of the
Code or Section 302(f) of ERISA with respect to a Plan;
(xiv) If received, promptly and in any event within 10 days
after receipt, a copy of any management letter or comparable analysis
prepared by the auditors for
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<PAGE>
the Company or any of its Subsidiaries; and
(xv) Promptly, such other information respecting the business,
properties or the condition or operations, financial or otherwise, of the
Company, any Guarantor, any Partnership and any Subsidiary, including,
without limitation, geological and engineering data of the Company and
any title work with respect to any Oil and Gas Interests of the Company
as the Bank may from time to time reasonably request.
(e) Access to Records, Books, Etc. At any reasonable time and from
------------------------------
time to time, permit the Bank or any agents or representatives thereof, at the
Company's own expense, to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of, the Company, any
Guarantor, any Partnership and any Subsidiary and to discuss the affairs,
finances and accounts of the Company and the Guarantors with their officers and
employees. Without limiting the foregoing, the Company agrees that at any
reasonable time and from time to time, the Company will permit the Bank or any
agents or representations thereof to inspect all opinions with respect to title
and other material work received by the Company with respect to any asset
included in the Borrowing Base.
(f) Additional Security and Collateral. Promptly (i) execute and
----------------------------------
deliver additional Security Documents, within 5 days after request therefor by
the Bank, sufficient to grant to the Bank liens and security interests in any
after acquired property, and (ii) cause each person becoming a Subsidiary of the
Company from time to time to execute and deliver to the Bank, within 5 days
after such person becomes a Subsidiary, a Guaranty and related Security
Documents, together with other related documents, sufficient to grant to the
Bank liens and security interests in all collateral of the type described in
Section 5.1. The Company shall notify the Bank, within 10 days after the
occurrence thereof, of the acquisition of any property by the Company that is
not subject to the existing Security Documents, any persons becoming a
Subsidiary and any other event or condition that may require additional action
of any nature in order to preserve the effectiveness and perfected status of the
liens and security interests of the Bank with respect to such property pursuant
to the Security Documents.
(g) Further Assurances. Will execute and deliver within 30 days after
------------------
request therefor by the Bank, all further instruments and documents and take all
further action that may be necessary or desirable, or that the Bank may request,
in order to give effect to, and to aid in the exercise and enforcement of the
rights and remedies of the Bank under, this Agreement, the Note and the Security
Documents, including without limitation causing each lessor of real property to
the Company or any Subsidiary to execute and deliver to the Bank, prior to or
upon the commencement of any tenancy, an agreement in form and substance
acceptable to the Bank duly executed on behalf of such lessor waiving any
distraint, lien and similar rights with respect to any property subject to the
Security Documents and agreeing to permit the Bank to enter such premises in
connection therewith.
7.2 Negative Covenants. Until payment in full of the principal of and
------------------
accrued interest on the Note, the expiration of this Agreement and the payment
and performance of all other obligations of the Company and the Guarantors under
this Agreement, the Note and the
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<PAGE>
Security Documents, the Company and the Guarantors each agrees that, unless the
Bank shall otherwise consent in writing, it shall not, and shall not permit any
Subsidiary to:
(a) Tangible Net Worth. Permit or suffer the Consolidated Tangible
------------------
Net Worth of the Company and its Subsidiaries to be less than (i) $20,000,000 at
any time during the period from and including the Effective Date to and
including December 31, 1997 and (ii) the sum of $20,000,000 plus an amount equal
to 50% of the Consolidated Net Income of the Company and it Subsidiaries for
each fiscal year of the Company thereafter, to be added as of the end of each
fiscal year commencing with the fiscal year ending December 31, 1997, provided
that if the Consolidated Net Income of the Company and its Subsidiaries is
negative in any fiscal year, the amount added for such fiscal year shall be
zero.
(b) Current Ratio. Permit or suffer the ratio of Consolidated Current
-------------
Assets of the Company and its Subsidiaries to Consolidated Current Liabilities
of the Company and its Subsidiaries to be less than 0.75 to 1.0.
(c) Total Liabilities to Tangible Net Worth. Permit or suffer the
---------------------------------------
ratio of Consolidated Total Liabilities of the Company and its Subsidiaries to
Consolidated Tangible Net Worth of the Company and its Subsidiaries to be
greater than 2.00 to 1.00 at any time.
(d) Fixed Charge Coverage Ratio. Permit or suffer, as of the last day
---------------------------
of any fiscal quarter of the Company, the Consolidated Fixed Charge Coverage
Ratio of the Company and its Subsidiaries to be less than 2.50 to 1.00.
(e) Partnership Debt. Permit or suffer the Partnership Debt to be
----------------
greater than $500,000 at any time.
(f) Total Debt to Cash Flow. Permit or suffer the ratio of
-----------------------
Consolidated Total Debt of the Company and its Subsidiaries to Consolidated Cash
Flow of the Company and its Subsidiaries for the twelve-month period ending on
the date of determination to be greater than 2.50 to 1.00 at any time.
(g) Indebtedness. Create, incur, assume, guaranty or in any manner
------------
become liable in respect of, or suffer to exist, any Indebtedness other than:
(i) The Advances;
(ii) The Indebtedness described in the financial statements
referred to in Section 6.7, having the same terms as those existing on
the Effective Date, but no increase in the amount thereof shall be
permitted;
(iii) Indebtedness arising under Rate Hedging Agreements with
the Bank relating directly to the Advances not exceeding $5,000,000 in
notional principal amount; and
(iv) Other Indebtedness in aggregate outstanding amount not to
exceed
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<PAGE>
$250,000.
(h) Liens. Create, incur or suffer to exist, any Lien to exist on any
-----
assets, rights, revenues or property, real, personal or mixed, tangible or
intangible, other than:
(i) Liens for taxes not delinquent or for taxes being contested
in good faith by appropriate proceedings and as to which adequate
financial reserves have been established on its books and records;
(ii) Liens (other than any Lien imposed by ERISA) created and
maintained in the ordinary course of business which are not material in
the aggregate, and which would not have a material adverse effect on the
business or operations of the Company or any Guarantor and which
constitute (A) pledges or deposits under worker's compensation laws,
unemployment insurance laws or similar legislation, (B) good faith
deposits in connection with bids, tenders, contracts or leases to which
the Company or such Guarantor is a party for a purpose other than
borrowing money or obtaining credit, including rent security deposits,
(C) liens imposed by law, such as those of carriers, warehousemen,
operators and mechanics, if payment of the obligation secured thereby is
not yet due, (D) Liens securing taxes, assessments or other governmental
charges or levies not yet subject to penalties for nonpayment, and (E)
pledges or deposits to secure public or statutory obligations of the
Company or such Guarantor, or surety, customs or appeal bonds to which
the Company or such Guarantor is a party;
(iii) Liens created pursuant to the Security Documents and
Liens expressly permitted by the Security Documents; and
(iv) Each Lien described on Schedule 7.2(h) hereto may be
---------------
suffered to exist upon the same terms as those existing on the date
hereof, but no modification, extension or renewal thereof shall be
permitted.
(i) Merger; Acquisitions; Etc. Purchase or otherwise acquire, whether
--------------------------
in one or a series of transactions, unless the Bank shall otherwise consent in
writing, all or any substantial portion of the business assets, rights, revenues
or property, real, personal or mixed, tangible or intangible, of any person, or
all or any substantial portion of the capital stock of or other ownership
interest in any other person; nor merge or consolidate or amalgamate with any
other person or take any other action having a similar effect, nor enter into
any joint venture or similar arrangement with any other person other than a
joint venture or similar arrangement in connection with oil and gas drilling
ventures, oil and gas leases or otherwise in connection with oil and gas
properties.
(j) Disposition of Assets; Etc. Without the prior written consent of
---------------------------
the Bank, sell, lease, license, transfer, assign or otherwise dispose of or
impair the value of any Collateral or any of its other business, assets, rights,
revenues or property, real, personal or mixed, tangible or intangible, whether
in one or a series of transactions, other than, if no Default has occurred or
would be caused thereby, sales of assets in aggregate amount not to
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<PAGE>
exceed $500,000 in any twelve month period.
(k) Nature of Business. Make any substantial change in the nature of
------------------
its business from that engaged in on the date of this Agreement or engage in any
other businesses other than those in which it is engaged on the date of this
Agreement.
(l) Investments, Loans and Advances, Contingent Liabilities. Purchase
-------------------------------------------------------
or otherwise acquire any capital stock of or other ownership interest in, or
debt securities of or other evidences of Indebtedness of, any other person; nor
enter into any new lease, capital or operating, after the date hereof; nor make
any loan or advance of any of its funds or property or make any other extension
of credit to, or make any investment or acquire any interest whatsoever in, any
other person, other than loans and advances, which together with Indebtedness
allowed under Section 7.2(g)(iv), shall not exceed $500,000 in aggregate amount;
nor incur any Contingent Liability.
(m) Dividends. Make, pay, declare or authorize any dividend, payment
---------
or other distribution in respect of any class of its capital stock or any
dividend, payment or distribution in connection with the redemption, repurchase,
defeasance, conversion, retirement or other acquisition, directly or indirectly,
of any shares of its capital stock in excess of 50% of the Company's Net Income
for the current fiscal year, provided, however, that no such payment shall be
-------- -------
made if before and after the payment of such cash dividend, a Default shall have
occurred and be continuing. For purposes of this Section 7.2(m), "capital
stock" shall include capital stock (preferred, common or other) and any
securities exchangeable for or convertible into capital stock and any warrants,
rights or other options to purchase or otherwise acquire capital stock or such
securities.
(n) Transactions with Affiliates. Enter into or be a party to any
----------------------------
transaction or arrangement with any Affiliate (including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of any
service by or for, any Affiliate), except in the ordinary course of and pursuant
to the reasonable requirements of the Company's, such Guarantor's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company, such Guarantor or such Subsidiary than would be obtained in a
comparable arms-length transaction with a Person other than an Affiliate.
(o) Inconsistent Agreements. Enter into any agreement containing any
-----------------------
provision which would be violated or breached by this Agreement or any of the
transactions contemplated hereby or by performance by the Company, any Guarantor
or any of their Subsidiaries of their obligations in connection therewith.
(p) Partnership Agreements. Amend, modify, supplement, terminate or
----------------------
otherwise modify any Partnership Document, or otherwise take or omit to take any
action which could impair any rights or assets of the Company or any
Partnership, whether in connection therewith or otherwise.
SECTION 8. Default.
-------
8.1 Events of Default. The occurrence of any one of the following
-----------------
events or
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<PAGE>
conditions shall be deemed an "Event of Default" hereunder unless waived by the
Bank pursuant to Section 10.1:
(a) Nonpayment. The Company shall fail to pay when due any principal
----------
of or interest on the Note, any amount due under any Rate Hedging Obligation,
any fees or any other amount payable hereunder; or
(b) Misrepresentation. Any representation or warranty made by the
-----------------
Company or any Guarantor in Section 6 hereof, in any Security Document or any
other document or certificate furnished by or on behalf of the Company or any
Guarantor in connection with this Agreement, shall prove to have been incorrect
in any material respect when made; or
(c) Covenants. The Company or any Guarantor shall fail to perform or
---------
observe any term, covenant or agreement contained in this Agreement, in any
Security Document, in any Rate Hedging Agreement or any other agreement or
instrument between the Company or any Guarantor and the Bank; or
(d) Cross Default. The Company or any Guarantor shall fail to pay any
-------------
part of the principal of, the premium on, if any, or the interest on, or any
other payment of money due under, any of its Indebtedness (other than
Indebtedness hereunder), beyond any period of grace provided with respect
thereto; or if the Company or any Guarantor fails to perform or observe any
other term, covenant or agreement contained in any agreement, document or
instrument evidencing or securing any such Indebtedness, or under which any such
Indebtedness was issued or created, beyond any period of grace, if any, provided
with respect thereto if the effect of such failure is either (i) to cause, or
permit the holders of such Indebtedness (or a trustee on behalf of such holders)
to cause, any payment in respect of such Indebtedness to become due prior to its
due date or (ii) to permit the holders of such Indebtedness (or a trustee on
behalf of such holder) to elect a majority of the board of directors of the
Company or any Guarantor; or
(e) Judgments. A judgment or order for the payment of money, which
---------
together with other such judgments or orders exceeds the aggregate amount of
$100,000, shall be rendered against the Company or any Guarantor and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order and such judgment or order shall have remained unsatisfied and
such proceedings shall have remained unstayed for a period of 10 consecutive
days, or (ii) for a period of 10 consecutive days, such judgment or order shall
have remained unsatisfied and a stay of enforcement thereof, by reason of
pending appeal or otherwise, shall not have been in effect; or
(f) ERISA. The occurrence or existence with respect to the Company,
-----
any Guarantor or any of their ERISA Affiliates of any of the following: (i) any
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) involving any Plan, (ii) any Reportable Event shall occur with respect
to any Plan, (iii) the filing under ERISA of a notice of intent to terminate any
Plan or the termination of any Plan, (iv) any event or circumstance exists which
might constitute grounds entitling the PBGC to institute proceedings under ERISA
for the termination of, or the appointment of a trustee to administer, any Plan,
or
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<PAGE>
the institution of the PBGC of any such proceedings, or (v) complete or partial
withdrawal under ERISA from any Multiemployer Plan or the reorganization,
insolvency, or termination of any Multiemployer Plan, and in each of the
foregoing cases, such event or condition, together with all other events or
conditions, if any, could in the opinion of the Bank subject the Company or any
Guarantor to any tax, penalty, or other liability to a Plan, the PBGC, or
otherwise (or any combination thereof); or
(g) Insolvency, Etc. The Company, any Guarantor or any of their
----------------
Subsidiaries shall generally not pay its debts as they become due, or shall
admit in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors, or shall institute, or there
shall be instituted against the Company, any Guarantor or any of their
Subsidiaries, any proceeding or case seeking to adjudicate it a bankrupt or
insolvent or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief or protection of
debtors or seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property, and, if such proceeding is instituted against
the Company, any Guarantor or any of their Subsidiaries and is being contested
by the Company, such Guarantor or such Subsidiary, as the case may be, in good
faith by appropriate proceedings, such proceedings shall remain undismissed or
unstayed for a period of 30 days; or the Company, any Guarantor or any of their
Subsidiaries shall take any action (corporate or other) to authorize or further
any of the actions described above in this subsection; or
(h) Security Documents; Etc. Any event of default described in any
-----------------------
Security Document or Partnership Agreement shall have occurred and be
continuing, or any material provision of any Security Document or Partnership
Agreement shall at any time for any reason cease to be valid and binding and
enforceable against any obligor thereunder, or the validity, binding effect or
enforceability thereof shall be contested by any person, or any obligor shall
deny that it has any or further liability or obligation thereunder, or any
Security Document shall be terminated, invalidated or set aside, or be declared
ineffective or inoperative or in any way ceases to give or provide to the Bank
the benefits purported to be created thereby, or the Company shall not be the
general partner of and operator under each Partnership.
8.2 Remedies.
--------
(a) Upon the occurrence and during the continuance of any Event of
Default, the Bank may, by notice to the Company (i) terminate the Commitment or
(ii) declare the outstanding principal of, and accrued interest on, the Note,
all unpaid reimbursement obligations in respect of drawings under Letters of
Credit and all other amounts due under this Agreement, to be immediately due and
payable, or (iii) demand immediate delivery of cash collateral, and the Company
agrees to deliver such cash collateral upon demand, in an amount equal to the
maximum amount that may be available to be drawn at any time prior to the stated
expiry of all outstanding Letters of Credit, or any one or more of the
foregoing, or all of the above, whereupon the Commitment shall terminate
forthwith and all such amounts, including such cash collateral, shall become
immediately due and payable, or both, as the case may be, provided that in the
--------
case of any event or condition described in Section 8.1(g), the Commitment shall
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<PAGE>
automatically terminate forthwith and all such amounts, including such cash
collateral, shall automatically become immediately due and payable without
notice; in all cases without demand, presentment, protest, diligence, notice of
dishonor or other formality, all of which are hereby expressly waived. Such
cash collateral delivered in respect of outstanding Letters of Credit shall be
deposited in a special cash collateral account to be held by the Bank as
collateral security for the payment and performance of the Company's obligations
under this Agreement to the Bank.
(b) Upon the occurrence and during the continuance of such Event of
Default, the Bank may, in addition to the remedies provided in Section 8.2(a),
enforce its rights either by suit in equity, or by action at law, or by other
appropriate proceedings, whether for the specific performance (to the extent
permitted by law) of any covenant or agreement contained in this Agreement or in
any then outstanding Note or any Security Document or in aid of the exercise of
any power granted in this Agreement, any then outstanding Note or any Security
Document, and may enforce the payment of any then outstanding Note and any of
the other rights of the Bank in any other agreement or available at law or in
equity.
(c) Upon the occurrence and during the continuance of any Event of
Default hereunder, the Bank may at any time and from time to time, without
notice to the Company or any Guarantor (any requirement for such notice being
expressly waived by the Company and each Guarantor) set off and apply against
any and all of the obligations of the Company or any Guarantor now or hereafter
existing under this Agreement, the Note or any of the Security Documents, any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by the Bank to or for the
credit or the account of the Company or any Guarantor and any property of the
Company or any Guarantor from time to time in possession of the Bank,
irrespective of whether or not the Bank shall have made any demand hereunder and
although such obligations may be contingent and unmatured. The rights of the
Bank under this Section 8.2(c) are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which the Bank may have.
SECTION 9. Guaranty.
--------
As an inducement to the Bank to enter into the transactions contemplated
by this Agreement, each Guarantor agrees with the Bank as follows:
9.1 Guarantee of Obligations.
------------------------
(a) Each Guarantor hereby (i) guarantees, as principal obligor and not
as surety only, to the Bank the prompt payment of the principal of and any and
all accrued and unpaid interest (including interest which otherwise may cease to
accrue by operation of any insolvency law, rule, regulation or interpretation
thereof) on the Advances, all Rate Hedging Obligations owing to the Bank and all
other obligations of the Company to the Bank under this Agreement when due,
whether by scheduled maturity, acceleration or otherwise, all in accordance with
the terms of this Agreement, the Note, and any Rate Hedging Agreements with the
Bank, including, without limitation, default interest, indemnification payments
and all reasonable costs and expenses incurred by the Bank in connection with
enforcing any obligations
-37-
<PAGE>
of the Company hereunder, including without limitation the reasonable fees and
disbursements of counsel, (ii) guarantees the prompt and punctual performance
and observance of each and every term, covenant or agreement contained in this
Agreement, the Note and any Rate Hedging Agreements with the Bank to be
performed or observed on the part of the Company and (iii) agrees to make prompt
payment, on demand, of any and all reasonable costs and expenses incurred by the
Bank in connection with enforcing the obligations of the Guarantors hereunder,
including, without limitation, the reasonable fees and disbursements of counsel
(all of the foregoing being collectively referred to as the "Guaranteed
----------
Obligations").
- -----------
(b) If for any reason any duty, agreement or obligation of the Company
contained in this Agreement shall not be performed or observed by the Company as
provided therein, or if any amount payable under or in connection with this
Agreement shall not be paid in full when the same becomes due and payable, each
Guarantor undertakes to perform or cause to be performed promptly each of such
duties, agreements and obligations and to pay forthwith each such amount to the
Bank regardless of any defense or setoff or counterclaim which the Company may
have or assert, and regardless of any other condition or contingency.
9.2 Nature of Guaranty. The obligations of the Guarantors hereunder
------------------
constitute an absolute and unconditional and irrevocable guaranty of payment and
not a guaranty of collection and are wholly independent of and in addition to
other rights and remedies of the Bank and are not contingent upon the pursuit by
the Bank of any such rights and remedies, such pursuit being hereby waived by
the Guarantors.
9.3 Waivers and Other Agreements. Each Guarantor hereby unconditionally
----------------------------
(a) waives any requirement that the Bank, upon the occurrence of an Event of
Default first make demand upon, or seek to enforce remedies against the Company
before demanding payment under or seeking to enforce the obligations of the
Guarantors hereunder, (b) covenants that the obligations of the Guarantors
hereunder will not be discharged except by complete performance of all
obligations of the Company to the Bank, (c) agrees that the obligations of the
Guarantors hereunder shall remain in full force and effect without regard to,
and shall not be affected or impaired, without limitation, by any invalidity,
irregularity or unenforceability in whole or in part of this Agreement or any
other Operative Document, or any limitation on the liability of the Company
thereunder, or any limitation on the method or terms of payment thereunder which
may or hereafter be caused or imposed in any manner whatsoever (including,
without limitation, usury laws), (d) waives diligence, presentment and protest
with respect to, and any notice of default or dishonor in the payment of any
amount at any time payable by the Company under or in connection with this
Agreement or the Note, and further waives any requirement of notice of
acceptance of, or other formality relating to, the obligations of the Guarantors
hereunder and (e) agrees that the Guaranteed Obligations shall include any
amounts paid by the Company to the Bank which may be required to be returned to
the Company or to its representative or to a trustee, custodian or receiver for
the Company.
9.4 Obligations Absolute. The obligations, covenants, agreements and
--------------------
duties of the Guarantors under this Agreement shall not be released, affected or
impaired by any of the following whether or not undertaken with notice to or
consent of the Guarantors: (a) an assignment or transfer, in whole or in part,
of the Advances made to the Company or of this
-38-
<PAGE>
Agreement or the Note although made without notice to or consent of the
Guarantors, or (b) any waiver by the Bank or by any other person, of the
performance or observance by the Company of any of the agreements, covenants,
terms or conditions contained in this Agreement or in the other Operative
Documents, or (c) any indulgence in or the extension of the time for payment by
the Company of any amounts payable under or in connection with this Agreement or
any other Operative Document, or of the time for performance by the Company of
any other obligations under or arising out of this Agreement or any other
Operative Document, or the extension or renewal thereof, or (d) the
modification, amendment or waiver (whether material or otherwise) of any duty,
agreement or obligation of the Company set forth in this Agreement or any other
Operative Document (the modification, amendment or waiver from time to time of
this Agreement and the other Operative Documents being expressly authorized
without further notice to or consent of the Guarantors), or (e) the voluntary or
involuntary liquidation, sale or other disposition of all or substantially all
of the assets of the Company or any receivership, insolvency, bankruptcy,
reorganization, or other similar proceedings, affecting the Company or any of
its assets, or (f) the merger or consolidation of the Company or the Guarantors
with any other person, or (g) the release of discharge of the Company or the
Guarantors from the performance or observance of any agreement, covenant, term
or condition contained in this Agreement or any other Operative Document, by
operation of law, or (h) any other cause whether similar or dissimilar to the
foregoing which would release, affect or impair the obligations, covenants,
agreements or duties of the Guarantors hereunder.
9.5 No Investigation by Bank. Each Guarantor hereby waives
------------------------
unconditionally any obligation which, in the absence of such provision, the Bank
might otherwise have to investigate or to assure that there has been compliance
with the law of any jurisdiction with respect to the Guaranteed Obligations
recognizing that, to save both time and expense, each Guarantor has requested
that the Bank not undertake such investigation. Each Guarantor hereby expressly
confirms that the obligations of such Guarantor hereunder shall remain in full
force and effect without regard to compliance or noncompliance with any such law
and irrespective of any investigation or knowledge of the Bank of any such law.
9.6 Indemnity. As a separate, additional and continuing obligation,
---------
each Guarantor unconditionally and irrevocably undertakes and agrees with the
Bank that, should the Guaranteed Obligations not be recoverable from the
Guarantors under Section 9.1 for any reason whatsoever (including, without
limitation, by reason of any provision of this Agreement or the Note or any
other agreement or instrument executed in connection herewith being or becoming
void, unenforceable, or otherwise invalid under any applicable law) then,
notwithstanding any knowledge thereof by the Bank at any time, each Guarantor as
sole, original and independent obligor, upon demand by the Bank, will make
payment to the Bank of the Guaranteed Obligations by way of a full indemnity in
such currency and otherwise in such manner as is provided in this Agreement and
the Note.
9.7 Subordination, Subrogation, Etc. Each Guarantor agrees that any
-------------------------------
present or future indebtedness, obligations or liabilities of the Company to any
Guarantor shall be fully subordinate and junior in right and priority of payment
to any present or future indebtedness, obligations or liabilities of the Company
to the Bank. Each Guarantor waives any right of subrogation to the rights of
the Bank against the Company or any other person obligated for
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<PAGE>
payment of the Guaranteed Obligations and any right of reimbursement or
indemnity whatsoever arising or accruing out of any payment which any Guarantor
may make pursuant to this Agreement and the Note, and any right of recourse to
security for the debts and obligations of the Company, unless and until the
entire principal balance of and interest on the Guaranteed Obligations shall
have been paid in full, and to the extent such Guarantor is an "insider" as
defined in Section 101(2) of the United States Bankruptcy Code, such waiver
shall be permanent and shall not be revoked or terminated in any event,
including payment in full of the principal and interest of the Guaranteed
Obligations.
9.8 Waiver. To the extent that it lawfully may, each Guarantor agrees
------
that it will not at any time insist upon or plead, or in any manner whatsoever
claim or take any benefit or advantage of any applicable present or future stay,
extension or moratorium law, which may affect observance or performance of the
provisions of this Agreement or the Note; nor will it claim, take or insist upon
any benefit or advantage of any present or future law providing for the
evaluation or appraisal of any security for its obligations hereunder or the
Company under this Agreement and under the Note prior to any sale or sales
thereof which may be made under or by virtue of any instrument governing the
same; nor will it, after any such sale or sales claim or exercise any right,
under any applicable law, to redeem any portion of such security so sold.
SECTION 10. Miscellaneous.
-------------
10.1 Amendments; Etc. (a) No amendment, modification, termination or
----------------
waiver of any provision of this Agreement nor any consent to any departure
therefrom shall be effective unless the same shall be in writing and signed by
the Bank.
(b) Any such amendment, waiver or termination shall be effective only
in the specific instance and for the specific purpose for which given.
10.2 Notices. (a) Except as otherwise provided in Section 10.2(c)
-------
hereof, all notices, requests, consents and other communications hereunder shall
be in writing and shall be delivered or sent to the Company and the Bank at the
respective addresses for notices set forth on the signature pages hereof, or to
such other address as may be designated by the Company or the Bank by notice to
the other party hereto. All notices shall be deemed to have been given at the
time of actual delivery thereof to such address, or if sent by the Bank to the
Company by certified or registered mail, postage prepaid, to such address, on
the fifth day after the date of mailing.
(b) Notices by the Company to the Bank with respect to terminations or
reductions of the Commitment pursuant to Section 2.2, requests for Advances
pursuant to Section 3.1, requests for continuations or conversions of Loans
pursuant to Section 3.4 and notices of prepayment pursuant to Section 4.1(b)
shall be irrevocable and binding on the Company.
(c) Any notice to be given by the Company to the Bank pursuant to
Sections 3.1, 3.4 or 4.1(b) and any notice to be given by the Bank hereunder,
may be given by
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<PAGE>
telephone, by telex or by facsimile transmission and must be immediately
confirmed in writing in the manner provided in Section 10.2(a). Any such notice
given by telephone, telex or facsimile transmission shall be deemed effective
upon receipt thereof by the party to whom such notice is given.
10.3 Conduct No Waiver; Remedies Cumulative. No course of dealing on
--------------------------------------
the part of the Bank, nor any delay or failure on the part of the Bank in
exercising any right, power or privilege hereunder shall operate as a waiver of
such right, power or privilege or otherwise prejudice the Bank's rights and
remedies hereunder; nor shall any single or partial exercise thereof preclude
any further exercise thereof or the exercise of any other right, power or
privilege. No right or remedy conferred upon or reserved to the Bank under this
Agreement is intended to be exclusive of any other right or remedy, and every
right and remedy shall be cumulative and in addition to every other right or
remedy given hereunder or now or hereafter existing under any applicable law.
Every right and remedy given by this Agreement or by applicable law to the Bank
may be exercised from time to time and as often as may be deemed expedient by
the Bank.
10.4 Reliance on and Survival of Various Provisions. All terms,
----------------------------------------------
covenants, agreements, representations and warranties of the Company or any
Guarantor made herein or in any certificate or other document delivered pursuant
hereto shall be deemed to be material and to have been relied upon by the Bank,
notwithstanding any investigation heretofore or hereafter made by the Bank or on
the Bank's behalf, and those covenants and agreements of the Company set forth
in Section 10.5 hereof shall survive the repayment in full of the Advances and
other obligations of the Company hereunder and under the Security Documents and
the termination of the Commitment.
10.5 Expenses; Indemnification. (a) The Company agrees to pay and save
-------------------------
the Bank harmless from liability for the payment of the reasonable fees and
expenses of Messrs. Dickinson, Wright, Moon, Van Dusen & Freeman or any other
counsel the Bank shall employ, in connection with the preparation, execution and
delivery of this Agreement, the Note and the Security Documents and the
consummation of the transactions contemplated hereby and in connection with any
amendments, waivers or consents and other matters in connection therewith, and
all reasonable costs and expenses of the Bank (including reasonable fees and
expenses of counsel) in connection with any enforcement of this Agreement, the
Note or the Security Documents.
(b) In consideration of the execution and delivery of this Agreement
by the Bank and the extension of the Commitment, the Company hereby indemnifies,
exonerates and holds the Bank and each of its officers, directors, employees and
agents (collectively, the "Indemnified Parties") free and harmless from and
-------------------
against any and all actions, causes of action, suits, losses, costs, liabilities
and damages, and expenses incurred in connection therewith (irrespective of
whether any such Indemnified Party is a party to the action for which
indemnification hereunder is sought), including reasonable attorneys' fees and
disbursements (collectively, the "Indemnified Liabilities"), incurred by the
-----------------------
Indemnified Parties or any of them as a result of, or arising out of, or
relating to:
-41-
<PAGE>
(i) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Advance;
(ii) the entering into and performance of this Agreement and any
other agreement or instrument executed in connection herewith by any of the
Indemnified Parties (including any action brought by or on behalf of the Company
as the result of any determination by the Bank not to make any Advance);
(iii) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by the Company or any of its Subsidiaries of
any portion of the stock or assets of any Person, whether or not the Bank is a
party thereto;
(iv) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to any release
by the Company or any of its Subsidiaries of any Hazardous Material or any
violations of Environmental Laws; or
(v) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real property
owned or operated by the Company or any Subsidiary thereof of any Hazardous
Material (including any losses, liabilities, damages, injuries, costs, expenses
or claims asserted or arising under any Environmental Law), regardless of
whether caused by, or within the control of, the Company or such Subsidiary,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the activities of the Indemnified
Party on the property of the Company conducted subsequent to a foreclosure on
such property by the Bank or by reason of the relevant Indemnified Party's gross
negligence or willful misconduct or breach of this Agreement, and if and to the
extent that the foregoing undertaking may be unenforceable for any reason, the
Company hereby agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. The Company shall be obligated to indemnify the Indemnified
Parties for all Indemnified Liabilities subject to and pursuant to the foregoing
provisions, regardless of whether the Company or any of its Subsidiaries had
knowledge of the facts and circumstances giving rise to such Indemnified
Liability.
(c) The Company hereby indemnifies and agrees to hold harmless the
Bank, and its officers, directors, employees and agents, harmless from and
against any and all claims, damages, losses, liabilities, costs or expenses of
any kind or nature whatsoever which the Bank or any such person may incur or
which may be claimed against any of them by reason of or in connection with any
Letter of Credit, and neither the Bank nor any of its officers, directors,
employees or agents shall be liable or responsible for: (i) the use which may be
made of any Letter of Credit or for any acts or omissions of any beneficiary in
connection therewith; (ii) the validity, sufficiency or genuineness of documents
or of any endorsement thereon, even if such documents should in fact prove to be
in any or all respects invalid, insufficient, fraudulent or forged; (iii)
payment by the Bank to the beneficiary under any Letter of Credit against
presentation of documents which do not comply with the terms of any Letter of
Credit, including failure of any documents to bear any reference or adequate
reference to such Letter of Credit;
-42-
<PAGE>
(iv) any error, omission, interruption or delay in transmission, dispatch or
delivery of any message or advice, however transmitted, in connection with any
Letter of Credit; or (v) any other event or circumstance whatsoever arising in
connection with any Letter of Credit; provided, however, that the Company shall
-------- -------
not be required to indemnify the Bank and such other persons, and the Bank shall
be liable to the Company to the extent, but only to the extent, of any direct,
as opposed to consequential or incidental, damages suffered by the Company which
were caused by (A) the Bank's wrongful dishonor of any Letter of Credit after
the presentation to it by the beneficiary thereunder of a draft or other demand
for payment and other documentation strictly complying with the terms and
conditions of such Letter of Credit, or (B) the Bank's payment by the Bank to
the beneficiary under any Letter of Credit against presentation of documents
which do not comply with the terms of the Letter of Credit to the extent, but
only to the extent, that such payment constitutes gross negligence or willful
misconduct of the Bank. It is understood that in making any payment under a
Letter of Credit the Bank will rely on documents presented to it under such
Letter of Credit as to any and all matters set forth therein without further
investigation and regardless of any notice or information to the contrary, and
such reliance and payment against documents presented under a Letter of Credit
substantially complying with the terms thereof shall not be deemed gross
negligence or willful misconduct of the Bank in connection with such payment.
It is further acknowledged and agreed that the Company may have rights against
the beneficiary or others in connection with any Letter of Credit with respect
to which the Bank is alleged to be liable and it shall be a precondition of the
assertion of any liability of the Bank under this Section that the Company shall
first have exhausted all remedies in respect of the alleged loss against such
beneficiary and any other parties obligated or liable in connection with such
Letter of Credit and any related transactions.
(d) The Company hereby indemnifies and agrees to hold harmless the
Bank, and its officers, directors, employees and agents, from and against any
and all claims, damages, losses, liabilities, costs or expenses of any kind or
nature whatsoever (including reasonable attorneys' fees and disbursements
incurred in connection with any investigative, administrative or judicial
proceeding whether or not such person shall be designated as a party thereto)
which the Bank or any such person may incur or which may be claimed against any
of them by reason of or in connection with entering into this Agreement or the
transactions contemplated hereby, including without limitation those arising
under Environmental Laws; provided, however, that the Company shall not be
-------- -------
required to indemnify the Bank or such other person, to the extent, but only to
the extent, that such claim, damage, loss, liability, cost or expense is
attributable to the gross negligence or willful misconduct of the Bank.
10.6 Successors and Assigns. (a) This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors
and assigns, provided that the Company may not, without the prior consent of the
--------
Bank, assign its rights or obligations hereunder or under the Note or under any
of the Security Documents and the Bank shall not be obligated to make any
Advance hereunder to any entity other than the Company.
(b) The Bank may sell a participation interest to any financial
institution or institutions, and such financial institution or institutions may
further sell, a participation interest (undivided or divided) in, the Advances
and the Bank's rights and benefits under this Agreement, the Note and the
Security Documents and to the extent of that participation, such participant or
-43-
<PAGE>
participants shall have the same rights and benefits against the Company under
Section 8.2(c) as it or they would have had if participation of such participant
or participants were the Bank making the Advances to the Company hereunder. The
Bank from time to time in its sole discretion may appoint agents for the purpose
of servicing and administering this Agreement and the transactions contemplated
hereby and enforcing or exercising any rights or remedies of the Bank provided
under this Agreement, the Note, the Security Documents or otherwise. In
furtherance of such agency, the Bank may from time to time direct that the
Company provide notices, reports and other documents contemplated by this
Agreement (or duplicates thereof) to such agent. The Company hereby consents to
the appointment of such agent and agrees to provide all such notices, reports
and other documents and to otherwise deal with such agent acting on behalf of
the Bank in the same manner as would be required if dealing with the Bank
itself.
(c) The Bank may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 10.6, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Company, any Guarantor or any Subsidiary.
10.7 GOVERNING LAW. THIS AGREEMENT IS A CONTRACT MADE UNDER, AND THE
-------------
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW PRINCIPLES OF SUCH STATE.
10.8 Table of Contents and Headings. The table of contents and the
------------------------------
headings of the various subdivisions hereof are for the convenience of reference
only and shall in no way modify any of the terms or provisions hereof.
10.9 Construction of Certain Provisions. All computations required
----------------------------------
hereunder and all financial terms used herein shall be made or construed in
accordance with GAAP unless such principles are inconsistent with the express
requirements of this Agreement. If any provision of this Agreement refers to
any action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person, whether or not expressly specified in such
provision.
10.10 Integration and Severability. This Agreement embodies the entire
----------------------------
agreement and understanding between the Company, the Guarantors and the Bank,
and supersedes all prior agreements and understandings, relating to the subject
matter hereof. In case any one or more of the obligations of the Company or any
Guarantor under this Agreement, the Note or any Security Document shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining obligations of the Company and the
Guarantors shall not in any way be affected or impaired thereby, and such
invalidity, illegality or unenforceability in one jurisdiction shall not affect
the validity, legality or enforceability of the obligations of the Company or
any Guarantor under this Agreement, the Note or any Security Document in any
other jurisdiction.
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<PAGE>
10.11 Interest Rate Limitation. Notwithstanding any provisions of
------------------------
this Agreement, the Note or any Security Document, in no event shall the amount
of interest paid or agreed to be paid by the Company exceed an amount computed
at the highest rate of interest permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision of this Agreement, the
Note or any Security Document at the time performance of such provision shall be
due, shall involve exceeding the interest rate limitation validly prescribed by
law which a court of competent jurisdiction may deem applicable hereto, then,
ipso facto, the obligations to be fulfilled shall be reduced to an amount
- ---- -----
computed at the highest rate of interest permissible under applicable law, and
if for any reason whatsoever the Bank shall ever receive as interest an amount
which would be deemed unlawful under such applicable law such interest shall be
automatically applied to the payment of principal of the Advances outstanding
and other obligations of the Company hereunder (whether or not then due and
payable) and not to the payment of interest, or shall be refunded to the Company
if such principal has been paid in full. Anything herein to the contrary
notwithstanding, the obligations of the Company and the Guarantors under this
Agreement shall be subject to the limitation that payments of interest shall not
be required to the extent that receipt of any such payment by the Bank would be
contrary to provisions of law applicable to the Bank which limits the maximum
rate of interest which may be charged or collected by the Bank.
10.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
10.13 Independence of Covenants. All covenants hereunder shall be
-------------------------
given independent effect so that if a particular action or condition is not
permitted by any such covenant, the fact that it would be permitted by an
exception to, or would be otherwise within the limitations of, another covenant
shall not avoid the occurrence of a Default if such action is taken or such
condition exists.
10.14 Consent to Jurisdiction. Notwithstanding the place where any
-----------------------
liability originates or arises, or is to be repaid, any suit, action or
proceeding arising out of or relating to this Agreement, any Security Document
or the Note may be instituted in any court of competent jurisdiction in the
State of Illinois, the Company and the Guarantors each hereby irrevocably waives
any objection which it may have or hereafter has to the laying of such venue of
any such suit, action or proceeding and any claim that any such suit, action or
proceeding has been brought in an inconvenient forum, and the Company and the
Guarantors each hereby irrevocably submits its person and property to the
jurisdiction of any such court in any such suit, action or proceedings. Nothing
in this Section 10.14 shall affect the right of the Bank to bring proceedings
against the Company or any Guarantor or any of their property in the courts of
any other court of competent jurisdiction.
10.15 JURY TRIAL WAIVER. THE BANK, THE COMPANY AND THE GUARANTORS,
-----------------
AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL,
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO
A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY
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<PAGE>
RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT, THE NOTE OR THE SECURITY DOCUMENTS OR ANY COURSE OF CONDUCT,
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY OF THEM. NONE
OF THE BANK, THE GUARANTORS NOR THE COMPANY SHALL SEEK TO CONSOLIDATE, BY
COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED
WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.
THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR
RELINQUISHED BY THE BANK, THE GUARANTORS OR THE COMPANY EXCEPT BY A WRITTEN
INSTRUMENT EXECUTED BY ALL OF THEM.
-46-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of this 13/th/ day of March, 1997, which shall
be the Effective Date of this Agreement, notwithstanding the day and year first
above written.
Address for Notices: PETROLEUM DEVELOPMENT CORPORATION
103 E. Main Street
P.O. Box 26 By: /s/ Dale G. Rettinger
Bridgeport, West Virginia 26330 -------------------------------
Attention: Dale G. Rettinger Dale G. Rettinger
Its: Executive Vice President
Telephone No: 1-800-624-3821
Telecopy No: 1-800-624-3821
THE FIRST NATIONAL BANK OF CHICAGO
One First National Plaza By: /s/ Joseph C. Giampetroni
-------------------------------
- --------------------------------------------------------------------------
10/th/ Floor, Suite 0362 Joseph C. Giampetroni
Chicago, Illinois 60670 Its: Vice President
Telephone No: (312) 732-1489
Facsimile No: (312) 732-3055
GUARANTORS:
PARAMOUNT TRANSMISSION CORPORATION
103 E. Main Street
P.O. Box 26 By: /s/ Dale G. Rettinger
Bridgeport, West Virginia 26330 -------------------------------
Attention: Dale G. Rettinger Dale G. Rettinger
Its: Executive Vice President
Telephone No: 1-800-624-3821
Telecopy No: 1-800-624-3821
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<PAGE>
PARAMOUNT NATURAL GAS COMPANY
103 E. Main Street
P.O. Box 26 By: /s/ Dale G. Rettinger
Bridgeport, West Virginia 26330 -------------------------------
Attention: Dale G. Rettinger Dale G. Rettinger
Its: Executive Vice President
Telephone No: 1-800-624-3821
Telecopy No: 1-800-624-3821
RILEY NATURAL GAS COMPANY
103 E. Main Street
P.O. Box 26 By: /s/ Dale G. Rettinger
Bridgeport, West Virginia 26330 -------------------------------
Attention: Dale G. Rettinger Dale G. Rettinger
Its: Executive Vice President
Telephone No: 1-800-624-3821
Telecopy No: 1-800-624-3821
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<PAGE>
Exhibit 10.18
THIS AGREEMENT and PLAN OF EXCHANGE of Shares of Stock ("the Agreement"), dated
as of April 1, 1996, between PETROLEUM DEVELOPMENT CORPORATION, a Nevada
corporation, with its principal corporate office at 103 E. Main Street,
Bridgeport, West Virginia 26330, party of the first part, herein called "PDC,"
and RNG HOLDING COMPANY, a West Virginia corporation, with its corporate office
at Route 1, Box 198, Lost Creek, West Virginia 26385, hereinafter called "RNG",
and THOMAS E. RILEY and DONNA R. RILEY, both having a mailing address of P.O.
Box 280, West Milford, West Virginia 26451, hereinafter called by their full
names or sometimes referred to as the "RILEYS", parties of the second part.
1. RECITALS. (a) WHEREAS, PDC is a public corporation, duly organized and
--------
existing under the laws of the State of Nevada, and licensed in West Virginia
as a foreign corporation; and (b) WHEREAS, RNG is duly organized and existing
under the laws of the State of West Virginia; and (c) WHEREAS, at the date of
this Agreement RNG has authorized capital consisting of Ten Thousand and 00/100
Dollars ($10,000.00) which capital stock is divided into One Thousand (1,000)
shares each share having a par value of Ten Dollars ($10.00) per share; and
(d) WHEREAS, as of the date of this Agreement there are Five Hundred (500)
shares issued and outstanding in the name of Thomas E. Riley; and (e) WHEREAS,
the parties have agreed and do herein agree to exchange all of the issued and
outstanding shares of RNG for shares of PDC on the terms and conditions herein
set out.
NOW, THEREFORE, in consideration of the premises, (which are incorporated
herein by reference) the sum of One Dollar ($1.00), cash in hand paid each to
the other and the parties intending to be bound agree as follows:
2. EXCHANGE OF SHARES. On the date of the completion of the RNG audit
------------------
described in Paragraph 4 hereof, PDC will issue or cause to be issued to Thomas
E. Riley shares of the common capital stock of PDC having a par value of $0.01
each, the number of shares determined by or equal to the total value of
shareholders equity in RNG, determined as hereinafter provided,
<PAGE>
divided by the average daily closing price of PDC common stock as quoted daily
in the Wall Street Journal during the month of March, 1996.
3. ADJUSTMENTS TO THE EXCHANGE VALUATIONS. In the event the average daily
--------------------------------------
closing price of the PDC stock on March 31, 1998 is less than One Dollar Ninety
and 22/1000 cents ($1.9022), PDC will deliver to Thomas E. Riley additional
shares of PDC stock. The number of shares to be delivered shall be determined by
subtracting the average daily closing price of PDC stock for the month of March,
1998 from $1.9022, multiplying that difference by the number of shares initially
issued, and dividing that product by the average daily closing price per share
for the month of March, 1998, provided, however, that the total number of shares
delivered under this adjustment shall not exceed the total number of shares
originally delivered under this exchange agreement.
This calculation is expressed as follows:
(1.9022 - March, 1998 Price)
X Original shares issued / March 1998 Price
4. DETERMINATION OF RNG'S SHAREHOLDER EQUITY. The Shareholder Equity
-----------------------------------------
referred to in paragraph 2 above shall be determined and fixed as of March 31
1996, by an audit of the books, records and accounts of RNG by Conley Johnson,
CPA, P.O. Box 1150, Fairmont, West Virginia 26555-1150. The PDC shares to be
exchanged shall be determined and the shares delivered at the conclusion of the
RNG audit.
5. EMPLOYMENT AGREEMENTS. With the execution of this Agreement, PDC shall
---------------------
enter into separate employment agreements with said Thomas E. Riley and Donna R.
Riley, which agreements are incorporated by reference.
-2-
<PAGE>
6. OPERATION OF RNG. RNG will become a wholly owned subsidiary of PDC and
----------------
will keep or continue its same officers at least through the current corporate
year. On the date of the exchange of stock (as provided by Paragraphs 3 and 4
above) the Rileys shall deliver the outstanding certificate for shares of RNG
and shall each resign as Directors of RNG. On or prior to the exchange date of
April 1, 1996, RNG Service Company will be spun off as an independent entity
with all stock in RNG Service Company being issued to and held by Thomas E.
Riley. Thomas E. Riley may continue to operate RNG Service Company for a period
of time in order to effect an orderly conclusion of its operations and to assist
its employees in obtaining employment. It is anticipated that this operation
will not exceed Twelve (12) months. Employees of Riley Natural Gas Company shall
be retained in their current capacities. For retained employees prior service
with RNG shall be applied when determining eligibility for vacations and other
employee benefits. Such employees are to have continued health, retirement and
sick leave coverages with PDC. RNG shall maintain communication capabilities at
or near their present offices after their work location has moved to Bridgeport.
7. REPRESENTATIONS AND WARRANTIES OF RNG AND THE RILEYS.
----------------------------------------------------
7.1 General. The Rileys are actively involved in the day-to-day financial
-------
and operational aspects of the RNG business and knowledgeably make the
covenants, representations and warranties set forth herein.
7.2 Ownership of Stock. Thomas E. Riley is the owner of record and in fact
------------------
of Five Hundred (500) shares of the common capital stock of RNG, that being the
only shares of every kind of stock issued by RNG. RNG is the holder and owner of
all of the issued stock of its wholly owned
-3-
<PAGE>
subsidiary, Riley National Gas Company, a West Virginia corporation. No
resolutions relating to dissolution or notices of dissolution have been enacted
for or on behalf of any corporations.
7.3 Due incorporation, good standing and qualification. RNG is a
--------------------------------------------------
corporation, duly incorporated, in good standing with all requisite corporate
powers of authority to own and operate its properties and to carry on its
business as presently conducted. RNG has issued and outstanding the Five Hundred
(500) shares of common capital stock, which is validly issued, fully paid and
non assessable. There is no other class of stock. There are no outstanding
subscriptions, options, warrants, convertible securities, costs, commitments or
agreements to which RNG is a party calling for or requiring the issuance,
transfer, sale or other disposition of shares of stock of RNG or its subsidiary
or related company, either in all events or upon the occurrence of any
contingency calling for or requiring the issuance of any securities or rights
convertible into or exchangeable into shares of RNG or any of its subsidiaries
or related companies.
7.4 Financial Statements. The balance sheet and related financial
--------------------
statements of RNG as of March 31, 1996, will be, to the knowledge of the second
party and the Rileys as prepared by Conley Johnson, CPA, true and accurate and
fairly represent the financial position and shareholder equity for the period
audited, as well as the results of operations and changes in financial position
reported in conformity with generally accepted accounting principles applied on
a consistent basis. RNG has no other material liabilities or obligations of a
type which would be included on a balance sheet prepared in accordance with
generally accepted accounting policies.
7.5 Material Changes. Since January 1, 1996, there has not been (i) any
----------------
adverse material change in the financial condition, business, properties or
assets of RNG; (ii) any event or condition which has materially and adversely
affected the business of RNG or (iii) any mortgage,
-4-
<PAGE>
security interest or pledge of any material amount of the properties or assets
of RNG, except in each case as is disclosed in the financial statements and
footnotes related thereto.
7.6 Tax matters: Litigation. RNG has filed with the appropriate state,
-----------------------
federal and local governmental agencies all income tax returns and reports which
are required to be filed and has paid in full, all taxes, interest, penalties,
assessments or deficiencies shown to be due on such returns and reports.
Provisions for taxes reflected in the tax returns are adequate. RNG is not a
party to any pending action or proceeding nor, to the best of RNG or the Riley's
knowledge, is any action or proceeding threatened by either any governmental
agency or any other person, firm or corporation for taxes or claims of any kind
whatsoever.
7.7 Title to Properties. RNG has generally satisfactory title to all of its
-------------------
significant properties and assets, real and personal, which it owns, free and
clear of all security interests, liens, encumbrances and charges except for (i)
liens for current taxes not yet due nor payable; (ii) liens, encumbrances
disclosed in the financial statements and related notes; (iii) such
imperfections of title, easements and encumbrances, if any, as are not material
in character amount or extent and do not materially interfere with the use of
such property or the business operations being conducted thereon or used
therewith. Leases of RNG are valid and enforceable according to their terms.
7.8 Authority and Compliance. RNG has the full corporate power and lawful
------------------------
authority to execute and deliver this Agreement and has the approval and
authority to consummate the transactions contemplated hereby and this Agreement
will constitute the valid, legally binding obligation of RNG according to its
terms. No approval or consent of any federal, state or other governmental agency
or body is required in connection with this transaction.
-5-
<PAGE>
7.9 Environmental. To the best of their knowledge RNG and Rileys have
-------------
obtained all licenses, permits and other authorizations connected with the
conduct of the business under all applicable federal, state and local laws,
rules and regulations relating to pollution or protection of the environment.
RNG and the Rileys know of no violations of environmental rules or regulations
or such violations being under investigation.
7.10 No Contract. To the best of the Rileys knowledge, there are no
-----------
employment contracts except those contemplated by this Agreement, no consulting
contracts, pension, disability, profit sharing, defined contributions, severance
pay, retirement or other employee benefit plans not disclosed on the RNG
financials except for existing agreements with Richard George and Steve
Middleton. Nor is there any other contract or agreement obligating RNG to expend
money or be obligated to do anything not shown by the financials and the notes
related thereto.
8. PDC REPRESENTS AND WARRANTS AS FOLLOWS:
--------------------------------------
8.1 General. PDC is a Nevada Corporation, licensed to do business in the
-------
State of West Virginia and elsewhere, is duly organized with all requisite power
and authority to own property and conduct its business as it is being conducted.
8.2 Due Incorporation, Good Standing, Authority to Issue Stock. PDC's
----------------------------------------------------------
capital consists of Twenty-Five Million (25,000,000) shares of common capital
stock of a par value of $0.01 cent each and as of March 15, 1996, had issued and
outstanding 10,018,790 shares. All of the outstanding shares of PDC have been
authorized, validly issued, fully paid and non assessable. PDC shares are traded
daily in the over the counter market of NASDAQ, under the symbol "PETD." PDC has
the authority to make the transaction contemplated and to issue the requisite
number of shares required by this Agreement. Such shares are not registered
under the Securities Act of 1933 or with the State of West Virginia. Prior to a
public sale or transfer such shares must first be registered with
-6-
<PAGE>
the appropriate federal or state agency or sold or transferred pursuant to an
exemption from such registration.
8.3 Financial Statement. Financial Statements delivered to RNG and the
-------------------
Rileys in connection with this transaction are public and on file with the
S.E.C. and NASD and are available to and have been inspected and reviewed by RNG
and the Rileys. Said statements fairly present the financial position of PDC as
of the dates indicated and the results of operations and changes in financial
position for the period(s) then ending in conformity with generally accepted
accounting principles applied on a consistent basis and include all adjustments
consisting only of normal accruals necessary for the fair statement of the
operations for the period.
8.4 No Material Changes. There have been no material changes in the
-------------------
financial condition of PDC since its audit at December 31, 1995.
8.5 Tax Matters and Litigation. PDC has filed with the appropriate state,
--------------------------
federal and local governments, all income and other tax returns and reports as
are required to be filed and has paid in full all taxes, interest, penalties and
assessment as are required or claimed by such authority. To the best of PDC's
knowledge there is no claim, action or proceeding threatened by any governmental
agency or third party whatsoever which would in the aggregate have a material
adverse effect on the business, properties, operations, prospects or assets.
9. REPRESENTATIONS AND WARRANTIES. All representations and warranties of
------------------------------
both parties are intended to survive the execution of this Agreement.
10. CONFIDENTIALITY. The parties hereto agree that each party shall use its
---------------
best lawful effort to hold in strict confidence all data and information
obtained from the other party(ies) to this Agreement or otherwise, except to
the extent that such date and information is required to be included as
disclosure to shareholders, directors, officers and employees of each party.
-7-
<PAGE>
11. COOPERATION. Subject to the terms and conditions herein provided, the
-----------
parties shall use their best efforts to take, or cause to be taken, such action,
to execute and deliver, or cause to be executed and delivered, such additional
documents and to do or cause to be done all things necessary or advisable under
the provisions of this Agreement and under applicable law to consummate and make
effective transactions contemplated by this Agreement.
12. COUNTERPARTS. This Agreement may be executed in a number of
------------
counterparts, each of which, when executed, shall constitute an original, but
all of which together shall constitute the same document.
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
----------------
the parties and may not be amended or modified except in writing signed by the
parties to be charged.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement all as
of the day and year first hereinabove written.
PETROLEUM DEVELOPMENT CORPORATION,
a Nevada corporation
By /s/ James N. Ryan
---------------------------------------
Its CEO
----------------------------------
RNG HOLDING COMPANY,
a West Virginia corporation
By /s/ Thomas E. Riley
---------------------------------------
Its President
----------------------------------
/s/ Thomas E. Riley
---------------------------------------
Thomas E. Riley
/s/ Donna R. Riley
---------------------------------------
Donna R. Riley
-8-
<PAGE>
STATE OF WEST VIRGINIA
COUNTY OF HARRISON, TO-WIT:
The foregoing instrument was acknowledged before me this 4th day of April, 1996,
---
by James N. Ryan, CEO of PETROLEUM DEVELOPMENT CORPORATION, a Nevada
------------- ---
corporation, on behalf of the corporation.
My commission expires July 31, 2001
-------------
Seal /s/ Marjorie Ann Desmond
------------------------------------
Notary Public
STATE OF WEST VIRGINIA
RT 2. BOX 2536
MARJORIE ANN DESMOND
GRAFTON, WV 26354
The foregoing instrument was acknowledged before me this 4th day of April,
---
1996, by Thomas E. Riley, President of RNG HOLDING COMPANY, a West Virginia
--------------- --------- ------------------------
corporation, on behalf of the corporation.
My Commission Expires July 31, 2001
-------------
/s/ Marjorie Ann Desmond
------------------------------------
Notary Public
STATE OF WEST VIRGINIA
COUNTY OF HARRISON, TO-WIT:
The foregoing instrument was acknowledged before me on this 4th day of April,
---
1996, by Thomas E. Riley and Donna R. Riley.
My commission expires July 31, 2001
-------------
(Notarial Seal)
/s/ Marjorie Ann Desmond
------------------------------------
Notary Public
This instrument was prepared by:
Roger J. Morgan, Esquire
YOUNG, MORGAN & CANN, Attorneys at Law
Suite One, Schroath Building, Clarksburg, WV 26301
-9-
<PAGE>
Exhibit 10.19
PURCHASE AND SALE AGREEMENT
BETWEEN ANGERMAN ASSOCIATES, INC.
AND
PETROLEUM DEVELOPMENT CORPORATION
DATED
JULY 16, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paragraph Page
No. No.
<C> <S> <C>
1. Sale and Purchase 1
2. Sale Price 1
3. Deposit 2
4. Seller' Representations 2
5. Buyer's Representations 3
6. Access to Records 3
7. Title Defects 3
8. Notice of Title Defects 4
9. Preferential Rights 4
10. Physical and Environmental Inspection 4
11. Sale Price Adjustments 5
12. Effect of Failure to Close 5
13. Special Warranty of Title 6
14. Conditions of Closing by Buyer 6
15. Conditions of Closing by Seller 6
16. Preliminary Closing Statement 7
17. Closing 7
18. Reservations and Exceptions 8
19. Assumption of Liabilities; Indemnification 8
20. Taxes 9
21. Operations and Accounting After the Effective Time 9
22. Sales Tax: Transfer Fees 11
23. Notices 11
24. Further Assurances 11
25. Disclaimer of Warranties 12
26. Risk of Loss 12
27. Securities Laws 12
28. Due Diligence 13
29. Material Factor 13
30. Press Release 13
31. Entire Agreement 13
32. Tax Reporting 13
33. Assignability 13
34. Survival 13
35. Choice of Law 14
36. Counterpart Execution 14
37. Knowledge 14
38. Interests Held by Affiliates 14
39. Premerger Notification 14
</TABLE>
<PAGE>
THIS AGREEMENT, dated as of July 16, 1996 is between Angerman
Associates,Inc., a Pennsylvania corporation, (hereinafter referred to as
"Seller"), with offices at 109 Zeta Drive, Pittsburgh, Pennsylvania 15238, and
PETROLEUM DEVELOPMENT CORPORATION, a Nevada corporation (hereinafter referred to
as "Buyer") with offices at 103 E. Main Street, Bridgeport, WV 26330.
WHEREAS, Seller desires to sell and Buyer desires to purchase, upon and
subject to the terms, conditions, reservations and exceptions hereinafter set
forth, Seller's interest in and to those properties described on Exhibit "A"
attached hereto and made a part hereof, being (i) all of Seller's right, title
and interest in the oil and gas leases, fee oil and gas properties, and other
property interests and unit rights described on Exhibit "A-1" (collectively, the
"Properties"), (ii) all of Seller's right, title and interest in all wells
listed on Exhibit "A-2", attached hereto and made a part hereof (collectively,
the "Wells"), (iii) all of Seller's right, title and interest in all equipment,
materials, fixtures and facilities and other personal property now associated
with and used in connection with the production, gathering, storing, measuring,
treating, operating, maintaining or transportation of production from the Wells
together with those certain tools, supplies, vehicles, inventories, equipment
and other personal property described on Exhibit "A-3", attached hereto and made
a part hereof (collectively, the "Equipment"), (iv) all of Seller's right, title
and interest in all contracts and contract rights, whether or not of record,
insofar and only insofar as they relate to the Properties, Wells and Equipment
including without limitation, unit agreements, surface leases, operating
agreements, easements, rights of way, farm-out and farm-in agreements, and all
similar rights leased or owned by Seller, and oil and gas sales, purchase,
exchange and processing contracts and agreements, listed on Exhibit "A-4",
attached hereto and made a part hereof (collectively, the "Contracts"), and (v)
all of Seller's right, title and interest in the pipelines, fixtures, equipment
and other personal property associated with the gathering systems described on
Exhibit "A-5", attached hereto and made a part hereof (collectively, the
"Gathering Systems"). Seller's interests in the Properties, Wells, Equipment,
Contracts and Gathering Systems shall hereinafter together and individually be
called the "Interests" or "Interest"; provided, however, that in the event any
Interest is deleted from the sale pursuant to the provisions of this Agreement,
such Interest shall not thereafter be deemed an Interest or one of the
Interests.
THEREFORE, in consideration of the above recitals and of the covenants and
agreements herein contained and with the intent to be legally bound hereby,
Seller and Buyer agree as follows:
1. Sale and Purchase. Subject to and upon all of the terms, conditions,
-----------------
reservations and exceptions hereinafter set forth, Seller shall sell, transfer,
assign, convey and deliver the Interests to Buyer, and Buyer shall purchase,
receive, pay for and accept the Interests from Seller, effective as of 12
o'clock, noon, on May 1, 1996 (the "Effective Time").
2. Sale Price. The sale price for the Interests shall be Three Million
----------
Six Hundred Fifty Thousand Dollars ($3,650,000) ("Sale Price"), and shall accrue
interest thereon from
Page 1
<PAGE>
June 1, 1996 until Closing, as hereinafter defined, at an annual rate of 8-3/4%,
such interest to be paid in full at Closing. The Sale Price shall be allocated
among the Interests as set forth on Exhibits "A", "A-1", "A-2", "A-3", "A-4" and
"A-5", attached hereto (the "Allocated Values").
3. Deposit. Upon execution of this Agreement, Buyer shall pay, by
-------
certified check or wire transfer, to Seller a deposit ("Deposit") in the amount
of Two Hundred Fifty Thousand Dollars ($250,000). Seller shall deposit the
Deposit in an interest bearing escrow account at PNC Bank. The Deposit, plus all
accrued interest thereon, shall be credited against the Sale Price at Closing,
provided, however, that if Closing does not occur as and when provided herein,
the Deposit plus all accrued interest thereon shall be paid as set forth in
Paragraph 12 hereof.
4. Seller's Representations. Seller represents and warrants to Buyer that
------------------------
as of the Closing:
(a) Seller is a duly organized corporation, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania, is duly qualified
to carry on its business in the state(s) in which the Interests are located, and
has full power and authority to enter into and perform this Agreement according
to its terms. This Agreement has been duly executed and delivered by Seller and
constitutes the legal, valid, and binding obligation of Seller, enforceable
against Seller in accordance with its terms;
(b) Seller's execution, delivery and performance of this Agreement has
been duly authorized by all necessary corporate action on Seller's part and will
not violate or conflict with any agreement, law, rule, regulation, charter or
instrument governing Seller's organization, management or business affairs;
(c) To the best knowledge of Seller, there is no proceeding, action, suit,
claim or investigation pending or threatened before any federal, state or other
government court, department, board, agency or other instrumentality or any
arbitrator, board of arbitration or similar entity, and there are no orders,
writs, judgments, stipulations, injunctions, decrees, determinations, awards or
other decisions of any court, arbitrator or governmental authority outstanding
against Seller or the Interests, that have or could have, individually or in the
aggregate, any material adverse effect on the ownership or value of the
Interests as a whole other than as shown on Exhibit "B"; and
(d) To the best knowledge of Seller, all Contracts material to the
ownership or value of the Interests, are either of record or have been, or
within ten (10) days after the date hereof, will be disclosed or made available
to the Buyer by the Seller.
(e) To the best knowledge of Seller, the historical data provided to Buyer
as part of the bid package and subsequent information requests regarding
production, revenue, outstanding gas sales, and interests and property owned by
Seller are materially correct.
Page 2
<PAGE>
5. Buyer's Representations. Buyer represents and warrants to Seller that
-----------------------
as of the Closing:
(a) Buyer is a duly organized corporation validly existing and in good
standing under the laws of the State of Nevada, is duly qualified to carry on
its business in the state(s) in which the Interests are located, and has full
power and authority to enter into and perform this Agreement according to its
terms. This Agreement has been duly executed and delivered by Buyer and
constitutes the legal, valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms;
(b) Buyer's execution, delivery and performance of this Agreement has been
duly authorized by all necessary corporate action on Buyer's part and will not
violate or conflict with any agreement, law, rule, regulation, charter or
instrument governing Buyer's organization, management or business affairs; and
(c) In entering into this Agreement and closing this transaction, Buyer
has relied solely on (i) the express representations, warranties and covenants
of Seller in this Agreement, (ii) Buyer's independent investigation and
evaluation of, and judgment with respect to, the Interests and (iii) the advice
of Buyer's own land, legal, title, tax, economic, environmental, engineering,
geological and geophysical advisors. Buyer has not relied on any
representations, warranties, comments or statements of Seller or of any
representative of, or consultants or advisors engaged by, Seller except as
expressly set forth in this Agreement. The Buyer together with Buyer's advisors
has the knowledge and experience to properly evaluate the merits and risks of
purchasing the Interests from Seller.
6. Access to Records. After execution of this Agreement, Seller shall
-----------------
give Buyer and its authorized representatives, during regular business hours, at
Buyer's sole risk, cost and expense, access, with copying privileges, to all
geological, geophysical, production, engineering and other technical data and
records, and to all contract, land, title and lease records, to the extent such
data and records are in Seller's possession and relate to the Interests, and to
such other information relating to the Interests as Buyer may reasonably
request; provided, however, Seller shall have no obligation to provide Buyer
such access to any data or information which Seller cannot legally provide Buyer
because of third-party restrictions on Seller. Seller agrees to use its best
efforts to obtain the consent of any such third-party to furnish such
information to Buyer. Buyer expressly agrees that Buyer's rights under this
Agreement are subject to all of the terms and conditions of the Confidentiality
Agreement previously executed by Buyer and Seller, a copy of which is attached
hereto as Exhibit "C" and incorporated herein by this reference. The foregoing
obligation of confidentiality shall survive the Closing or Closing Failure, as
hereinafter defined.
7. Title Defects. For the purpose of this Agreement, a title defect shall
-------------
mean any material deficiency in title (i) which prevents the Buyer's enjoyment
of the Interests in the same manner as the Interests are enjoyed by the Seller
immediately prior to the Closing
Page 3
<PAGE>
Date, and (ii) which would significantly affect the Allocated Values of the
subject Interests (a "Title Defect").
8. Notice of Title Defects.
-----------------------
(a) Upon the discovery of a Title Defect by Buyer, Buyer shall immediately
notify Seller in writing. Any such notice by Buyer shall include appropriate
evidence and documentation to substantiate its position and shall be delivered
to Seller on or before five (5) business days prior to the Closing Date. Any
Title Defect which is not disclosed to Seller on or before five (5) business
days prior to the Closing Date shall conclusively be deemed waived by Buyer for
all purposes. Buyer thereafter shall be deemed to have fully inspected and
accepted the Interests "as is" in their then current condition and the Interests
shall be deemed to be free of Title Defects except for those noticed by Buyer to
Seller as provided in this Paragraph 8.
(b) Upon receipt by Seller of notice pursuant to Paragraph 8(a), either
Buyer or Seller may, upon written notice delivered to the other party not later
than two (2) business days of the receipt of said notice, terminate this
Agreement.
9. Preferential Rights. If any of the Interests are subject to
-------------------
preferential purchase rights, rights of first refusal, consents to assign,
Lessor's approvals, or similar rights (collectively, "Preferential Rights"),
Seller shall, on a best efforts basis (which shall not require a payment of any
cash or other consideration) attempt to obtain all waivers, consents, releases
and the like (collectively, "Waivers") necessary for the transfer of the
Interests to Buyer.
Interests subject to Preferential Rights for which Seller obtains Waivers
prior to Closing shall be sold to Buyer at Closing pursuant to the provisions of
this Agreement. Interests subject to Preferential Rights for which Waivers are
not obtained prior to Closing, or for which said Preferential Rights are
exercised by the holder of the Preferential Rights, shall, at the option of
Buyer or Seller, be deleted from Exhibits "A", A-1", "A-2, "A-3", "A-4", and
"A-5" and the Sale Price shall be reduced by the Allocated Values of the deleted
Interests.
10. Physical and Environmental Inspection.
-------------------------------------
(a) After the execution of this Agreement, Seller shall give Buyer and its
authorized representatives during regular business hours physical access to the
Interests at Buyer's sole cost, risk and expense for the purpose of inspecting
the same, conducting such tests, examinations, investigations and assessments as
may be reasonable and necessary or appropriate to evaluate the physical and
environmental condition of the Interests. For those Interests which are not
operated by Seller, Buyer shall obtain permission from the operator to conduct
such inspections. Buyer shall defend and indemnify Seller against and from any
and all liability, claims, causes of action, injury to Buyer's property,
employees, agents, contractors, subcontractors or invitees, and/or injury to
Seller's property, employees, agents, contractors, subcontractors or invitees
which may arise out of Buyer's
Page 4
<PAGE>
inspections, but only to the extent of Buyer's negligence or the negligence of
Buyer's agents, employees, contractors, subcontractors, and/or invitees. Buyer
agrees to provide to Seller, upon request, a copy of any environmental
assessments, including any reports, data, and conclusions for Buyer's operation
and/or remediation of the Interests. Buyer agrees that all such information
shall be subject to the Confidentiality Agreement and shall be kept confidential
and shall not be disclosed excepted as permitted therein, unless required to do
so by applicable law, or as necessary, after Closing, for Buyer's operation
and/or remediation of the Interests. The foregoing obligation of confidentiality
shall survive Closing or Closing Failure, as hereinafter defined.
(b) Upon the discovery of an Environmental Condition (as hereinafter
defined) by Buyer, Buyer shall immediately notify Seller in writing. Any such
notice by Buyer shall include appropriate evidence and documentation to
substantiate its position and shall be delivered to Seller on or before five (5)
business days prior to the Closing Date. Any Environmental Condition which is
not disclosed to Seller on or before five (5) business days prior to the Closing
Date shall conclusively be deemed waived by Buyer for all purposes. Buyer
thereafter shall be deemed to have fully inspected and accepted the Interests
"as is" in their then current condition and the Interests shall be deemed to be
free of Environmental Conditions except for those noticed by Buyer to Seller as
provided in this Paragraph 10(b). As used in this paragraph 10(b), Environmental
Condition is one in which Seller is not in compliance with laws, rules or
regulations pertaining to health or the environment with respect to an Interest
and in which a failure to comply would adversely affect the Allocated Value of
such Interest.
(c) Upon receipt by Seller of notice pursuant to Paragraph 10(b), either
Buyer or Seller may, upon written notice delivered to the other party not later
than two (2) business days of the receipt of said notice, terminate this
Agreement.
11. Sale Price Adjustments. Buyer and Seller expressly agree that, in the
----------------------
event Seller is determined to own a greater interest in any of the Interests
than shown on Exhibits "A-l", "A-2", "A-3", "A-4" and "A-S", the Sale Price
shall be increased, based on the Allocated Value(s) of such Interest(s).
12. Effect of Failure to Close. The following provisions shall apply in
--------------------------
the event Closing shall not occur as and when provided herein (a "Closing
Failure").
(a) If Closing Failure occurs as the result of the mutual agreement of the
Seller and the Buyer or if Closing Failure is not the result of the failure of
either party to perform its obligations hereunder or is a result of either
Buyer's or Seller's termination pursuant to Paragraph 8(b) or 10(c) hereof, this
Agreement shall, without liability of any party to this Agreement or any
shareholder, director, officer, employee, agent or representative of such party,
become null and void and the Seller shall promptly return the Deposit together
with all accrued interest thereon to the Buyer;
Page 5
<PAGE>
(b) If Closing Failure occurs as a result of the failure of Buyer to
perform its obligations hereunder, then Seller shall be entitled to terminate
this Agreement and retain the Deposit together with all accrued interest thereon
as liquidated damages and as reimbursement for Seller's out-of-pocket fees and
expenses incurred in connection with the transactions contemplated by this
Agreement. The parties hereby acknowledge that the extent of damages to Seller
occasioned by such breach or default or failure to proceed by Buyer would be
impossible or extremely impractical to ascertain and that the amount of the
Deposit plus all accrued interest thereon is a fair and reasonable estimate of
such damage; and
(c) If Closing Failure occurs as a result of the failure of Seller to
perform its obligations hereunder, then, and in that event, this Agreement shall
terminate and Seller shall be liable to Buyer for the return of the Deposit
together with all accrued interest thereon.
13. Special Warranty of Title. In all conveyances executed and delivered
-------------------------
hereunder, Seller shall specially warrant to Buyer and its successors and
assigns that it has not previously conveyed the Interests and warrant and defend
title to the Interests against the claims and demands of all persons whomsoever
claim the same or any part thereof by, through or under Seller, but not
otherwise. Seller makes no other warranty or representation as to the quantity
or quality of title to the Interests.
14. Conditions of Closing by Buyer. The obligation of Buyer to close is
------------------------------
subject to the satisfaction of the following conditions:
(a) All representations and warranties of Seller contained in this
Agreement shall be true and correct in all material respects as of the Closing;
(b) Seller shall have performed and satisfied in all material respects all
of those agreements and covenants which are required by this Agreement to be
performed and satisfied prior to Closing by Seller; and
(c) No suit or other proceeding shall be pending before any court or
governmental agency seeking to restrain or prohibit this transaction, or to
declare this transaction illegal, or to obtain substantial damages in connection
with this transaction.
15. Conditions of Closing by Seller. The obligation of Seller to close is
-------------------------------
subject to the satisfaction of the following conditions:
(a) All representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects as of the Closing;
(b) Buyer shall have performed and satisfied in all material respects all
of those agreements and covenants which are required by this Agreement to be
performed and satisfied prior to Closing by Buyer;
Page 6
<PAGE>
(c) No Suit or other proceeding shall be pending before any court or
governmental agency seeking to restrain or prohibit this transaction, or to
declare this transaction illegal, or to obtain substantial damages in connection
with this transaction; and
(d) Buyer shall have delivered to Seller evidence of its state plugging
bonds, surety letters, or letters of credit acceptable to such authorities to
authorize Buyer's conduct of operations and to effect the release and discharge
of the Seller's obligation under any such financial assurances with respect to
the Interests.
16. Preliminary Closing Statement. Seller shall prepare and furnish to
-----------------------------
Buyer at least two (2) business days prior to the Closing Date a preliminary
closing statement setting forth the adjustments to the Sale Price and the total
amount of funds to be paid by Buyer at Closing. Such statement shall reflect
each adjustment and the calculation used to determine such amount. The adjusted
Sale Price shall mean the Sale Price adjusted as provided herein.
17. Closing. The closing (the "Closing") shall occur on the earlier of
-------
August 30, 1996 or five (5) days after Buyer completes its title examinations,
at 9:00 a.m. at the offices of Seller at 109 Zeta Drive, Pittsburgh,
Pennsylvania 15238, or at such other time and place as Seller and Buyer may
mutually agree in writing (the "Closing Date").
At Closing the following shall occur:
(a) Seller shall execute, acknowledge and deliver, as appropriate, (i) an
Assignment and Bill of Sale substantially in the form and substance of Exhibit
"D", attached hereto, and (ii) a Deed of Special Warranty substantially in the
form and substance of Exhibit "E", attached hereto, covering all of the
Interests to be sold pursuant hereto;
(b) Buyer shall deliver to Seller by wire transfer (i) the total Sale
Price, plus interest accrued thereon, as provided in Paragraph 2, less (ii) the
Deposit plus interest accrued thereon, as provided in Paragraph 3, subject to
adjustments in accordance with this Agreement;
(c) Seller and Buyer shall execute and Seller shall file with the
appropriate regulatory authorities all necessary forms concerning the change of
ownership and operatorship of the Interests;
(d) Seller shall, subject to the terms of any applicable operating
agreements and to the provisions hereof, deliver to Buyer exclusive possession
of the Interests, effective as of the Effective Time; however, Seller does not
warrant or represent that Buyer will succeed it as operator where Seller
presently operates under an operating agreement;
(e) Seller shall promptly after Closing provide Buyer the original
geological, geophysical, production, engineering and other technical data and
records, and all contract,
Page 7
<PAGE>
land, title, and lease records to the extent such records are in Seller's
possession and relate to the Interests ("Records"), unless Seller cannot legally
transfer such data or information due to third party restrictions on Seller.
Notwithstanding any provision to the contrary contained herein, Seller, or its
employees, officers, owners and directors, may retain or use copies of the
Records without restriction; and
(f) Seller shall promptly after Closing prepare and mail all notices to
third party working interest owners of the change of ownership.
(g) Seller will release any payments being held for oil and gas sales made
subsequent to the Effective Time.
18. Reservations and Exceptions. Sale and purchase of the Interests
---------------------------
pursuant to this Agreement is made subject to all reservations, exceptions,
limitations, contracts and other burdens or instruments which are or may be
applicable to the Interests including, but not limited to, the specific
reservations, exceptions, limitations, contracts and other burdens or
instruments as shown on Exhibits "A", "A-l", "A-2", "A-3", "A4" and "A5". This
Paragraph does not, and shall not be interpreted to, limit, modify or otherwise
affect any disclaimer of warranty (as to title, condition or otherwise) with
respect to the Interests contained in this Agreement or any document executed
and delivered pursuant hereto. Notwithstanding any provision to the contrary
contained herein, the Interests transferred under this Agreement shall not
include and Seller hereby expressly reserves from this Agreement (i) any Claim
(as defined in Paragraph 19(b) hereof) of Seller against third parties for
refunds, damages, losses, recoveries, penalties, or other remedies arising out
of or with respect to Seller's ownership, operation, management or marketing of
the Interests and/or the production therefrom prior to the Effective Time and
(ii) all equipment, vehicles, computers, furnishings, contracts, fixtures and
all other assets and properties of Seller operated relating to Seller's
headquarters and supervisory functions.
19. Assumption of Liabilities: Indemnification.
------------------------------------------
(a) Effective as of Closing, Buyer assumes, takes over and agrees to pay
and to perform (i) all liabilities, duties and obligations of Seller arising at
any time on or after the Effective Time with respect to the Interests under or
by virtue of any Contract, (ii) all liabilities, duties and obligations arising
at any time before, on or after the Effective Time on account of or with respect
to the physical condition of the Interests or the application to such physical
condition of any federal, state or local legislative, administrative or judicial
laws, ordinances, rules, regulations, decrees, orders or rulings irrespective
whether or not any governing, regulatory or judicial bodies recognize the
transfer of the Interests from Seller to Buyer (including without limitation
such of the foregoing as shall relate to protection of the environment or to
plugging, replugging or abandoning of active, inactive or abandoned oil and gas
wells on the Interests), and (iii) all other liabilities, duties and obligations
arising at any time after Closing with respect to the Interests. All
liabilities, duties and obligations described in this Paragraph 19(a) are
sometimes referred to in this Agreement as the "Assumed Liabilities". Seller and
Buyer agree that liabilities, duties and
Page 8
<PAGE>
obligations of the type specified in Paragraph 19 (a)(i) arising on or after the
Effective Time but prior to Closing or Closing Failure will be paid and/or
performed as set forth in Paragraph 21 and Paragraph 26;
(b) As used in this Agreement, "Claims" shall include any and all claims,
demands, causes of action, liabilities, damages, penalties and judgments of any
kind or character and all costs and fees in connection therewith, including
attorney's fees, (i) on account of personal injury, death, or damage to property
or the environment or otherwise or (ii) for money or for equitable or any other
form of relief. Effective as of Closing, Buyer shall defend, indemnify and hold
harmless Seller from and against, and Buyer shall as of Closing release and
discharge Seller from, any and all Claims arising directly or indirectly from,
or incident to, the failure of Buyer to assume, take over or pay or perform any
or all of the Assumed Liabilities; and
(c) Buyer expressly agrees that Buyer's agreements and obligations under
this Paragraph 19 shall not be modified, amended, reduced or mitigated in the
event any Claim in whole or in part, directly or indirectly, arises from or in
connection with any act or omission (intentional, negligent or otherwise) of
Seller or any officer, employee, owner, agent, contractor or representative of
Seller.
20. Taxes. All severance taxes for production prior to the Effective Time
-----
shall be paid by Seller. All severance taxes for production after the Effective
Time shall be paid by Buyer. Buyer shall pay all 1996 real property taxes and
all future real property taxes with respect to the Interests beginning with the
installment due on or before September 1, 1996. Furthermore, Buyer shall pay any
other 1996 and all future ad valorem taxes, personal property taxes,
registration certificates and similar obligations with respect to the Interests.
Buyer shall pay, and defend and hold Seller harmless with respect to payment of,
all such taxes on the Interests to be paid by Buyer as provided above and
thereafter, together with any interest or penalties assessed thereon.
21. Operations and Accounting After the Effective Time.
--------------------------------------------------
(a) Operations after Effective Time. From the Effective Time until Closing
-------------------------------
or until Closing Failure (the "Interim Period"), Seller has operated and will
continue to operate the Interests for which Seller is the operator in the same
general manner as Seller operated such Interests prior to the date of this
Agreement. During the Interim Period, Seller will not undertake any single
project pertaining to the maintenance or operation of the Interests reasonably
estimated to require an expenditure in excess of Three Thousand Dollars ($3,000)
without prior authorization of the Buyer, provided however, that in case of
explosion, fire, flood, or any other sudden emergency, whether of the same or
different nature, Seller may take such actions and incur such expenses as the
Seller deems necessary to deal with such emergency and to protect and safeguard
the Interests, the public and the environment, all for the account of the Buyer
in the event of Closing (collectively, the "Special Expenses"). The Seller, as
promptly as practical, shall notify the Buyer of any such emergency.
Page 9
<PAGE>
(b) Administrative Overhead Fee. In the event Closing occurs, Buyer shall
---------------------------
pay to Seller at Closing an Administrative Overhead Fee of (i) Ten Thousand
Dollars ($10,000) multiplied by (ii) the number of calendar months in the
Interim Period. A portion of a month during the Interim Period shall be
calculated on a daily basis. Buyer understands and agrees that the
Administrative Overhead Fee is intended to compensate Seller for Seller's
headquarters supervisory and administrative overhead costs incurred by Seller
during the Interim Period in connection with the Interests.
(c) Definition of Interim Expenses. As used in part (d) of this Paragraph
------------------------------
21, Interim Expenses shall mean expenses incurred in the ordinary course of
ownership, operation and maintenance of the Interests by the holders thereof
together with Special Expenses incurred, but shall not include the
Administrative Overhead Fee separately payable by Buyer to Seller at Closing in
accordance with part (b) of this Paragraph 21.
(d) Accounting After the Effective Time. In the event Closing occurs, all
-----------------------------------
operations of and production from the Interests, and all Interim Expenses and
revenues incurred or accrued during the Interim Period by the holders of the
Interests in connection with such operations and production, shall be deemed to
be for the account of Buyer, as if Buyer had closed on the purchase of the
Interests pursuant to this Agreement at the Effective Time. In the event of
Closing Failure, all operations of and production from the Interests, and all
expenses and revenues incurred or accrued by the holders of the Interests in
connection with the operation and production of the Interests during the Interim
Period, shall be for the accounts of the holders of the Interests, as if Buyer
and Seller had not entered into this Agreement. All oil, condensate or liquid
hydrocarbons and any products (liquid, gas or solid) separated or processed
therefrom (hereinafter in this Paragraph called "oil") in storage shall be
measured or gauged and all gas meter charts shall be replaced at the Effective
Time. Buyer shall pay Seller for such oil at the posted field price currently
prevailing for oil of like grade and gravity in the field, provided that Buyer
shall not pay Seller for oil in storage below the level of the tank cut off
valve (tank bottoms). Revenues received by or expenses paid by either Buyer or
Seller for the account of the other party shall be settled at Closing, or by
invoicing such other party for expenses paid or by remitting to such other party
any revenues received after Closing. Exhibit "F" attached hereto and made a part
hereof is a listing of accounts from which all revenues and expenses will be
allocated to reflect the intent of the parties hereto pursuant to this Paragraph
21(d). Said Exhibit "F" is provided hereunder for guidance.
(e) Selection of Operator. Seller may poll the parties to any applicable
---------------------
operating agreement or plan of unitization before Closing to select a successor
Operator. The poll may stipulate that the parties' selection of a successor
Operator will not be effective unless Closing occurs. If Seller does not poll,
then Buyer will do so. Buyer's selection as Operator is not a condition to
Buyer's obligation to perform under this Agreement;
(f) Removal of Signs. Seller may either remove its name and signs from the
----------------
Seller-operated Interests or require Buyer to do so. Buyer grants Seller a right
of access to the
Page 10
<PAGE>
Interests to remove Seller's signs and name from all Wells, facilities and
Properties, or to confirm that Buyer has done so. If Seller's name or signs
remain on the Interests after Closing, Buyer will promptly, but no later than
required by applicable rules and regulations or forty-five (45) days after
Closing, whichever is earlier, remove all remaining signs and references to
Seller and erect or install signs complying with applicable rules and
regulations, including signs showing the Buyer as operator or owner of the
Interests.
22. Sales Tax: Transfer Fees. The Sale Price provided for hereunder
------------------------
excludes any sales taxes or other taxes in connection with the sale of property
pursuant to this Agreement. If a determination is ever made that a sales tax or
other transfer tax applies, Buyer shall be solely liable for such tax as well as
any applicable conveyance, transfer and recording fees, well bond transfer fees
and real estate transfer stamps or taxes imposed on any transfer of property
pursuant to this Agreement. Buyer shall pay, and defend and hold Seller harmless
with respect to the payment of, all such taxes, if any, including any interest
or penalties assessed thereon.
23. Notices. All communications required or permitted under this Agreement
-------
shall be in writing and any communication or delivery hereunder shall be deemed
to have been fully made if actually delivered, or if mailed by registered or
certified mail, postage prepaid, to the address as set forth below:
SELLER
Angerman Associates, Inc.
109 Zeta Drive
Pittsburgh, PA 15238
Attention: Samuel L. Kimmel
Phone: (412) 963-0550
Fax: (412) 963-0484
BUYER
Petroleum Development Corporation
103 E. Main Street
Bridgeport, WV 26330
Attention: Steven R. Williams
Phone: (304)842-3597
Fax: (304)842-3597
24. Further Assurance. After Closing each of the parties shall execute,
-----------------
acknowledge and deliver to the other such further instruments, and take such
other actions as may be reasonably necessary to carry out the provisions of this
Agreement. However, Buyer shall after Closing assume all responsibility for
notifying the purchaser of oil and gas production from the Interests, and such
other designated persons who may be responsible for disbursing payments for the
purchase of such production, of the change of ownership of the Interests. Buyer
shall after Closing take all actions necessary to effectuate the transfer of
such payments to Buyer.
Page 11
<PAGE>
25. DISCLAIMER OF WARRANTIES. EXCEPT AS PROVIDED IN PARAGRAPH 13 HEREOF,
------------------------
THIS AGREEMENT AND ANY INSTRUMENT OF CONVEYANCE EXECUTED PURSUANT HERETO IS AND
SHALL BE EXECUTED (i) WITHOUT ANY WARRANTY OF TITLE OR CONDITION, EXPRESS,
IMPLIED, STATUTORY, OR OTHERWISE, (ii) WITHOUT ANY EXPRESS OR IMPLIED WARRANTY
OR REPRESENTATION AS TO THE MERCHANTABILITY OF ANY OF THE EQUIPMENT OR OTHER
PERSONAL PROPERTY INCLUDED IN THE INTERESTS OR ITS FITNESS FOR ANY PARTICULAR
PURPOSE, AND (iii) WITHOUT ANY OTHER EXPRESS OR IMPLIED WARRANTY OR
REPRESENTATION WHATSOEVER. IT IS UNDERSTOOD AND AGREED THAT BUYER ON OR BEFORE
CLOSING SHALL HAVE INSPECTED THE INTERESTS FOR ALL PURPOSES AND SATISFIED ITSELF
AS TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE,
INCLUDING BUT NOT LIMITED TO CONDITIONS RELATED TO THE PRESENCE, RELEASE, OR
DISPOSAL OF HAZARDOUS SUBSTANCES, AND THAT BUYER IS RELYING SOLELY UPON THE
RESULTS OF SUCH INSPECTION OF THE INTERESTS AND SHALL ACCEPT ALL OF THE
INTERESTS IN THEIR "AS IS, WHERE IS" CONDITION EXCEPT AS EXPRESSLY SET FORTH IN
THIS AGREEMENT. SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED,
AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA, INFORMATION OR MATERIALS
HERETOFORE OR HEREAFTER FURNISHED BUYER IN CONNECTION WITH THE INTERESTS, OR AS
TO THE QUALITY OR QUANTITY OF HYDROCARBON RESERVES IF ANY) ATTRIBUTABLE TO THE
INTERESTS OR THE ABILITY OF THE INTERESTS TO PRODUCE HYDROCARBONS. ANY AND ALL
SUCH DATA, INFORMATION AND OTHER MATERIALS FURNISHED BY SELLER IS PROVIDED TO
BUYER AS A CONVENIENCE AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT
BUYER'S SOLE RISK. ALL INSTRUMENTS OF CONVEYANCE TO BE DELIVERED BY SELLER AT
CLOSING SHALL EXPRESSLY SET FORTH THE DISCLAIMERS OF REPRESENTATIONS AND
WARRANTIES CONTAINED IN THIS PARAGRAPH.
26. Risk of Loss. Upon Closing, the risk of casualty loss relating to the
------------
Interests will pass from Seller to Buyer as of the Effective Time.
27. Securities Laws. The solicitation of offers and the sale of the
---------------
Interests by Seller have not been registered under any securities laws. Buyer
represents that at no time has it been presented with or solicited by or through
any public promotion or any form of advertising in connection with this
transaction. Buyer represents that it intends to acquire the Interests for its
own benefit and account and that it is not acquiring the Interests with the
intent of distributing fractional, undivided interests or otherwise dealing with
the Interests in a manner that would be subject to regulation by federal or
state securities laws, and that if it sells, transfer, or otherwise disposes of
the Interests or fractional, undivided interests, it will do so in compliance
with all applicable federal and state securities laws.
Page 12
<PAGE>
28. Due Diligence. Buyer represents that it has performed, or will
-------------
perform prior to Closing, sufficient review and due diligence with respect to
the Interests. Such review and due diligence includes without limitation
reviewing well data, title, and other files, and performing necessary
evaluations and assessments, and independently investigating and verifying all
of the foregoing and other tasks involved in evaluating the Interests, to
satisfy its requirements completely and to enable it to make an informed
decision to acquire the Interests under the terms of this Agreement.
29. Material Factor. Buyer acknowledges that each and all of Buyer's
---------------
agreements, covenants, representations, obligations and duties under this
Agreement are a material inducement to Seller to enter into this Agreement with,
and close the sale to, Buyer.
30. Press Release. There shall be no press release or public communication
-------------
concerning this purchase and sale by either party, except as required by law or
with the written consent of the party not originating said release or
communication. Parties will endeavor to consult each other in a timely manner on
all press releases required by law.
31. Entire Agreement. This instrument states the entire agreement between
----------------
the parties. It may be supplemented, altered, amended, modified or revoked only
in writing signed by both parties. This Agreement supersedes any prior
agreements (other than the Confidentiality Agreement) between the parties
concerning sale of the Interests. The headings are for guidance only and shall
have no significance in the interpretations of this Agreement.
32. Tax Reporting. Seller and Buyer agree that this transaction is not
-------------
subject to the reporting requirement of Section 1060 of the Internal revenue
Code of 1986, as amended, and that, therefore, IRS Form 8594, Asset Acquisition
statement, is not required to be and will not be filed for this transaction. In
the event the parties mutually agree that a filing of Form 8594 is required, the
parties will confer and cooperate in the preparation and filing of their
respective forms to reflect a consistent reporting of the agreed upon
allocation.
33. Assignability. This Agreement and the rights and obligations hereunder
-------------
(i) shall not be assignable or delegable by Buyer without the prior written
consent of Seller, (ii) shall be assignable by Seller, in whole or in part, upon
written notice to Buyer, and (iii) shall be binding upon the parties hereto and
their respective successors and assigns and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
34. Survival. Unless expressly limited by this Agreement, all of the
--------
representations, warranties, and agreements of or by the parties hereto shall
survive the execution and delivery of the Assignment and Bill of Sale and Deed
of Special Warranty, and all other instruments of conveyance delivered
hereunder.
Page 13
<PAGE>
35. Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE
-------------
COMMONWEALTH OF PENNSYLVANIA.
36. Counterpart Execution. This Agreement may be executed in counterparts
---------------------
and counterparts bearing the signature of all parties shall together constitute
a binding agreement as if the parties had executed a single document.
37. Knowledge. As used in this Agreement the words "knowledge" or "to the
---------
best knowledge" and all words of similar effect with respect to the Seller shall
mean actual knowledge of the executive officers of Seller and shall not include
any knowledge of any other employee, contractor, agent or representative of the
Seller or any other third party.
38. Interests Held by Affiliates. Buyer understands that certain of the
----------------------------
Interests as of the date hereof, and during the Interim Period, are and will be
held by certain affiliates of Seller as noted on Exhibit" G". Seller intends,
and will use its best efforts, to acquire such Interests from such affiliates
for the Allocated Values of such Interests and then to sell those Interests to
Buyer pursuant to this Agreement. Buyer shall, however, for all purposes under
this Agreement (i) deal only with Seller, (ii) recognize Seller as the exclusive
agent and representative of all such affiliates for purposes of this Agreement
and (iii) not assert as a defense to any Claim with respect to the enforcement
of this Agreement that any such affiliate was not a party to this Agreement. In
the event Seller is unable to so acquire any of such Interests, the unacquired
Interests will be deleted from the sale and the Sale Price shall be reduced by
the Allocated Values thereof.
39. Premerger Notification. Buyer and Seller each agree to promptly
----------------------
prepare and file the Report and Notification required by the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 with the Premerger Notification Office,
Bureau of Competition of the Federal Trade Commission. Neither party shall be
obligated to close until all necessary filings have been made and all waiting
periods have expired under the Act. At Seller's option and with Seller's
cooperation, Buyer shall prepare all necessary filings required of both Buyer
and Seller after execution of this Agreement and Buyer shall bear the cost of
filings and any fees or expenses associated therewith.
Page 14
<PAGE>
BUYER ACKNOWLEDGES THAT IT HAS READ THIS AGREEMENT IN ITS ENTIRETY, AND
THAT IT UNDERSTANDS ALL THE PROVISIONS SET FORTH THEREIN, INCLUDING BUT NOT
LIMITED TO, ALL PROVISIONS OF PARAGRAPHS 19 AND 25.
EXECUTED as of the date first above mentioned.
SELLER: BUYER:
ANGERMAN ASSOCIATES, INC. PETROLEUM DEVELOPMENT CORPORATION
By: /s/ Samuel L. Kimmel By: /s/ Steven R. Williams
------------------------ -------------------------
Its: President Its: President
----------------------- -------------------------
Page 15
<PAGE>
Exhibit 11.1
PETROLEUM DEVELOPMENT CORPORATION AND SUBSIDIARIES
EXHIBIT 11.1
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Years Ended December 31, June 30, 1997
--------------------------------------- -------------------------
1996 1995 1994 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PRIMARY
Net income for
primary income
per common share
before
extraordinary item $ 3,549,400 $ 1,481,500 $ 921,600 $ 3,909,500 $ 1,939,900
Net income for
primary income
per common share $ 3,549,400 $ 1,481,500 $ 921,600 $ 3,909,500 $ 1,939,900
Weighted average
number of common
shares outstanding
during the year 10,449,137 11,056,441 10,878,601 10,482,107 10,448,404
Add - common
equivalent shares
(determined using
the "treasury stock"
method) representing
shares issuable upon
exercise of employee
stock options 1,124,292 550,249 1,111,896 1,217,580 914,841
Weighted average
number of shares
used in calculation
of primary
income per share 11,573,429 11,606,690 11,990,497 11,699,687 11,363,245
Primary
income per share $ .31 $ .13 $ .08 $ .33 $ .17
FULLY DILUTED
Net income for
primary income
per common share $ 3,549,400 $ 1,481,500 $ 921,600 $ 3,909,500 $ 1,939,900
Net income for
fully diluted
net income
per share $ 3,549,400 $ 1,481,500 $ 921,600 $ 3,909,500 $ 1,939,900
Weighted average
number of shares
used in calculating
primary income
per common share 11,573,429 11,606,690 11,990,497 11,699,687 11,363,245
Shares issuable upon
exercise of stock
options used in primary
calculation above (1,124,292) (550,249) (1,111,896) (1,217,580) (914,841)
Shares issuable for fully
diluted calculation 1,327,038 880,689 1,111,896 1,272,582 1,149,366
Weighted average
number of shares
used in calculation
of fully diluted
income per share 11,776,175 11,937,130 11,990,497 11,754,689 11,597,770
Fully diluted earnings
per share $ .30 $ .12 $ .08 $ .33 $ .17
</TABLE>
E-2
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
Exhibit 15.1
The Board of Directors
Petroleum Development Corporation
Ladies and Gentlemen:
RE: Registration Statement on Form S-2
With respect to the subject registration statement, we acknowledge our awareness
of the incorporation by reference of our reports dated August 5, 1997 and May 8,
1997 related to our reviews of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such reports are not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
Very truly yours,
/s/ KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
September 25, 1997
<PAGE>
Exhibit 21.1
SUBSIDIARIES
------------
<TABLE>
<CAPTION>
State of Percent
Incorporation Ownership
--------------- ----------
<S> <C> <C>
PDC Securities Incorporated West Virginia 100%
Paramount Transmission Corporation Ohio 100%
Paramount Natural Gas Company Ohio 100%
Riley Natural Gas Company West Virginia 100%
</TABLE>
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Petroleum Development Corporation
We consent to the use of our audit report dated March 13, 1997 on the
consolidated financial statements of Petroleum Development Corporation and
subsidiaries as of December 31, 1996 and 1995, and for each of the years in the
three-year period ended December 31, 1996 included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
September 25, 1997
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PETROLEUM CONSULTANTS
We consent to the designation of our company in the Prospectus portion of the
Registration Statement under the heading "Experts" and to the use of our summary
report dated September 19, 1997.
/s/ Wright & Company, Inc.
Wright & Company, Inc.
September 25, 1997
