SECURITIES AND EXCHANGE COMMISSION [Facing Sheet]
Washington, D.C. 20549
Form S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
COLUMBUS ENERGY CORP.
(Exact name of registrant as specified in charter)
COLORADO
(State or other jurisdiction of
incorporation or organization)
84-0891713
(I.R.S. Employer Identification No.)
Columbus Energy Corp.
1660 Lincoln Street, Suite 2400
Denver, Colorado 80264
(303) 861-5252
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
HARRY A. TRUEBLOOD, JR., PRESIDENT
Columbus Energy Corp.
1660 Lincoln Street, Suite 2400
Denver, Colorado 80264
(303) 861-5252
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
James F. Wood, Esq.
Sherman & Howard L.L.C.
633 Seventeenth Street, Suite 3000
Denver, Colorado 80202
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
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 check the following box. [X]
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 Rule 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 Rule 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class of Proposed maximum Proposed maximum Amount
securities to be registered Amount to be registered offering price per unit aggregate offering price of registration fee
- --------------------------- ----------------------- ----------------------- ------------------------ -------------------
<S> <C> <C> <C> <C> <C>
Series A 7% Convertible ....... 400,000 $25.00 $10,000,000 $3,030.30
Preferred Stock
Common Stock .................. -- N/A N/A N/A
Rights ........................ -- N/A N/A N/A
</TABLE>
Pursuant to Rule 457(o), the registration fee for the Series A 7% Convertible
Preferred Stock, the Common Stock (into which such Preferred Stock is
convertible), and the Rights being distributed to shareholders of the Registrant
is calculated on the basis of the proposed maximum aggregate offering price for
the Series A 7% Convertible Preferred Stock, the Common Stock and the Rights.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a),
may determine.
<PAGE>
COLUMBUS ENERGY CORP.
Cross Reference Sheet
Item in Form S-2 Location
Item 1. Forepart of the Registration Statement and Cover Page of Prospectus
Outside Front Cover Page of Prospectus
Item 2. Inside Front and Outside Back Cover Pages Available Information;
of Prospectus Table of Contents
Item 3. Summary Information, Risk Factors and Summary of the Prospectus;
Ratio of Earnings to Fixed Charges Risk Factors; The Company
Item 4. Use of Proceeds Use of Proceeds
Item 5. Determination of Offering Price Cover Page of Prospectus;
Risk Factors;
Determination of Offering
Price
Item 6. Dilution Inapplicable
Item 7. Selling Security Holders Cover Page of Prospectus;
Plan of Distribution;
Selling and Distributing
Shareholder
Item 8. Plan of Distribution Cover Page of Prospectus;
Litigation Settlement;
Plan of Distribution
Item 9. Description of Securities to be Registered Description of Capital
Stock
Item 10. Interests of Named Experts and Counsel Experts
Item 11. Information with Respect to the Registrant The Company; Management's
Discussion and Analysis of
Financial Condition and
Results of Operations;
1995 Form 10-K
Item 12. Incorporation of Certain Information by Incorporation of Certain
Reference Information by Reference
Item 13. Disclosure of Commission Position on Inapplicable
Indemnification for Securities Act
Liabilities
<PAGE>
COLUMBUS ENERGY CORP.
400,000 Shares of Series A 7% Convertible Preferred Stock
Columbus Energy Corp. ("Columbus" or the "Company") has filed a
Registration Statement covering 400,000 shares of its authorized Series A 7%
Convertible Preferred Stock (the "Preferred Stock"). The offering (the
"Offering") is being made by the distribution of subscription rights ("Rights")
to purchase Preferred Stock to Columbus shareholders of record on
______________, 19__. One Right will be issued for each share of Columbus'
common stock, no par value ("Common Stock") held of record. Eight Rights plus
$25 in cash (the "Offering Price") will be required to purchase one share of
Preferred Stock, or, in the alternative, shareholders who purchase round lots of
100 shares of Preferred Stock may substitute in lieu of cash up to 100 shares of
Common Stock and receive a credit of $12.50 for each share of Common Stock so
relinquished (up to a maximum credit of $1,250) toward the $2,500 purchase price
per round lot of Preferred Stock. Those holders of Rights who fully subscribe to
their primary subscription will be allowed to oversubscribe in accordance with
an oversubscription privilege. See "Subscription Offer."
The Rights expire at 4:00 P.M. Eastern Standard Time on _____________,
19____, subject to extension by Columbus to a date not later than
_______________, 19__. See "Subscription Expiration Date" and "Purchase and Sale
of Rights." There are no minimum amounts which must be subscribed for in this
Offering.
The Offering Price of the Preferred Stock was set by Columbus based upon
its $25 per share redemption value, the dividend rate of 7%, its convertibility
into shares of Common Stock, and the current market price of the Common Stock.
On August 31, 1996, the book value of Columbus was $14,690,633, or $4.76 per
share. The Offering Price may or may not have any correlation to the fair market
value of the Company or the trading price for the Preferred Stock immediately
after the Offering. See "Risk Factors - Establishment of Offering Price."
The Rights are transferable and are expected to trade on the American Stock
Exchange. The Preferred Stock is expected to trade on the American Stock
Exchange if the requirements of the exchange are met; in the alternative, the
Preferred Stock will trade on the over-the-counter market. See "Risk Factors -
No Assurance of a Public Market."
All of the proceeds from the sale of the Preferred Stock will be paid to
Columbus. The expenses of the Offering are estimated to be $_____________.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Offering of Shares of the Company's Preferred Stock
Price to Underwriting Proceeds to
Public Commissions Columbus
------ ----------- --------
Per Share $ 25.00 None * $25.00
Total ... $ 10,000,000 None *$10,000,000
* Before deduction of expenses of the Offering estimated to be ____________.
THE SECURITIES OFFERED BY THIS PROSPECTUS
INVOLVE A HIGH DEGREE OF RISK.
See "Risk Factors" on page ____ of this Prospectus.
The date of this Prospectus is ___________.
2
<PAGE>
Until ___________, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
No dealer, salesman, or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and if given or made, such information or representations must not
be relied on as having been authorized by Columbus. 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 Columbus since
the date hereof. This Prospectus does not constitute an offer or solicitation by
anyone in any state in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to any person to whom it is unlawful to make such offer or solicitation.
Columbus will furnish annual reports to its shareholders containing audited
financial statements and quarterly reports containing unaudited financial
statements.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K and amendment on Form 10-K/A-1 for
the fiscal year ended November 30, 1995, and its Quarterly Reports on Form 10-Q
for the quarters ended February 29, 1996, May 31, 1996, and August 31, 1996. All
other reports, if any, filed by the Company pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 since November 30, 1995, are incorporated
by reference into this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on written or oral
request of any such person, a copy of any or all of the foregoing documents
incorporated herein by reference (other than exhibits to such documents).
Written or telephone requests should be directed to Columbus Energy Corp., 1660
Lincoln Street, Suite 2400, Denver, Colorado 80264, Attention: H. C. Gutjahr,
Secretary, (303) 861-5252.
3
<PAGE>
TABLE OF CONTENTS
Page
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..........................3
SUMMARY OF THE PROSPECTUS..................................................5
RISK FACTORS...............................................................8
THE COMPANY...............................................................11
PLAN OF DISTRIBUTION......................................................13
FEDERAL INCOME TAX MATTERS RELATING TO THE OFFERING.......................17
DESCRIPTION OF CAPITAL STOCK..............................................20
USE OF PROCEEDS...........................................................25
SELECTED FINANCIAL DATA...................................................26
RATIO OF EARNINGS TO FIXED CHARGES........................................29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................30
EXPENSES .................................................................47
LEGALITY .................................................................47
AVAILABLE INFORMATION.....................................................47
EXPERTS .................................................................48
INDEX TO FINANCIAL STATEMENTS............................................F-1
GLOSSARY OF INDUSTRY TERMS...............................................A-1
CERTIFICATE OF DESIGNATION...............................................B-1
4
<PAGE>
SUMMARY OF THE PROSPECTUS
The summary below is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. A glossary of certain
industry terms appears in Exhibit A at the end of this Prospectus. A copy of the
Certificate of Designation which sets forth the terms of the Series A 7%
Convertible Preferred Stock is set forth in Exhibit B at the end of this
Prospectus.
The Company
Columbus was organized under the laws of Colorado on October 7, 1982.
Columbus engages in the production and sale of crude oil, condensate and natural
gas, and acquires and develops leaseholds and other interests in oil and gas
properties.
The Company's office is located at 1660 Lincoln Street, Suite 2400, Denver,
Colorado 80264, telephone (303) 861-5252.
Common Shares Outstanding
As of December 31, 1996, Columbus had 3,163,868 shares of its Common Stock
outstanding and no Preferred Stock had been issued.
Summary of the Rights Offering
General The Offering is being made by means of the distribution of
subscription rights ("Rights") as a dividend to the
shareholders of Columbus. Eight Rights plus $25 in cash (the
"Offering Price"), entitles the holder to purchase one share
of Preferred Stock, or, in the alternative, shareholders who
purchase round lots of 100 shares of Preferred Stock may
substitute in lieu of cash up to 100 shares of Common Stock
and receive a credit of $12.50 for each share of Common
Stock so relinquished (up to a maximum credit of $1,250)
toward the $2,500 purchase price of a round lot. One Right
will be distributed for each share of Common Stock owned on
the record date. Each Columbus shareholder also has the
right to oversubscribe for additional shares if the
shareholder has fully subscribed for the primary
subscription. There are no minimum amounts which must be
subscribed for in the Offering. The Rights are transferable
and are expected to trade on the American Stock Exchange
("AMEX"). The Rights will expire, if not previously
exercised, on _________________ (subject to extension by the
Company). See "Plan of Distribution."
5
<PAGE>
Purpose of the Rights
Offering To reduce bank debt, to add to working capital, and to
create a trading market for the Preferred Stock so that
additional authorized shares of Preferred Stock not being
issued as a part of the Offering may be issued in connection
with possible acquisitions or to raise additional working
capital.
Establishment of Offering
Price The Offering Price of the Preferred Stock was set by
Columbus based upon its $25 per share redemption value, the
dividend rate of 7%, its convertibility into shares of
Common Stock, and the current market price of the Common
Stock. On August 31, 1996, the book value of Columbus was
$14,690,633, or $4.76 per share. The Offering Price may or
may not have any correlation to the fair market value of the
Company or the trading price for the Preferred Stock
immediately after the Offering. See "Risk Factors -
Establishment of Offering Price."
Terms of Series A 7% Convertible
Preferred Stock Each share of Preferred Stock entitles its holder to one
vote on all matters for which a shareholder vote is
required. No cumulative voting is permitted in the election
of directors. Dividends will accrue on the Series A
Preferred Stock at the rate of 7% per annum of the $25 face
value per share. Accrued dividends will be payable semi-
annually when, as and if declared by the Board of Directors,
or at such other times as the Board of Directors determines.
In addition, the Company may pay dividends only to the
extent that it has legally available funds to do so. The
Board expects that it will have funds available to pay
dividends on the Series A Preferred Stock for the
foreseeable future. Dividends not paid on the applicable
dividend payment date will cumulate. Each share of Series A
Preferred Stock is convertible into Common Stock at the
option of the holder commencing 60 days after the issue date
of the Series A Preferred Stock, at the rate of _____ shares
of Common Stock for each share of Series A Preferred Stock
converted. The Series A Preferred Stock is redeemable at the
option of the Company at a premium of 110% of face value
through November 30, 1999, at 105% of face value from
December 1, 1999 through November 30, 2005, and at face
value thereafter. The Company is required to redeem the
Series A Preferred Stock at the foregoing prices upon the
occurrence of certain specified events deemed to constitute
a change of control of the Company. Upon any dissolution and
winding up of the Company, the Series A Preferred Stock will
be entitled to a liquidation preference of $25 per share
plus accrued and unpaid dividends, if any. Holders of shares
of Series A Preferred Stock will not be entitled to share
with the Common Stock in any other or further distributions
in a liquidation of the Company, if any such distributions
were available. See "Description of Capital Stock."
6
<PAGE>
Use of Proceeds Columbus expects to use the net cash proceeds from the
Offering first to reduce bank debt and then to increase
working capital required for future capital expenditures.
Expected capital expenditures include development of proved
undeveloped reserves, existing drilling projects (such as
the Company's 12.5% participation in the drilling and
completion of several dual lateral oil wells in the Austin
Chalk formation on its leaseholds in Louisiana), and
exploration costs. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Recent
Activities."
Trading Market There is no presently established market for the Preferred
Stock being offered pursuant to the Offering. Final AMEX
listing approval is subject to satisfaction of share
distribution requirements (as to which there can be no
assurance), which includes the requirement that at least
100,000 shares be owned by non-affiliates. It is expected
that the Preferred Stock will trade on the over-the-counter
market if the AMEX distribution requirements are not met.
See "Risk Factors - No Assurance of a Public Market."
7
<PAGE>
RISK FACTORS
The securities offered by this Prospectus involve a high degree of risk.
Each holder of Rights should carefully read the entire Prospectus but should
give special consideration to the risk factors described below.
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933. Such forward-looking statements may
be found in this Section and under "Prospectus Summary," "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Actual events or results could differ materially from those
including, without limitation, the risk factors set forth below and elsewhere in
this Prospectus. In addition to the other information contained in this
Prospectus, the risk factors below should be considered when evaluating an
investment in the shares of Preferred Stock offered.
Fluctuation in Prices of Oil and Natural Gas
The Company's revenues and earnings are dependent to a large degree on
prevailing prices for oil and natural gas and the replacement of produced
reserves which are economic at those prices. For the past twenty years, oil and
natural gas prices have been volatile and are expected to continue to be so in
the future. Currently, more than 55% of the Company's revenues are derived from
the production and sale of natural gas, which in turn causes cash flow and net
earnings to be more affected by the volatility of natural gas prices than oil
prices. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Drilling Risks
The Company's oil and natural gas operations are subject to all of the
business risks typically associated with drilling for oil and natural gas. These
risks often include the expenditure of large amounts of money for identification
and acquisition of prospective leasehold acreage with no assurance that oil and
natural gas will be found in commercial quantities when a well is drilled.
Operating Hazards and Uninsured Risks
The oil and gas business involves numerous operating risks, including fire,
explosion, pipe failure, casing collapse, abnormally pressured formations, and
environmental hazards such as oil spills, natural gas leaks, and discharges of
toxic gases. The occurrence of any of these events with respect to any property
operated or owned (in whole or in part) by the Company could have a material
adverse effect on the Company's financial condition. The Company and the
operators of its properties maintain insurance in accordance with customary
industry practices and in amounts that management believes to be reasonable.
However, insurance coverage is not always economically feasible and cannot
always be obtained, without significant exclusions, in amounts sufficient to
cover all types of operational risks. The occurrence of a significant event that
is not fully insured could have a material adverse effect on the Company's
financial condition.
8
<PAGE>
Competition
The oil and natural gas industry is highly competitive. The Company
competes with others for property acquisitions and for opportunities jointly to
explore or to develop and produce oil and natural gas. The Company's competitors
include major companies and other independent energy concerns, including
individual operators. Many of these competitors have substantially greater
financial and other resources than the Company.
Potential Adverse Impact of Environmental and Other Governmental Regulation
Oil and natural gas operations are subject to various regulation and
legislation of the federal and state governments, including environmental laws.
To date, the Company has not had to expend significant resources in order to
satisfy environmental laws and regulations presently in effect. However,
compliance costs under any new laws and regulations that might be enacted could
become material. Additional matters that are, or have been from time to time,
subject to governmental regulation include land tenure, royalties, production
rates, spacing, completion procedures, water injection, unitization, and the
maximum price at which products could be sold.
Potential Adverse Effects of Weather on Results of Operations
The results of operations of Columbus can be adversely affected by weather
conditions, which can also bring about lower energy usage or increased
availability of alternative energy sources, which in turn reduces the demand for
and prices for natural gas and oil produced by the Company.
Uncertainty of Estimates of Oil and Gas Reserves and Future Net Revenues
The Company's recent annual report on Form 10-K for fiscal year 1995
contained estimates of the Company's oil and natural gas reserves and the
discounted future net revenues to be realized from those reserves, as prepared
by independent petroleum engineers, for fiscal years 1995, 1994 and 1993. There
are numerous uncertainties inherent in estimating quantities of proved oil and
natural gas reserves, including many factors beyond the control the Company. The
estimates in Form 10-K utilize assumptions that the Securities and Exchange
Commission ("SEC") requires all public companies, including Columbus, to follow,
such as using constant oil and gas prices with no escalation allowed except as
specifically provided for by contract. Such estimates are inherently imprecise
indications of future net revenues. Actual future production, revenues, taxes,
operating expenses, development expenditures and quantities of recoverable oil
and natural gas reserves might vary substantially from those estimates and
assumptions. Any significant variance in such assumptions could materially
affect the estimated quantity and value of reserves set forth in such estimates.
In addition, the Company's reserves might be subject to revision based upon
future production results, future exploitation and development successes or
failures, actual prices received and other unpredictable factors.
9
<PAGE>
No Assurance of a Public Market
There is presently no trading market for the Preferred Stock. The
establishment of a liquid trading market for the Preferred Stock will depend
upon a sufficient number of shares being sold in the Offering to a sufficiently
large number of holders who are not affiliates, as to which there can be no
assurance. There also is no assurance as to the price at which any purchaser
would be able to resell Preferred Stock following the Offering.
The Company has requested approval for listing the Preferred Stock on the
AMEX but can give no assurance that the Preferred Stock will meet AMEX
distribution requirements. The principal requirement applicable to the Preferred
Stock (in light of the fact that the Common Stock already is listed on the AMEX)
is that 100,000 shares must be owned by non-affiliates. (Other AMEX listing
requirements include that the Preferred Stock have an aggregate public market
value of $2,000,000 and a trading price of at least $10 per share, which the
Company expects will be satisfied.)
The market price for the Preferred Stock will be influenced by many
factors, including interest rates, the market price of the Common Stock,
investor perceptions of the value of the assets of the Company, the Company's
ability to pay dividends on the Preferred Stock, and general economic and market
conditions.
Establishment of Offering Price and Conversion Rate
In determining the Offering Price, Columbus took into consideration
primarily the liquidation preference assigned to the shares. To a lesser degree,
Columbus considered the 7% dividend rate and the fact that the conversion price
into shares of Common Stock would exceed the market price of those shares on the
offering date by 25% or more. There is no assurance that the Offering Price will
bear any correlation to the fair market value of the Preferred Stock or to the
trading price of the Preferred Stock immediately after the Offering. The rate at
which the Preferred Stock may be converted into Common Stock was determined
based on the ratio of the Face Value of the Preferred Stock to the current
market value of the Common Stock.
Control by Affiliates
Harry A. Trueblood, Jr., who currently has beneficial ownership of
approximately 25% of the Common Stock, intends to subscribe fully in the
Offering (and may oversubscribe). Other directors and officers of Columbus have
stated their intention to subscribe at varying levels.
Potential Dilution of Earnings Due to Offering
The Offering may have a short-term dilutive effect on the calculation of
earnings per share of Common Stock, which could have an adverse impact on the
market price of the Common Stock and the Preferred Stock. If all of the
Preferred Stock offered is sold, the Company will have almost $10 million of net
proceeds from the Offering. Dividends on the Preferred Stock will accrue from
the issue date at the rate of 7%. Some of the proceeds from the Offering will be
used to reduce bank debt (and therefore will reduce interest charges), some
shares of Common Stock may be redeemed as a part of the Offering, and the
Company may have interest income from the short-term investment of proceeds from
the Offering. However, the overall impact of the issuance of the Preferred Stock
initially may be to reduce earnings per share of Common Stock. This dilutive
effect will be reduced or eliminated to the extent that Columbus is able to
invest the proceeds of the Offering (as well as other sources of capital) and
obtain a return that exceeds the 7% dividend rate on the Preferred Stock (as to
which there can be no assurance).
10
<PAGE>
Uncertainty Regarding Future Dividend Policies
Historically, Columbus has paid no cash dividends on its Common Stock. The
future payments of Preferred Stock dividends will be dependent on Columbus'
results of operations, financial condition, needs for working capital, and other
factors, and may be subject to restrictions, if any, contained in debt
instruments in effect from time to time. In addition, the payment of Dividends
on the Preferred Stock is subject to the discretion of the Board of Directors
and to limitations imposed by Colorado corporate law. See "Description of
Capital Stock-Series A 7% Preferred Stock."
THE COMPANY
Columbus Energy Corp. ("Columbus") was incorporated under the laws of
Colorado on October 7, 1982. Columbus engages in the production and sale of
crude oil, condensate and natural gas, as well as the acquisition and
development of leaseholds and other interests in oil and gas properties, and
also acts as manager and operator of oil and gas properties for itself and
others. It also engages in the business of compression, transmission and
marketing of natural gas through its wholly-owned subsidiary, Columbus Gas
Services, Inc. ("CGSI"), a Delaware corporation. The term "Company" and
"Columbus" as used in this Prospectus include Columbus' subsidiaries unless the
context otherwise indicates.
The Company currently has 33 employees, including a technical staff,
comprised of four petroleum engineers and one landman. The administrative staff
provides support required for accounting and data processing, including
disbursement of monthly oil and gas revenues, joint interest billing functions,
and accounts payable.
On February 24, 1995, Columbus completed a rights offering to its
shareholders to purchase one share of common stock of its wholly-owned
subsidiary, CEC Resources Ltd., an Alberta, Canada corporation, at U.S. $3.25 in
cash plus two subscription rights. One right was distributed as a dividend for
each share of Common Stock held of record on January 27, 1995. All 1,500,000
shares of Resources' common stock were sold in the rights offering, yielding an
aggregate of $4,875,000 to Columbus.
11
<PAGE>
Properties
As of November 30, 1995 the Company's proved oil and gas reserves were
2,035,000 barrels of oil and 14,858,000 Mcf of natural gas. The standardized
measure of discounted future net cash flows (in thousands of dollars) was:
Future oil and gas revenue ............................. $ 58,083
Future cost:
Production cost ............................... (18,214)
Development cost .............................. (4,743)
--------
Future net cash flows before income taxes .............. 35,126
Discount at 10% ........................................ (10,963)
--------
Discounted future net cash flows before income taxes ... 24,163
Discounted provision for future income taxes ........... (2,771)
--------
Standardized measure of discounted future net cash flows $ 21,392
========
Columbus' net oil and gas production for each of the three fiscal years
ended November 30, 1995, and the nine months ended August 31, 1996 in the U.S.
only was:
1996
9 Mos. 1995 1994 1993
------ ---- ---- ----
Oil-barrels 185,000 225,000 223,000 293,000
Gas-Mcf 1,969 2,033 2,810 1,693
The average price and cost per unit of production for the three fiscal
years ended November 30, 1995, and the nine months ended August 31, 1996 in the
U.S. are as follows:
1996
9 Mos. 1995 1994 1993
------ ---- ---- ----
Average sales price
per barrel of oil $18.65 $16.75 $15.28 $17.53
Average sales price
per Mcf of gas 2.18 1.71 1.92 2.18
Average production cost
per equivalent barrel 4.35 4.16 3.31 4.07
12
<PAGE>
Developed Properties
A summary of the gross and net interest in producing wells and gross and
net interest in producing acres is shown in the following table as of November
30, 1995:
Gross Net
-------------------- ---------------------
Oil Gas Oil Gas
--- --- --- ---
Wells - U.S. 85 120 19 10
Acres - U.S. 36,055 8,889
Undeveloped Properties
The following table sets forth the Company's ownership in undeveloped
properties as of November 30, 1995:
Gross Acres Net Acres
Montana 5,882 2,349
New Mexico 840 630
North Dakota 4,420 1,904
Oklahoma 480 162
Texas 1,726 951
----- ---
Total undeveloped properties 13,348 5,996
====== =====
PLAN OF DISTRIBUTION
Subscription Offer
Columbus is distributing to each holder of record of Common Stock, at no
cost to such holder, one transferable subscription right (a "Right") for each
share of Common Stock held of record on January ___, 1997 (the "Record Date").
Eight Rights must be surrendered to purchase one share of Preferred Stock, or,
in the alternative, shareholders who purchase round lots of 100 shares of
Preferred Stock may substitute in lieu of cash up to 100 shares of Common Stock
and receive a credit of $12.50 for each share of Common Stock so relinquished
(up to a maximum credit of $1,250) toward the $2,500 purchase price of a round
lot. Holders of Rights will be entitled to oversubscribe in accordance with the
oversubscription procedure described below.
Columbus may, but is not required to, consummate the Offering regardless of
the level of subscriptions.
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<PAGE>
Subscription Certificates
The Rights are evidenced by transferable subscription certificates (the
"Certificates"). Certificates may be divided or combined and may be transferred,
except as noted below, at the office of the Subscription Agent, but a
Certificate may not be divided in such a way as to result in fractional rights.
Subscription Expiration Date
The Rights expire at 4:00 P.M., Eastern Standard Time, on _____________,
1997, unless extended by Columbus to a date not later than ________________,
1997 (such date or extended date, as the case may be, is referred to as the
"Expiration Date"). See "Purchase and Sale of Rights" below.
Subscription Privileges
Holders of Rights may purchase one share of Preferred Stock for each eight
Rights plus the payment of $25 in cash. In the alternative, shareholders who
purchase round lots of 100 shares of Preferred Stock may substitute in lieu of
cash up to 100 shares of Common Stock and receive a credit of $12.50 for each
share of Common Stock so relinquished (up to a maximum credit of $1,250) toward
the $2,500 purchase price of a round lot.
Odd lot holders of Common Stock (less than 100 shares) who wish to acquire
one round lot of 100 shares of Preferred Stock may tender all of their shares of
Common Stock as partial payment based on a $12.50 per share credit toward the
$2,500 total purchase price along with the required balance in cash. Such odd
lot holders must instruct the Subscription Agent to acquire sufficient
Additional Rights (not to exceed a total of 799 Rights) for their account which,
when added to their tendered Rights, will equal the 800 Rights required. Any
holder of Rights who has fully exercised the basic subscription privilege
associated with the ownership of the holder's Rights (the "Basic Subscription
Privilege") may also subscribe at the Offering Price for any number of shares of
Preferred Stock not subscribed for by other Columbus shareholders (the
"Oversubscription Privilege"). No Rights are required to participate in the
Oversubscription Privilege.
The Company is unable to estimate the number of shares of Preferred Stock
that will be available for the Oversubscription Privilege, because it cannot
predict the level of subscription under the Basic Subscription Privilege.
However, as of December 31, 1996, there were 3,163,868 shares of Common Stock
outstanding; if all 3,163,868 Rights distributed were utilized in the Basic
Subscription Privilege, there would still would be a modest number of shares of
Preferred Stock available for the Oversubscription Privilege.
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The only shares of Preferred Stock available for the Oversubscription
Privilege are those shares not required to satisfy the Basic Subscription
Privilege (the "Additional Preferred Stock"). If the number of shares of
Preferred Stock so available is not sufficient to satisfy all subscriptions
received pursuant to the Oversubscription Privilege, the available pool of
unsubscribed shares will be allotted pro rata, subject to the elimination of
fractional shares, among those holders who exercise the Oversubscription
Privilege, in proportion to the number of shares of Preferred Stock purchased by
them pursuant to the Basic Subscription Privilege. An oversubscription must be
accompanied by a cash deposit equal to 20% of the total purchase price of the
shares of Preferred Stock to which the holder proposes to oversubscribe. To the
extent that an oversubscription is accepted, the balance of the Offering Price
must be paid in cash (and/or Common Stock) upon notice from the Subscription
Agent as to such amount due. No shares of Common Stock should be initially
tendered toward the 20% partial payment deposit for oversubscribed shares. See
"Method of Subscription." The Subscription Agent will promptly refund the
initial cash deposit to those holders who utilize the Oversubscription Privilege
to the extent that the shares of Additional Preferred Stock are not available
for allotment to the holders. No interest will be paid on deposits which are
refunded.
Rights may be bought and sold through usual investment and trading
channels. It is expected that the Rights will be traded on the AMEX and on the
over-the-counter market, but that trading on the AMEX will be discontinued at
the close of business one day prior to the Expiration Date, after which the
Rights may continue to be traded on the over-the-counter market until the
Expiration Date.
For the convenience of Certificate holders, the Subscription Agent will, on
request and without charge, handle orders to buy (not exceeding 799 Rights on
any one subscription) or sell Rights (not exceeding 799 Rights on any one
subscription) for the account of any Certificate holder, in order to assist such
holder in rounding out his subscription for 100 shares of Preferred Stock or
disposing of fewer than 799 Rights. Columbus will pay the Subscription Agent's
service charge on such purchases and sales. The Subscription Agent may match the
orders of buyers and sellers of Rights to the extent both are available. Charges
or credits upon purchase and sale of Rights, including matched orders, each day
will equate to the average price paid or received by the Subscription Agent in
the open market for the Rights purchased or sold. Holders will receive a bill
for the costs of Rights purchased or a check for the proceeds of Rights sold.
Method of Subscription
The Rights may be exercised by completing and signing the subscription form
on the reverse of the Rights Certificate and mailing it or delivering it to
Harris Trust Company of New York (the "Subscription Agent"). Subscriptions must
be accompanied with payment in full in cash for the number of shares of
Preferred Stock subscribed for pursuant to the Basic Subscription Privilege or
cash plus the tendered shares of Common Stock proposed to be used as partial
payment for the round lots of Preferred Stock. Not more than 100 shares of
Common Stock may be used toward the purchase of each round lot subscribed. For
those wishing to oversubscribe, a cash deposit equal to 20% of the total
purchase price of the number of shares of Preferred Stock being subscribed to
pursuant to the Oversubscription Privilege should accompany the Basic
Subscription Rights Certificate. The balance, if any, of the purchase price for
oversubscribed shares must be paid for in cash, or in cash plus shares of Common
Stock tendered (not to exceed 100 per round lot) toward the purchase price at
the same $12.50 per share credit permitted under the Basic Subscription
Privilege, and must be paid within five business days after notice is given by
the Subscription Agent. All payments must be made by check, bank draft or postal
express money order, payable in United States dollars to the order of the
Subscription Agent.
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Subscription Agent
HARRIS TRUST COMPANY OF NEW YORK
By Overnight Courier:
77 Water Street, 4th Floor
New York, NY 10005
By Facsimile Transmission
By Mail: (for Eligible Institutions only): By Hand:
Wall Street Station FAX: (212)701-7636 Receiving Window
P. O. Box 1010 (212)701-7637 77 Water Street, 5th Floor
New York, NY 10268-1010 New York, NY
Confirm by telephone:
(212)701-7618
Late Delivery of Certificates
Subscriptions will be accepted without delivery of the Rights Certificates
if, prior to the Expiration Date, the Subscription Agent receives payment as
specified above in respect to the total number of shares of Preferred Stock
subscribed for upon the exercise of Rights (including the 20% cash deposit for
Preferred Stock proposed to be purchased pursuant to the Oversubscription
Privilege), together with a letter or telegram from a bank or trust company, a
member of the New York Stock Exchange, or another national securities exchange,
stating the number of Rights represented by the subscriber's Certificate, the
number of shares of Preferred Stock subscribed for, and the name of subscriber,
and guaranteeing that such Certificate will be received at the office of the
Subscription Agent no later than 4:00 P.M. Eastern Standard time, within two
business days thereafter. Any such subscription will be accepted subject to
withholding delivery of certificates for Preferred Stock until the Subscription
Agent's receipt of the applicable duly exercised Certificate or Certificates.
Delivery of Shares
The Preferred Stock subscribed for pursuant to the Basic Subscription
Privilege will be mailed as soon as practicable by the Subscription Agent. If a
Certificate holder subscribes for Preferred Stock pursuant to the
Oversubscription Privilege, shares of Preferred Stock issued pursuant to the
Basic Subscription Privilege and the Oversubscription Privilege will be mailed
as soon as practical after the Subscription Agent has determined the total
number of shares of Additional Preferred Stock are allocable to the holder. If a
holder who has subscribed for Preferred Stock pursuant to the Oversubscription
Privilege wishes to receive the Preferred Stock issuable under the Basic
Subscription Privilege prior to the determination of the number of shares to
which the holder is entitled under the Oversubscription Privilege, the holder
may obtain such shares by making a written request to the Subscription Agent.
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All expenses in connection with the distribution of the Shares, including
fees and expenses of the Company's Subscription Agent, counsel and accountants,
filing fees and printing expenses, will be borne by the Company.
FEDERAL INCOME TAX MATTERS RELATING TO THE OFFERING
In the opinion of Coopers & Lybrand L. L. P., tax advisors to Columbus, the
Federal income tax consequences of this Offering under the Internal Revenue Code
of 1986 will be as described below.
Receipt of the Rights
Generally, a corporation may make a distribution of its stock, or rights to
acquire its stock, to its shareholders in respect of the corporation's stock
without the shareholder including the distribution in gross income. However, the
distribution of convertible preferred stock, or rights to acquire such stock,
will be deemed taxable to the recipient unless it is established that the
distribution does not result in a disproportionate distribution. Such a
distribution is defined as one which results in the receipt of property by some
shareholders and an increase in the proportionate interest in the assets or
profits of the corporation by other shareholders.
Treasury Regulations further provide that the distribution of convertible
preferred stock, or rights to acquire such stock, will likely result in a
disproportionate distribution when both of the following conditions exist: (a)
the conversion right must be exercised within a relatively short period of time
after the distribution of the stock; and (b) considering the dividend rate,
redemption provisions, marketability of the convertible stock, and the
conversion price, it may be anticipated that some shareholders will exercise
their conversion rights and some will not. If the conversion right may be
exercised over a period of years and the dividend rate is consistent with market
conditions at the time of the distribution of the stock or the rights to acquire
the stock, it is unlikely a disproportionate distribution will occur.
Distribution of the Rights will be proportionate to the existing ownership
of Common Stock, and the Preferred Stock remains convertible at the option of
the holder for an indefinite period. Based on the foregoing, the distribution of
the Rights should not be considered disproportionate for federal income tax
purposes and Columbus shareholders need not include amounts in respect of the
distribution in gross income.
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Because the distribution of the Rights to existing Columbus shareholders
will not be included in gross income, the Rights, and ultimately the Preferred
Stock, may be considered to be Section 306 Stock. Should a shareholder later
dispose of the Section 306 Stock, or the rights to acquire such stock, in a sale
or exchange, all or a portion of the amount realized on the disposition will be
treated as ordinary gain. This treatment is limited to the fair market value of
the underlying Rights at the date of distribution. The amount realized on
disposition in excess of the ordinary income plus the adjusted basis will be
treated as capital gain as long as the Right or the Preferred Stock is a capital
asset to the holder. Should a shareholder sell all the shareholder's Columbus
capital stock including the Rights in a single transaction, then Section 306
would not apply.
If it is established that Columbus does not have current or accumulated
earnings or profits for the taxable year of the distribution, neither the Rights
nor the Preferred Stock will be treated as Section 306 Stock. Such a
determination can not be made until the end of the fiscal year on November 30,
1997. Preferred Stock acquired through the exercise of Rights purchased on the
open market by existing shareholders or investors will not be subject to
classification as Section 306 Stock.
In general, the tax basis of the Rights received by Columbus shareholders
will be derived from an allocation of the tax basis of Common Stock already
held. Such allocation is in proportion to the relative fair market values of
that stock and that of the Rights on the date of distribution. If the fair
market value of the Rights on the date of distribution is less than 15% of the
fair market value of the previously held Common Stock on that date, the tax
basis of the Rights will be zero unless the shareholder makes an irrevocable
election to allocate a portion of the basis of the previously held Common Stock
to the Rights. Such an allocation would be accomplished as described above. The
election is made by attaching a statement to the shareholder's federal income
tax return for the taxable year in which the Rights are received and will apply
to all Rights received in the Offering.
Existing shareholders receiving Rights in the distribution will assume a
holding period for those Rights based upon the holding period for the Common
Stock previously held.
Taxpayers, including existing shareholders, acquiring Rights in the open
market will have a tax basis in those Rights equal to the purchase price. The
holding period for Rights acquired on the open market will begin on the date of
purchase.
Sale or Exchange of the Rights
If a Columbus shareholder sells or otherwise disposes of Rights otherwise
considered to be Section 306 Stock, the proceeds received will be treated as
ordinary income to the extent of the fair market value of the Rights on the day
of distribution. Any excess of the amount received over the tax basis of the
Rights plus the amount treated as ordinary income will be considered as gain
from the sale of a capital asset assuming the Rights are a capital asset in the
hands of the holder.
No loss is recognized upon the sale or disposition of Rights considered to
be Section 306 Stock. Such disallowed loss is added to the tax basis of the
Columbus common stock otherwise held.
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If an existing shareholder sells all of their Rights considered to be
Section 306 Stock, and in the same transaction completely terminates their
interest in Columbus by selling all of the Columbus common stock previously
held, capital gain or loss will be recognized assuming the Rights and the
Columbus common stock are considered as capital assets in their hands. Ownership
of Columbus Common Stock and Rights by related parties must be considered to
determine complete termination of ownership.
Shareholders or investors who sell Rights acquired on the open market that
are not considered to be Section 306 Stock, will recognize capital gain or loss
on a sale or exchange of the Rights assuming the Rights are capital assets in
their hands and assuming that basis has been allocated to the Rights.
Expiration of Unexercised Rights
Existing shareholders who receive Rights in the distribution that are
considered to be Section 306 stock will not recognize a loss on the expiration
of those Rights. Such loss will be added to the tax basis of any Columbus common
stock retained.
Existing shareholders or investors who hold Rights not considered to be
Section 306 Stock will recognize a capital loss on the expiration of those
Rights assuming the Rights are capital assets in their hands.
Exercise of Rights
No gain or loss will be recognized by existing shareholders or investors
upon the exercise of the Rights. Preferred Stock acquired through the exercise
of Rights considered to be Section 306 Stock will also be considered as Section
306 Stock. The tax basis of the Rights, the cash paid, and the basis of any
Common Stock surrendered in the exercise for the Preferred Stock will become the
tax basis of the Preferred Stock in the hands of the shareholder. The holding
period will commence as of the date of the exercise.
Conversion of Series A Preferred Stock to Common Stock
Shareholders do not generally recognize taxable gain or loss upon the
conversion of preferred stock to common stock of the same corporation if the
conversion is accomplished pursuant to a plan of reorganization. If the
Preferred Stock being converted is considered to be Section 306 Stock, the
Common Stock received will not be Section 306 Stock. However, if the exercise of
the Rights was accomplished in part with Columbus Common Stock, the Common Stock
received upon conversion will be Section 306 Stock. The tax basis and holding
period of the Preferred Stock converted to Common Stock will carry over to the
Common Stock received regardless of whether it is Section 306 Stock.
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Redemption of the Preferred Stock
Redemption of the Preferred Stock may result in gain being recognized by
the shareholder. To the extent the Preferred Stock is treated as Section 306
Stock, the amount realized equal to the lower of Columbus' earnings and profits
or the fair market value of the Rights at the date of distribution will be
treated as a dividend. To the extent the amount realized exceeds such value, or
to the extent shareholders are holding Preferred Stock which is not considered
Section 306 Stock, the amount realized on redemption will be treated as a
dividend or as proceeds from a sale or exchange. Such determination can only be
made at the time the plan for redemption is contemplated.
The above discussion of the Federal income tax consequences may be
challenged by the Internal Revenue Service. Should any challenge prove
successful, the income tax consequences could be materially different from those
discussed above. The above interpretation is only a general summary of the
Federal income tax consequences of the Offering and does not address any
foreign, state or local income tax consequences. The discussion concerns only
the Federal income tax impact to Columbus shareholders and subsequent Rights
purchasers, and not any Federal tax impact to Columbus. Each Columbus
shareholder and subsequent Rights purchaser should consult his or her own
personal income tax advisor as to the Federal, foreign, state and local income
tax impact of the Offering.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock and up
to 5,000,000 shares of preferred stock, no par value ("Preferred Stock"). The
summary of certain provisions of the Company's Amended and Restated Articles of
Incorporation and Bylaws set forth below does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all provisions of
such Amended and Restated Articles of Incorporation (including the Certificate
of Designation creating the Series A Preferred Stock) and Bylaws. Copies of the
Amended and Restated Articles of Incorporation (excluding the Certificate of
Designation) and Bylaws are incorporated into this Prospectus by reference. A
copy of the Certificate of Designation is attached as Exhibit B at the end of
this Prospectus.
Common Stock
Each share of Common Stock has one vote (subject to the class voting rights
of holders of the Series A Preferred Stock and of any other then outstanding
Preferred Stock). The holders of Common Stock are entitled to receive dividends
when and as declared by the Board of Directors out of funds legally available
for such payments. The terms of the Series A Preferred Stock prohibit payment of
dividends on the Common Stock if the Company has not paid all accrued dividends
on the Series A Preferred Stock. Holders of Common Stock have no preemptive
rights to purchase additional shares. Subject to the preferential rights of
holders of any then outstanding Preferred Stock, the holders of Common Stock are
entitled to share ratably in the assets of the Company available for
distribution to stockholders in the event of the Company's liquidation,
dissolution or winding up.
The holders of Common Stock have no cumulative voting rights in the
election of directors. The Company's Amended and Restated Articles of
Incorporation also provides that the Board of Directors be divided into two
classes of approximately equal size, with one class to be elected for a two-year
term at each annual meeting of shareholders.
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Preferred Stock
The preferred stock of the Company is issuable, from time to time, in one
or more series, with such designations, preferences and relative, participating,
optional or other special rights, qualifications, limitations or restrictions
thereof as shall be stated and expressed in a resolution or resolutions
providing for the issue of such series adopted by the Board of Directors. All
shares of any one series of preferred stock are required to be identical in
every particular, and all series are required to rank equally and be identical
in all respects, except insofar as they may vary with respect to matters which
the Board is expressly authorized by the Company's Amended and Restated Articles
of Incorporation to determine in the resolution or resolutions providing for the
issue of any series of preferred stock. No assurance can be given that the terms
of any series of preferred stock will not materially limit or qualify the rights
of the holders of Common Stock. No shares of preferred stock have been issued
prior to the Offering.
Series A 7% Convertible Preferred Stock
Up to 400,000 shares of Series A 7% Convertible Preferred Stock ("Series A
Preferred Stock") will be issued to shareholders of the Company who exercise the
Rights. Shares of Series A Preferred Stock will be issued, to the extent the
Rights have been exercised, promptly after the expiration date of the Rights
(the "Issue Date"). The Board may issue up to an aggregate of 2,000,000 shares
of Series A Preferred Stock at such time or times as it chooses, without the
necessity for a vote of or consent by the holders of the Series A Preferred
Stock or holders of Common Stock. Application has been made for listing of the
Series A Preferred Stock on the American Stock Exchange. The summary of the
terms of the Series A Preferred Stock set forth below is qualified in its
entirety by reference to the Certificate of Designation which the Board has
filed with the Colorado Secretary of State to create the Series A Preferred
Stock, The certificate, which is attached to this Prospectus as Exhibit B,
should be reviewed in its entirety before any decision is made to acquire or to
exercise the Rights.
Dividends. Holders of shares of Series A Preferred Stock will be entitled
to receive, when, as and if declared by the Board out of legally available
funds, cumulative dividends from the date of initial issuance of the shares of
Series A Preferred Stock upon expiration of the Rights at the rate of 7% of the
$25.00 face value per share, and no more, payable semi-annually. Dividends
declared on Series A Preferred Stock will be payable semi-annually on the
fifteenth days of March and September, commencing _________________________,
1997, or at such other times and for such interim periods, if any, as may be
determined by Board. Dividends on shares of Series A Preferred Stock will accrue
on a daily basis (without interest or compounding) whether or not there are
unrestricted funds legally available for the payment of such dividends and
whether or not such dividends are earned or declared. Accrued dividends will be
paid only when, as, and if declared by the Board, which the Board may in its
discretion decline to do. In addition, applicable law prohibits the payment of
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dividends to the extent that a corporation would thereafter be unable to pay its
debts as they become due in the ordinary course of business or to the extent
that the corporation's total assets would be less than total liabilities. The
Company had assets in excess of liabilities in the amount of $14,690,000 as of
August 31, 1996, and the Company currently expects that it will have adequate
financial resources to pay, and will be legally capable of paying, dividends in
the ordinary course on the Series A Preferred Stock for the foreseeable future.
There can be no assurance, however, that adverse trends in operating results or
other unforeseeable events will not result in insufficient legally available
funds to permit payment of dividends or that the Board will not conclude, based
on unforeseeable circumstances, that funds otherwise available for dividends
would better be applied for other corporate purposes. Accrued and unpaid
dividends may, subject to the foregoing limitations, be paid at any time and, to
the extent so paid, will be paid without interest or other amounts reflecting
the time value of money.
Liquidation Preference. Each share of Series A Preferred Stock will be
entitled to receive a distribution upon any liquidation and winding up of the
Company (before any distribution is made to holders of Common Stock) in an
amount equal to (i) $25 plus (ii) any accrued but unpaid dividends. To the
extent assets of the Company are insufficient to pay the full preferential
amount to which holders of the Series A Preferred Stock would be entitled upon
any liquidation and winding up of the Company, amounts available for such
distribution would be paid pro rata to holders of the Series A Preferred Stock
based on the number of shares held by each of them. After receiving the
foregoing preferential amount, holders of Series A Preferred Stock would not be
entitled to participate with holders of Common Stock in any other or further
distribution upon a liquidation and winding up of the Company.
Certain Limitations on Dividends and Redemptions of Junior Stock. So long
as any shares of Series A Preferred Stock are outstanding, (i) no dividends will
be paid or declared in cash or otherwise, and no other distribution may be made,
on any stock of the Company ranking junior to the Series A Preferred Stock as to
dividend rights, payments on redemption and payments of amounts distributable
upon the dissolution, liquidation or winding up of the Company ("Junior Stock"),
and (ii) no shares of any Junior Stock may be purchased, redeemed, or otherwise
acquired by the Company or any subsidiary, and no funds may be set aside or made
available for any sinking fund for the purchase or redemption of any Junior
Stock, unless: (a) all accrued dividends on all outstanding shares of Series A
Preferred Stock have been paid, or declared and set aside for payment, for all
dividend periods terminating on or prior to the date of such Junior Stock
dividend or distribution payment, and (b) the Company is not in default on any
of its obligations to redeem any Series A Preferred Stock. There is no
prohibition of payment of dividends on any Junior Stock solely in shares of
Junior Stock or warrants, rights or options exercisable for or convertible into
Junior Stock or the redemption, purchase or other acquisition of Junior Stock,
solely in exchange for, or through the application of the proceeds from the sale
of, shares of Junior Stock or warrants, rights or options exercisable for or
convertible into Junior Stock.
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Conversion Privilege. Each share of Series A Preferred Stock will be
convertible, in whole or in part, at the option of the holder, at any time after
the 60th day after the Issue Date, unless previously redeemed, into ___ shares
of Common Stock of the Company (the "Conversion Rate"). Except as provided
below, upon any conversion of shares of Series A Preferred Stock into shares of
Common Stock, the Company will not make any payment or allowance for unpaid
dividends, whether or not in arrears, on converted shares of Series A Preferred
Stock or for previously declared dividends or distributions on the shares of
Common Stock issued upon such conversion. Holders of shares of Series A
Preferred Stock at the close of business on a record date for any payment of
declared dividends will be entitled to receive the dividend payable on such
shares of Series A Preferred Stock on the corresponding dividend payment date
notwithstanding the effective conversion of such shares following such record
date and prior to the corresponding dividend payment date. However, shares of
Series A Preferred Stock surrendered for conversion after the close of business
on a record date for any payment of dividends and before the opening of business
on the next succeeding dividend payment date must be accompanied by payment in
cash of an amount equal to the dividend on such shares attributable to the
current dividend period which is to be paid on such dividend payment date
(unless such shares of Series A Preferred Stock are subject to redemption on a
redemption date falling between such record date and such dividend payment
date). A holder of shares of Series A Preferred Stock called for redemption on
any dividend payment date will (if such holder is the registered holder on the
applicable record date) receive the dividend on such shares payable on that date
and will be able to convert such shares after the record date for such dividend
without paying an amount equal to such dividend to the Company upon conversion.
The right to convert shares of Series A Preferred Stock called for redemption
will terminate immediately before the close of business on the tenth day prior
to related redemption date. See "Optional Redemption" below.
Conversion Adjustments. The Conversion Rate is subject to adjustment upon
the occurrence of certain events involving the Company including, (i) the
payment by the Company of dividends on outstanding shares of its Common Stock in
shares of capital stock; (ii) subdivisions or combinations of Common Stock;
(iii) the issuance by the Company of capital stock in reclassification of its
outstanding shares of Common Stock; (iv) the issuance by the Company to all
holders of Common Stock of rights or warrants entitling them to purchase shares
of Common Stock at a price per share less than the current market price of the
Common Stock; (v) distributions by the Company to all holders of shares of
Common Stock of assets, evidences of indebtedness or securities; and (vi)
mergers or consolidations of the Company, sales of all or substantially all of
the Company's assets, and reclassifications of or changes in the Common Stock.
Mandatory Redemption. Each share of Series A Preferred Stock (if not
earlier converted or redeemed) will be subject to mandatory redemption by the
Company (i) within 60 days after a Change in Control (as defined below) has
occurred, if the Board has not by resolution given its approval of the Change in
Control prior to its occurrence, and (ii) within two years after a Change in
Control has occurred, if the Board has approved the Change in Control prior to
its occurrence, at the redemption price then in effect. A "Change in Control"
means that any person other than Harry A. Trueblood, Jr., or his estate or
heirs, together with such person's affiliates, controls, by direct or beneficial
ownership (or both), over 50% of the voting power of the capital stock necessary
to elect a majority of the Board.
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Optional Redemption. Shares of Series A Preferred Stock are not redeemable
prior to six months after the Issue Date (the "Initial Redemption Date"), except
under the mandatory redemption provisions applicable to a change of control of
the Company that is not approved by the Board. At any time and from time to time
on or after the Initial Redemption Date, the Company will have the right to
redeem, in whole or in part, the outstanding shares of Series A Preferred Stock
at the following per share redemption prices, together with accrued but unpaid
dividends (whether or not earned or declared) to the date fixed for redemption:
Period Redemption Price Per Share
Issue Date through November 30, 1999: 110% of face value, plus accrued
and unpaid dividends
December 1, 1999 through 105% of face value, plus accrued
November 30, 2005: and unpaid dividends
After November 30, 2005: Face value, plus accrued and
unpaid dividends
If fewer than all the outstanding shares of Series A Preferred Stock are to be
redeemed as of any date, the shares of Series A Preferred Stock to be redeemed
will be selected by the Company from outstanding shares of Series A Preferred
Stock pro rata (as nearly as may be practicable) among all holders of
outstanding shares of Series A Preferred Stock. Dividends on shares of Series A
Preferred Stock selected for redemption will cease to accrue, and the right of
the holders of such shares to convert such shares into Common Stock will
terminate immediately prior to the close of business on tenth day preceding the
related Redemption Date.
General Voting Rights. The holders of Series A Preferred Stock will have
the right to one vote for each share of Series A Preferred Stock held by them,
will be entitled to notice of any meeting of shareholders of the Company and
will be entitled to vote together with holders of the Common Stock with respect
to any matter upon which holders of Common Stock are entitled to vote.
Right to Elect Directors Upon Dividend Defaults. At any time accrued
dividends payable on the shares of Series A Preferred Stock are in arrears and
unpaid in an aggregate amount equal to or exceeding the aggregate amount of
dividends payable on such shares for four or more semi-annual dividend periods,
the holders of the shares of Series A Preferred Stock, voting separately as a
class, will have the right to vote for the election of two directors (the
"Preferred Stock Directors") to the Board, such directors to be in addition to
the number of directors constituting the Board immediately prior to the accrual
of such right. The right of the holders of shares of Series A Preferred Stock to
vote for the election of two Preferred Stock Directors will, when vested,
continue until all dividends in arrears on the shares of Series A Preferred
Stock have been paid in full and, when so paid, such right will cease, subject
always to the same provisions for the vesting of such right in the holders of
the shares of Series A Preferred Stock in the case of further dividend defaults.
The Preferred Stock Directors will be elected by a majority of the votes
actually cast by the holders of Series A Preferred Stock, and will serve until
such person's resignation or until the Company cures the dividend default.
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Class Voting on Additional Specified Matters. For so long as any shares of
Series A Preferred Stock remain outstanding, the affirmative vote of the holders
at least two-thirds of such outstanding shares (voting separately as a class),
given in person or by proxy at an annual meeting or special meeting called for
such purpose, will be necessary before the Company may (i) amend, alter or
repeal any of the provisions of its Articles of Incorporation so as to adversely
affect the powers, preferences or rights of the holders of the shares of Series
A Preferred Stock then outstanding or reduce the minimum time required for any
notice to which holders of shares of Series A Preferred Stock then outstanding
may be entitled; or (ii) authorize or issue any capital stock which ranks prior
to, or on a parity with, the Series A Preferred Stock as to dividend rights,
rights of redemption or rights on liquidation (except for the issuance of
additional shares of Series A Preferred Stock which were authorized as of the
Issue Date). In order to avoid doubt, the Certificate of Designation provides
that any such amendment, alteration or repeal that would authorize, create or
increase the authorized amount of any additional shares of Junior Stock or that
would decrease (but not below the number of shares then outstanding) the number
of authorized shares of Series A Preferred Stock will be deemed not to adversely
affect such powers, preferences or rights and will not be subject to approval by
the holders of shares of Series A Preferred Stock. Anything in the foregoing to
the contrary notwithstanding, no consent of the holders of the shares of Series
A Preferred Stock will be required if, at or prior to the time when such
amendment, alteration or repeal is to take effect, provision is made for the
redemption of all shares of Series A Preferred Stock at the time outstanding.
Transfer Agent and Registrar. Harris Trust Company of New York will act as
transfer agent and registrar for the Series A Preferred Stock and will also act
as agent in respect of any redemption or conversion of the shares of Series A
Preferred Stock.
Shares Nonassessable; No Preemptive Rights; Retired Shares. Upon issuance,
the shares of Series A Preferred Stock will be fully paid and nonassessable.
Holders of shares of Series A Preferred Stock will have no preemptive rights.
Shares of Series A Preferred Stock redeemed by the Company will be retired and
resume the status of authorized and unissued shares, without designation as to
series, until such shares are once more designated as part of a particular
series of preferred stock by the Board.
USE OF PROCEEDS
The net proceeds from the Offering are estimated to be $__________ assuming
a full exercise of Rights and payment in cash only. The net proceeds from the
Offering would be $____________ if the maximum number of shares of Common Stock
are tendered as partial payment for the Preferred Stock. The net proceeds will
be used by Columbus to reduce (but not terminate the existing line of credit)
most of Columbus' bank debt (which was $1,900,000 as of December 31, 1996) and
the remainder, if any, for future capital expenditures. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation" for a
description of the terms of such bank debt. Expected capital expenditures
include development of proved undeveloped reserves, existing drilling projects
(such as the Company's 12.5% participation in the drilling and completion of
several dual lateral oil wells in the Austin Chalk formation on its leaseholds
in Louisiana), exploration costs, and possible property acquisitions that might
become available. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Recent Activities."
25
<PAGE>
All proceeds from the Offering will be held in trust by Harris Trust
Company of New York, the Subscription Agent, until completion of the Offering
and delivery of the Preferred Stock.
SELECTED FINANCIAL DATA
The tables below set forth selected historical financial and operating data
for the Company as of the dates and for the periods indicated. The historical
financial data for the years ended November 30, 1991, through 1995, were derived
from the financial statements of the Company which have been audited by Coopers
& Lybrand, L.L.P., independent auditors. The data for the nine months ended
August 31, 1996, and 1995, have been derived from the Company's unaudited
financial statements and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth herein. This information is not necessarily indicative
of the Company's future performance. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Company's Consolidated Financial
Statements and notes thereto.
<TABLE>
<CAPTION>
Nine Months Ended
August 31, Year Ended November 30,
------------------------ -----------------------------------------------------------
1996 1995(a) 1995(a) 1994 1993 1992 1991
---- ------- ------- ---- ---- ---- ----
(in thousands, except per share data, per unit data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating data:
Revenues $8,836 $ 7,327 $9,400 $13,141 $12,913 $11,124 $ 7,766
Loss on asset dis-
position, impair-
ment of long-lived
properties and
abandonments (165) -- (3,055) -- (258) -- --
Earnings (loss)
before cumulative
effect of account-
ing change 1,539 501 (1,495) 2,190 2,814 2,415 56
Cumulative effect of
26
<PAGE>
accounting change -- -- -- -- 992 -- --
------- ------- ------- ------- ------- ------- -------
Net earnings
(loss) 1,539 501 (1,495) 2,190 3,806 2,415 56
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share (primary):
Before cumulative
effect of account-
ing change .50 .16 (.48) .67 .83 .70 .02
Cumulative effect
of accounting
change -- -- -- -- .29 -- --
------- ------- ------- ------- ------- ------- -------
Net earnings
(loss)(b) .50 .16 (.48) .67 1.12 .70 .02
======= ======= ======= ======= ======= ======= =======
Fully dilutive earn-
ings per share N/A N/A N/A N/A N/A .68 .02
=== ===
Ratio of earnings
to fixed charges 11 N/A (d) 12 23 13 1
Average number
of common and common
equivalent shares
outstanding(b):
Primary 3,049 3,160 3,143 3,269 3,404 3,461 3,543
======= ======= ======= ======= ======= ======= =======
Fully dilutive N/A N/A N/A N/A N/A 3,577 3,557
===== =====
Cash flow data(e):
Cash flow before
changes in operat-
ing assets and
liabilities 4,609 3,066 3,920 6,254 6,468 5,307 1,757
Discretionary cash
flow(h) 4,791 3,205 4,096 6,715 6,633 5,360 1,814
EBITDA(f) 4,972 3,111 3,975 6,588 6,916 5,622 2,033
Balance sheet data:
Total assets $20,980 $21,790 $18,321 $24,955 $22,938 $17,811 $17,282
27
<PAGE>
Long-term debt,
excluding current
maturities:
Bank debt 3,200 1,600 1,600 4,200 3,200 2,100 3,189
Note payable
to ESOP -- -- -- -- -- -- 596
Capital lease
obligation -- -- -- -- -- -- 51
------- ------- ------- ------- ------- ------- -------
$ 3,200 $ 1,600 $ 1,600 $ 4,200 $ 3,200 $ 2,100 $ 3,836
======= ======= ======= ======= ======= ======= =======
Stockholders'
equity $14,690 $15,435 $13,186 $16,202 $14,400 $11,069 $ 8,761
======= ======= ======= ======= ======= ======= =======
Production, price
and other data -
U.S. operations
only(c):
Production:
Oil (Mbbls) 185 166 225 223 293 295 116
Gas (Mmcf) 1,969 1,556 2,033 2,810 1,693 927 565
MBOE(g) 513 425 564 691 575 450 210
Average prices:
Oil (per Bbl) $18.65 $16.85 $16.75 $15.28 $17.53 $19.44 $20.40
Gas (per Mcf) 2.18 1.71 1.71 1.92 2.18 1.91 1.55
Costs per BOE(c)(g):
Production costs 4.35 4.12 4.16 3.31 4.07 4.17 6.22
DD&A of oil and
gas properties 3.89 4.31 4.21 3.41 3.31 2.39 3.25
General and
administrative
expenses 1.53 2.08 2.05 1.58 1.80 2.09 4.93
</TABLE>
(a) Does not include results of CEC Resources Ltd. after the Company's
divestiture of Resources on February 24, 1995.
(b) Reflects restated amounts for 1991 through 1994 after stock dividends.
(c) Includes U.S. operations only for comparative purposes because CEC Resources
Ltd. was divested during 1995.
(d) Earnings are inadequate to cover fixed charges only as a result of a
$3,055,000 non-cash impairment expense. The ratio would have been 6 if the
non-cash impairment expense had been excluded.
(e) EBITDA and cash flow data are indicators which are commonly used in the oil
and gas industry. They should be used as supplements to, and not as substitutes
for, net earnings and net cash provided by operating activities (as disclosed in
the consolidated financial statements) in analyzing Columbus' results of
operations and liquidity.
28
<PAGE>
(f) Earnings before interest, taxes, depreciation, depletion and amortization.
(g) Gas reserves are converted to BOE or MBOE at the rate of six Mcf of gas per
barrel of oil based upon the approximate relative energy content of each. This
conversion rate is not necessarily indicative of the relationship of gas prices
to oil prices. The respective prices of gas, NGLs and oil are affected by market
and other factors in addition to relative energy content.
(h) Discretionary cash flow is operating cash flow before working capital
changes and deduction of exploration expenses.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Months Ended Year Ended November 30,
August 31, ----------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(in thousands, except ratio of earnings to fixed charges)
<S> <C> <C> <C> <C> <C> <C>
Pretax earnings (loss) $ 2,482 $ (2,022) $ 3,370 $ 4,062 $ 3,659 $ 200
Fixed charges 239 229 305 181 311 454
Pre-tax earnings (loss)
and fixed charges 2,721 (1,793) 3,675 4,243 3,970 654
Fixed Charges:
Interest 207 185 253 126 259 404
Interest portion of rent
expense 32 44 52 55 52 50
Deficiency N/A (2,022) N/A N/A N/A N/A
Ratio of earnings
to fixed charges 11 * 12 23 13 1
</TABLE>
*Earnings are inadequate to cover fixed charges only as a result of a $3,055,000
non-cash impairment expense. The ratio would have been 6 if the non-cash
impairment expense had been excluded.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below addresses changes that have occurred in
Columbus' financial condition and its results of operations during a three-year
period from fiscal years 1993 through 1995 and for the nine-month periods ending
August 31, 1996, and 1995. Also, reference is made to the information appearing
under "Selected Financial Data," as well as to the Consolidated Financial
Statements and related notes which appear elsewhere in this Prospectus. The
Company's fiscal year ends on November 30, and all references in this section of
this Prospectus to years refer to fiscal years unless the context otherwise
indicates.
The information below contains several forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). These statements involve inherent uncertainties, including price
volatility, development, operational and implementation risks, as well as other
factors that may cause the actual financial performance of Columbus to be
materially different from predicted financial performance. See "Risk Factors."
The analysis of economic and operational trends from the results of 1993
through 1995 is difficult for two reasons. First, the Company in February 1995
divested itself of its wholly-owned Canadian subsidiary, CEC Resources Ltd.
("Resources"), by means of a subscription rights offering to Columbus'
shareholders. The deletion of financial performance information of Resources
from the Company's financial statements as a result of the rights offering makes
it difficult to compare results in 1996 and 1995 to results in prior years.
Secondly, the Company elected to adopt early as of the beginning of the
fourth quarter of 1995 Statement of Financial Accounting Standards No. 121
("SFAS-121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." SFAS-121 requires that an impairment loss
be recognized when the carrying amount of an asset exceeds the sum of the
undiscounted estimated future cash flow of the asset. The Company reviewed
impairment of oil and gas properties using expected prices and year end provided
reserves which had been significantly reduced. Four areas in Texas, Oklahoma,
New Mexico and North Dakota indicated that impairment losses were greater than
previously estimated and that it was prudent to elect early adoption.
Accordingly, a non-cash loss of $3,055,000 ($2,260,000 after tax) was
recognized, which was equal to the difference between the carrying value and the
fair value of each asset group. As a result of the adoption of SFAS-121, future
amortization and depletion expenses are expected to be lower since the
properties' total carrying value was significantly reduced.
A non-cash impairment loss of $165,000 was recognized during the first
quarter of 1996 because a development well drilled in Oklahoma proved to be
uneconomic and its costs exceeded the remaining cash flows from other producing
properties in the field.
30
<PAGE>
Liquidity and Capital Resources
Columbus' financial condition and operating results have continued to
improve in 1996. As of the end of the first nine months of 1996, shareholders'
equity was $14,690,000, compared to shareholders' equity of $13,186,000 at
November 30, 1995, despite the Company's repurchase of 86,100 shares of Common
Stock. Management believes that existing positive working capital of $1,221,000
and net proceeds from the Offering, combined with the Company's anticipated
future cash flow, should be sufficient to fully fund all expenditures required
to develop the Company's existing undeveloped reserves and to allow
participation in a modest exploratory drilling program. As of the date of this
Prospectus, the Company also has approximately $_________ available under its
$7,000,000 borrowing base pursuant to the line of credit with Norwest Bank
Denver, N.A. Although the Company may borrow funds up to its available borrowing
base for any corporate purpose, management of the Company has designated bank
debt as the source of funds for acquisitions of oil and gas properties and
entities.
To date, the Company's 1996 development program has been much more
rewarding than that of 1995. Effective as of November 1, 1995, the Company
completed an acquisition of additional working interests in producing natural
gas wells in several fields near Laredo in Webb and Zapata Counties, Texas at a
cost of $2.63 million. The Company completed a second acquisition in the Laredo
area at a cost of $500,000, effective June 1, 1996. The Company utilized bank
borrowings for both acquisitions. Subsequent drilling successes and higher
prices have combined to make these added working interests substantial
contributors to 1996 results.
For the nine months of 1996, revenues increased by 21% compared to the nine
months of 1995, due to higher oil and natural gas production and higher prices.
Net income of $1,539,000, or $0.50 per share, for 1996 was a significant
improvement over the $501,000 of net income, or $0.16 per share, for the nine
months of 1995. Proved developed and undeveloped natural gas and crude oil
reserves as of August 31, 1996, benefitted from higher prices, which restored
some reserves and reduced depletion expense for the third quarter of 1996 both
from a BOE unit basis and from a percentage of sales standpoint.
Management has long believed that the best measure of a company's cash flow
is determined before any consideration is given to working capital changes or
deduction of exploration expenses. This is known as discretionary cash flow
("DCF"). Columbus' DCF for the first nine months of 1996 was $4,791,000,
compared to $3,205,000 in 1995 (which included $362,000 of DCF attributable to
Resources). The improvements resulted from higher prices (despite reductions in
revenues from swaps, which are discussed more fully below) and improved
production of both crude oil and natural gas.
Management continues its objection to the Financial Accounting Standards
Board Statement No. 95 requirement that operating cash flow be determined after
consideration of working capital changes. Management will continue to reflect
its opinion on this matter in all public filings and reports, because FASB 95
ignores entirely the significant impact on working capital of the timing of
income received for, or expenses incurred on behalf of, third party owners in
wells. FASB 95 has a particularly significant impact on Columbus, because
Columbus serves as an operator but holds a fairly small interest in several
properties that have significant levels of expense generating activity.
31
<PAGE>
Sales volume of natural gas averaged 7,412 Mcfd during the third quarter of
1996, which was up 42% from the average of 5,221 Mcfd in the third quarter of
1995; oil sales were 614 barrels per day in the third quarter of 1996, compared
to 627 in the third quarter of 1995. Management's stated goal for 1996 had been
to surpass a former record level of 2,200 BOE per day by the third quarter of
1996. The Company has not accomplished this objective for several reasons, with
the most significant being a delay in developing its Williston Basin oil
reserves. While production in August 1996 approximated 1,874 BOE per day,
several completed gas wells were either connected late in the month or will be
completed during the fourth quarter. It should be noted that production for the
third quarter of both 1996 and 1995 was solely from U.S. operations.
Columbus' swaps of natural gas and crude oil (a type of hedging
transaction) are discussed in Note 9 to the financial statements in this
Prospectus.
The divestiture of Resources resulted in the loss of the Company's most
profitable source of income from operation and management services. However, the
Company has been able to reduce operating expenses, with the result that
U.S.-only operation and management services have been profitable despite the
divesture of Resources.
Columbus had outstanding borrowings of $3,200,000 as of August 31, 1996,
against its line of credit with Norwest Bank Denver, N.A., of which $2,700,000
had been borrowed in December 1995 and $500,000 in June 1996 for property
acquisitions (as discussed above). The credit agreement was amended as of August
30, 1996, to reduce the LIBOR interest rate from LIBOR, plus 1 3/4% to LIBOR
plus 1 1/2%, and to extend the revolving period of the loan from July 1 1997, to
July 1, 1999 and the maturity of the term loan from July 1, 2000 to July 1,
2003. This loan is collateralized by Columbus' oil and gas properties. At the
end of the third quarter of 1996, the ratio of bank debt to shareholders' equity
was 0.22, and the ratio of bank debt to total assets was 0.15. The debt
outstanding at the end of the third quarter of 1996 used a LIBOR option at an
average interest rate of 7.35%. From September through December 1996, the
outstanding debt was further reduced by $1,300,000, to $1,900,000.
During the first nine months of 1996, capital expenditures incurred on oil
and gas properties totaled $5,849,000 (including acquisitions of $2,981,000).
These expenditures were primarily directed toward development drilling and
recompletions in the South Texas and Gulf Coast areas and to prospect costs in
the new Louisiana AMI discussed below.
Columbus continued its Common Stock repurchase program during the first
nine months of 1996. It acquired an additional 86,100 shares during this period
out of a 300,000-share repurchase program authorized in February 1995. The Board
authorized purchases to a maximum price of $8.75 and required that all purchases
be made from available cash and not with bank borrowings. The Company has
acquired 284,000 shares out of the 300,000 shares originally authorized under
the repurchase program. The Company has suspended its Common Stock repurchase
program pending completion of the Offering.
32
<PAGE>
Results of Operations
Generally, revenues and expenses for the first nine months of 1996 are not
comparable to the first nine months of 1995 because of the Company's divestiture
of Resources as of February 24, 1995. Likewise, revenues and expenses for 1995
are not comparable to revenues and expenses for 1994. Excluding the operations
of Canada from the first nine months of 1995, the Company's revenues increased
by 35% in the first nine months of 1996 and operating income increased 167%,
compared to the first nine months of 1995, due primarily to increased oil and
gas production and improved prices. Excluding the operations of Resources from
1995 and 1994, the Company's revenues decreased by 15% in 1995, and operating
income decreased 51% (excluding consideration of the impairment loss), due
primarily to declining crude oil and natural gas prices and higher depletion
expense. Interest and litigation expenses decreased in 1995, but a $141,000
retirement and separation accrual offset this reduction.
The Company had its highest ever revenues in 1994, but operating income
decreased 9% from results in 1993, which itself had been a record year for the
Company. Litigation expenses in 1994 were mostly related to lawsuits that have
now been settled. Interest expense rose in 1994 because of increased interest
rates and amounts borrowed compared to 1993. Net earnings in 1995 (before the
impairment charges) were at their lowest level since 1991. Net earnings in 1994
declined from net earnings in 1993, because of increased exploration expense,
litigation expense, interest expense, depreciation and depletion charges, and a
higher effective tax rate. Net earnings in 1993 were at a record high for the
Company, even before the cumulative effect of an accounting change, because of
increased gas production at better prices and because the collapse in crude oil
prices occurred in the last half of the year.
Oil and Gas Operations
The discussion of the Company's oil and gas operations below is based upon
production and average prices for the United States and Canada.
The changes in the components of oil and gas revenues during the periods
presented are summarized as follows:
Production
Price Change Quantity Change Revenue Change
------------ --------------- --------------
1996 vs. 1995 (nine months)
Gas - U.S 27% 27% 56%
Oil - U.S. 11% 11% 23%
33
<PAGE>
1995 vs. 1994
Gas - U.S. (11)% (28)% (33)%
Gas - Canada (22)% (68)% (75)%
Total Company gas (8)% (41)% (45)%
Oil - U.S 10% 1% 8%
Oil - Canada 15% (72)% (67)%
Total Company oil 14% (10)% 0%
1994 vs. 1993
Gas - U.S. (12)% 66% 45%
Gas - Canada (5)% 11% 5%
Total Company gas (7)% 43% 31%
Oil - U.S. (13)% (24)% (32)%
Oil - Canada (14)% (2)% (14)%
Total Company oil (14)% (21)% (30)%
Natural gas revenues for the first nine months of 1996 were 56% higher than
the similar period in 1995 because of improved prices and the effect of property
acquisitions and newly developed wells. Average prices rose 27% in 1996,
compared with the first nine months of 1995. Increased demand and severely
depleted storage levels following an extended winter heating season contributed
to this price improvement. Revenues in the first nine months of 1996 were
reduced by $282,000 ($0.14 per Mcf) from natural gas swaps, while the Company
had $284,000 ($0.17 Mcf) of revenue gains from natural gas swaps in the first
nine months of fiscal 1995.
Oil revenues for the first nine months of fiscal 1996 were up 23% over the
similar period in 1995 as a result of an 11% increase in average prices and an
11% sales volume increase. Crude oil production improved because of the
commencement of production from two new Jackson sand oil wells in the Sralla
Road field in 1996, which was sufficient to overcome normal production decline
elsewhere. Oil revenues and average prices for the first nine months of 1996
have been reduced by $165,000 ($.91 per barrel) due to the Company's crude oil
swap for 1996. The Company did not participate in any crude oil swaps in 1995.
Natural gas revenues and production for 1995 decreased compared to 1994,
primarily as a result of lower prices and declining gas production in the Sralla
Road field and the fields near Laredo, Texas. Occurrence of a reversionary
working interest reduction in the Company's most productive gas well in the
Laredo area accounted for about one-half of the reduced gas production and more
than offset new production from additional connections in Texas and Oklahoma.
Average prices for natural gas decreased 11% compared to 1994 but began to
increase toward the end of 1995. Average prices in the spot market are currently
quite high due to cold early winter weather.
34
<PAGE>
Oil revenues in the U.S. for 1995 were up 8% from 1994 as a result of a 10%
increase in the average price received. Crude oil prices continued to dictate
deferral of any full scale development program for undeveloped oil reserves
located in the Williston Basin. However, a moderate amount of drilling was
planned for 1996 as a result of the 1996 crude oil swap, which affords some
protection from previous drastic downturns in prices, which had halted drilling
plans before drilling had commenced.
U.S. natural gas revenues and production for 1994 were significantly higher
than 1993 as a result of new gas well completions in Texas and Oklahoma. Even
with the inclusion of the revenue gains from the 1994 natural gas swap, the
average price realized in 1994 still decreased 12% compared to 1993. The Company
experienced normal decline in oil production in 1994, but a few wells, which had
been made uneconomic by oil prices and whose production had been curtailed
awaiting improvement in oil prices, were returned to production during the
fourth quarter of 1994. Also, the flooding of a river near Houston in late 1994
which required shutting-in several wells was primarily responsible for a
reduction in oil production of 77 barrels of oil per day compared to the 1994
average and also resulted in a reduction in gas production of 2,100 Mcfd for the
fourth quarter of 1994, compared to the third quarter of 1994.
In the U.S., natural gas revenues and production for 1993 increased
significantly over 1992 because of a higher level of new gas well completions in
the Sralla Road field near Houston and in the Laredo, Texas area. Also, daily
allowables increased as of April 1993 from 700 Mcfd to 1,300 Mcfd for each of
the Jackson sand gas wells in the Sralla Road field. Average natural gas prices
also improved in 1993 compared to 1992.
U.S. oil revenues for 1993 were down 11% from 1992, primarily as a result
of a 10% decrease in oil prices and because the initial incentive discovery
allowable in 1991 for the Vicksburg formation of 340 barrels per day was reduced
to 215 barrels per day per well beginning on October 1, 1993. Oil production in
the Williston Basin that had been generated from several recompletions in 1992
also declined in 1993 from initial production rates, and new oil wells in the
Williston Basin that had been planned for 1993 were postponed. Water
encroachment in one of the Vicksburg wells in the Sralla Road field caused its
oil productivity to fall below its allowable.
U.S. oil prices have fluctuated with the same wide swings experienced in
world crude oil prices during recent years. In 1993, crude oil prices declined
gradually throughout the year until the fourth quarter when a dramatic collapse
occurred. In 1994, oil prices experienced a very slow recovery, with the average
price for the year being about 13% below 1993. In 1995, crude oil prices
declined in mid-year months but recovered by year-end, so that the average
annual prices were higher than 1994.
No comparisons of oil and gas revenues and operations in Canada from 1995
to 1994 are made because of the Company's divestiture of Resources in February
1995. Natural gas revenues increased by 5% in 1994 compared to 1993; production
increased by 11%, while average prices decreased by 5%. Beginning in mid-May
1994, several wells that were completed, or were recompleted in new formations,
were connected to the Carbon gas processing plant, which was expanded in
November 1994. Additional gas from new East Carbon wells was added in November
and December of 1994, which positively affected 1995 revenues. The production
decline of the Ghost Pine 14-34 well flattened and provided 29% of net lease
level cash flow. Revenues from oil and plant liquids declined 14% in 1994
because of a 14% decrease in prices from 1993. Natural gas revenues increased in
1993, as prices improved over 1992, and production volumes decreased by only 2%
as a result of an expanded 1993 development program and the addition of one
well's production because of the occurrence of a 33% reversionary working
interest. Oil and liquids prices and production volumes were down 7% for 1993
compared to 1992.
35
<PAGE>
On a BOE basis, lease operating expenses in the U.S. for the first nine
months of 1996 were slightly higher than the similar period in 1995 ($2.85
compared to $2.73 in 1995), and total lease operating expenses were
substantially higher because of additional wells, several expensive workovers,
and the effect of property acquisitions in 1996. Operating costs in the U.S. as
a percentage of revenues have decreased to 19% for the first nine months of
1996, compared to 27% for the first nine months of 1995, primarily as a result
of higher product prices in 1996.
Lease operating expenses in the U.S. increased 19% in 1995 compared to 1994
because of several extensive workovers that were performed in an effort to make
some wells more economic. Lease operating costs on a BOE basis for 1995 were
$2.78, compared to $1.93 for 1994. Lease operating expenses in the U.S.
decreased 7% in 1994 compared to 1993, because there were fewer workovers and
because several oil wells with high operating costs were shut in due to low
crude oil prices. Also, most well additions in 1994 were gas wells, which
usually have lower operating costs. Lease operating expenses were up 9% in 1993
compared to 1992, as new lease operating expense for U.S. gas wells had a
relatively small percentage increase compared to added revenues. Accordingly,
operating costs in the U.S. increased as a percentage of revenues to 22% in
1995, compared to 15% in 1994 and 16% in 1993.
The Company's operating costs in Canada in 1994 declined from 1993, both in
amount and as a percentage of revenues, primarily because several more older
wells with relatively higher operating costs were supplemented by new wells.
Fees paid for both processing and compression were lower as a result of a 1994
litigation settlement agreement with the operator of the Carbon field and plant.
The settlement also reduced operating expenses on an ongoing basis.
Production and property taxes have approximated 9% to 10% of revenues in
1996, 1995 and 1994. Production and property taxes were higher in 1993 (10.3% of
revenues), primarily because gas production in Texas was relatively higher than
oil production. (Texas imposes higher taxes on gas production than on oil
production.) However, gas production taxes in Texas were offset partially by
tight sands tax exemptions in the B. R. Cox field. In the U.S., production and
property taxes are not always directly proportionate to revenues, because some
local jurisdictions base such taxes upon reserve evaluations, as opposed to
actual revenues or production. Production and property taxes in Canada have
previously averaged approximately 5% to 6% of oil and gas revenues.
36
<PAGE>
Operating and Management Services
This segment of the Company's business is comprised of operations and
services conducted on behalf of third parties and includes compressor rentals.
Profit from operating and management services for U.S. operations for the
first nine months of 1996 was aided by savings from staff reductions made at the
beginning of the fourth quarter of 1995. There was a $172,000 profit for U.S.
operating and management services during the first nine months of 1996, compared
to a $121,000 profit for the equivalent period in 1995.
Prior to the Company's divestiture of Resources, the Company received
operating service revenue in Canada from its share of processing fees at the
Carbon area liquid extraction plant. Those revenues also included fees from the
processing of Resources' own gas, but no profit was generated from that portion
of revenues since it was offset by a commensurate increase in Columbus' well
operating expenses.
Operating and management services U.S. revenue has increased during 1994,
1995 and the first nine months of 1996. Until divested in 1995, Canadian
operations had contributed greater operating margins. In 1995, U.S. revenues
improved because of additional billings for operator services related to 3-D
seismic testing program and because of adjustments resulting from past audits.
These factors contributed to a $199,000 profit in 1995 for the U.S. segment,
compared to a $197,000 profit in 1994. In the B.R. Cox field in October 1993,
the operator of record engaged the Company to serve as contract operator of 15
existing wells. This increased U.S. service revenues sufficiently in 1994 to
generate a small profit.
The settlement of Resources' lawsuit against the former operator of the
Carbon gas processing plant is discussed in Note 10 to the financial statements.
The Company had not accrued prior receivables in the amount of CDN$210,000 due
to the litigation but accrued them in the third quarter of 1994 when the
settlement was reached. As a part of the settlement, operating and management
services expenses were also reduced by CDN$167,000 for prior operator
overcharges, and revenues were increased by CDN$43,000 for adjustments to plant
processing fees. The Company agreed to royalty adjustments of CDN$38,000 which
had been claimed by the former operator, but this had no new effect as the
royalty adjustments had previously been accrued as a payable. Costs associated
with the legal expenses for this settlement were included as an operations
expense.
In Canada, the operating and management services segment showed a profit of
$559,000 in 1994 and $561,000 in 1993, primarily due to third party gas plant
processing fees.
Specific amounts of reimbursed revenues from operating and management
services received from formerly operated partnerships are disclosed in Note 7 of
the Notes to the Financial Statements.
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Interest Income
Interest income is earned primarily from short-term investments whose rates
fluctuate with changes in commercial paper rates and the prime rate. Interest
income decreased in the first nine months of 1996 to $107,000, compared to
$128,000 in the first nine months of 1995, primarily as a result of a decrease
in the amount of investments and lower short-term interest rates. This increase
in interest income was primarily the result of an increase in the amount of
investments early in the year (after the divestiture of Resources) and higher
short-term interest rates. The increase in interest income in 1994 was primarily
the result of higher short-term interest rates.
General and Administrative Expenses
General and administrative expenses are those expenses that relate to the
direct costs of the Company and that do not originate from the operation of
properties or the providing of services. Corporate expense represents a major
part of this category, although other nonbillable expenses are included.
The Company's general and administrative expenses in the first nine months
of 1996 compared to the first nine months of 1995 were lower because of salary
and staff reductions made in August 1995 and because incentive bonuses totaled
only $83,000 for the first nine months of 1996 (all non-cash), compared to
$110,000 for the similar period in 1995. The Company's U.S. expenses in 1995
were 6% higher than in 1994; employee salary and staff reductions were offset by
higher compensation from cashless stock option exercises, increased fees for
regular listing on the American Stock Exchange, shareholder and stock transfer
expense, professional services (which included the fees of a second petroleum
engineering firm), and a higher matching contribution to the Company's 401(k)
Plan. Expenses for 1994 were higher than 1993 because of employee salary
increases plus incentive bonuses of $111,000 that were awarded to all officers
(including the Chief Executive Officer) based on achievements of the Company in
1993. Also, employees had higher medical claims under the Company's self-insured
plan, and the Company made a higher matching contribution to its 401(k) Plan.
Employee benefit costs were lower in total for 1993 compared to 1992 because the
ESOP was terminated in 1993, but expenses related to the exercise of stock
options (which is a non-cash charge) were higher in 1993 than in 1992.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization of oil and gas assets are
calculated based upon the units of production compared to proved reserves of
each field. The expense is not only directly related to the level of production,
but also is dependent upon past costs to find, develop and recover those
reserves. Depreciation and amortization of office equipment and computer
software are also included in the total charge in 1995 and 1994.
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During 1993 and 1992, depletion expense for oil and gas properties
increased in approximate proportion to the increase in production. During 1995
and 1994, depletion expense for oil and gas properties increased by greater
percentages than the increase in production. Contributing to the
disproportionately higher depletion expense were lower gas and crude oil prices
during 1995 and 1994, which tended to reduce estimated reserves, shorten the
estimated reserve life, and change the economic limits of certain of the
Company's properties; these factors resulted in a higher depletion rate for
those affected properties. The carrying values of certain oil and gas properties
after the impairment loss that occurred with the adoption of SFAS 121 effective
September 1, 1995 were reduced. This helped reduce depletion expense in the
fourth quarter of 1995. The depletion rate increased in 1993 compared to 1992,
due in part to production increases in the Zenith field waterflood (which had a
high per unit depletable cost basis), and by the payment of anticipated costs to
develop certain proved undeveloped reserves in the Sralla Road field.
For the first nine months of 1996, the depletion rate for U.S. operations
was $3.89 per BOE, compared to $4.31 for the similar period in 1995. For 1995,
the depletion and depreciation rate for the Company (both Canadian and U.S.
operations) was $3.83 per BOE, compared to $2.78 per BOE for 1994 and $2.73 in
1993. These amounts are still below the industry average primarily because of
historically low finding costs. However, if the relatively lower depletion rates
of Canadian gas properties are excluded, then the depletion charge in 1995 would
have been $4.21 per BOE.
During 1994, the Company wrote down U.S. oil and gas properties that had
been fully depleted in previous years by $17,342,000, as a charge against
accumulated depreciation, depletion, and amortization. There was no gain or loss
to the Company since the properties had been fully depleted.
Exploration Expense
In general, exploration expense includes the cost of Company-wide efforts
to acquire and explore new prospective areas. Until Resources was divested in
February 1995, the Company's exploration expense was primarily attributable to
geological consulting work provided in Canada plus limited seismic expense in
Canada and the U.S.. The successful efforts method of accounting for oil and gas
properties requires that the cost of drilling unsuccessful exploratory wells and
other exploratory costs be currently expensed.
During 1996, an exploratory well drilled in Oklahoma proved non-economic
and $77,000 was expensed. During the first quarter of 1995, seismic survey costs
of $46,000 were incurred in Canada and expensed. Also, undeveloped leasehold
costs in North Dakota were impaired by $69,000 in 1995. All of these contributed
to an exploration expense of $245,000 for 1995. In 1994, two unsuccessful
exploratory wells were drilled at a net cost to the Company of $307,000,
including one in Saskatchewan, Canada, and one in Harris County, Texas, about
two miles west of the Sralla Road field; the Texas well also condemned certain
leaseholds, while the Company allowed other leases to expire and together these
resulted in an additional charge of $202,000. In 1993, an exploratory well in
Canada found non-commercial hydrocarbon shows and was plugged and abandoned at a
net cost of $49,000 plus a total of $24,000 of undeveloped leasehold costs were
impaired and expensed. These exploration expenses have reduced reported cash
flow from operations, in addition to net earnings, even though they were
discretionary expenses; however those expenses were added back for purposes of
calculating DCF.
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Loss on Asset Disposition
During 1993, the Company sold its marginally profitable gas properties
located in Mississippi and recognized a loss on disposition of $228,000 (since
these properties were all in one successful efforts accounting pool).
Interestingly, these were the first properties owned by the Company and were the
source of the Company's name (because of their location on the Columbus Air
Force Base).
Interest Expense
Interest expense varies in direct proportion to the amount of bank debt and
the level of bank interest rates. The average bank interest rate paid for U.S.
debt in 1995, 1994 and 1993 was 7.9%, 5.9%, and 5.3%, respectively, compared to
7.3% for the first nine months of 1996.
Income Taxes
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), effective at the beginning of 1993,
which was one year earlier than mandated. The Company's income tax position is
somewhat complex. Resources' income was consolidated with the Company's U.S.
income, until Columbus' divestiture of Resources in 1995. Also, the utilization
of net operating loss carryforwards by the Company has been complicated by two
"change of ownership" transactions under Section 382 of the Internal Revenue
Code, one of which occurred on October 1, 1987 and the other on August 25, 1993.
Furthermore, a quasi-reorganization occurred on December 1, 1987, which requires
that benefits from net operating loss carryforwards or any other tax credits
that arose prior to the quasi-reorganization be credited to additional paid-in
capital rather than to income; only post quasi-reorganization tax benefits
realized can be credited to income.
As a result of the use of net operating loss carryforwards, the Company's
Federal income tax obligations have been limited to the "alternative minimum
tax," and, in general, the Company has had a current Federal income tax rate of
less than 2% of pre-tax earnings. Beginning in 1997, the Company expects that
the only operating loss carryforwards available will be from periods prior to
the first Section 382 ownership change; utilization of those benefits are
presently limited to approximately $904,000 per year, so that the Company's
current Federal tax provision and liability may increase in 1996 and thereafter
unless an active drilling program is maintained. In addition, the Company pays
state income taxes and, until the divestiture of Resources in 1995, paid
Canadian taxes on Resources' income.
As of November 30, 1993, certain carryforward tax benefits were considered
to be realizable on a "more likely than not" basis, and the related valuation
allowance was reduced (including a reduction in the post quasi-reorganization
valuation allowance of $339,000). This reduced the 1993 effective tax rate by
8%. The disqualifying disposition of incentive stock options exercised by
employees during 1993 allowed the Company to take a tax deduction of $165,000,
but that amount had to be added to additional paid-in capital and was not shown
as a book tax benefit.
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As of November 30, 1994, additional carryforward tax benefits were
considered realizable and the post quasi-reorganization valuation allowance was
reduced by $303,000. A deduction of $29,000 for disqualifying dispositions of
incentive stock options was taken and was added to additional paid-in capital,
along with $182,000 for the reduction in the pre quasi-reorganization valuation
allowance. The 1994 effective income tax rate increased because of higher
Canadian deferred taxes. No tax credit for U.S. income taxes was available to
offset the effect of payment of Canadian taxes.
During 1995, the U.S. net deferred tax asset was reduced to $638,000, which
is comprised of a $1,290,000 current deferred tax asset and a $652,000 long-term
tax liability. The deferred tax asset increased by an estimated $537,000 during
1995. The valuation allowance was increased by a net of $96,000, even after a
reduction of $233,000 for the Canadian deferred taxes of Resources. No provision
was required for Canadian deferred taxes following the divestiture. The
estimated effective tax rate for 1995 is a 26% book tax benefit.
During the first nine months of 1996, the U.S. net deferred tax asset was
reduced to a net liability of $165,000, which is comprised of a $96,000 current
deferred tax asset and a $261,000 long-term tax liability. The estimated
utilization of deferred tax assets was $1,080,000 during the first nine months
of 1996, and the valuation allowance has remained unchanged for such period. The
estimated effective tax rate for the first nine months of 1996 was 38%. See also
Note 6 to the consolidated financial statements for a further explanation of
income taxes.
Other Income/Expense
During 1993, other expense included a loss on the exchange rate of the U.S.
dollar compared to the Canadian dollar.
Canadian Exchange Rates
Until the divestiture of Resources by the Company in 1995, the fluctuation
in the Canadian dollar affected the consolidated oil and gas revenues, expenses,
and average sales price per unit of Resources (which were reported in U.S.
dollars). Such currency fluctuations, in turn, affected cash flow and net
earnings reported by the Company during such periods.
Effects of Changing Prices
The United States economy experienced considerable inflation during the
late 1970's and early 1980's but in recent years has been fairly stable and at
low levels. The Company, along with most other U.S. business enterprises, was
then and will be affected by any recurrence of such economic conditions.
Recently, inflation has had a minimal effect on the Company.
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In recent years, oil and natural gas prices have fluctuated widely. The
Company's results of operations and cash flow are affected by changing oil and
gas prices. Oil and gas prices have been significantly influenced by regulation
by various governmental agencies, by the world economy, and by world politics.
Operating expenses have been relatively stable but, when analyzed as a
percentage of revenues, may be distorted to a degree since they appear as a
larger percentage of revenues when lower product prices prevail. Drilling and
equipment costs have risen in the last several years. Competition in the
industry can significantly affect the cost of acquiring leases, although in
recent years competition has lessened as more operators have withdrawn from
active exploration programs. Inflation, as well as a recessionary period, can
cause significant swings in the interest rates that the Company pays on bank
borrowings. These factors are anticipated to continue to affect the Company's
operations, both positively and negatively, for the foreseeable future.
Recent Activities
Recent Drilling Activities
Subsequent to the end of the third quarter of 1996, one 78% owned natural
gas well (the Wiggins Unit #1) was completed in the upthrown fault block of the
Sralla Road oil field, which has extended the productive limits of its gas cap
by almost one mile southwest. The well had similar thickness (about 6 feet) to
other Jackson sand wells in the area, but the zone appeared to be more porous on
logs which has contributed to the well's capability of producing natural gas at
rates several times its state-assigned allowable of about 1,400 Mcfd. However,
even at this restricted flow rate, it contributed over a 10% increase in
Columbus' daily gas production following its connection in early November 1996.
In addition, the Wiggins Unit #1 has been yielding approximately 35 to 40
barrels of condensate per Mcf of gas production.
The aforementioned well represented the only operated drilling activity for
the fourth quarter of 1996. Several previously proposed 1996 development program
wells had to be deferred, primarily because of the recent increased demand for
drilling rigs resulting from escalating product prices. The Company was also a
2% participant in a completed non-operated gas well in the Laredo area during
the fourth quarter of 1996. Columbus was the operator in an unsuccessful attempt
at a recompletion of a behind-the-casing gas zone in a B. R. Cox field which
produced uneconomic rates of gas with water.
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The Company completed a 3-D seismic program early in the fourth quarter of
1996, which was aimed at locating the best structural well site at which to
drill a new 90%-owned 12,400 foot Red River oil producer in the Southeast Froid
field in Montana. This twin well will replace an existing well that has been
pumping for about ten years from a depth of about 7,600 feet due to a collapsed
section of the 5 1/2 inch production casing at about 8,000 feet. However,
Columbus was unable to contract for a large drilling rig required to drill the
well during the fourth quarter and postponed that project until January 1997.
This replacement well should drain the remaining Red River oil reserves in the
field much more quickly, while assuring that the Company can hold a substantial
leasehold block with continued economic production for several more years. Also,
management expects to use the cased well bore of the present well to produce a
different oil zone, which will require cutting a window immediately above the
collapsed interval and then drilling about 2,000 feet in a side-tracked hole
down to the Winnipegosis formation, which previously produced oil in a
structurally lower well. While conducting this 3-D seismic program, the Company
encountered several leads which tended to support old 2-D seismic data which had
previously indicated the possible existence of two or more separate Red River
structures on this acreage block. Based upon this data, Columbus has added
several hundred additional acres of new leases and has scheduled a supplemental
3-D seismic program for March 1997. At present, Columbus holds a 90% working
interest in about 2,000 acres of leaseholds immediately surrounding the
Southeast Froid field and covers potential new structures. Encouraged by the
current oil price levels, Columbus expects that the Williston Basin in general,
and this Southeast Froid field area in particular, will be a significant source
of future additions to daily oil production during 1997. At $1 million per
completed Red River oil producer and $600,000 for a 12,000-foot dry hole, these
prospects will command a substantial part of the Company's drilling budget for
at least the next year or more. Also, Columbus expects to drill a few
short-radius laterals from its existing cased Mission Canyon producers in the
Williston Basin during 1997 based upon the reported successes by other operators
who have utilized this new technology.
The Company's fourth quarter oil prices have increased substantially over
the average price of $18.91 per barrel realized for the third quarter of 1996,
with recent prices approximating $23.00 per barrel. Also, this improvement has
carried over into the first quarter of fiscal 1997 with oil prices occasionally
surpassing $24.00. Natural gas prices, which averaged $2.12 per Mcf for the
third quarter, fell off to only $1.85 in September, but rose to $2.29 in
October, and appear to have averaged almost $3.00 per Mcf during November.
During December, natural gas prices reached levels of about $4.50 per Mcf for a
portion of the month, which suggests that natural gas revenues for 1997's first
quarter may be the highest ever for a fiscal quarter.
Notwithstanding the previously mentioned recent shortage of drilling rigs,
the Company's 1996 drilling program activity resulted in its largest gross
participation in wells since 1993, when Resources' Canadian drilling activity
was included in the count, and the most ever when U.S.-only activity is
considered. The Company participated in a total of two (0.675 net) exploratory
wells, both of which proved to be dry holes. One of the dry holes had initially
indicated it might be a gas discovery, but after being acidized to increase its
gas rate, the well began to produce at uneconomic water production levels. A
total of 22 development wells (6.55 net) were drilled during 1996, resulting in
two (1.01 net) oil producers, 14 (2.60 net) natural gas producers, and six (2.95
net) dry holes.
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Update on New Area of Interest
Columbus added an entirely new area of interest in late 1995 in
mid-Louisiana when it joined with three co-venturers to promote the acquisition
of leaseholds and the drilling of deep (15,500 feet vertical depth) wells, with
single and dual horizontal extensions therefrom. The co-venturers formed a three
township Area of Mutual Interest ("AMI") in the deep Austin Chalk trend in a
known productive area prior to the time that the activity level began to heat up
in the area as a result of the successful completion of several high volume
producers in fields to the northwest of the AMI extending west to the Texas
border. The Company has previously emphasized the potential importance of this
area, initially in its annual report on Form 10-K for the year ended November
30, 1995, and thereafter in each of its regular quarterly shareholder reports
(as well as a Special Interim Report dated September 27, 1996 specifically
devoted to the Company's involvement in the area).
Management believes that this prospect area has the potential to add rather
quickly the most sizable new oil reserves of any of its core areas. This AMI is
located in St. Landry and Avoyelles Parishes, and the leaseholds are known to
overlie a 250-foot zone of geo-pressured, fractured Austin Chalk which has
received substantial publicity recently in trade publications. There have been
several dual lateral wells along the trend that were drilled horizontally from
bore hole vertical depths ranging from 14,000 to 17,000 feet and that were
completed as high capacity natural gas/condensate and crude oil producers.
Initial reported capacity rates have ranged from 2,000 to 6,000 barrels of oil
or condensate per day, along with 2.5 to 25 Mmcfd for some of those wells. A few
uneconomic wells have also been completed along the trend, but those appear not
to have dampened the enthusiasm of the various major participants in this new
play.
The Company and its three individual co-venturers had proposed to promote
several companies to participate in the drilling of two wells on its initially
assembled block of issued and option leases amounting to approximately 24,000
acres, but in the spring of 1996, a large independent operator, Belco Oil & Gas
Corporation ("Belco"), agreed to acquire a 75% working interest in that block.
Belco also agreed to the previously designated three township AMI and undertook
to acquire substantial additional acreage for all accounts. Because of the
intervening rise in acreage bonuses along the trend following the initial
assemblage, the co-venturers (including Columbus for 6.25%) realized a profit on
the base acreage block. The co-venturers were to also be carried by Belco for an
after-payout 25% participation in a new well drilled from the grassroots to
approximately 15,000 feet vertical depth with dual laterals of about 4,000 feet
in length. Belco also undertook to meet the group's farmout obligations to
re-enter and drill a single lateral hole from a previously abandoned vertical
cased wellbore within the AMI. This farmout originally was taken in order to
have a cased vertical well to test new drilling technology and drilling fluids
that the co-venturers planned to utilize based on the assumption that they would
maintain operatorship instead of yielding same to Belco. Columbus has had no
direct participation rights or expenses in the re-entry well farmout obligation
following Belco's assumption of the obligation.
Belco did complete that farmout re-entry well in August 1996 and has made
one press release regarding its initial test results, which stated that it had
an initial flow rate of 2,500 BOPD and 2.7 Mmcfd from a single 3,900-foot
lateral hole, which was drilled horizontally from a 15,333 foot vertical depth.
This test was conducted through a 1/2 inch choke with a flowing tubing pressure
of 1,000 psi.
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As previously indicated in its Special Interim Report in September,
management reported that Belco had subsequently acquired additional leaseholds
within the AMI that had brought the total to more than 44,000 gross acres and
39,700 net acres. At that date, Columbus owned varying interests from 6.25% to
12.5% under all issued leases and had a 6.25% interest in approximately 14,000
acres of leasehold options. The leasehold options are exercisable in 6-month
intervals, in minimum segments of 2,000 acres of new leases, each having a
5-year term. Assuming all of those leasehold segments are exercised over the
next three years, Columbus and its co-venturers will not only have a fully paid
up 25% participation in those newly issued leases but also will realize a profit
in excess of $300,000 each.
As set forth in the September report to shareholders, Columbus' 12.50%
working interest in the recently added 16,000 gross acres within the AMI could
be reduced by 3.125% (to 9.375%) if one of the coventurers exercised his option
to acquire that interest at cost before October 28. The co-venturer in fact did
exercise the option; however, on November 29, 1996, the Company paid $275,000 in
cash and issued 30,000 shares of its Common Stock to acquire all of that
co-venturers' interest in the AMI. This transaction brought Columbus' interest
up to a uniform 12.50% throughout the assembled 44,000 acre block plus the 6,000
acres of additionally acquired leaseholds. The 6,000 additional acres have yet
to be identified or assigned by Belco. The transaction also included the
purchase of the co-venturer's 15% working interest in an existing vertical well
bore completion in the Austin Chalk and his overriding royalty interests of
approximately 1.3% and 1.6% in two existing Austin Chalk single lateral oil
wells, which the co-venturer owned prior to the formation of the AMI. The
co-venturer retained his right to receive up to $300,000 of the profit due upon
Belco's exercise of the remaining leasehold options.
Columbus had expected that Belco would have long since commenced drilling
the carried- interest grassroots dual lateral well. However, delays in receiving
approval from government regulatory agencies for the surface location forced the
deferral of contract arrangements for a drilling rig. In order to shorten the
timetable for commencement of drilling operations, the co-venturers have
recently negotiated an amendment to Belco's original agreement which called for
the co-venturers to have a 25% carried working interest after payout in that
grassroots well. The new arrangement permits spreading that undertaking over two
wells by allowing for a portion to be satisfied by utilizing a well bore owned
by all parties which already has casing in place almost to the top of the Austin
Chalk. This Morrow #1-23 well is located in Section 23 of Township 2 South Range
4 East around which a 1,960-acre rectangular unit is being created such that
acceptable length dual laterals of about 4,000 feet each can be drilled by
Belco. The Company and its co-venturers will be responsible for paying their 25%
(12.5% to Columbus) share of the cost of re-entering the existing cased well
bore, analyzing the integrity of the existing casing and adding a liner into the
top of the Austin Chalk, if required. Thereafter, Belco, at its sole expense,
will drill the two dual lateral holes from this wellbore, run slotted liners in
each, add production equipment in the vertical hole, and complete with surface
equipment as appropriate. Belco, Columbus and its co-venturers will each share
in the initial revenues from this first well. The co-venturers will receive a
percentage of their 25% of the revenue stream that is in proportion to their
respective costs paid compared to total expenditures incurred by all parties in
re-entering and placing the well on production. Following recovery by Belco of
its disproportionate share of the total costs, the full 25% working interest
revenues will flow to Columbus and its co-venturers (instead of the lower
percentage of revenues during the payout period).
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The second grassroots well site, assuming it is drilled, will have its
vertical wellbore located on the section line between Section 20 and 29 of
Township 2 South, Range 5 East and another 1,960- acre unit is to be declared
for this well. The same cost and percentage of revenue sharing approach will
apply to this second grassroots well, except in this well the roles essentially
are reversed. That is, Belco will be responsible for paying all of the
expenditures necessary to drill and case the well to a vertical depth of
approximately 15,000 feet in preparation for the drilling of dual lateral holes.
At that point, the Company and its co-venturers will pay 25% of the expenses
(one-half of which will be borne by Columbus) required to drill two laterals of
approximately 4,000 feet, run slotted liners, and install downhole production
equipment and surface facilities required to place the well on production. Once
again, Columbus and its co-venturers will realize a percentage of their 25% of
revenue stream which equals a fraction, determined by their share of
expenditures as the numerator and the total of all expenditures by all parties
as the denominator. When Belco has fully recovered its disproportionate costs,
then once again the full 25% revenue stream will flow to Columbus and its
co-venturers.
Assuming one or both of the wells are successfully completed (as to which
there can be no assurance), the length of the payout period for each of the
wells will be dependent upon the total costs incurred and the initial completion
rates achieved, as well as the rate of production decline thereafter. Initial
completion rates will be determined by the extent of the natural vertical
fractures encountered in the lateral portions of the well bores. These in turn
will also have a significant effect on the subsequent rate of decline plus the
eventual oil and natural gas reserves recovered from each well bore. Without
actual drilling, what will be encountered while drilling the laterals cannot be
forecasted with any accuracy whatsoever. Therefore the Company is unable to
forecast the payout period for either of the two wells or to state whether there
will even be a payout. However, based on the performance of a few wells which
have recently been completed in this same Austin Chalk interval along the trend
to the northwest of the AMI, payouts as short as three to six months have been
experienced but apparently a few of the wells may never recover all costs.
Management expects that the success of these first two wells will be determined
not only by the degree of fracturing encountered but also on the ability of
Belco to complete the wells without excessive costs. If Columbus is only
moderately successful and participates in the 25 or so possible locations on its
leasehold interest which could be drilled over the next five years, then this
new core area has the potential to significantly increase Columbus' proved
developed crude oil reserves.
Management is confident that leaseholds are located "on trend," since there
have been numerous wells that have already been drilled within this AMI through
the Austin Chalk on the way to the deeper high pressure Tuscaloosa formation.
Logs from those wells have exhibited a fairly uniform interval in prospective
zone of the fractured Austin Chalk having about 250 feet in thickness. Several
of those wells encountered such severe fracturing in that same interval while
drilling the Austin Chalk that the wells were later completed in the zone in
vertical well bores. These completions occurred several years ago, before
present horizontal drilling technology was available. Some of those cased well
bores are located on leases in which Columbus holds a 12.50% interest, which
could contribute to future cost savings by allowing the drilling of one or more
laterals from such cased well bores.
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Current plans are for Belco to build location and begin operations by
re-entering the Morrow well in Section 23 during January 1997. Management is
hopeful that the delays in obtaining approval of the surface location of the
second well will have been overcome so that drilling at that well site can
commence shortly thereafter.
EXPENSES
All expenses in connection with the Offering, including the expenses of the
registration of the Preferred Stock offered hereby, the Subscription Agent's
fees and costs, and the out-of-pocket expenses of the Columbus employees who
solicit the exercise of Rights by holders, will be borne by Columbus. It is
estimated that total amount of such expenses will not exceed $90,030.
LEGALITY
Sherman & Howard L.L.C., Denver, Colorado, has issued an opinion with
respect to the legality of the issuance of the securities being offered pursuant
to this Prospectus.
AVAILABLE INFORMATION
Columbus is subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Information, as of particular dates, concerning directors
and officers, their remuneration, options granted to them, the principal holders
of securities of Columbus and any material interest of such persons in
transactions with Columbus is disclosed in proxy statements distributed to
shareholders and filed with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the public reference facilities
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission: Chicago Regional Office, Suite 1400, 500
West Madison, Chicago, Illinois 60661-2511; and New York Regional Office, 75
Park Place, New York, New York 10007, and copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such Web site is http://www.sec.gov. The Company's Common Stock
is listed on the American and Pacific Stock Exchanges, and such reports, proxy
statements and other information may also be inspected at the offices of those
Exchanges.
47
<PAGE>
EXPERTS
The consolidated balance sheets of Columbus Energy Corp. and subsidiaries
as of November 30, 1995 and 1994, and the consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended November 30, 1995, included in the Company's Annual Report on Form 10-K
for the fiscal year ended November 30, 1995, have been included herein in
reliance on the reports of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of said firm as experts in accounting and auditing.
The results of the study and report by Reed Ferrill & Associates,
independent petroleum engineers and consultants, of the Company's reserves and a
separate report on the reserves of the properties located in the Berry Cox field
in Texas prepared by Huddeston & Co., Inc., another outside consulting firm,
appear in the Company's 1995 Form 10-K, are incorporated by reference in this
Prospectus and have been incorporated herein in reliance on the authority of
such firms as experts in petroleum engineering.
48
<PAGE>
COLUMBUS ENERGY CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Accountants ................................. F-2
Financial Statements:
Consolidated Balance Sheets at
November 30, 1995 and 1994 and
August 31, 1996 (unaudited) .................................... F-3
Consolidated Statements of Operations for the
years ended November 30, 1995, 1994 and 1993
and the nine months ended August 31, 1996 and
and 1995 (unaudited) ........................................... F-5
Consolidated Statements of Stockholders'
Equity for the years ended November 30, 1995,
1994 and 1993 and the nine months ended
August 31, 1996 (unaudited) .................................... F-7
Consolidated Statements of Cash Flows for the
years ended November 30, 1995, 1994 and 1993
and the nine months ended August 31, 1996 and
1995 (unaudited) ............................................... F-10
Notes to the Consolidated Financial Statements .................... F-11
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Columbus Energy Corp.
We have audited the accompanying consolidated balance sheets of
Columbus Energy Corp. and subsidiaries as of November 30, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended November 30, 1995. 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Columbus Energy Corp. and subsidiaries as of November 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended November 30, 1995, in conformity with generally
accepted accounting principles.
As explained in Note 2 to the consolidated financial statements,
effective September 1, 1995, the Company changed its method of accounting for
the impairment of long-lived assets and as explained in Note 6 to the
consolidated financial statements, effective December 1, 1992, the Company
changed its method of accounting for income taxes.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
February 9, 1996
F-2
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
November 30,
August 31, -------------------
1996 1995 1994
---------- ---- ----
(unaudited)
(in thousands)
<S> <C> <C> <C>
Current assets:
Cash and cash
equivalents ....................... $ 1,122 $ 1,414 $ 1,819
Accounts receivable:
Joint interest partners .......... 1,391 1,258 1,923
Oil and gas sales ................ 1,346 817 938
Other ............................ -- -- 108
Less allowance for doubtful
accounts ....................... (116) (116) (127)
Income tax receivable .............. -- 7 34
Deferred income taxes (Note 6) ..... 96 1,290 741
Inventory of oil field
equipment, at lower of
average cost or market ........... 85 76 84
Other .............................. 126 78 120
-------- -------- --------
Total current assets ......... 4,050 4,824 5,640
-------- -------- --------
Property and equipment:
Oil and gas assets,
successful efforts
method (Notes 3 and 5) ........... 27,769 22,244 29,847
Other property and
equipment ......................... 2,006 2,028 2,177
-------- -------- --------
29,775 24,272 32,024
Less: Accumulated
depreciation, depletion,
amortization and
valuation allowance
(Notes 2 and 3) ................... (12,845) (10,775) (12,709)
-------- -------- --------
Net property and equipment ......... 16,930 13,497 19,315
-------- -------- --------
$ 20,980 $ 18,321 $ 24,955
======== ======== ========
</TABLE>
(continued)
F-3
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED BALANCE SHEETS - (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
November 30,
August 31, ---------------------
1996 1995 1994
---------- ---- ----
(unaudited)
(in thousands)
<S> <C> <C> <C>
Current liabilities:
Accounts payable ................. $ 1,145 $ 1,314 $ 1,393
Undistributed oil and gas
production receipts ............ 99 348 371
Accrued production and
property taxes ................. 889 635 670
Prepayments from joint
interest owners ................ 257 189 453
Accrued expenses ................. 344 318 305
Income taxes payable (Note 6) .... 84 -- 64
Other (Note 4) ................... 11 79 222
------------ ------------ ------------
Total current liabilities .. 2,829 2,883 3,478
------------ ------------ ------------
Long-term bank debt (Note 5) ....... 3,200 1,600 4,200
Deferred income taxes (Note 6) ..... 261 652 1,036
Other liabilities .................. -- -- 39
Commitments and contingent
liabilities (Notes 4, 7, 9 and 10)
Stockholders' equity:
Preferred stock authorized
5,000,000 shares, no par value;
none issued ..................... -- -- --
Common stock authorized
20,000,000 shares of $.20 par
value; shares issued
3,461,260 in 1996, 3,328,580
in 1995 and 3,282,109 in 1994
(outstanding 3,086,691 in 1996,
3,068,149 in 1995 and 2,947,512
in 1994) (Notes 1 and 8) ........ 692 666 656
Additional paid-in capital ....... 16,616 15,842 15,855
Cumulative foreign currency
translation adjustments ........ -- -- (496)
Retained earnings (accumulated
deficit) since December 1, 1987
(Note 2) ....................... 161 (1,378) 2,814
------------ ------------ ------------
17,469 15,130 18,829
Less: Treasury stock, at cost
(Note 8) 374,569 shares in
1996, 260,431 shares in 1995
334,597 shares in 1994 ......... (2,779) (1,944) (2,627)
------------ ------------ ------------
Total stockholders' equity ..... 14,690 13,186 16,202
------------ ------------ ------------
$ 20,980 $ 18,321 $ 24,955
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
August 31, Year Ended November 30,
---------- -----------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales .............. $ 7,745 $ 6,160 $ 7,902 $11,227 $11,138
Operating and
management
services (Note 7) ............. 820 1,044 1,338 1,807 1,678
Interest and other
income ........................ 271 123 160 107 97
------- ------- ------- ------- -------
Total revenues .............. 8,836 7,327 9,400 13,141 12,913
------- ------- ------- ------- -------
Costs and expenses:
Lease operating
expenses ...................... 1,477 1,411 1,811 2,017 2,203
Property and
production taxes .............. 757 590 780 1,072 1,050
Operating and manage-
ment services
(Note 7) ...................... 648 802 1,017 1,052 1,062
General and administrative ..... 783 1,006 1,278 1,549 1,440
Depreciation, depletion
and amortization .............. 2,118 2,156 2,757 2,965 2,470
Impairment of long-lived
assets and loss on asset
disposition/abandonments
(Note 1) ...................... 165 -- 3,055 -- 258
Exploration expense ............ 182 139 245 600 165
------- ------- ------- ------- -------
Total costs and
expenses ................... 6,130 6,104 10,943 9,255 8,648
------- ------- ------- ------- -------
Operating income (loss) 2,706 1,223 (1,543) 3,886 4,265
------- ------- ------- ------- -------
Other expense:
Interest ....................... 207 147 185 253 126
Retirement and
separation .................... -- 141 141 -- --
Litigation (Notes
9 and 10) ..................... 13 120 127 244 --
Other .......................... 4 7 26 19 77
------- ------- ------- ------- -------
224 415 479 516 203
------- ------- ------- ------- -------
</TABLE>
(continued)
F-5
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS - (Continued)
<TABLE>
<CAPTION>
Nine Months Ended
August 31, Year Ended November 30,
-------------- ------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Earnings (loss)
before income
taxes and
cumulative effect
of accounting
change ............ $ 2,482 $ 808 $(2,022) $ 3,370 $ 4,062
Provision (benefit)
for income taxes
(Note 6) .............. 943 307 (527) 1,180 1,248
------- ------- ------- ------- -------
Earnings (loss)
before cumulative
effect of
accounting change ..... 1,539 501 (1,495) 2,190 2,814
Cumulative effect
of accounting
change (Note 6) ....... -- -- -- -- 992
------- ------- ------- ------- -------
Net earnings (loss) $ 1,539 $ 501 $(1,495) $ 2,190 $ 3,806
======= ======= ======= ======= =======
Earnings (loss)
per share:
Before cumulative
effect of
accounting change .... $ .50 $ .16 $ (.48) $ .67 $ .83
Cumulative effect
of accounting
change ............... -- -- -- -- .29
------- ------- ------- ------- -------
Net earnings (loss) $ .50 $ .16 $ (.48) $ .67 $ 1.12
======= ======= ======= ======= =======
Average number of
common and common
equivalent shares
outstanding ........... 3,049 3,160 3,143 3,269 3,404
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended August 31, 1996 (unaudited) and
for The Three Years Ended November 30, 1995
<TABLE>
<CAPTION>
Cumulative
Retained Foreign
Common Stock Additional Earnings Currency Treasury Stock
--------------------- Paid-In (Accumulated Translation ----------------------
Shares Amount Capital Deficit) Adjustments Shares Amount
--------- --------- --------- --------- --------- --------- ---------
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 1, 1992 ......... 2,967,144 $ 593 $ 13,163 $ (651) $ (481) 295,201 $ (1,555)
Cumulative effect of
accounting change
(Note 6) ................. -- -- 125 -- 102 -- --
Exercise of employee
stock options ............ 263,300 53 1,323 -- -- -- --
Tax benefit of
disqualifying disposition
of incentive stock options -- -- 165 -- -- -- --
Adjustment for
foreign currency
translation, net of
$30,000 income tax ....... -- -- -- -- (49) -- --
Purchase of shares ......... -- -- -- -- -- 259,546 (2,390)
Shares issued for Stock
Purchase Plan ............ 4,512 1 47 -- -- (1,140) 6
Termination of ESOP ........ -- -- -- -- -- (21,870) --
Income tax benefit of
loss carryforwards
arising prior to
quasi-reorganization ..... -- -- 142 -- -- -- --
Net earnings ............... -- -- -- 3,806 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Balances,
November 30, 1993 ........ 3,234,956 647 14,965 3,155 (428) 531,737 (3,939)
Exercise of employee
stock options ............ 35,730 7 185 -- -- -- --
Tax benefit of
disqualifying disposition
of incentive stock options -- -- 29 -- -- -- --
Adjustment for foreign
currency translation, net
of $43,000 income tax .... -- -- -- -- (68) -- --
Purchase of shares ......... -- -- -- -- -- 83,674 (781)
Shares issued for Stock
Purchase Plan ............ 11,423 2 111 -- -- (2,875) 22
10% stock dividend ......... -- -- 515 (2,531) -- (269,777) 2,014
</TABLE>
(continued)
F-7
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (continued)
For the Nine Months Ended August 31, 1996 (unaudited) and
for The Three Years Ended November 30, 1995
<TABLE>
<CAPTION>
Cumulative
Retained Foreign
Common Stock Additional Earnings Currency Treasury Stock
--------------------- Paid-In (Accumulated Translation ----------------------
Shares Amount Capital Deficit) Adjustments Shares Amount
--------- --------- --------- --------- ----------- --------- ---------
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Shares issued for
Incentive Bonus Plan
and directors' fees . -- -- -- -- -- (8,162) 57
Income tax benefit of
loss carryforwards
arising prior to
quasi-reorganization -- -- 50 -- -- -- --
Net earnings .......... -- -- -- 2,190 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Balances,
November 30, 1994 ... 3,282,109 $ 656 $ 15,855 $ 2,814 $ (496) 334,597 $ (2,627)
Exercise of employee
stock options ....... 35,658 8 158 -- -- -- --
Adjustment for
foreign currency
translation, net of
$326,000 income tax . -- -- -- -- 496 -- --
Tax benefit of
disqualifying
disposition of
incentive stock
options ............. -- -- 25 -- -- -- --
Purchase of shares .... -- -- -- -- -- 246,631 (1,860)
Shares issued for Stock
Purchase Plan ....... 10,813 2 85 -- -- (2,719) 22
Dividend related to
Resources rights
offering (Note 1) ... -- -- -- (582) -- -- --
10% stock dividend .... -- -- (202) (2,115) -- (291,399) 2,314
Shares issued for
Incentive Bonus Plan,
directors' fees
and retirement ...... -- -- (79) -- -- (26,679) 207
Net loss .............. -- -- -- (1,495) -- -- --
--------- --------- --------- --------- --------- --------- ---------
Balances,
November 30, 1995 ... 3,328,580 $ 666 $ 15,842 $ (1,378) $ -0- 260,431 $ (1,944)
</TABLE>
(continued)
F-8
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (continued)
For the Nine Months Ended August 31, 1996 (unaudited) and
for The Three Years Ended November 30, 1995
<TABLE>
<CAPTION>
Cumulative
Retained Foreign
Common Stock Additional Earnings Currency Treasury Stock
--------------------- Paid-In (Accumulated Translation ----------------------
Shares Amount Capital Deficit) Adjustments Shares Amount
--------- --------- --------- --------- ----------- --------- ---------
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Exercise of employee
stock options ....... 122,778 24 691 -- -- 43 800 (370)
Purchase of shares .... -- -- -- -- -- 86,100 (579)
Shares issued for Stock
Purchase Plan ....... 9,902 2 51 -- -- (2,492) 18
Shares issued for
Incentive Bonus Plan
and directors' fees . -- -- (22) -- -- (13,270) 96
Tax benefit of
disqualifying
disposition of
incentive stock
options ............. -- -- 54 -- -- -- --
Net earnings .......... -- -- -- 1,539 -- -- --
--------- --------- --------- --------- -------- --------- ---------
Balances,
August 31, 1996
(unaudited) ........ 3,461,260 $ 692 $ 16,616 $ 161 $ -- 374,569 $ (2,779)
========= ========= ========= ========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-9
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
August 31, Year Ended November 30,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Net earnings (loss) ............................... $ 1,539 $ 501 $(1,495) $ 2,190 $ 3,806
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation, depletion, and amortization ..... 2,118 2,156 2,757 2,965 2,470
Cumulative effect of accounting change (Note 6) -- -- -- -- (992)
Impairments and loss on asset dispositions .... 165 -- 3,055 6 264
Deferred income tax provision ................. 856 251 (576) 889 897
Exploration expense, noncash portion .......... -- -- 69 139 --
Gain on asset sale ............................ (175) -- -- -- --
Other ......................................... 106 158 110 65 23
Changes in operating assets and liabilities:
Accounts receivable ........................... (662) 266 411 264 (974)
Other current assets .......................... (50) (58) 40 23 55
Accounts payable .............................. (168) 583 147 (445) 165
Undistributed oil and gas production receipts . (249) (157) (89) 125 (285)
Accrued production and property taxes ......... 254 447 (35) (33) 118
Prepayments from joint interest owners ........ 68 (61) (264) 27 26
Income taxes payable (receivable) ............. 91 (79) (32) 66 (36)
Other current liabilities ..................... (42) (42) (169) (87) 3
------- ------- ------- ------- -------
(758) 899 9 (60) (928)
------- ------- ------- ------- -------
Net cash provided by operating activities .... 3,851 3,965 3,929 6,194 5,540
------- ------- ------- ------- -------
Cash flows from investing activities:
Additions to oil and gas properties ........... (5,849) (3,609) (4,144) (7,044) (5,775)
Additions to other assets ..................... (28) (66) (84) (157) (156)
Proceeds from sale of Resources
common stock net of cash .................... -- 4,071 4,075 -- --
Proceeds from sale of assets .................. 336 33 34 7 279
------- ------- ------- ------- -------
Net cash from (used in) investing
activities ................................ (5,541) 429 (119) (7,194) (5,652)
------- ------- ------- ------- -------
Cash flows from financing activities:
Proceeds from long-term debt .................. 3,200 1,790 2,090 2,200 2,600
Reduction in long-term debt ................... (1,600) (4,390) (4,690) (1,200) (1,500)
Proceeds from exercise of stock options ....... 377 206 209 271 1,268
Purchase of treasury stock .................... (579) (1,513) (1,830) (750) (2,289)
Other ......................................... -- (2) (2) (2) --
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities ......................... 1,398 (3,909) (4,223) 519 79
------- ------- ------- ------- -------
Effect of exchange rate on cash ................. -- 8 8 (19) (3)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents ................................... (292) 493 (405) (500) (36)
Cash and cash equivalents at beginning
of period ..................................... 1,414 1,819 1,819 2,319 2,355
------- ------- ------- ------- -------
Cash and cash equivalents at end of period ...... $ 1,122 $ 2,312 $ 1,414 $ 1,819 $ 2,319
======= ======= ======= ======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest .................................... $ 184 $ 166 $ 214 $ 235 $ 119
======= ======= ======= ======= =======
Income taxes (net of refunds) ............... $ (4) $ 135 $ 82 $ 225 $ 374
======= ======= ======= ======= =======
Supplemental disclosure of non-cash
investing and financing activities:
Non-cash compensation expense
related to common stock .................... $ 20 $ 153 $ 162 $ 65 $ 61
======= ======= ======= ======= =======
Oil and gas property additions .............. $ -- $ -- $ 185 $ -- $ --
======= ======= ======= ======= =======
Dividend for Resources rights ............... $ -- $ 582 $ 582 $ -- $ --
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-10
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
(1) FORMATION AND OPERATIONS OF THE COMPANY
Columbus Energy Corp. ("Columbus") was incorporated as a Colorado
corporation on October 7, 1982 primarily to explore for, develop, acquire and
produce oil and gas reserves. Columbus' wholly-owned subsidiaries are CEC
Resources Ltd. ("Resources") and Columbus Gas Services, Inc. ("CGSI"). Resources
activity was only included through February 24, 1995 when it was divested by
Columbus by a rights offering to its shareholders (see below). Columbus and its
subsidiaries are referred to in these Notes to the Financial Statements as the
"Company".
As of June 1, 1985, Consolidated Oil & Gas, Inc. formed a master limited
partnership, Consolidated Energy Partners L.P. (the "Partnership" or "CPS").
Under the terms of the Partnership agreement, Columbus was made the managing
general partner and as such had all management authority with respect to the
operations of CPS. Consolidated served as an associate general partner of CPS.
Columbus owned 1% and also served as the managing general partner of
Consolidated Operating Partners L.P. ("COP") which was 99% owned by CPS as its
sole limited partner. During 1989, the oil and gas properties of COP were sold
and both CPS and COP were dissolved effective November 30, 1989 (see Note 4).
On February 24, 1995, Columbus completed a rights offering to the Columbus
shareholders to purchase one share of Resources at U.S.$3.25 cash plus two
subscription rights. One right was distributed as a dividend for each share held
of record on January 27, 1995. All 1,500,000 shares of Resources common stock
were subscribed (and oversubscribed) yielding an aggregate of $4,875,000. The
total value assigned to the rights on its books was $582,000 for the dividend
portion of the purchase of Resources shares. A deduction of $126,000 for the
costs of the offering was recorded. No gain or loss can be recognized for book
purposes in a spin-off. The combination of the cash offering price of $3.25 per
share plus the value of the rights dividend assigned was equal to the U.S.
historical book cost of Columbus' investment in Resources. No taxes are due
Revenue Canada as a result of this divestiture of common stock because the tax
basis exceeds the proceeds received upon disposition.
(2) ACCOUNTING POLICIES
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles and require the use of
managements' estimates. The following is a summary of the significant accounting
policies followed by the Company.
F-11
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
Consolidation
The accompanying consolidated financial statements include the accounts of
Columbus and its wholly-owned subsidiaries, CGSI and Resources through February
24, 1995. All significant intercompany balances have been eliminated in
consolidation.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. Hedging activities are included in cash flow from
operations in the cash flow statements.
Oil and Gas Properties
The Company follows the successful efforts method of accounting. Lease
acquisition and development costs (tangible and intangible) for expenditures
relating to proved oil and gas properties are capitalized. Delay and surface
rentals are charged to expense in the year incurred. Dry hole costs incurred on
exploratory operations are expensed. Dry hole costs associated with developing
proved fields are capitalized. Expenditures for additions, betterments, and
renewals are capitalized. Geological and geophysical costs are expensed when
incurred.
Upon sale or retirement of proved properties, the cost thereof and the
accumulated depreciation or depletion are removed from the accounts and any gain
or loss is credited or charged to income if significant. Abandonment,
restoration, dismantlement costs and salvage value are taken into account in
determining depletion rates. These costs are generally about equal to the
proceeds from equipment salvage upon abandonment of such properties. Maintenance
and repairs are charged to operating expenses.
Provision for depreciation and depletion of capitalized exploration and
development costs are computed on the unit-of-production method based on proved
developed reserves of oil and gas, as estimated by petroleum engineers, on a
property by property basis. Prior to September 1, 1995, an additional valuation
provision was made if total capitalized costs of oil and gas properites,
excluding unproved properties, exceeded (1) the present value of future net
revenues from estimated production of proved oil and gas reserves using constant
prices discounted at 10% less (2) income tax effects related to differences
between book and tax basis of the properties. Unproved properties are assessed
periodically to determine whether they are impaired. When impairment occurs, a
loss is recognized by providing a valuation allowance. When leases for unproved
properties expire, any remaining cost is expensed. Depreciation of other assets
are provided on the straight line method over their estimated useful lives.
F-12
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
The Company uses crude oil and natural gas hedges to manage price exposure.
Realized gains and losses on the hedges are recognized in oil and gas sales as
settlement occurs.
The Company follows the entitlements method of accounting for gas balancing
of gas production. The Company's gas imbalances are immaterial at November 30,
1995 and 1994.
Effective for the fourth quarter beginning September 1, 1995 the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"). This statement prescribes the accounting for the impairment of
long-lived assets, such as oil and gas properties. An impairment loss is
reported as a component of income from continuing operations. Adoption of this
statement resulted in an impairment loss (non-cash charge) of $3,055,000 for the
fourth quarter 1995 and was recognized as impairment expense to the oil and gas
business segment. The Company reviewed the impairment of oil and gas properties
for each successful efforts pool. The B. R. Cox field in Texas and the Oklahoma,
New Mexico and North Dakota property pools were determined to be impaired and an
impairment loss equal to the difference between the carrying value and the fair
value of the pool was recognized. Fair value was estimated to be a discounted
present value of expected future net cash flows with appropriate risk
consideration over the economic life of the reserves.
Quasi-reorganization
In fiscal 1988, the Board of Directors adopted a corporate resolution which
approved a quasi-reorganization effective December 1, 1987 and transferred
$13,441,000 from additional paid-in capital to offset the accumulated deficit.
Other Property and Equipment
Gains and losses from retirement or replacement of other properties and
equipment are included in income. Betterments and renewals are capitalized.
Maintenance and repairs are charged to operating expenses.
F-13
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
Income Taxes
The Company files a consolidated income tax return with CGSI. Resources,
its Canadian subsidiary, was also included in the consolidated U.S. income tax
return through February 24, 1995 before terminating with completion of the
divestiture. Resources was also subject to tax under applicable Canadian tax
law. Columbus and its consolidated subsidiary have executed a tax allocation
agreement which provides for an allocation and payment of U.S. income taxes
based upon each Company's separate tax liability calculation.
Foreign Currency Translation
Canadian assets and liabilities were translated into U.S. dollars using the
exchange rate in effect at year end. Canadian revenues and expenses were
translated using average exchange rates for each period. Adjustments resulting
from these translations were accumulated in a separate component of
stockholders' equity. Foreign currency transaction gains or losses, which
primarily represented exchange gains or losses resulting from the denomination
of current intercompany balances into U.S. dollars, were included in determining
net income for prior period. Such gains or losses are not significant for the
periods presented.
Operating and Management Services
The Company recognizes revenue for operating and management services
provided to other companies and non-operating interest owners in which the
Company has no economic interest. The Company receives overhead fees, management
fees and revenues related to gas marketing, compression and gathering.
The cost of providing such services is expensed and shown as "operating and
management services" cost.
Earnings Per Share
Earnings per share are computed using the weighted average number of common
shares outstanding. Stock options are included as common stock equivalents, when
dilutive, using the treasury stock method. Historical amounts have been adjusted
for the 10% stock dividend distributions, in 1995 and 1994.
F-14
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
Accounting for Stock-Based Compensation
The Financial Accounting Standards Board issued Statement No. 123 on the
"Accounting for Stock-Based Compensation". This statement prescribes the
accounting and reporting standards for stock-based employee compensation plans
and is effective for the Company's 1997 fiscal year unless adopted earlier. The
Company has not decided if it will adopt this standard or simply make pro forma
disclosures as the alternative provided by the standard.
Unaudited Interm Periods
The financial statements contain all adjustments (consisting only of normal
recurring accruals) which, in the opinion of management, are necessary to
present fairly the financial position of the Company at August 31, 1996 and the
results of its operations and cash flows for the nine months ended August 31,
1996 and 1995. The results of operations for such interm periods are not
necessarily indicative of results to be expected for the full year.
(3) OIL AND GAS PRODUCING ACTIVITIES
The following tables set forth the capitalized costs related to oil and gas
producing activities, costs incurred in oil and gas property acquisition,
exploration and development activities, and results of operations for producing
activities:
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
(in thousands)
<TABLE>
<CAPTION>
August 31, 1996 November 30, 1995 November 30, 1994
--------------- -------------------------------- -------------------------------
United United United
States Total States Canada Total States Canada
-------- -------- -------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Proved properties(a) ......... $ 27,311 $ 22,153 $ 22,153 $ -- $ 29,688 $ 22,596 $ 7,092
Unproved properties .......... 458 91 91 -- 159 105 54
-------- -------- -------- -------- -------- -------- --------
27,769 22,244 22,244 -- 29,847 22,701 7,146
Less accumulated depreciation,
depletion, amortization and
valuation allowance(a) ..... (11,429) (9,414) (9,414) -- (11,368) (8,632) (2,736)
-------- -------- -------- -------- -------- -------- --------
Total net properties ......... $ 16,340 $ 12,830 $ 12,830 $ -- $ 18,479 $ 14,069 $ 4,410
======== ======== ======== ======== ======== ======== ========
<FN>
(a) During 1994 U.S. fully depleted properties were written-off.
</FN>
</TABLE>
F-15
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION,
EXPLORATION AND DEVELOPMENT ACTIVITIES
(in thousands)
<TABLE>
<CAPTION>
Year Ended November 30,
------------------------------------------------------------------------------
1995 1994 1993
------------------------ ------------------------ ------------------------
United United United
Total States Canada Total States Canada Total States Canada
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Property acquisition
costs:
Proved ........ $1,443 $1,443 $ -- $2,501 $2,501 $ -- $ 871 $ 871 $ --
Unproved ...... 85 85 -- 96 59 37 525 455 70
Exploration costs .. 245 196 49 600 464 136 165 85 80
Development costs .. 2,843 2,771 72 3,885 2,360 1,525 4,434 3,876 558
------ ------ ------ ------ ------ ------ ------ ------ ------
Total costs
incurred ......... $4,616 $4,495 $ 121 $7,082 $5,384 $1,698 $5,995 $5,287 $ 708
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
(in thousands)
<TABLE>
<CAPTION>
Year Ended November 30,
-----------------------------------------------------------------------------------------
1995 1994 1993
----------------------------- --------------------------- ---------------------------
United United United
Total States Canada Total States Canada Total States Canada
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales ............... $ 7,902 $ 7,269 $ 633 $11,227 $ 8,798 $ 2,429 $11,138 $ 8,730 $ 2,408
Production (lifting)
costs (a) ......... 2,591 2,343 248 3,089 2,285 804 3,253 2,340 913
Exploration expenses 245 196 49 600 464 136 165 85 80
Impairment of long-
lived assets ...... 3,055 3,055 -- -- -- -- -- -- --
Depreciation,
depletion and
amortization (b) .. 2,543 2,410 133 2,742 2,355 387 2,254 1,903 351
------- ------- ------- ------- ------- ------- ------- ------- -------
(532) (735) 203 4,796 3,694 1,102 5,466 4,402 1,064
Imputed income
tax (c) ........... (138) (209) 71 1,691 1,311 380 1,726 1,466 260
------- ------- ------- ------- ------- ------- ------- ------- -------
Results of operations
from producing
activities
(excluding overhead
and interest
costs) ........... $ (394) $ (526) $ 132 $ 3,105 $ 2,383 $ 722 $ 3,740 $ 2,936 $ 804
======= ======= ======= ======= ======= ======= ======= ======= =======
<FN>
(a) Production costs include lease operating expenses, production and property
taxes
(b) Amortization expense per equivalent barrel of production:
1995 - $3.83 1994 - $2.78 1993 - $2.73
(c) The imputed income tax is hypothetical and determined without regard to the
Company's deduction for general and administrative expense, interest costs
and other items.
</FN>
</TABLE>
F-16
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
For the years ended November 30, 1995, 1994 and 1993, the Company had the
following customers who purchased production equal to more than 10% of its total
revenues. The following table shows the amounts purchased by each customer.
1995 1994 1993
------------------ ------------------ -------------------
Amount % Revenue Amount % Revenue Amount % Revenue
------ --------- ------ --------- ------ ---------
Customer A $2,027 27.9% $1,755 13.4% $ 2,881 25.9%
Customer B 2,635 36.2 4,072 31.0 2,740 24.6
Customer C 1,046 14.4 1,423 10.8 1,487 13.3
In the Company's judgment, termination by any purchaser under which its
present sales are made would not have a material impact upon its ability to sell
its production to another purchaser at similar prices.
(4) INVESTMENT IN PARTNERSHIP
Columbus was formerly the managing general partner of CPS, and also
operated almost all oil and gas properties owned by its subsidiary partnership,
COP. When these partnerships were dissolved effective November 30, 1989, no
partners received a cash distribution from their investment in CPS as the
proceeds from the sale of the properties were less than the bank debt and other
partnership liabilities.
Columbus, as managing general partner of COP, and Columbus as managing
general partner and Consolidated as associate general partner of CPS had an
obligation to pay for the respective partnership's costs incurred. Included in
other current liabilities as of November 30, 1994 and 1995 and August 31, 1996
is $122,000, $16,000 and $-0-, respectively, which represented remaining cash
available to pay any valid claims that might become payable related to either
liquidation or prior operations. During 1995, a settlement was reached with
Jicarilla Apache Tribe relative to their claims for additional royalty owed for
the period 1985 through 1992 from gas wells on their leaseholds in which COP
owned varying interests and Columbus was operator. COP's share of the settlement
was $95,000 which was paid from the available $122,000 on hand.
F-17
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
(5) LONG-TERM DEBT
The Company has a Credit Agreement ("Agreement") with Norwest Bank Denver,
N.A. ("Bank") having a borrowing base which has been recently reduced at the
request of Columbus to $7,000,000, which is subject to semi-annual
redetermination for any increase or decrease. On January 5, 1996 the Credit
Agreement was amended to extend the revolving period and maturity date. The loan
now revolves until July 1, 1997 and then in its entirety converts to an
amortizing term loan which matures July 1, 2000. The credit is collateralized by
a first lien on U.S. oil and gas properties. The interest rate options are the
Bank's prime rate or LIBOR plus 1 3/4%. In addition, a commitment fee of 1/4 of
1% of the average unused portion of the credit is payable quarterly. As amended
and restated on October 23, 1996 the Agreement extended the revolving period to
July 1, 1999 and the maturity date to July 1, 2003 and reduced the LIBOR
interest rate to LIBOR plus 1 1/2%.
At November 30, 1995 outstanding borrowings on the revolving line of credit
were $1,600,000 and the unused borrowing base available was $5,400,000 and the
$1,600,000 bore interest at LIBOR rates of 5.82% plus 1 3/4%.
The Agreement as amended provides that certain financial covenants be met
which include a minimum net worth of $8,300,000 plus 50% of cumulative net
income after November 30, 1991, a quarterly calculation of a current ratio of
not less than 1.0:1.0 and a ratio of funded debt to consolidated net worth not
greater than 1.25:1.00. Columbus has complied with these covenants. Under the
terms of the Agreement, Columbus is permitted to declare and pay a dividend in
cash so long as no default has occurred or a mandatory prepayment of principal
is pending.
The scheduled payments of long-term debt are as follows (in thousands):
At 11/30/95 At 8/31/96
----------- ----------
(unaudited)
Year ending November 30,:
1996 $ -- $ --
1997 178 --
1998 533 --
1999 533 267
2000 356 800
2001 -- 800
2002 -- 800
2003 -- 533
------- ------
Total $ 1,600 $3,200
======= ======
F-18
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
(6) INCOME TAXES
The provision for income taxes consists of the following (in thousands):
Nine Months Ended
August 31,
---------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
(unaudited)
Current:
Federal ..... $ 50 $ 12 $ -- $ 57 $ 75
Foreign
(Canada) .. -- 29 29 162 116
State ....... 37 15 20 72 160
------ ------ ------ ------ ------
87 56 49 291 351
------ ------ ------ ------ ------
Deferred:
Federal ..... 856 207 (620) 636 723
Foreign
(Canada) .. -- 44 44 253 174
------ ------ ------ ------ ------
856 251 (576) 889 897
------ ------ ------ ------ ------
Total income tax
(benefit)
expense .... $ 943 $ 307 $ (527) $1,180 $1,248
====== ====== ====== ====== ======
The components of earnings (loss) before income taxes are (in thousands):
1995 1994 1993
------- ------- -------
U.S. . $(2,231) $ 2,167 $ 2,873
Canada 209 1,203 1,189
------- ------- -------
Total $(2,022) $ 3,370 $ 4,062
======= ======= =======
Total tax provision has resulted in effective tax rates which differ from
the statutory Federal income tax rates. The reasons for these differences are:
Percent of Pretax Earnings
--------------------------
1995 1994 1993
----- ----- -----
U.S. Statutory rate ............ (34)% 34% 34%
Foreign taxes (Canada) ......... 4 12 7
State income taxes ............. (4) 2 4
Change to post-1987
carryforwards ................ 13 (7) (8)
Percentage depletion ........... (5) (4) --
Foreign tax credit/deduction ... (4) (4) (7)
Other .......................... 4 2 1
----- ----- -----
Effective rate ................. (26)% 35% 31%
===== ===== =====
For the nine months ended August 31, 1996 the difference between the U.S.
statutory rate and the effective rate of 38% is attributable primarily to state
income taxes.
F-19
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
The Company files a consolidated income tax return with its subsidiary and
has executed a tax allocation agreement which provides for an allocation and
payment of U.S. income taxes based upon each company's separate tax liability
calculation.
The net operating loss carryforwards and percentage depletion deductions
are for U.S. tax purposes only. For Canadian income tax purposes, when the
annual taxable income of Resources exceeded its available Canadian tax
allowances and deductions for that year, current income taxes were provided and
a tax liability recorded. Canadian taxes were currently payable in 1994 and
1993. Consolidated U.S. income taxes are payable only when taxable income
exceeds available U.S. net operating loss carryforwards and other credits.
Pursuant to provisions enacted as part of the Tax Reform Act of 1986,
utilization of these corporate tax carryforwards in any one taxable year is
limited if a corporation experiences a 50% change of ownership. Columbus
experienced such a change of ownership in October, 1987 effectively limiting the
utilization of pre-change ownership net operating losses to approximately
$900,000 in each subsequent year. Subsequent additional ownership changes
accumulated to more than 50% by August 25, 1993 thereby causing a second
ownership change to occur. This second change limited the utilization of
post-1987 net operating losses to $1,300,528 in 1993 and $848,137 in 1994 so
that Columbus was not able to utilize the remaining post-1987 net operating loss
carryforwards of approximately $593,000 until fiscal 1995 or later.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109") effective December 1, 1992. SFAS 109
requires the asset and liability approach be used to account for income taxes.
Under this method, deferred tax liabilities and assets are determined based on
the temporary differences between financial statement and tax basis of assets
and liabilities using enacted rates in effect for the year in which the
differences are expected to reverse. U.S. tax assets (net of a valuation
allowance) primarily result from net operating loss carryforwards, percentage
depletion and certain accrued but unpaid employee benefits. U.S. deferred tax
liabilities result from the recognition of depreciation, depletion and
amortization in different periods for financial reporting and tax purposes.
Canadian deferred tax assets consisted of the tax attributes of carryforward
costs that had expended but not yet utilized as tax deductions while deferred
tax liabilities resulted from temporary differences in amortization of costs.
F-20
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
Because of the Company's previous 1987 quasi-organization, the adoption of
SFAS 109 requires the Company to report the effect of its net deferred tax asset
arising prior to December 1, 1987 as an increase in stockholders' equity rather
than as an increase to net earnings. The net deferred tax asset arising
subsequent to the quasi-reorganization was a credit to income and was reported
separately as a "cumulative effect of change in method of accounting for income
taxes".
The cumulative effect (benefit) of $992,000 related to the
post-quasi-reorganization net deferred tax asset resulting from adoption of SFAS
109 was recognized in the first quarter of 1993. The cumulative effect (benefit)
of $125,000 related to the pre- quasi-reorganization net deferred tax asset was
credited to additional paid-in capital in stockholders' equity. In addition, the
cumulative effect (benefit) of $102,000 related to foreign currency translation
adjustment was credited to that account in stockholders' equity. The total
benefit of $1,219,000 was recorded as a deferred tax asset.
F-21
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
During fiscal 1995, certain U.S. tax assets (shown in the table below) were
utilized. Projected taxable income caused the Company to increase the valuation
allowance during the year by $96,000 which increased from the net loss.
The tax effect of significant temporary differences representing U.S.
deferred tax assets and liabilities and changes were as follows (in thousands):
Current Year
-----------------------
Dec. 1, Stockholders' Nov. 30,
1994 Equity Operations 1995
------- ------- ---------- -------
Deferred tax assets:
Pre-1987 loss carryforwards $ 1,976 $ -- $ -- $ 1,976
Post-1987 loss carryforwards 219 -- 501 720
Percentage depletion
carryforwards ............ 782 -- 112 894
State income tax loss
carryforwards ............ 33 -- 164 197
Canadian deferred taxes .... 233 -- (233) --
Other ...................... 252 -- (7) 245
Foreign currency translation
adjustment ............... 326 (326)(a) -- --
------- ------- ------- -------
Total ...... 3,821 (326) 537 4,032
Valuation allowance ..... (1,641) -- (b) (96) (1,737)
------- ------- ------- -------
Deferred tax assets . 2,180 (326) 441 2,295
------- ------- ------- -------
Tax benefit of disqualifying
disposition of incentive
stock options ............ -- 25 (b) (25) --
------- ------- ------- -------
Deferred tax liabilities-
Depreciation, depletion and
amortization and other ... (1,861) -- 204 (1,657)
------- ------- ------- -------
Net tax asset ............ $ 319 $ (301) $ 620 $ 638
======= ======= ======= =======
(a) Foreign currency translation adjustment for divestiture of Resources.
(b) Credited to additional paid-in capital.
The Company has approximate net operating loss carryforwards (in thousands)
available at November 30, 1995 as follows:
Net
Expiration Year Operating loss
--------------- --------------
1999 $4,517
2000 907
2001 386
2003 478
2004 115
2010 1,525
-------
$ 7,928
=======
F-22
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
For U.S. Alternative Minimum Tax purposes the Company had net operating
loss carryforwards of approximately $8,500,000 as of November 30, 1995. The
Company also has percentage depletion carryforwards of $2,300,000 which do not
expire. State income tax operating loss carryforwards of approximately
$3,400,000 are available at November 30, 1995.
The tax effect of significant temporary differences representing Canadian
deferred tax assets and liabilities and charges were as follows (in thousands):
Foreign
Exchange Current
Dec. 1, Translation Year Nov. 30,
1994 Adjustment Activity 1995
-------- ---------- -------- --------
Deferred tax liabilities -
Temporary differences .. $ 616 $ -- $ (616) $ --
-------- -------- -------- --------
Deferred tax asset -
Alberta Royalty tax
deduction ............ 2 -- (2) --
-------- -------- -------- --------
Net deferred income
taxes .............. $ 614 $ -- $ (614) $ --
======== ======== ======== ========
The Canadian carryforwards were utilized to the extent possible to reduce
Canadian taxable income. U.S. taxable income, which included Canada in
consolidation until the sale of Resources shares on February 24, 1995, was
reduced by the Canadian taxes paid using a foreign tax deduction or as a foreign
tax credit. Therefore, the consolidated tax benefit realized was insignificant.
F-23
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
The earnings before income taxes for financial statements differed from
taxable income as follows (in thousands):
1995 1994 1993
------- ------- -------
Earnings loss) before income taxes
per financial statements ....... $(2,022) $ 3,370 $ 4,062
Differences between income
before taxes for financial
statement purposes and
taxable income:
Intangible drilling costs
deductible for taxes ......... (3,125) (2,372) (1,764)
Excess of book over tax
depletion, depreciation
and amortization ............. 607 1,020 1,225
Disqualifying disposition of
incentive stock options ...... (88) (76) (430)
Impairment expense ............. 3,055 -- --
Lease abandonments ............. (258) -- --
Dividend of rights of Resources 234 -- --
Other .......................... 72 (105) 23
------- ------- -------
Federal taxable income ........... $(1,525) $ 1,837 $ 3,116
======= ======= =======
Realization of the future tax benefits is dependent on the Company's
ability to generate taxable income within the carryfor ward period. Based upon
the proved reserves as of November 30, 1995 as well as contemplated drilling
activities, but excluding revenues from any possible future increase in proved
reserves, management believes that taxable income during the carryforward period
will be sufficient to partially utilize the NOL's before they expire. Of the
total valuation allowance of $1,737,000 as of November 30, 1995, $1,407,000
relates to pre-quasi-reorganization tax assets and the balance of $330,000
relates to post-quasi- reorganization tax assets. In future periods, reduction
of the pre-quasi-reorganization portion of the valuation allowance will be
credited to additional paid-in capital and reduction of the post-
quasi-reorganization portion of the valuation allowance will be credited to
income.
F-24
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
Estimates of future taxable income are subject to continuing review and
change because oil and gas prices fluctuate, proved reserves are developed or
new reserves added as a result of future drilling activities, and operation and
management services revenue and expenses vary. A minimum level of $11,000,000 of
future taxable income will be necessary to enable the Company to fully utilize
the net operating loss carryforwards and realize the gross deferred U.S. tax
assets of $4,032,000. This level of income can be achieved using the value of
proved reserves reported in the year end November 30, 1995 standardized measure
of net cash flows but this does not give total assurance that sufficient taxable
income will be generated for total utilization because of the volatility
inherent in the oil and gas industry which makes it difficult to project
earnings in future years due to the factors mentioned above. There is a net
deferred tax asset of $638,000 calculated as of November 30, 1995, after
deducting the valuation allowance. The valuation allowance was increased a net
$96,000 even after a reduction of $233,000 which originally had been the amount
provided for the Canadian deferred taxes and was no longer needed following the
divestiture.
F-25
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
(7) RELATED PARTY TRANSACTIONS
Columbus, as managing general partner, previously had certain
responsibilities to CPS and COP. Additionally, Columbus is contingently liable
for any debts and obligations of COP, excluding the non-recourse long-term debt
to the bank, even though there has been a dissolution of CPS and COP. This would
only occur after liquidation proceeds available have been exhausted. Columbus is
not aware of any such debts or obligations of COP that it may be liable for that
would exceed the amount available therefor.
Certain direct and indirect general and administrative costs incurred by
CPS and COP were paid for by Columbus and reimbursed by CPS and COP. The
following table sets forth reimbursements (included with operating and
management services revenue) received for each period from COP.
G & A
Allocated
Nine Months Ended August 31, 1996
(unaudited) $ 16,000
Year Ended November 30, 1995 11,000
Year Ended November 30, 1994 22,000
Year Ended November 30, 1993 10,000
Reimbursement is made by Resources to Columbus for services provided by
Columbus officers and employees for managing Resources and reduces general and
administrative expense. This reimbursement totaled $213,000 for the nine months
in 1995 following the divestiture of Resources and $234,000 for the nine months
ended August 31, 1996.
(8) CAPITAL STOCK
Columbus has two stock option plans with outstanding options. Under the
1985 Plan, options for 87,360 shares were exercisable at November 30, 1995 and
76,881 were exercisable at August 31, 1996. No additional options may be granted
under the 1985 Plan. At November 30, 1994, 29,014 shares were available for
granting of options and 179,632 shares were exercisable.
Under the 1995 Plan, 220,185 shares were available for granting of options,
and options for 166,830 shares were exercisable at November 30, 1995. At August
31, 1996, 190,544 shares were available for granting of options and 165,531
shares were exercisable at August 31, 1996.
F-26
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
The Board of Directors has granted nonqualified stock options of which
there were 5,296 exercisable at November 30, 1995 and 116,809 shares exercisable
at November 30, 1994 and 91,296 shares exercisable at August 31, 1996.
Options are granted at 100% of fair market value on date of grant. The
following table represents a summary of stock option transactions for the three
years ended November 30, 1995 and the nine months ended August 31, 1996:
Shares Option Price
------ ------------
November 30, 1992 436,562 $3.72 to $5.89
Granted 92,141 7.70 to 8.42
Exercised (318,593) 3.72 to 7.70
Expired (30,092) 4.13 to 5.89
--------
Balance, November 30, 1993 180,018 3.72 to 8.42
Granted 202,829 8.26 to 8.47
Exercised (39,924) 4.13 to 7.70
Expired (5,897) 4.86 to 8.26
--------
Balance, November 30, 1994 337,026 3.72 to 8.47
Granted 181,965 6.44 to 7.94
Exercised (40,227) 3.72 to 5.89
Expired, exchanged or
surrendered (196,745) 5.89 to 8.47
--------
Balance, November 30, 1995 282,019 4.34 to 8.47
Granted 195,400 5.25 to 7.50
Exercised (122,778) 4.34 to 8.30
Expired, exchanged (10,603) 6.44 to 8.30
--------
Balance, August 31, 1996
(unaudited) 344,038 4.85 to 8.47
========
As of August 1, 1995, the Board of Directors authorized new stock options
at the closing price ($6.625) on that date in an amount equal to 80% of
previously granted stock options that could be surrendered at the election of
the holder provided that the holder also had his monthly salary reduced as a
part of the downsizing and administrative cost reduction program. Share options
in the amount of 170,521 granted at prices from $5.87 to $8.47 were canceled and
66,015 share options were reissued as of August 1, 1995 and 70,400 share options
were reissued on February 5, 1996 at the then fair market value of the Company
shares.
F-27
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
On October 28, 1992, the Board of Directors approved an Employee Stock
Purchase Plan ("Plan") to begin January 1, 1993, which was approved by the
shareholders at the 1993 annual meeting. Under the Plan a total of 220,000
shares were reserved from authorized unissued common stock from which payments
by participants into the Plan will be utilized to purchase shares and the
Company will contribute an amount of shares equivalent to 25% of those payments
with vesting to occur semi-annually which will be issued out of the Company's
treasury stock. For the fiscal 1995 and 1994 years a total of $17,000 and
$24,000 match, respectively, was accrued as expense by the Company. The price of
the shares will be the average trading price during each six month purchase
period or the ending price, whichever is less. During fiscal 1994 a total of
14,298 shares were purchased (2,875 shares from treasury stock for the Company
contribution of 25%) at an average cost of $9.43 per share. During fiscal 1995 a
total of 13,532 shares were purchased (2,719 shares from treasury stock for the
Company contribution of 25%) at an average cost of $8.01 per share. During nine
months ended August 31, 1996 a total of 12,394 shares were purchased (2,492
shares from treasury stock for the Company contribution of 25%) at an average
cost of $5.74 per share.
The Company previously had an Employee Stock Ownership Plan ("ESOP"), for
Columbus and its domestic subsidiaries from 1987 until its termination effective
November 30, 1992. At November 30, 1992 upon termination of the ESOP, the
outstanding ESOP loan balance of $394,104 was paid and 76,229 shares not paid
for or allocated to the ESOP participants were returned to Columbus as treasury
stock (reduced by 21,870 shares in 1993 after final Internal Revenue Service
determination).
During 1993 the Board of Directors authorized purchase from the market up
to 350,000 shares of common stock (375,000 shares after stock dividend
adjustment) to be held as treasury stock. A total of 249,200 shares were
purchased during fiscal 1993 at an average cost of $9.18 per share. During
fiscal 1994 an additional 80,500 shares were purchased at an average cost of
$9.32 per share. This was followed by 45,300 shares purchased during first
quarter 1995 at an average cost of $8.56 per share.
Another 300,000-share repurchase authorization was approved by the Board in
February 1995, restricted to a maximum purchase price of $8.75 per share. A
total of 197,900 shares were purchased during fiscal 1995 at an average cost of
$7.29 per share and 86,100 shares were purchased during the nine months ended
August 31, 1996 at an average cost of $6.73 per share.
F-28
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
(9) COMMITMENTS AND CONTINGENT LIABILITIES
The Company's Articles of Incorporation and By-Laws provide for
indemnification of its officers, directors, agents and employees to the maximum
extent authorized by the Colorado Corporation Code, as amended or as may be
amended, revised or superseded. In addition, the Company has entered into
individual indemnification agreements with its officers and directors, present
and past, which agreements more fully describe such indemnification. The
indemnification rights provided under these agreements had been invoked by the
officer/director defendants who had been named in the Adversary Proceeding
described in Note 10 below and in "Item 3 - Legal Proceedings".
Lease - In June 1991, Columbus executed a lease for office space for its
present building which provides for monthly payments of $11,123, plus
inflationary adjustments to an annual base operating expense, for a period of 60
months from October 1991 through October 1996. The total rent expense for 1995,
1994 and 1993 was approximately $126,000, $129,000 and $158,000 respectively.
Columbus has renewed the lease for an additional two years through September
1998 at a base rate of $13,536 per month. Future rental payments, without regard
to operating cost adjustments, required under this lease as of November 30, 1995
are $138,000, $162,000 and $135,000 for fiscal years 1996, 1997 and 1998,
respectively.
Columbus is self-insured for medical and dental claims of its U. S.
employees and dependents as well as any former employees or dependents who are
eligible and elect coverage under COBRA rules. Columbus pays a premium to obtain
both individual and aggregate stop-loss insurance coverage. A liability for
claims incurred before year end but not yet paid is included in other current
liabilities.
During 1994, Columbus hedged natural gas prices by selling 100,000 Mmbtu
per month for the twelve month period from May 1994 through April 1995 at an
average daily price of $2.12 per Mmbtu. The "swap" was matched against the
calendar monthly average price on the NYMEX and settled monthly resulting in a
gain of $204,600 for the period from May through November 1994 and a gain of
$283,900 during fiscal 1995 before its expiration in April 1995. The gains were
included in oil and gas sales revenues.
F-29
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
The Company has entered into two new swaps of natural gas prices by selling
60,000 Mmbtu per month for the period from April 1996 through November 1996 at
$1.74 per Mmbtu while the second swap is for the same period and quantity at
$1.88 per Mmbtu. These amounts represented approximately 65% of Columbus' then
gas production. To partially protect itself against possible escalating gas
prices in October and November 1996, the Company purchased NYMEX futures
contracts for two months for 60,000 Mmbtu of natural gas at $1.805 and $1.875,
respectively. These options would limit the Company's potential loss for those
two months to the difference between those prices and the $1.74 Mmbtu price of
the original swap.
Columbus also entered into a swap of crude oil prices by selling 10,000
barrels per month for the twelve month period from January 1996 through December
1996 at an average daily price of $17.25 per barrel with a cap of $19.50 on the
upside should crude oil futures soar as a result of some world calamity. This
amount represents approximately 50% of its current monthly production. The
difference between the hedge price and the actual daily closing price on the
NYMEX and is settled monthly. Based upon recent futures prices of crude oil the
Company may recognize a loss in the early months but may show a gain in the
latter months.
The Company's natural gas and crude oil swaps are considered financial
instruments with off-balance sheet risk which were in the normal course of
business to reduce its exposure to fluctuations in the price of crude oil and
natural gas. Those instruments involve, to varying degrees, elements of market
and credit risk in excess of the amount recognized in the balance sheets. As
calculated as of February 5, 1996, the Company had 1996 natural gas and crude
oil swaps with a notional value of approximately $3,808,000 and a market value
of approximately $3,686,000. The market value changes constantly and over the
term of the contracts could result in a gain for the Company. Should the price
of crude oil and natural gas futures be above the swap price each month, then
the Company would be exposed to losses but has capped that exposure in the case
of crude oil.
Recently, Columbus entered into an additional swap of crude oil prices by
selling a strip of 10,000 barrels per month for the twelve month period from
November, 1996 through October, 1997 at an average daily price of $21.17 per
barrel. Also, Columbus entered into a swap of natural gas prices by selling
60,000 Mmbtu per month for the period from March 1997 through October 1997 at
$2.20 per Mmbtu.
F-30
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
As calculated as of January 3, 1997, the Company had natural gas and crude
oil swaps subsequent to August 31, 1996 as follows:
Notional Market or Settled
Value Value
----- -----
Natural gas
(9/96-11/96) $ 661,600 $ 462,700
Natural gas
(3/97-10/97) 1,056,000 1,019,500
Crude oil
(9/96-12/96) 690,000 600,000
Crude oil
(11/96-10/97) 2,540,400 2,309,800
Beginning November 1, 1994, Resources entered into a twelve month firm gas
sales agreement which required it to deliver 2.5 Mmcf per day of natural gas
from the Carbon plant to a pipeline company. Based upon the terms of the
agreement, the average price for the term averaged CDN$1.73 per Mcf. The Company
recognized revenue each month as production was sold based upon the fixed and
variable prices received until the February divestiture of Resources.
F-31
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
(10) LITIGATION
On April 21, 1993, Columbus was served with a complaint and discovery in a
lawsuit styled Michael Mattalino, Bruce L. Davis, and Maris E. Penn vs. Columbus
Energy Corp., Case No. H-93-1083, in the United States District Court, Southern
District of Texas. The plaintiffs alleged that in June 1987 Columbus had agreed
to assign to them overrides in "all leases acquired and wells drilled" in the
original Ulrich Field Extension Prospect acreage, which prospect area included
only a portion of the Sralla Road field near Houston, Texas. They further
asserted that they were entitled to overrides under any acreage that Columbus
might acquire within an originally agreed upon working interest Area of Mutual
Interest ("AMI") covering almost 70 square miles and that Columbus had failed to
assign to them these additional overrides under additional acquired acreage. The
plaintiffs prayer was for specific performance, an accounting and punitive
damages. Columbus denied their allegations and claimed they had been assigned
all overrides to which they were entitled under the prospect. A second lawsuit
was filed by Mattalino, et al in the summer of 1994 which was also dismissed by
a settlement agreement executed in September 1994. Provisions of settlement
required Columbus to pay $450,000 to the plaintiffs and assign them a 3%
overriding royalty interest ("ORRI") effective October 1, 1994 under certain
leases on which there were gas wells which had not been previously assigned.
Columbus is to withhold 50% of all revenues generated by those newly created 3%
ORRI interests until it has recouped $300,000 (which is considered to be an
advance ORRI payment) of the $450,000. The settlement costs and recoupment
amounts have been and are being shared proportionately with the other working
interest owners in the properties. Columbus' share of the entire settlement
amount was $227,618 with the non-recoverable portion being $75,873. It also
reserved an amount of $100,000 for possible future non-recovery plus interest
for its portion of the advance as a litigation expense.
In February 1994, (as further amended June 1994), a lawsuit was filed in
State District Court in Webb County, Texas styled Rancho Blanco Corporation v.
Columbus Energy Corporation, et al, Case No. C-94-99154, which sought and
obtained a temporary injunction to stop the Zachry No. 26 well from being
produced from the Lobo No. 1 formation. Rancho Blanco Corp. ("RBC") was both a
non-consenting 50% working interest owner and a 100% royalty owner in this well.
RBC claimed the hole was sidetracked into the same reservoir in which a
jointly-owned well was already producing which constituted a breach of the
operating agreement contract. It sought damages as well as removal of Columbus
as operator for this breach. Columbus' working interest was only 0.44% in the
Zachry #26 but it did serve as operator of and owned an interest in several
other wells on the Zachry Ranch.
F-32
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
During September 1994, RBC and Columbus and all of the other working
interest owner defendants entered into mediation proceedings which led to
settlement of all disputes between the parties. Columbus agreed to resign as
operator of the nine wells which it operated on the ranch for which it received
$50,000 compensation. The Zachry 26 well would be allowed to produce and
defendants assigned a 10% working interest in the well free of cost to RBC plus
$10,000 and agreed to assign RBC a $50,000 production payment out of production
from any new wells drilled using Zachry's 3-D seismic payable out of a 15% net
revenue interest. These amounts are insignificant to Columbus' 0.44% working
interest.
On October 14, 1993, Columbus was served with a complaint and discovery in
a lawsuit styled Porter Farrell II vs. Columbus Energy Corp., Cause No.
H-93-3153, in the United States District Court, Southern District of Texas. By
second amended petition served on or about January 20, 1994, Porter Farrell, II
added a failure to develop claim of an area of mutual interest to his first
claims. Farrell added yet a second lawsuit on September 26, 1994 assigned Cause
No. H-94-3303 but both cases were consolidated under the first cause number for
purposes of discovery and trial. The case had been scheduled for Federal
District Court in Houston in May, 1995 but on April 12, 1995 Columbus' motion
for summary judgment was granted and the lawsuit was dismissed. Subsequently on
May 10, 1995 the plaintiff filed a Notice of Appeal of this finding by the
Federal District Court Judge to the United States Court of Appeals for the 5th
Circuit of New Orleans. On January 4, 1996 the plaintiff withdrew the appeal and
on January 10, 1996 an Entry of Dismissal was issued.
(11) DEFINED CONTRIBUTION PENSION PLAN
The Company has a qualified defined contribution 401(k) plan covering all
employees. The Company matches, at its discretion, a portion of a participant's
voluntary contribution up to a certain maximum amount of the participant's
compensation. The Company's contribution expense was approximately $101,000,
$77,000, and $58,000 in the fiscal years 1995, 1994 and 1993, respectively and
$75,000 and $87,000 for the nine months ended August 31, 1996 and 1995,
respectively.
F-33
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
(12) INDUSTRY SEGMENTS
The Company operates primarily in two business segments of (1) oil and gas
exploration and development, and (2) providing services as an operator, manager
and gas marketing advisor.
Summarized financial information concerning the business segments is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Operating revenues from unaffiliated services (a):
Oil and gas ................................. $ 7,927 $ 11,246 $ 11,154
Services .................................... 1,473 1,895 1,759
-------- -------- --------
Total .................................. $ 9,400 $ 13,141 $ 12,913
======== ======== ========
Depreciation, depletion and amortization (b):
Oil and gas ................................. $ 2,638 $ 2,788 $ 2,280
Services .................................... 119 177 190
-------- -------- --------
Total .................................. $ 2,757 $ 2,965 $ 2,470
======== ======== ========
Operating income (loss):
Oil and gas ................................. $ (602)(c) $ 4,770 $ 5,197
Services .................................... 337 665 508
General corporate expenses .................. (1,278) (1,549) (1,440)
-------- -------- --------
Total operating income ................. (1,543) 3,886 4,265
Interest expense and other ....................... 479 516 203
-------- -------- --------
Earnings before income taxes ........... $ (2,022) $ 3,370 $ 4,062
======== ======== ========
Identifiable assets (b):
Oil and gas ................................. $ 15,238 $ 20,642 $ 18,010
Services .................................... 3,083 4,313 4,928
Other corporate ............................. -- -- --
-------- -------- --------
Total .................................. $ 18,321 $ 24,955 $ 22,938
======== ======== ========
Additions to property and equipment:
Oil and gas ................................. $ 4,423 $ 6,544 $ 5,974
Services .................................... 31 95 12
-------- -------- --------
Total .................................. $ 4,454 $ 6,639 $ 5,986
======== ======== ========
<FN>
(a) Approximately $352,000 of inter-segment revenues are included in service
revenues in 1993, $294,000 in 1994 and $105,000 in 1995 and are offset by the
same amounts in oil and gas operating expenses.
(b) Other property and equipment have been allocated above to the oil and gas
and services segment based upon the estimated proportion the property is used by
each segment. Therefore, depletion, depreciation and amortization and
identifiable assets do not match the functional allocations in the consolidated
financial statements.
(c) Includes non-cash impairment loss of $3,055,000.
</FN>
</TABLE>
F-34
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
The Company conducted its foreign operations in Canada until February 1995
through its wholly-owned subsidiary, CEC Resources Ltd.
Summarized financial information concerning the foreign operations which is
included in the preceding table is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Operating revenues from unaffiliated services (a):
Oil and gas .................................. $ 639 $ 2,436 $ 2,412
Services ..................................... 150 563 708
------- ------- -------
Total .................................. $ 789 $ 2,999 $ 3,120
======= ======= =======
Depreciation, depletion and
amortization:
Oil and gas .................................. $ 116 $ 325 $ 287
Services ..................................... 17 63 66
------- ------- -------
Total .................................. $ 133 $ 388 $ 353
======= ======= =======
Operating income:
Oil and gas .................................. $ 225 $ 1,171 $ 1,132
Services ..................................... 106 497 497
General corporate expenses ................... (121) (457) (406)
------- ------- -------
Total operating income ................. 210 1,211 1,223
Interest expense and other ....................... 1 8 34
------- ------- -------
Earnings before income taxes ................. $ 209 $ 1,203 $ 1,189
======= ======= =======
Identifiable assets:
Oil and gas .................................. $ -- $ 4,680 $ 3,655
Services ..................................... -- 675 676
------- ------- -------
Total .................................. $ -- $ 5,355 $ 4,331
======= ======= =======
Additions to property and equipment:
Oil and gas .................................. $ 45 $ 1,499 $ 623
Services ..................................... 27 63 5
------- ------- -------
Total .................................. $ 72 $ 1,562 $ 628
======= ======= =======
<FN>
(a) Approximately $352,000 of inter-segment revenues are included in services
revenues in 1993, $294,000 in 1994 and $105,000 in 1995 and are offset by the
same amounts in oil and gas operating expenses.
</FN>
</TABLE>
(13) CONCENTRATIONS OF CREDIT RISK
The Company maintains demand deposit accounts with separate banks in
Denver, Colorado. The Company also invests cash in the highest rated commercial
paper of large U.S. companies, with maturities not over 30 days, which have
minimal risk of loss. At August 31, 1996, November 30, 1995 and 1994 the Company
had investments in commercial paper of $1,200,000, $1,200,000 and $1,416,000,
respectively.
F-35
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information with respect to the nine months ended
August 31, 1996 and 1995 is unaudited)
Columbus as operator of jointly owned oil and gas properties, sells oil and
gas production to relatively large U.S. oil and gas purchasers (see Note 3), and
pays vendors for oil and gas services. The risk of non-payment by the
purchasers, counter parties to the crude oil and natural gas swap agreements or
joint owners is considered minimal. The Company does not obtain collateral from
its oil and gas purchasers for sales to them. Joint interest receivables are
subject to collection under the terms of operating agreements which provide lien
rights to the operator.
F-36
<PAGE>
EXHIBIT A
GLOSSARY OF INDUSTRY TERMS
"AMI" is an area of mutual interest.
"Bbl" is a barrel of 42 U.S. gallons and represents the basic unit for
measuring the production of oil and condensate.
"BOE" is barrels of oil equivalent resulting when natural gas is converted
to oil on the basis of its equivalent heating value of six Mcf of gas to one
barrel of oil and NGL is converted to oil on the basis of one barrel of NGL to
one barrel of oil.
"Btu" (British Thermal Unit) is the quantity of heat required to raise the
temperature of one pound of water one degree Fahrenheit.
"Developed Acreage" is acreage spaced or assignable to Productive Wells.
"Development Drilling" is the drilling within the proved area of an oil and
gas reservoir to the depth of a stratigraphic horizon known to be productive.
"Development Well" is a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.
"Exploratory Well" is a well drilled to find and produce oil or gas in an
unproved area, to find a new reservoir in a field previously found to be
productive of oil and gas in another reservoir, or to extend a known reservoir.
"Farmout" is a transaction in which the owner of the lease or Working
Interest agrees to assign an interest in certain specified acreage to the
assignee, retaining some interest, such as an overriding royalty interest, an
oil and gas payment offset acreage or other type of interest, subject to the
drilling of one or more specified wells or other performance as a condition of
the assignment.
"Gross Acre(s) or Gross Well(s)" is an acre(s) or well(s) in which a
Working Interest is owned without regard as to whether that interest is less
than 100%.
"MBbl" is a thousand barrels, a unit for measuring oil and natural gas
liquids.
"Mcf" is a thousand cubic feet; the standard unit for measuring volumes of
natural gas.
"MMbtu" is one million Btus, which is equal to one Mcf of natural gas
having a heating value of 1,000 Btus per cubic foot.
A-1
<PAGE>
"Mmcf" is one million cubic feet of natural gas.
"Net Acre or Net Well" is deemed to exist when the sum of fractional
ownership Working Interests in Gross Acres or Gross Wells equal one. The number
of Net Acres or Net Wells is the sum of the fractional Working Interests owned
in Gross Acres or Gross Wells expressed as whole numbers and fractions thereof.
"NGL" is natural gas liquids, including condensate, propane, butane and
pentanes plus.
"Net Lease Level Cash Flow " is revenue generated from Proved Reserves less
all taxes associated with production and lease operating expenses.
"Productive" wells include all wells which are capable of production in
commercial quantities, including wells which have been drilled to depth and
determined to be capable of such production upon completion and shut-in wells.
"Proved Acreage" is the part of a property to which Proved Reserves have
been specifically attributed.
"Proved Developed Non-Producing Reserves" are Proved Developed Reserves
which exist behind the casing of existing wells, or at minor depths below the
present bottom of such wells, which are expected to be produced through these
wells in the predictable future, where the costs of making such oil and gas
available for production should be relatively small compared to the cost of a
new well.
"Proved Developed Producing Reserves" are Proved Developed Reserves which
are expected to be produced from existing completion intervals) now open for
production in existing wells with existing equipment and operating methods.
"Proved Developed Reserves" are Proved 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
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery are 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.
"Proved Reserves" are those 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 escalations
based upon future conditions.
A-2
<PAGE>
Reservoirs are considered proved if economic producibility is supported by
either actual production or conclusive formation tests. The area of a reservoir
considered proved includes (a) that portion delineated by drilling and defined
by gas-oil and/or oil-water contacts, if any, and (b) 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.
Reserves that 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.
Estimates of Proved Reserves do not include the following: (a) oil that may
become available from known reservoirs but is classified separately as
"indicated additional reserves"; (b) 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; (c)
crude oil, natural gas and natural gas liquids that may occur in undrilled
prospects; and (d) crude oil, natural gas and natural gas liquids that may be
recovered from oil shales, coal, gilsonite and other such sources.
"Proved Undeveloped Reserves" are Proved Reserves that are expected to be
recovered from new wells drilled to known reservoirs on undrilled acreage for
which the existence of recoverability of such Reserves can be estimated with
reasonable certainty, or from existing wells where a relatively major
expenditure is required to establish production. Reserves on undrilled acreage
are limited to those drilling units that offset productive units and that are
reasonably certain of production when drilled.
"Reserves" are that portion of the identified resources from which a usable
mineral and energy commodity can be economically and legally extracted at the
time of determination.
"Take or Pay" is a requirement that the gas purchaser take, or failing to
take, pay for the minimum annual contract volume of gas which the
producer-seller has available for delivery. Under such clause the purchaser
usually has the right to take the gas paid for (but undelivered) in succeeding
years.
"Undeveloped Acreage" are those lease acres on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas, regardless of whether such acreage contains Proved
Reserves.
"Working interest" is an operating interest in an oil and gas leasehold or
mineral estate, the owner of which has the right to share in production of any
hydrocarbons covered by the leasehold or mineral estate and has a proportionate
interest in any well located on the land covered by the leasehold or mineral
estate and all equipment located there or used exclusively in connection
therewith, subject to the payment of a proportionate share of all costs and
expenses to be paid by the lessee in connection with development of any wells or
with exploration for oil and gas on the leasehold or mineral estate.
A-3
<PAGE>
EXHIBIT B
CERTIFICATE OF DESIGNATION
SERIES A 7% CONVERTIBLE PREFERRED STOCK
Pursuant to Section 7-106-102 of the
Colorado Business Corporation Act
First:
The name of the Company is Columbus Energy Corp.
Second:
Columbus Energy Corp., a Colorado corporation (the "Company"), through the
undersigned, the President and the Secretary, respectively, hereby certify that
pursuant to authority granted to and vested in the Board of Directors of the
Company (the "Board") by the provisions of the Articles of Incorporation of the
Company, the Board duly adopted, as of October 24, 1996, the following
resolutions, which resolutions are still in full force and effect and are not in
conflict with any of the provisions of the Company's Articles of Incorporation,
as amended, or the Company's bylaws, as amended, designating a series of the
Preferred Stock of the Company:
1. Designation and Number.
A series of Preferred Stock is hereby established and designated the Series
A 7% Convertible Preferred Stock (the "Series A Preferred Stock"). Shares of
Series A Preferred Stock are sometimes herein referred to as "Shares." The
number of shares which constitute the Series A Preferred Stock is 2,000,000, and
each share will have a face value of $25.00 (the "Face Value").
2. Dividends.
(a) The holders of shares of the Series A Preferred Stock are entitled to
receive, when, as and if declared by the Board out of the assets of the Company
legally available for the payment of dividends, cumulative dividends at the rate
of 7% of the face value ($1.75 per share per year), and no more, payable
semi-annually on the fifteenth day of March and September in each year (the
"Dividend Payment Date(s)"). Such dividends are cumulative from the date of
original issue of the Series A Preferred Stock (the "Issue Date").
(b) Any dividends declared on the Series A Preferred Stock will be paid to
holders of record of shares of the Series A Preferred Stock as they appear on
the stock register of the Company or its agent as of a record date to be
selected by the Board, but in any event not to exceed 45 days preceding the
Dividend Payment Date (the "Record Date").
B-1
<PAGE>
(c) For purposes of determining the amount of dividends "accrued" (i) as of
the first Dividend Payment Date and as of any date that is not a Dividend
Payment Date, such amount will be calculated on the basis of the rate per annum
specified above for actual days elapsed from the Issue Date (in the case of the
first Dividend Payment Date and any date prior to the first Dividend Payment
Date) or the last preceding Dividend Payment Date (in the case of any other
date), to but excluding the date as of which such determination is being made,
based on a 365-day year.
(d) Dividends on the shares of Series A Preferred Stock will accrue on a
daily basis (without interest or compounding) whether or not there are
unrestricted funds legally available for the payment of such dividends and
whether or not such dividends are declared. No interest, or sum of money in lieu
of interest, will be payable in respect of any dividend payment or payments on
the Series A Preferred Stock that may be in arrears. Dividends will cease to
accrue in respect of shares of Series A Preferred Stock on the date of their
redemption or conversion.
(e) Accrued and unpaid dividends for any past Dividend Period (that is, the
period beginning after any Dividend Payment Date and ending on the next
succeeding Dividend Payment Date) or Dividend Periods may be declared and paid
at any time, without reference to any Dividend Payment Date to holders of record
on such date, not exceeding 45 days preceding the payment date of such
dividends, as may be fixed by the Board.
(f) Any dividend payment made on the shares of Series A Preferred Stock
will first be credited against the earliest accrued but unpaid dividend due with
respect to the shares of Series A Preferred Stock.
(g) All dividends paid with respect to the shares of Series A Preferred
Stock will be paid pro rata to the holders entitled to such dividends.
3. Optional Redemption by the Company.
(a) The Series A Preferred Stock is redeemable, in whole or in part, at the
election of the Company, at any time after _________________, 199__ (six months
after the Issue Date) as follows:
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Period Redemption Price Per Share
------ --------------------------
Issue Date through November 30, 1999: 110% of face value plus accrued
and unpaid dividends
December 1, 1999 through November 30, 105% of face value plus accrued
2005: and unpaid dividends
After November 30, 2005: Face Value
If fewer than all of the Series A Preferred Stock are to be redeemed, then the
shares of Series A Preferred Stock to be redeemed will be chosen by the Company
pro rata (as nearly as may be practicable) among all holders of outstanding
shares of Series A Preferred Stock. If shares of Series A Preferred Stock
evidenced by a certificate selected for partial redemption are thereafter
converted in part pursuant to paragraph 6, the shares so converted (as far as
may be practicable) will be deemed to be the shares selected for redemption. The
Company will not be required to register a transfer of (i) any shares of Series
A Preferred Stock within five business days next preceding any selection of
shares of Series A Preferred Stock to be redeemed, or (ii) any shares of Series
A Preferred Stock called for redemption.
(b) The Company will provide notice of any redemption of shares of Series A
Preferred Stock to holders of record of Series A Preferred Stock not less than
30 nor more than 60 days prior to the date fixed for such redemption. Such
notice (a "Redemption Notice") will be provided by mailing notice of such
redemption first class, postage prepaid, to each holder of record of shares of
Series A Preferred Stock, at such holder's address as it appears on the stock
register of the Company, except that neither a failure to give such notice nor
any defect in such notice will affect the validity of the proceeding for the
redemption of any shares of Series A Preferred Stock to be redeemed except as to
the holders to whom the Company has failed to give such notice or whose notice
was defective. In addition to any information required by law or the applicable
rules of the American Stock Exchange or any other national securities exchange
on which the shares of Series A Preferred Stock are listed, each Redemption
Notice will state, as appropriate, the following (and may contain such other
information as the Company deems advisable):
(i) the date specified for redemption of the Series A Preferred Stock
(the "Redemption Date ");
(ii) that all outstanding shares of Series A Preferred Stock are to be
redeemed or, in the case of a call for redemption of fewer than all
outstanding shares of Series A Preferred Stock, the number of shares held
by such holder to be redeemed;
(iii) the applicable redemption price specified in paragraph 3(a) (the
"Redemption Price");
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(iv) the place or places where certificates for Series A Preferred
Stock to be redeemed are to be surrendered for redemption;
(v) that dividends on the shares of Series A Preferred Stock to be
redeemed will cease to accrue on the Redemption Date (except as otherwise
provided in this Certificate of Designation); and
(vi) the then current Conversion Rate (as defined below) and the place
or places where certificates for Series A Preferred Stock may be
surrendered for conversion pursuant to paragraph 6, and will further state
that the conversion privilege will terminate immediately prior to the close
of business on the tenth day preceding the Redemption Date.
(c) If the Redemption Notice with respect to shares of Series A Preferred
Stock to be redeemed pursuant to this paragraph has been timely given by the
Company, and if, on or before the applicable Redemption Date, the Company has
set apart so as to be available for such purpose and only such purpose funds
sufficient to pay in full the aggregate Redemption Price for such shares of
Series A Preferred Stock on such Redemption Date, then effective as of the close
of business on such Redemption Date, such shares of Series A Preferred Stock
will no longer be deemed outstanding (notwithstanding that any certificate for
such shares has not been surrendered for cancellation), dividends with respect
to the shares so called for redemption will cease to accrue on the Redemption
Date (provided that holders of shares of Series A Preferred Stock at the close
of business on a Record Date for any payment of dividends will be entitled to
receive the dividend payable on such shares on the corresponding Dividend
Payment Date notwithstanding the redemption of such shares following such Record
Date and prior to such Dividend Payment Date), and all rights with respect to
the shares so called for redemption will immediately after such date cease and
terminate, except the right of such holders, upon the surrender of certificates
evidencing the shares of Series A Preferred Stock so redeemed, to receive
payment in cash in the amount of the Redemption Price for such shares. Any funds
so set apart which remain unclaimed at the end of one year after the Redemption
Date will be released to the Company, after which time the holders of shares of
Series A Preferred Stock called for redemption on such Redemption Date that
remain outstanding after such one-year period will look only to the Company for
the payment of the Redemption Price for such shares, without interest, unless an
applicable escheat or abandoned property law otherwise requires. If any shares
of Series A Preferred Stock so called for redemption are converted pursuant to
paragraph 6, between the date such funds are set apart and the close of business
on the Redemption Date, then the funds so set apart for the redemption of such
shares so converted will be promptly released to the Company.
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<PAGE>
(d) At its election, the Company on or prior to any Redemption Date (but no
more than 90 days prior to such Redemption Date) may deposit immediately
available funds sufficient to pay the aggregate Redemption Price of the shares
of Series A Preferred Stock called for redemption on such date in trust for its
holders with any bank or trust company organized under the laws of the United
States of America or any of its states having capital, undivided profits and
surplus aggregating at least $50 million (the "Redemption Agent"), with
irrevocable instructions and authority to the Redemption Agent, on behalf and at
the expense of the Company, to mail the Redemption Notice as soon as practicable
after receipt of such irrevocable instructions (or to complete such mailing
previously commenced, if it has not already been completed) and to pay, on and
after such Redemption Date, the Redemption Price of the shares of Series A
Preferred Stock to be redeemed to their respective holders upon the surrender of
their certificates. A deposit made in compliance with the immediately preceding
sentence shall be deemed to constitute full payment for the shares of Series A
Preferred Stock to be redeemed and from and after the later of the close of
business on the date of such deposit (although prior to such Redemption Date) or
the date the Redemption Notice is mailed, the shares of Series A Preferred Stock
to be redeemed shall no longer be deemed outstanding and the holders of Series A
Preferred Stock shall cease to be stockholders with respect to such shares and
will have no rights with respect to such shares except (x) the right of the
holders of Series A Preferred Stock to receive the Redemption Price, without
interest, for shares of Series A Preferred Stock to be redeemed upon surrender
of their certificates and (y) the right to convert such shares in accordance
with paragraph 6 prior to the close of business on the tenth day prior to such
Redemption Date. Any interest accrued on funds so deposited shall be paid by the
Redemption Agent to the Company from time to time. Any funds deposited with the
Redemption Agent which remain unclaimed at the end of one year after the
Redemption Date shall be returned by the Redemption Agent to the Company, after
which return the holders of shares of Class A Preferred Stock called for
redemption on such Redemption Date that remain outstanding after such one-year
period shall look only to the Company for the payment of the Redemption Price
for such shares, without interest, unless an applicable escheat or abandoned
property law otherwise requires. If any shares of Series A Preferred Stock
called for redemption on such Redemption Date are converted, in accordance with
paragraph 6, between the date such funds are so deposited with the Redemption
Agent and the close of business on the tenth day prior to the Redemption Date,
then the funds (including cash for any adjustment in lieu of delivering
fractional shares) so deposited for the redemption of such shares so converted
shall be promptly returned by the Redemption Agent to the Company.
(e) Each holder of shares of Series A Preferred Stock to be redeemed will
surrender the certificates evidencing such shares (properly endorsed or assigned
to the Company in blank and with signatures guaranteed, if the Company so
requires and the Redemption Notice so states) to the Company at the place
designated in the Redemption Notice for such redemption and will upon such
surrender be entitled to receive the consideration for such shares specified in
the Redemption Notice in an aggregate amount equal to the Redemption Price for
such shares. If fewer than all of the shares of Series A Preferred Stock
represented by any such surrendered certificate are called for redemption, a new
certificate will be issued at the expense of the Company representing the
unredeemed shares.
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<PAGE>
4. Mandatory Redemption by the Company.
(a) The issued and outstanding Series A Preferred Stock will be redeemed at
the then applicable Redemption Price, (i) within 60 days after a Change in
Control (as defined below) has occurred, if the Board has not by resolution
given its approval of the Change in Control prior to its occurrence, and (ii)
within two years after a Change in Control has occurred, if the Board has by
resolution given its approval of the Change in Control prior to its occurrence
(in either such case, a "Mandatory Redemption Date"). The Board will Give a
Redemption Notice to all holders of the Series A Preferred Stock within 15 days
after it learns that a Change in Control has occurred. A "Change in Control"
means that any Person (as defined below), other than Harry A. Trueblood, Jr., or
his estate or heirs, together with such Person's Affiliates (as defined below),
controls, by direct or beneficial ownership (or both), over 50% of the voting
power of the capital stock necessary to elect a majority of the Board. A
"Person" means an individual, corporation, partnership, limited liability
company, trust or other entity of any nature. "Affiliate" has the meaning given
to such term in Rule 144 of the Securities and Exchange Commission promulgated
under the Securities Act of 1933.
(b) The Company will redeem on the Mandatory Redemption Date all shares of
Series A Preferred Stock remaining outstanding at the Redemption Price. If funds
of the Company legally available for redemption of shares of the Series A
Preferred Stock are insufficient to redeem the total number of shares of Series
A Preferred Stock remaining outstanding, those funds which are legally available
will be used to redeem the maximum possible number of shares of Series A
Preferred Stock. At any time and from time to time thereafter when additional
funds of the Company are legally available for such purpose, such funds will
immediately be used to redeem the shares of Series A Preferred Stock which were
required to be redeemed that the Company failed to redeem until the balance of
such shares has been redeemed. The selection of shares to be redeemed pursuant
to the two immediately preceding sentences will be made, as nearly as
practicable, on a pro rata basis as among the different classes or series and as
among the holders of shares of a particular class or series.
(c) Each holder of shares of Series A Preferred Stock to be redeemed will
surrender the certificates evidencing such shares (properly endorsed or assigned
to the Company in blank and with signatures guaranteed, if the Company so
requires and the Redemption Notice so states) to the Company at the place
designated in the Redemption Notice for such redemption and will upon such
surrender be entitled to receive the consideration for such shares specified in
the Redemption Notice in an aggregate amount equal to the Redemption Price for
such shares.
5. Limitations on Dividends and Redemptions.
(a) As long as any shares of Series A Preferred Stock are outstanding, no
dividends will be paid or declared in cash or otherwise on Junior Stock (as
defined below), nor will any other distribution be made on any Junior Stock,
unless (i) all accrued dividends on the Series A Preferred Stock have been paid,
or declared and set aside for payment, for all dividend periods terminating on
or prior to the date of such Junior Stock dividend or distribution payment and
(ii) the Company is not in default on any of its obligations to redeem any
Series A Preferred Stock. "Junior Stock" means each class or series of common
stock of the Company, and any other class or series of capital stock of the
Company to be created to the extent that it ranks junior to the Series A
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation, as the case may be.
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<PAGE>
(b) As long as any shares of Series A Preferred Stock are outstanding, no
shares of any Junior Stock may be purchased, redeemed, or otherwise acquired by
the Company, and no funds may be set aside or made available for any sinking
fund for the purchase, redemption or other acquisition of any Junior Stock,
unless all accrued dividends on all Series A Preferred Stock have been paid, or
declared and set aside for payment for all dividend periods terminating on or
prior to the date of such purchase, redemption or acquisition, and the Company
is not in default on any of its obligations to redeem any Series A Preferred
Stock.
(c) Subject to the provisions of subparagraphs (a) and (b) above, dividends
or distributions may be declared and paid on the shares of any from time to time
and any Junior Stock may be purchased, redeemed or otherwise acquired by the
Company from time to time. In the event of the declaration and payment of any
such dividends or distributions, the holders of such Junior Stock will be
entitled, to the exclusion of holders of shares of Series A Preferred Stock, to
share in such dividends and distributions according to their respective
interests.
(d) Nothing contained in this paragraph will prevent (i) the payment of
dividends or the making of distributions on any Junior Stock solely in shares of
Junior Stock (together with a cash adjustment for fractional shares, if any), or
the redemption, purchase or other acquisition of Junior Stock solely in exchange
for (together with a cash adjustment for fractional shares, if any), or through
the application of the proceeds from the sale of, shares of Junior Stock, or the
conversion of Series A Preferred Stock for shares of common stock of the Company
(together with a cash adjustment for fractional shares, if any) pursuant to the
provisions of paragraph 6.
(e) The provisions of subparagraphs (a) and (b) of this paragraph are for
the sole benefit of the holders of the Series A Preferred Stock and accordingly,
at any time when the holders of shares of Series A Preferred Stock have waived
(as provided in paragraph 16) in whole or in part the benefit of the provisions
of subparagraphs (a) and (b) (either generally or in the specific instance), and
(ii) the holders of shares of Series A Preferred Stock have waived (as provided
in paragraph 16) in whole or in part the benefit of the provisions of (a), (b)
or (d) (either generally or in the specific instance), then such provisions will
not (to the extent waived, in the case of any partial waiver) restrict the
payment of dividends or the making of distributions on, or the redemption,
purchase or other acquisition of any shares of, Series A Preferred Stock or any
Junior Stock.
6. Conversion at Option of Holder.
(a) Subject to the provisions of this paragraph, each share of Series A
Preferred Stock is convertible, in whole or from time to time in part, at the
option of the holder, at any time from and after the 60th day after the Issue
Date and prior to the close of business on the tenth day prior to any Redemption
Date, unless previously redeemed, at the rate of [____________] shares of common
stock, $.20 par value, of the Company ("Common Stock") for each Share converted
(the "Conversion Rate"). The right to convert shares of Series A Preferred Stock
called for redemption will terminate immediately prior to the close of business
on the tenth day prior to the related Redemption Date.
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<PAGE>
(b) In order to convert shares of Series A Preferred Stock, the holder must
surrender the certificates evidencing the shares of Series A Preferred Stock to
be converted at the principal office of the Company or its agent, duly endorsed
to the Company or in blank (or accompanied by duly executed instruments of
transfer to the Company or in blank) with signatures guaranteed (such
endorsements or instruments of transfer to be in form satisfactory to the
Company), together with written notice of conversion specifying the number of
shares of Series A Preferred Stock to be converted and specifying the name or
names (with addresses) in which the certificate or certificates representing the
Common Stock deliverable on such conversion are to be registered, and otherwise
in accordance with conversion procedures established by the Company. Each notice
of conversion will be irrevocable, and each conversion will be deemed to have
been effected immediately prior to the close of business on the date (the
"Conversion Date") on which all of the requirements for such conversions have
been satisfied. If any transfer is involved in the issuance or delivery of any
certificate or certificates for shares of Common Stock in a name other than that
of the registered holder of the shares of Series A Preferred Stock surrendered
for conversion, such holder will also deliver to the Company a sum sufficient to
pay all taxes, if any, payable in respect of such transfer or evidence
satisfactory to the Company that such taxes have been paid. Except as provided
in the immediately preceding sentence, the Company will pay any issue, stamp or
other similar tax in respect of such issuance or delivery.
(c) As promptly as practicable after the Conversion Date, the Company, in
accordance with the provisions of this paragraph, will issue and deliver at said
office or agency to the holder of the shares of Series A Preferred Stock so
surrendered for conversion, or on his or her written order, a certificate or
certificates for the number of full shares of Common Stock issuable upon
conversion of such shares in accordance with the provisions of this paragraph,
and any fractional interest will be settled in accordance with paragraph 10.
(d) The person in whose name the certificate for shares of Common Stock is
issued upon such conversion will be treated for all purposes as the stockholder
of record of such shares of Common Stock as of the close of business on the
Conversion Date; provided, however, that no surrender of Series A Preferred
Stock on any date when the stock transfer books of the Company are closed for
any purpose will be effective to constitute the person or persons entitled to
received the shares of Common Stock deliverable upon such conversion as the
record holder(s) of such shares of Series A Common Stock on such date, but
surrender will be effective (assuming all other requirements for the valid
conversion of such shares have been satisfied) to constitute such person or
persons as the record holder(s) of such shares of Common Stock for all purposes
as of the opening of business on the next succeeding day on which such stock
transfer books are open. Upon conversion of shares of Series A Preferred Stock,
the rights of the holder of such shares, as a holder of such shares, will cease.
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<PAGE>
(e) Holders of shares of Series A Preferred Stock at the close of business
on a Record Date for any payment of declared dividends will be entitled to
receive the dividend payable on such shares on the corresponding Dividend
Payment Date notwithstanding the effective conversion of such shares following
such Record Date and prior to the corresponding Dividend Payment Date. However,
shares of Series A Preferred Stock surrendered for conversion after the close of
business on a Record Date for any payment of dividends and before the opening of
business on the next succeeding Dividend Payment Date must be accompanied by
payment in cash of an amount equal to the dividend thereon attributable to the
current Dividend Period which is to be paid on such Dividend Payment Date
(unless such shares are subject to redemption on a Redemption Date between such
Record Date and such Dividend Payment Date). A holder of shares of Series A
Preferred Stock called for redemption on any Dividend Payment Date will (if such
holder is the registered holder on the applicable Record Date) receive the
dividend on such shares payable on that date and will be able to convert such
shares after the Record Date for such dividend without paying an amount equal to
such dividend to the Company upon conversion. Except as provided above, upon any
conversion of shares of Series A Preferred Stock pursuant to this paragraph, the
Company will make no payment or allowance for unpaid dividends, whether or not
in arrears, on converted shares of Series A Preferred Stock and will make no
payment or allowance for previously declared dividends or distributions on the
shares of Common Stock issued upon such conversion.
(f) If the shares of Series A Preferred Stock represented by a certificate
surrendered for conversion are converted in part only, the Company will cause to
be issued and delivered to the registered holder, without charge, a new
certificate or certificates representing the aggregate the number of unconverted
shares.
7. Conversion Rate Adjustments.
(a) If the Company at any time or from time to time, (1) declares a
dividend on the Common Stock payable in shares of its capital stock (including
Common Stock), (2) subdivides the outstanding Common Stock, (3) combines the
outstanding Common Stock into a smaller number of shares, or (4) issues any
shares of its capital stock in a reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the surviving Person), then in each such case, the number of
shares of Common Stock into which the Series A Preferred Stock will convert at
the time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification, and the number and kind of shares
of Common Stock issuable on such dates will be proportionately adjusted so that,
in connection with a conversion of the Series A Preferred Stock after such date,
the holder of the Series A Preferred Stock will be entitled to receive the
aggregate number and kind of shares of capital stock which, if the conversion
had occurred immediately prior to such date, the holder would have owned upon
such conversion and would have been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. Any such adjustment will
become effective immediately after the record date of such dividend or the
effective date of such subdivision, combination or reclassification. Such
adjustment will be made successively whenever any event listed above occurs. If
a dividend is declared and such dividend is not paid, the number of shares of
Common Stock into which the Series A Preferred Stock will convert will be
adjusted to that number of shares of Common Stock into which the Series A
Preferred Stock would convert immediately prior to such record date.
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<PAGE>
(b) In case this Company shall issue any rights or warrants to all holders
of shares of Common Stock entitling them (for a period expiring within 45 days
after the record date for the determination of stockholders entitled to receive
such rights or warrants) to subscribe for or purchase shares of Common Stock or
securities convertible into or exchangeable for shares of Common stock
("Convertible Securities") at a price per share of Common Stock (or having an
initial exercise price or conversion price per share of Common Stock) less than
the then current market price per share of Common Stock (as determined in
accordance with the provisions of Section 7(d) below) on such record date, the
number of shares of Common Stock into which each Share shall thereafter be
convertible shall be determined by multiplying the number of shares of Common
Stock into which such Share was theretofore convertible immediately prior to
such record date by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock offered for subscription or purchase (or into
which the Convertible Securities so offered are initially convertible) and of
which the denominator shall be the number of shares of Common Stock outstanding
on such record date plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate initial conversion or exercise price of the
Convertible Securities so offered) would purchase at the then current market
price per share of Common Stock (as determined in accordance with the provisions
of Section 5(d) below) on such record date. Such adjustment shall be made
successively whenever any such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. In the event that all
of the shares of Common Stock (or all of the Convertible Securities) subject to
such rights or warrants have not been issued when such rights or warrants expire
(or, in the case of rights or warrants to purchase Convertible Securities which
have been exercised, all of the shares of Common Stock issuable upon conversion
of such Convertible Securities have not been issued prior to the expiration of
the conversion right thereof), then the Conversion Rate shall be readjusted
retroactively to be the Conversion Rate which would then be in effect had the
adjustment upon the issuance of such rights or warrants been made on the basis
of the actual number of shares of Common Stock (or Convertible Securities)
issued upon the exercise of such rights or warrants (or the conversion of such
Convertible Securities); but such subsequent adjustment shall not affect the
number of shares of Common Stock issued upon the conversion of any Share prior
to the date such subsequent adjustment is made.
(c) In case the Company shall distribute to all holders of shares of Common
Stock (including any such distribution made in connection with a merger in which
the Company is the continuing corporation, other than a merger to which Section
7(e) is applicable) any securities, evidences of its indebtedness or assets
(other than cash dividends out of earnings or Capital Stock in respect of which
an adjustment is made pursuant to Section 7(a) hereof) or rights or warrants to
purchase shares of Common Stock or securities convertible into shares of Common
Stock (excluding those referred to in Section 7(b) above), then in each such
case the number of shares of Common Stock into which each Share shall thereafter
be convertible shall be determined by multiplying the number of shares of Common
Stock into which such Share was theretofore convertible immediately prior to the
record date for the determination of stockholders entitled to receive the
distribution by a fraction of which the numerator shall be the then current
market price per share of Common Stock (as determined accordance with the
provisions of Section 7(d) below) on such record date and of which the
denominator shall be such current market price per share of Common Stock less
the fair market value on such record date (as determined by the Board of
Directors of the Corporation, whose determination shall be conclusive) of the
portion of the securities, assets or evidences of indebtedness or rights and
warrants so to be distributed applicable to one share of Common Stock. Such
adjustment shall be made successively whenever any such distribution is made and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such distribution.
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<PAGE>
(d) The current market price per share of Common Stock at any date shall be
deemed to be the average of the daily closing prices for a share of Common Stock
for the ten consecutive trading days before the day in question. The closing
price for each day shall be the last reported sale price regular way or, in case
no such reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way, in either case on the composite tape,
or if the shares of Common Stock are not quoted on the composite tape, on the
principal United States securities exchange registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), on which the shares of
Common Stock are listed or admitted to trading, or if they are not listed or
admitted to trading on any such exchange, the last reported sale price (or the
average of the quoted closing bid and asked prices if there were no reported
sales) as reported by the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or any comparable system, or if the Common Stock is
not quoted on NASDAQ or any comparable system, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose or, in the absence of such quotations, such other method of determining
market value as the Board of Directors shall from time to time deem to be fair.
(e) In case of any reclassification or change in the Common Stock (other
than any reclassification or change referred to in Section 7(a) and other than a
change in par value) or in case of any consolidation of the Company with any
other corporation or any merger of the Company into another corporation or of
another corporation into the Company (other than a merger in which the Company
is the continuing corporation and which does not result in any reclassification
or change (other than a change in par value or any reclassification or change to
which Section 7(a) is applicable) in the outstanding Common Stock), or in case
of any sale or transfer to another corporation or entity (other than by mortgage
or pledge) of all or substantially all of the properties and assets of the
Company, the Company (or its successor in such consolidation or merger) or the
purchaser of such properties and assets shall make appropriate provision so that
the holder of a Share shall have the right thereafter to convert such Share into
the kind and amount of shares of stock and other securities and property (a
"Successor Interest") that such holder would have owned immediately after such
reclassification, change, consolidation, merger, sale or transfer if such holder
had converted such Share into Common Stock immediately prior to the effective
date of such reclassification, change, consolidation, merger, sale or transfer
(assuming for this purpose (to the extent applicable) that such holder failed to
exercise any rights of election and received per share of Common Stock the kind
and amount of shares of stock and other securities and property received per
share by a plurality of the non-electing shares), and the holders of the Series
A Preferred Stock shall have no other conversion rights under these provisions;
provided, that effective provision shall be made, in the Articles or Certificate
of Incorporation of the resulting or surviving corporation or otherwise or in
any contracts of sale or transfer, so that the provisions set forth herein for
the protection of the conversion rights of the Series A Preferred Stock shall
thereafter be made applicable, as nearly as reasonably may be to any such other
shares of stock and other securities and property deliverable upon conversion of
the Series A Preferred Stock remaining outstanding or other convertible
preferred stock or other Convertible Securities received by the holders of
Series A Preferred Stock in place thereof; and provided, further, that any such
resulting or surviving corporation or purchaser shall expressly assume the
obligation to deliver, upon the exercise of the conversion privilege, such
shares, securities or property as the holders of the Series A Preferred Stock
remaining outstanding, or other convertible preferred stock or other convertible
securities received by the holders in place thereof, shall be entitled to
receive pursuant to the provisions hereof, and to make provisions for the
protection of the conversion rights as above provided.
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(f) No adjustment to the Conversion Rate will be made if the amount of such
adjustment would result in a change in the Conversion Rate per share of less
than $.01, but in such case any adjustment that would otherwise be required to
be made will be carried forward and will be made at the time of and together
with the next subsequent adjustment, which, together with any adjustment so
carried forward, would result in a change in the Conversion Rate of at least
$.01 per share.
8. Notice of Adjustments.
Whenever the Conversion Rate is adjusted as provided for by this
Certificate, the Company will:
(a) compute the adjusted Conversion Rate in accordance with this
Certificate and prepare a certificate signed by an officer of the Company
setting forth the adjusted Conversion Rate, the method of calculation in
reasonable detail and the facts requiring such adjustment and upon which such
adjustment is based, which certificate will be conclusive, final and binding
evidence of the correctness of the adjustment (absent manifest error), and file
such certificate with the transfer agent for the shares of Series A Preferred
Stock and the Common Stock; and
(b) mail a notice to the holders of the outstanding shares of Series A
Preferred Stock stating that the Conversion Rate has been adjusted, the facts
requiring such adjustment and upon which such adjustment is based and setting
forth the adjusted Conversion Rate,.
9. Actions in Respect of Common Stock.
The Company will take such reasonable action which may be necessary, in the
opinion of the Company's counsel, in order that (a) the Company may validly and
legally deliver fully paid and nonassessable shares of Common Stock upon any
surrender of shares of Series A Preferred Stock for redemption or conversion
pursuant to paragraphs 3, 4 and 6, (b) the delivery of shares of Common Stock in
accordance with this paragraph is exempt from the registration or qualification
requirements of the Securities Act and applicable state securities laws or, if
no such exemption is available, that the offer and conversion of such shares of
Common Stock have been duly registered or qualified under the Securities Act and
applicable state securities laws, (c) the shares of Common Stock delivered upon
such conversion are listed for trading on the American Stock Exchange or on
another national securities exchange (upon official notice of issuance), and (d)
the shares of Common Stock delivered upon such conversion are free of preemptive
rights and any liens or adverse claims. The Company has agreed to at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Stock and its issued Common Stock held in its
treasury, for the purpose of effecting any conversion of shares of Series A
Preferred Stock at the option of the holder pursuant to paragraph 6, the full
number of shares of Common Stock deliverable upon the conversion of all then
outstanding shares of Series A Preferred Stock (assuming for this purpose that
all of the outstanding shares of Series A Preferred Stock are held by a single
holder).
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<PAGE>
10. No Fractional Shares of Common Stock.
No fractional shares of Common Stock or scrip will be issued upon the
conversion of Series A Preferred Stock for Common Stock. In lieu of the issuance
of a fraction of a share of Common Stock or scrip, the Company will pay instead
an amount in cash (rounded to the nearest whole cent) equal to the same fraction
of the closing price of a share of Common Stock on the trading day immediately
preceding the Conversion Date, the Dividend Payment Date or the Redemption Date,
as the case may be.
11. Payment of Taxes.
The Company will pay any and all documentary, stamp or similar transfer
taxes payable in respect of the delivery of shares of Common Stock pursuant to
paragraph 6, but the Company will not be required to pay any tax which may be
payable in respect of any registration of transfer involved in the delivery of
shares of Common Stock upon a conversion of shares of Series A Preferred Stock
pursuant to paragraph 6 in a name other than that of the registered holder of
such shares of Series A Preferred Stock.
12. No Preemptive Rights.
The holders of shares of Series A Preferred Stock will have no preemptive
rights, including preemptive rights with respect to any shares of capital stock
or other securities of the Company convertible into or carrying rights or
options to purchase any such shares.
13. Voting Rights.
(a) The holders of Series A Preferred Stock will have the right to one vote
for each share of Series A Preferred Stock held by them, and will be entitled to
notice of any meeting of shareholders of the Company and will be entitled to
vote together with holders of the Common Stock with respect to any matter upon
which holders of Common Stock are entitled to vote.
B-13
<PAGE>
(b) At any time accrued dividends payable on the shares of Series A
Preferred Stock are in arrears and unpaid in an aggregate amount equal to or
exceeding the aggregate amount of dividends payable on such shares for four or
more Dividend Periods (whether or not consecutive)(a "Dividend Default"), the
holders of the shares of Series A Preferred Stock, voting separately as a class,
will have the right to vote for the election of two directors (the "Preferred
Stock Directors") to the Board, such directors to be in addition to the number
of directors constituting the Board immediately prior to the accrual of such
right. Such right of the holders of shares of Series A Preferred Stock to vote
for the election of two Preferred Stock Directors will, when vested, continue
until all dividends in arrears on the shares of Series A Preferred Stock have
been paid in full and, when so paid, such right will cease, subject always to
the same provisions for the vesting of such right in the holders of the shares
of Series A Preferred Stock in the case of further Dividend Defaults. The
Preferred Stock Directors will be elected by a majority of the votes actually
cast by the holders of Series A Preferred Stock.
(c) At any time when the holders of shares of the Series A Preferred Stock
are entitled to elect two Preferred Stock Directors, the Company will, upon the
written request (a "Request") of the holders of record of not less than 10% of
the outstanding shares of Series A Preferred Stock, call a special meeting of
holders of the Series A Preferred Stock for the election of the two Preferred
Stock Directors. Notice of the special meeting will be given in accordance with
the requirements of Colorado law, and such meeting will be held not more that 60
days after the Company's receipt of the Request. The Preferred Stock Directors
will be nominated by the persons who submit the Request, and will serve until
the earlier of (i) such person's resignation or (ii) the cure by the Company of
any Dividend Default. The Company will not be obligated to call more than one
special meeting of shareholders for the purpose of electing Preferred Stock
Directors in any twelve month period during the continuation of any Dividend
Default. No person may be nominated or may serve as a Preferred Stock Director
unless such person meets all requirements for serving on the Board as set forth
in any applicable law.
(d) If, prior to the end of the term of any Preferred Stock Director
elected as provided above, a vacancy in the office of such director occurs, such
vacancy will be filled for the unexpired term by the appointment by the
remaining Preferred Stock Director of a new director for the unexpired term of
such former Preferred Stock Director. If both Preferred Stock Directors so
elected by the holders of shares of Series A Preferred Stock cease, at the same
time, to serve as directors before their terms expire, the holders of the shares
of Series A Preferred Stock may, at a special meeting of the holders called as
provided in subparagraph (c) above, nominate and elect successors to hold office
for the unexpired terms of such Preferred Stock Directors.
B-14
<PAGE>
(e) For as long as any shares of Series A Preferred Stock remain
outstanding, the affirmative vote of the holders at least two-thirds of such
outstanding Shares (voting separately as a class), given in person or by proxy
at an annual meeting or special meeting called for such purpose, will be
necessary before the Company may (i) amend, alter or repeal any of the
provisions of its Articles of Incorporation so as to adversely affect the
powers, preferences or rights of the holders of the shares of Series A Preferred
Stock then outstanding or reduce the minimum time required for any notice to
which holders of shares of Series A Preferred Stock then outstanding may be
entitled; or (ii) authorize or issue any capital stock which ranks prior to, or
on a parity with, the Series A Preferred Stock as to dividend rights, rights of
redemption or rights of liquidation (except for the issuance of additional
shares of Series A Preferred Stock which were authorized as of the Issue Date).
In order to avoid doubt, any such amendment, alteration or repeal that would
authorize, create or increase the authorized amount of any additional shares of
Junior Stock or that would decrease (but not below the number of shares then
outstanding) the number of authorized shares of Preferred Stock will be deemed
not to adversely affect such powers, preferences or rights and will not be
subject to approval by the holders of shares of Series A Preferred Stock.
Anything in the foregoing to the contrary notwithstanding, no consent of the
holders of the shares of Series A Preferred Stock will be required if, at or
prior to the time when such amendment, alteration or repeal is to take effect,
provision is made for the redemption of all shares of Series A Preferred Stock
at the time outstanding.
(f) Except as otherwise set forth in this paragraph or as required by law,
the holders of Series A Preferred Stock will not have any relative,
participating, optional or other special voting rights and powers, and the
consent or vote of such holders will not be required for the taking of any
corporate action by the Company or the Board.
14. Liquidation Rights.
(a) In the event of any liquidation, dissolution, or winding up of the
affairs of the Company, whether voluntary or involuntary, the holders of shares
of Series A Preferred Stock then outstanding, after payment or provision for
payment of the debts and other liabilities of the Company, will be entitled to
be paid out of the assets of the Company available for distribution to its
stockholders (i) an amount per share of Series A Preferred Stock in cash equal
to the Face Value of such share plus (ii) an amount equal to all dividends
accrued but unpaid on such Share, whether or not such unpaid dividends have been
declared or there are any funds of the Company legally available for the payment
of dividends (the "Liquidation Preference"). If the assets of the Company
available for distribution to the holders of the shares of Series A Preferred
Stock upon dissolution, liquidation or winding up of the Company are
insufficient to pay in full the Liquidation Preference payable to the holders of
outstanding shares of Series A Preferred Stock, the holders of shares of Series
A Preferred Stock will share ratably in such distribution of assets in
proportion to the amount which would have been payable on such distribution if
the amounts to which the holders of outstanding shares of Series A Preferred
Stock were otherwise entitled had been paid in full. Except as provided in this
subparagraph, holders of Series A Preferred Stock will not be entitled to any
other or further distribution in the event of the liquidation, dissolution or
winding up of the affairs of the Company.
(b) For the purposes of this paragraph, none of the following will
be deemed to be a voluntary or involuntary liquidation, dissolution or winding
up of the Company:
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<PAGE>
(i) the sale, lease, transfer or exchange of all or substantially all
of the assets of the Company; or
(ii) the consolidation or merger of the Company with one or more other
Persons (whether or not the Company is the Person surviving such
consolidation or merger) or the consummation of a statutory binding share
exchange involving the Company.
15. Waiver.
Any provision of this Certificate of Designation which, for the benefit of
the holders of Series A Preferred Stock, prohibits, limits or restricts actions
by the Company may be waived in whole or in part, or the application of all or
any part of such provision in any particular circumstance or generally may be
waived, in each case with the consent of the holders of at least two-thirds of
the number of shares of Series A Preferred Stock then outstanding, either in
writing or by vote at a meeting called for such purpose at which the holders of
Series A Preferred Stock vote as a separate class.
16. Shareholder Reports.
The Company will provide to holders of Shares the quarterly and annual
reports to shareholders, proxy statements and other reports as are provided to
holders of Common Stock, such reports to be provided to holders of Shares at the
same time that they are provided to holders of Common Stock.
17. Status of Redeemed or Converted Shares.
All shares of Series A Preferred Stock redeemed or converted by the Company
will be retired and will not he reissued as Series A Preferred Stock.
18. Exclusion of Other Rights.
Except as may otherwise be required by law, the shares of Series A
Preferred Stock will not have any designations, preferences, limitations or
relative rights other than those specifically set forth in this Certificate of
Designation.
19. Unclaimed Dividends.
Any and all right, title, interest and claim in or to any dividends
declared by the Company, which are unclaimed for a period of four years after
the close of business on the payment date, will be and be deemed extinguished
and abandoned; and such unclaimed dividends in the possession of the Company or
other agents or depositories, will at such time become the absolute property of
the Company, free and clear of any and all claims of any persons whatsoever.
B-16
<PAGE>
Third:
This resolution was adopted by the Board as of October 24, 1996, and has
been executed and attested by the undersigned on January ___, 1997.
COLUMBUS ENERGY CORP.
- -----------------------------------
____________________, President
Attest:
- -----------------------------------
____________________, Secretary
B-17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Filing Fee..................................... $3,030
Blue Sky Fees.................................. 2,000
Legal Fees..................................... 25,000
Accounting Fees................................ 25,000
Transfer Agent Fees............................ 10,000
Printing and Mailing .......................... 15,000
Miscellaneous.................................. 10,000
---------
Total $ 90,030
=========
Item 15. Indemnification of Directors and Officers
Section 7-109-102 of the Colorado Business Corporation Act (the "Act")
provides, generally, that a corporation may indemnify a person made a party to
any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative and whether formal or informal
(a "Proceeding"), because the person is or was a director of the corporation or
an individual who, while serving as a director of the corporation, is or was
serving at the corporation's request as a director, officer, partner, trustee,
employee or fiduciary or agent of another corporation or other entity or of any
employee benefit plan (a "Director"), against any obligation incurred with
respect to a Proceeding to pay a judgment, settlement, penalty, fine (including
an excise tax assessed with respect to an employee benefit plan) or reasonable
expenses incurred in the Proceeding if he conducted himself in good faith and he
reasonably believed, in the case of conduct in an official capacity with the
corporation, his conduct was in the corporation's best interests and, in all
other cases, his conduct was at least not opposed to the corporation's best
interest and, with respect to any criminal proceedings, he had no reasonable
cause to believe that his conduct was unlawful; provided, however, a corporation
may not indemnify a Director in connection with any Proceeding by or in the
right of the corporation in which the Director was adjudged liable to the
corporation or, in connection with any other Proceeding charging the Director
derived an improper personal benefit, whether or not involving actions in an
official capacity, in which Proceeding the Director was judged liable on the
basis that he derived an improper personal benefit. Any indemnification
permitted in connection with a Proceeding by or in the right of the corporation
is limited to reasonable expenses incurred in connection with such Proceeding.
Under Section 7-109-107 of the Act, unless otherwise provided in the Articles of
Incorporation, a corporation may indemnify an officer, employee, fiduciary, or
agent of the corporation to the same extent as to a Director and may indemnify
an officer, employee, fiduciary, or agent who is not a Director to a greater
extent, if not inconsistent with public policy and if provided for by its
bylaws, general or specific action of its board of directors or shareholders, or
contract.
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<PAGE>
Section 7-108-402 of the Act provides, generally, that the Articles of
Incorporation may contain a provision eliminating or limiting the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director; except that any such
provision may not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its shareholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) acts specified in ss. 7-108-403, or (iv)
any transaction from which a director directly or indirectly derived an improper
personal benefit. Such provision may eliminate or limit the liability of a
director for any act or omission occurring prior to the date on which such
provision becomes effective.
Article VI of the Company's Amended and Restated Articles of Incorporation
(the "Articles"), provides as follows:
1. A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach
of the director's loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 7-5-114
of the Colorado Corporation Code, or (iv) for any transaction from
which the director derived any improper personal benefit. If the
Colorado Corporation Code is amended after approval by the
stockholders of this article to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or
limited to the fullest extent permitted by the Colorado Corporation
Code, as amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of
such repeal or modification.
2. A. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved
any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director, officer,
employee or agent of the Corporation or is or was serving at the
II-2
<PAGE>
request of the Corporation as a director, officer of another
corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans
(hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the
Colorado Corporation Code, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes
or penalties and amounts paid in settlement), reasonably incurred or
suffered by such indemnitee in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to
be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs or personal representative;
provided, however, that except as provided in subparagraph B. hereof
with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors
of the Corporation. The right to indemnification conferred in this
paragraph shall be a contract right . . .
B. Right of Indemnitee to Bring Suit. If a claim under
subparagraph A of this paragraph is not paid in full by the
Corporation within sixty days after a written claim has been received
by the Corporation, except in the case of a claim for an advancement
of expenses, in which case the applicable period shall be twenty days,
the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid
II-3
<PAGE>
also the expense of prosecuting or defending such suit. In (i) any
suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a
right to an advancement of expenses) it shall be a defense that the
indemnitee has not met the applicable standard of conduct set forth in
the Colorado Corporation Code, and (ii) any suit by the Corporation to
recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met the
applicable standard of conduct set forth in the Colorado Corporation
Code. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set
forth in the Colorado Corporation Code, nor an actual determination by
the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the
case of such a suit brought by the indemnitee, be a defense to such
suit. In any suit brought by the indemnitee to enforce a right
hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that
the indemnitee is not entitled to be indemnified or to such
advancement of expenses under this paragraph or otherwise shall be on
the Corporation.
C. Non-Exclusivity of Rights. The rights to indemnification and
to the advancement of expenses conferred in this paragraph shall not
be exclusive of any other right which any person may have or hereafter
acquire under any statute, this Certificate of Incorporation, by-law,
agreement, vote of stockholders or disinterested directors and does
not restrict the Corporation's right to limit the personal liability
of a director to the Corporation or to its shareholders for monetary
damages for breach of fiduciary duty as a director, or any other acts
which are consistent with the provisions of the Colorado Corporation
Code as the same exists or may hereafter be amended.
II-4
<PAGE>
The Company has entered into indemnification agreements with each person
who is a director of the Company (each director, an "indemnitee"). The
indemnification agreements provide for indemnification against any and all
damages, judgments, settlements and costs, costs of investigation and costs of
defense of legal actions, claims, or proceedings and appeals therefrom and costs
of attachment or similar bonds which indemnitee becomes legally obligated to pay
because of any claim or claims made against indemnitee because of any act or
omission or neglect or breach of duty, including any actual or alleged error
misstatement or misleading statement, which he commits or suffers while acting
in his capacity as a director of the Company or of certain subsidiaries of the
Company and solely because of his being a director; and for the advancement or
reimbursement of reasonable expenses (including attorneys' fees) if the
indemnitee furnishes the Company a written affirmation of his good faith belief
he has met the standard of conduct permitting indemnification under applicable
law, the director furnishes the Company a written undertaking to repay the
advance if it is determined he did not meet such standard of conduct, and the
Company determines that the facts then known to those making the determination
will not preclude indemnification under Colorado law provided that the Company
shall not have determined that the director would not be permitted to be so
indemnified under applicable law.
In addition, the indemnification agreement provides that if the Company
determines that the director is not permitted to be indemnified, the director is
not required to reimburse the Company until a final judicial determination is
made with respect thereto as to which all rights of appeal therefrom have been
exhausted or lapsed and the Company is not obligated to indemnify or advance any
additional amounts to the director (unless there has been a determination by a
court of competent jurisdiction that the director would be permitted to be so
indemnified under applicable law). The indemnification agreements also entitle
the director to be paid the expense of prosecuting a claim against a company to
collect an indemnity claim or advancement of expenses from the Company. The
Company is not liable to make any payment under the indemnification agreement
(i) to the extent payment is actually made to the director under an insurance
policy; (ii) to the extent the director is entitled to indemnity and/or payment
under an insurance policy; (iii) to the extent the director is indemnified by
the Company otherwise than pursuant to the indemnification agreement; (iv) to
the extent such indemnity is prohibited under Colorado law, the Amended and
Restated Articles of Incorporation or other applicable law; (v) for an
accounting of profits made from the purchase or sale by the director of
securities of the Company within the meaning of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any state
statutory law or common law; or (vi) if a court holds that such payment is
prohibited by applicable law or is against public policy.
The Company may purchase liability insurance policies covering its
directors and officers.
II-5
<PAGE>
Item 16. Exhibits
(a) Exhibits:
The following exhibits are filed herewith, except those exhibits marked
with an asterisk which are incorporated herein by reference as stated in the
description:
Exhibit No.
*4(a) Amended and Restated Articles of Incorporation (Exhibit 3(a) to
Registration Statement No. 33-17885). Exhibit "a" to Form 10-Q
dated July 13, 1990 and Exhibit 3(1)(a) to Form 8-K dated May 11,
1995).
*4(b) Amended By-Laws (Exhibit to Form 8-K dated February 16, 1995).
4(c) Specimen Preferred Stock Certificate
4(d) Subscription Certificate
4(e) Letter of Transmittal to Shareholders
4(f) Subscription Agent Agreement
5 Opinion of Sherman & Howard L.L.C. - To be filed by Amendment
10(a) Amended and Restated Credit Agreement dated as of October 23,
1996 between Columbus Energy Corp. and Norwest Bank Denver,
National Association.
*10(b) Deferred Compensation Plan adopted effective May 1, 1986 for
officers of the Registrant (Exhibit 10(a) to Registration
Statement No. 33-17885).
*10(c) 1993 Stock Purchase Plan (Exhibit 29 to Registration Statement
No. 33-63336.)
*10(d) 1995 Stock Option Plan (Exhibit 10(k) to Form 8-K dated May 11,
1995).
*10(e) 1985 Stock Option Plan (Exhibit 10(g) to Registration Statement
No. 33-17885).
*10(f) 1985 Stock Option Plan, Amendment No. 2 dated November 7, 1991
(Exhibit 10(h) to Form 10-K for fiscal year ended November 30,
1991).
II-6
<PAGE>
*10(g) Separation Pay Policy adopted December 1, 1990 for officers and
employees and as amended February 17, 1992 (Exhibit 10(i) to Form
10-K dated November 30, 1991).
*10(h) Form of Indemnity Agreements with directors (Exhibit 10(k) to
Registration Statement No. 33-46394).
11 Statement of computation of per share earnings.
23(a) Consent of Coopers & Lybrand L.L.P.
23(b) Consent of Reed W. Ferrill & Associates, Inc.
23(c) Consent of Huddleston & Co., Inc.
23(d) Consent of Sherman & Howard L.L.C. (included in Exhibit 5) - To
be filed by Amendment.
* Incorporated by reference to document(s) described in parentheses.
II-7
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post- effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
4. 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 Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, as amended, 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 the City of Denver, State of Colorado on January 13, 1997.
Columbus Energy Corp.
By:/s/ Harry A. Trueblood, Jr.
------------------------------
Harry A. Trueblood, Jr.
Chairman of the Board, President
and Chief Executive Officer
A T T E S T
By:/s/H.C. Gutjahr
- ------------------
H. C. Gutjahr, Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harry A. Trueblood, Jr. and H. C. Gutjahr and
each of them, his true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
pre-effective and post-effective amendments) to this Registration Statement, 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, and each of them, full power and authority to do
and perform each and every act and thing requisite or 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 either of them, or their or his substitute or
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 by the following persons in the capacities and on the dates
indicated:
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<PAGE>
Signature Title Date
Principal Executive Officer:
By:/s/Harry A. Trueblood, Jr.
- ----------------------------- Chairman and President January 13, 1997
Harry A. Trueblood, Jr.
Principal Financial and
Accounting Officer:
By:/s/Ronald H. Beck
- ----------------------------- Vice-President January 13, 1997
Ronald H. Beck
By:/s/Harry A. Trueblood, Jr.
- ----------------------------- Director January 13, 1997
Harry A. Trueblood, Jr.
By:/s/Clarence H. Brown
- ----------------------------- Director January 13, 1997
Clarence H. Brown
By:/s/J. Samuel Butler
- ----------------------------- Director January 13, 1997
J. Samuel Butler
By:/s/William H. Blount, Jr.
- ----------------------------- Director January 13, 1997
William H. Blount, Jr.
- ----------------------------- Director ________________
Donald W. Ringsby
- ----------------------------- Director ________________
Jerol M. Sonosky
II-10
<PAGE>
Registration Statement No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
E X H I B I T S
TO
FORM S-2
UNDER
THE SECURITIES ACT OF 1933
COLUMBUS ENERGY CORP.
(Exact Name of Registrant)
1660 Lincoln Street, Suite 2400
Denver, Colorado 80264
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
*4(a) Amended and Restated Articles of Incorporation (Exhibit 3(a) to
Registration Statement No. 33-17885). Exhibit "a" to Form 10-Q
dated July 13, 1990 and Exhibit 3(1)(a) to Form 8-K dated May 11,
1995).
*4(b) Amended By-Laws (Exhibit to Form 8-K dated February 16, 1995).
4(c) Specimen Preferred Stock Certificate
4(d) Subscription Certificate
4(e) Letter of Transmittal to Shareholders
4(f) Subscription Agent Agreement
5 Opinion of Sherman & Howard L.L.C. - To be filed by Amendment.
10(a) Amended and Restated Credit Agreement dated as of October 23,
1996 between Columbus Energy Corp. and Norwest Bank Denver,
National Association.
*10(b) Deferred Compensation Plan adopted effective May 1, 1986 for
officers of the Registrant (Exhibit 10(a) to Registration
Statement No. 33-17885).
*10(c) 1993 Stock Purchase Plan (Exhibit 29 to Registration Statement
No. 33-63336.)
*10(d) 1995 Stock Option Plan (Exhibit 10(k) to Form 8-K dated May 11,
1995).
*10(e) 1985 Stock Option Plan (Exhibit 10(g) to Registration Statement
No. 33-17885).
*10(f) 1985 Stock Option Plan, Amendment No. 2 dated November 7, 1991
(Exhibit 10(h) to Form 10-K for fiscal year ended November 30,
1991).
<PAGE>
*10(g) Separation Pay Policy adopted December 1, 1990 for officers and
employees and as amended February 17, 1992 (Exhibit 10(i) to Form
10-K dated November 30, 1991).
*10(h) Form of Indemnity Agreements with directors (Exhibit 10(k) to
Registration Statement No. 33-46394).
11 Statement of computation of per share earnings.
23(a) Consent of Coopers & Lybrand L.L.P.
23(b) Consent of Reed W. Ferrill & Associates, Inc.
23(c) Consent of Huddleston & Co., Inc.
23(d) Consent of Sherman & Howard L.L.C. (included in Exhibit 5)
* Incorporated by reference to document(s) described in parentheses.
Exhibit 4(c)
COLUMBUS ENERGY CORP.
Series A 7% Convertible Preferred Stock
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
This Certifies that is the recordholder of
FULLY PAID AND NONASSESSABLE SHARES OF THE Series A 7% Convertible Preferred
Stock, no par value of COLUMBUS ENERGY CORP. transferable on the books of the
corporation in person or by duly authorized attorney upon the surrender of this
Certificate properly endorsed. This Certificate is not valid until countersigned
by the Transfer Agent and registered by the Registrar.
Witness the signatures of the duly authorized officers of this Corporation.
Dated:
By: By:
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
TRANSFER AGENT AND REGISTRAR
By:
AUTHORIZED SIGNATURE
<PAGE>
The Corporation will furnish to any stockholder upon request and without
charge a statement of the powers, designations, preferences, limitations and
relative, participating, optional or other special rights of the shares of each
class of stock or series thereof authorized to be issued and the qualifications,
limitations or restrictions of such preferences and rights, and with respect to
the preferred stock, the variations in the relative powers, rights and
preferences, and the qualifications, limitations or restrictions thereof,
between the shares of each series of the preferred stock so far as the same have
been fixed and determined pursuant to the authority of the Board of Directors.
FOR CONVERSION USE ONLY
CONVERSION NOTICE
To convert all of the shares represented by this Certificate check the box: ( )
To convert only a part of the shares represented by this Certificate state the
number of shares to be converted:
The undersigned hereby irrevocably elects to convert the number of shares
indicated above of the Series A 7% Convertible Preferred Stock represented by
this Certificate into shares of the Common Stock of the Corporation (as such
shares may be constituted on the conversion date) in accordance with the
provisions of the Certificate of Incorporation, and directs that the shares
deliverable upon the conversion be registered in the name(s) of the undersigned
and deliverd together with a check as payment for any fractional share and a
certificate representing any shares of Series A 7% Convertible Preferred Stock
not an assignment on any other permitted form which accompanies this Conversion
Notice.
Dated:
FILL IN FOR REGISTRATION OF SHARES
Name:
Address:
Please print name and address (including zip code number)
Signature(s)
Signatures(s) Guaranteed By:
NOTICE: The signature(s) in this Conversion Notice must correspond with the
name(s) as written upon the face of this Certificate in every particular,
without alteration or enlargement, or any change whatever.
Please insert Social Security or Other Identifying Number:
The following abbreviation, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable law or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - (Cust) Custodian (Minor) under Uniform Gifts to Minors
Act (State)
UNIF TRF MIN ACT - (Cust) Custodian (until age ___) (Minor) under Uniform
Transfers to Minors Act (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE:
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE:
______ Shares of the Preferred Stock represented by the within Certificate, and
do hereby irrevocably constitute and appoint ___________ Attorney to transfer
the said Shares on the books of the within named Corporation with full power of
substitution in the premises.
Dated:
SIGNATURE(S):
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 4(d)
CERTIFICATE CUSIP
NUMBER NUMBER
RIGHTS
THIS SUBSCRIPTION CERTIFICATE
Becomes Void if Not Used at or Before 4:00 P.M. New York
Time on _______________, unless extended
COLUMBUS ENERGY CORP.
Subscription Certificate for shares of Series A 7% Convertible Preferred Stock
of Columbus Energy Corp.
The registered owner, whose name is inscribed hereon, or assigns, is entitled to
subscribe for shares of Series A 7% Convertible Preferred Stock at a price of
$25.00 per share, for each eight (8) rights owned, as shown above, or in the
alternative, for those shareholders who are purchasing round lots of 100 shares
of Series A 7% Convertible Preferred Stock, may substitute in lieu of cash up to
100 shares of Columbus Energy Corp. common stock and receive a credit of $12.50
for each common share relinquished (up to a maximum of $1,250) toward the $2,500
purchase price for each 100-share round lot being acquired. The Rights Offering
is being made upon the terms and conditions specified in the Columbus Energy
Corp. Prospectus. Copies of the Prospectus are available upon request from the
Company and Subscription Agent. This Subscription Certificate may be used to
subscribe for shares or may be assigned or sold as set forth in the instructions
contained in the letter accompanying this Subscription Certificate.
See reverse side of this Subscription Certificate.
COLUMBUS ENERGY CORP.
Countersigned:
Harris Trust Company of New York
By
Authorized Signature
<PAGE>
(See instructions in accompanying letter)
FORM 1 TO SUBSCRIBE FOR SHARES
I hereby submit ----- rights at the rate of eight (8) rights for each share.
I enclose my check for $------ ($25. 00 for each share), or for each 100-share
round lot purchase, Columbus common shares for $12.50 credit up to 100 shares
plus cash to equal $2,500.
SIGNATURE OF SUBSCRIPTION CERTIFICATE HOLDER(S)
SOCIAL SECURITY NO.
DAYTIME TELEPHONE NO.
MAILING ADDRESS for shares, bill and/or check if other than shown on this
Subscription Certificate
FORM 2 -- TO SUBSCRIBE FOR ADDITIONAL SHARES
I hereby subscribe for additional shares (Columbus common shares cannot be used)
at the rate of $25.00 for each additional share. I enclosed my check for $-----
which represents 20% of the price of the total additional shares subscribed and
the balance to be paid upon notice from the Subscription Agent. The check should
be payable to Harris Trust Company of New York to be held in trust until the
Oversubscription is accepted or if not accepted to be refunded to me without
interest.
SIGNATURE OF SUBSCRIPTION CERTIFICATE HOLDERS(S)
DAYTIME TELEPHONE NO.
MAILING ADDRESS for shares, bill and/or check if other than shown on this
Subscription Certificate
FORM 3 -- TO SELL OR TRANSFER RIGHTS
For value received, the rights represented by this Subscription Certificate are
hereby assigned to:
NAME
(Please print, show full given name, initial and last name)
ADDRESS
(See instructions in accompanying letter) (Sign exactly as shown on front side)
Signature of Registered Owner(s)
Signature(s) Guaranteed By
FORM 3 -- TO BUY OR SELL RIGHTS THROUGH SUBSCRIPTION AGENT (NOT TO EXCEED 799)
( ) I hereby authorize the Subscription Agent to sell all rights represented by
this Subscription Certificate and to send me a check for the proceeds.
( ) I hereby authorize the Subscription Agent to buy rights to subscribe for
additional shares as needed to round out to the next 100 shares. SIGNATURE OF
SUBSCRIPTION CERTIFICATE HOLDER(S)
MAILING ADDRESS for shares, bill and/or check if other than shown on this
Subscription Certificate
<PAGE>
RETURN TO THE SUBSCRIPTION AGENT:
HARRIS TRUST COMPANY OF NEW YORK
By Overnight Courier:
77 Water Street, 4th Floor
New York, NY 10005
By Facsimile Transmission
By Mail: (for Eligible Institutions only): By Hand:
Wall Street Station FAX (212) 701-7636 Receiving Window
P. 0. Box 1010 (212) 701-7637 77 Water St. 5th Floor
New York, NY 10268-1010 New York, NY
Confirm by telephone:
(212) 701-7618
<PAGE>
Exhibit 4(e)
January _, 1997
Dear Shareholder:
Your subscription certificate (the "Certificate") representing your rights
to purchase Series A 7% Convertible Preferred Stock ("Preferred Stock") of
Columbus Energy Corp. ("Columbus") is contained in this envelope's window
address. Enclosed with this letter is a Prospectus dated January _, 1997 and a
return envelope to be used for subscription exercise purposes.
We encourage you to read carefully the enclosed Prospectus for details
concerning the Company and the offering before making a decision regarding the
disposition of the enclosed Certificate.
The Certificate should be in an amount of rights equal to the number of
Columbus shares owned by you of record as of the close of business on January -.
1997. These rights will permit you to purchase one share of Preferred Stock for
$25.00 per share for each eight rights submitted by you when accompanied by your
check equal to the total amount required for the shares being acquired after the
appropriate section on the reverse side of the Certificate has been filled out,
or in the alternative, those shareholders who are purchasing round lots of 100
shares of Preferred Stock, may substitute in lieu of cash up to 100 shares of
Columbus' common stock and receive a credit of $12.50 for each common share
relinquished (up to a maximum of $1,250) toward the $2,500 purchase price each
round lot being acquired. Also, should you desire to round up to th nearest 100
shares of Preferred Stock (which requires exactly 800 rights but you have less
than that number), you may so indicate this to Harris Trust of New York (the
"Subscription Agent") who will buy rights for you (free of commission) not to
exceed 799 rights. Likewise, the Subscription Agent is authorized to sell rights
for you (free of commission) up to a total not to exceed 799 rights.
A holder of a Certificate is also entitled to oversubscribe, at the same
price, and without submitting additional rights, for unlimited additional
shares. This oversubscription will be subject to allotment out of the shares
offered, but not subscribed for, under the primary subscription privilege,
provided the holder has fully exercised his primary subscription privilege.
Subscription must be accompanied by payment of the full subscription price for
the primary subscription; however, only 20% of the purchase price, in cash only,
need be enclosed toward the payment for the shares being subscribed by th
oversubscription privilege. You will be billed for the balance should shares
available for oversubscription exceed 20% of the amount being oversubscribed
which may be paid for in cash, or a combination of cash and common stock as
permitted by the Primary Subscription. If no oversubscription shares or to the
extent that less than 20% of the amount being oversubscribed are available, such
payment will be refunded by the Subscription Agent. No interest will be paid on
the refunded portion.
In order to subscribe, you should execute the enclosed Certificate and mail
it in the enclosed envelope, or deliver it, with full payment of the
subscription price for all shares subscribed for, to Harris Trust Company of New
York, Wall Street Station, P. 0. Box 1010, New York, NY 10268-1010 so it will be
receive by the Subscription Agent prior to 4:00 p.m. E.S.T. on February -, 1997,
the expiration date, unless the offering has been extended after appropriate
public notice. All Certificates not received by the Subscription Agent by 4:00
p.m. E.S.T., February _, 1997, or the extended period, will expire and be of no
value. Therefore, if you do not desire to exercise your rights, you should make
arrangements to sell same through the Subscription Agent, if less than 799
rights, or through your broker if more. The rights are expected to trade on the
American Stock Exchange throughout the offering period assuming a market
develops and is sustained, but there can be no assurance this will occur.
<PAGE>
It prior to the expiration date the Subscription Agent has received the
subscription price together with an undertaking in writing or by telegram from a
bank or trust company, member firm of the New York or American Stock Exchanges
or other national securities exchange, that duly executed Certificates
(specifying serial numbers thereof) have been or promptly will be transmitted to
the Subscription Agent, such subscription will be accepted but Certificates for
the Preferred Stock subscribed for will not be delivered until after receipt of
the Certificate.
If you have any questions, they should be addressed, as Promptly as
possible, to Columbus or to the Subscription Agent at 212-701-7624.
Harry A. Trueblood, Jr.
Chairman and President
(SEE OTHER SIDE OF THIS LETTER FOR INSTRUCTIONS AS TO THE USE OF YOUR
SUBSCRIPTION CERTIFICATE)
<PAGE>
DO NOT FOLD OR MUTILATE YOUR CERTIFICATE IN ANY WAY
INSTRUCTIONS FOR USE OF SUBSCRIPTION CERTIFICATE
The number of rights you have is inserted on the face of your subscription
certificate. Eight right s are needed to subscribe for one share of Series A 7%
Convertible Preferred Stock.
On the back of your subscription certificate(s) you will note Forms 1, 2, 3
and 4. Use FORM I to exercise your rights and subscribe for shares. Use FORM 2
to subscribe for additional shares pursuant to the additional subscription
privilege. Use FORM 3 to sell rights through your broker or to transfer rights
by delivery of the subscription certificate. Use FORM 4 to purchase rights (up
to and including 799 rights) or to sell your excess rights (up to and including
799 rights).
1. To Exercise Subscription Rights: Subscription certificate holders who
subscribe should execute FORM 1 on the back of the subscription certificate(s)
and should send the certificate(s) to the Subscription Agent, together with the
full subscription price for each share subscribed for, in time to be received by
the Subscription Agent no later than the expiration date. Deposit in the mails
will not constitute delivery to the Subscription Agent. If you elect to sell
excess rights (up to 799) a check will be mailed to you. If you elect to buy
enough additional rights (up to 799) to subscribe for one round lot (100) of
additional shares, you will be billed for these additional rights.
2. To Subscribe for Additional Shares: Subscription certificate holders who
desire to subscribe for more shares than they have rights should fill out (in
addition to FORM 1) FORM 2 for oversubscription and send the certificate to the
Subscription Agent with a second check, for at least 20% of the purchase price,
to pay for the addition shares being subscribed. The balance must be paid to the
Subscription Agent within 5 business days after notice is given of the
oversubscription acceptance.
3. To Sell Rights: If you wish to sell your rights through your broker, use
FORM 3 on the back of the subscription certificate, and have your signature
guaranteed, as indicated below. Please deliver the certificate to your broker in
ample time so the rights can be used by the purchaser thereof.
4. To Divide or Transfer Certificate: If you wish to divide or transfer
your subscription certificate, it should be sent, together with complete
instructions, to the Subscription Agent in ample time for the new subscription
certificates to be issued and delivered so that the rights represented thereby
can be exercised on or before the expiration date.
If the new subscription certificate(s) are to be issued in the same name as
that shown on the face of the subscription surrendered, no FORM need be filled
in. If the new subscription certificates are to be issued in another name, fill
in and sign FORM 3 on the back of the subscription certificate, and have your
signature guaranteed, as indicated below The subscription certificate, if
properly assigned, may be used by a new holder for subscription or sale without
having new subscription certificate issued.
5. Guarantee of Signatures: Signatures on FORM 3 must be guaranteed by an
eligible guarantor institution (Banks, Stockbrokers, Saving and Loan
Associations and Credit Unions with membership in an approved signature
guarantee Medallion Program), pursuant to S.E.C. Rule 17Ad-15.
6. Evidence of Authority: An attorney, executor, administrator, guardian,
or other fiduciary, or an officer of a corporation, signing a subscription
certificate must give his full title in such capacity, and if the units
subscribed for or the proceeds of the sale of any rights are to be delivered to
or for the account of any person other than the registered holder of the
subscription certificate or the person designated as assignee in FORM 3, such
person so signing must also furnish evidence, satisfactory to the Subscription
Agent, of authority to act in such capacity.
7. Delivery of Stock Certificate: Stock certificates for shares subscribed
for under Form 1, for the primary subscription privilege, will be delivered as
soon as practicable after subscription to the address shown on the face of the
subscription certificate unless contrary instructions are given on the back of
the certificate. If you elected to buy additional rights (up to 799) to
subscribe for additional shares, a subscription certise additional rights are
billed to you and payment is received therefor.
<PAGE>
Exhibit 4(f)
SUBSCRIPTION AGENT AGREEMENT
THIS AGREEMENT (the "Agreement"), dated this _____ day of January 1997,
is by and between COLUMBUS ENERGY CORP., a Colorado corporation (the "Company"),
and HARRIS TRUST COMPANY OF NEW YORK (the "Rights Agent").
WITNESSETH:
WHEREAS, the Company intends to issue rights to purchase up to an
aggregate of 400,000 of the Series A 7% Convertible Preferred Stock (no par
value); and
WHEREAS, the Company desires the Rights Agent to act on behalf of the
Company, and the Rights Agent is willing to so act in connection with the
issuance, and exchange of certificates representing such rights and the issuance
of Preferred Stock upon exercise of such rights;
NOW THEREFORE, in consideration of the promises and the mutual promises
made herein, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Shares" shall mean the Series A 7% Convertible Preferred Stock
("Preferred Stock"), no par value, of the Company.
(b) "Corporate Office" shall mean the principal place of business of
the Rights Agent (or its successor).
(c) "Exercise Date" shall mean the date a Rights Certificate is
surrendered for exercise, in accordance with the terms of the
Rights.
(d) "Expiration Date" shall mean the final date of the offering.
(e) "Initial Issuance Date" shall mean the date on which the Rights
Certificates were initially issued.
<PAGE>
(f) "Offering Period" shall mean the period beginning on the Initial
Issuance Date and ending at 4:00 p.m., New York City time, on the
Expiration Date.
(g) "Prospectus" shall mean the Prospectus relating to the Shares to
be issued upon exercise of Rights.
(h) "Registered Holder" shall mean the person in whose name any
Rights Certificate shall be registered on the books maintained by
the Rights Agent.
(i) "Rights Shares" or "Company Shares" shall mean the Shares of
Preferred Stock to be issued.
(j) "Right" or "Rights" shall mean the right to purchase Preferred
Stock in accordance with the rights offering approved by the
Board of Directors of the Company.
(k) "Rights Certificate" shall mean a certificate evidencing the
Rights.
2. Rights and Issuance of Rights Certificates. Upon written order of or on
behalf of the Company, the Rights Agent shall furnish Rights Certificates to the
Company or its mailing agent for mailing to the Company's shareholders along
with Prospectuses and Instruction Letters to holders of Shares of record. During
the Offering Period the Rights Agent shall issue Rights Certificates in whole
number denominations to the persons entitled thereto in connection with any
partial exercise, transfer or exchange permitted under this Agreement to the
extent there is sufficient time to do so prior to the Expiration Date. The
Company shall at all times supply the Rights Agent with a sufficient number of
Rights Certificates and Prospectuses for the purposes contemplated by this
Agreement.
<PAGE>
The Rights Agent shall keep at its Corporate Office books in which it shall
register Rights Certificates and the exchange thereof. Except as provided in
this Agreement, no Rights Certificates shall be issued during the Offering
Period except (a) Rights Certificates initially issued hereunder; (b) Rights
Certificates issued which may be necessary to change certificates into smaller
denominations; and (c) Rights Certificates issued, upon the exercise of any
Rights, to evidence unexercised Rights held by the exercising Registered Holder.
No Rights Certificates shall be issued prior to or after the Offering Period.
All Rights Certificates surrendered to the Rights Agent shall be promptly
cancelled by the Rights Agent and thereafter retained by the Rights Agent for
two years, and then shall be delivered to the Company or destroyed by the Rights
Agent as directed by the Company.
3. Form and Execution of Rights Certificates. The Rights Certificates shall
be substantially in the form annexed hereto as Exhibit A (the provisions of
which are hereby incorporated herein). The Rights Certificates shall be dated
the date of issuance thereof (whether upon initial issuance, exchange or in lieu
of mutilated, lost, stolen or destroyed Rights Certificates). The Rights
Certificates shall be numbered serially with the letter "R" on Rights of all
denominations.
4. Exercise. Rights represented by Rights Certificates may be exercised at
any time on or after the Initial Issuance Date, but not after 4:00 p.m. New York
City time on the Expiration Date, upon the terms and subject to the conditions
set forth herein, in the Prospectus and in the Rights Certificates. Rights may
be exercised regarding both the basic Subscription Privilege and the
Oversubscription Privilege as set forth in the Prospectus, the terms of which
are incorporated herein by reference, by completing and executing the exercise
form on the Rights Certificate and submitting it to the Rights Agent or to its
Forwarding Agent, Harris Trust Company of New York, 77 Water Street, 4th Floor,
New York, NY 10005, together with payment by cash or by check, bank draft or
money order payable to the Rights Agent of an amount in lawful money of the
United States of America equal to the Purchase Price for each Rights Share
purchased or up to 100 shares of the Company's Common Stock toward the purchase
of 100 shares of Preferred Stock. The foregoing to the contrary,
notwithstanding, should the Rights Agent receive from the Company and/or its
Agents the full subscription price together with an undertaking in writing or by
telephone (with written confirmation following promptly thereafter) that duly
exercised subscription certificates (specifying serial numbers thereof) have
been or promptly will be transmitted to the Company or its Agents, the Rights
Agent shall accept such subscription, and shall deliver certificates so
subscribed only after receipt of the subscription agreements. The Company shall
pay all federal and state transfer taxes, if any, required to be paid on the
issuance of Rights or of Preferred Stock upon exercise of Rights.
<PAGE>
Once a Registered Holder has delivered or mailed a completed Rights
Certificate, the exercise of the Rights represented thereby is not revocable for
any reason.
The Rights Agent shall issue the Rights Shares after actual collection of
the check, draft or money order tendered in the amount of the Purchase Price
therefor as soon as practicable following the Expiration Date subject to the
Oversubscription Privilege. No subscriber for Rights Shares shall be a
shareholder with respect to such Shares and no Rights Shares shall be deemed to
be outstanding until such Shares are issued in accordance herewith.
All monies received from persons who exercise the Oversubscription
Privilege by the Rights Agent shall be held in trust by the Rights Agent,
separate and apart from monies received from persons exercising the basic
Subscription Privilege. The Rights Agent shall have no duty to invest such
monies and no interest shall be due or paid on monies held in Trust. As soon
after the Expiration Date as practical, the Rights Agent shall send to all
persons whose Oversubscription Privilege exercise has not been accepted all
monies tendered by such persons.
The Company shall not be obligated to issue any fractional share interests
in Rights Shares or to make payment in cash or scrip for such fractional
interests, which shall be of not value whatsoever. In the event that payment is
submitted in an amount less than that required to purchase the number of Shares
subscribed, only the number of whole Shares for which payment was received will
be issued. If a holder of Rights subscribes for fewer than all of the Shares
represented by his Rights Certificate, the Rights Agent shall issue a new Rights
Certificate representing the balance of the unsubscribed Rights Shares, to the
extent that there is sufficient time to do so prior to the Expiration Date.
<PAGE>
Upon request by a holder of record on the Record Date who holds Shares for
beneficial owners, the Rights Agent shall deliver Rights Certificates on the
same basis as if such beneficial owners were holders of record on the Record
Date.
The Rights Agent shall hold all payments made in exercise of Rights for
investment, transfer or other action in accordance with the Company's
instructions from time to time.
All questions as to the validity, form, eligibility (including times of
receipt and matters pertaining to beneficial ownership) and the acceptance of
subscriptions and the Purchase Price for Rights Shares will be determined by the
Company, which determinations will be final and binding. No alternative,
conditional or contingent subscriptions will be accepted. The Company reserves
the absolute right to reject any or all subscriptions not properly submitted or
the acceptance of which would, in the opinion of the Company's counsel, be
unlawful. The Company also reserves the right to waive any irregularities or
conditions, and the Company's interpretations of the terms and conditions of the
offering of the Rights shall be final and binding. Any irregularities in
connection with subscriptions must be cured within such time as the Company
shall determine, unless waived. Subscriptions will not be deemed to have been
made until such irregularities have been cured or waived. The Rights Agent shall
promptly notify the Company of any irregularities in any subscriptions received
by the Rights Agent. Rights Certificates received by the Rights Agent that are
not properly submitted and as to which the irregularities have not been cured or
waived shall be returned by the Rights Agent to the appropriate holder of the
Rights, to the extent there is sufficient time to do so prior to the Expiration
Date; and funds submitted with such Rights Certificates shall be returned
without interest by the Rights Agent to such holder.
<PAGE>
The Rights Agent is hereby authorized and directed to accept instructions
with respect to the performance of its duties hereunder from an authorized
officer of the Company, or such officer's designee, and to apply to such officer
or designee for written instructions in connection with its duties, which
written instructions shall be promptly provided to the Rights Agent. The Rights
Agent shall not be liable for any action taken or suffered by it in good faith
in accordance with the advice or instructions of any authorized officer of the
Company or such officer's designee.
5. Purchase and Sale of Rights. The Rights Agent shall, on request and
without charge to the registered holder, handle orders to buy (not exceeding 799
Rights on any one subscription) or sell Rights (not exceeding 799 Rights on any
one subscription) for the account of any Registered Holder in order to assist
such holder in rounding out his subscription for 100 shares of Preferred Stock
or disposing of his Rights. The Company will pay the Rights Agent's service
charge on such purchases and sales. The Rights Agent may match buying and
selling orders in the execution of such orders subject to the Rights Agent being
able to find purchasers or sellers. Charges or credits upon purchase and sale of
Rights, including matched orders, on each day will be at the average price paid
or received by the Rights Agent in the open market for the Rights purchased or
sold. The Rights Agent will bill the Registered Holders for the costs of Rights
purchased or mail a check for the proceeds due from the Rights sold.
6. Loss or Mutilation. Upon receipt by the Company and the Rights Agent of
evidence satisfactory to them of the ownership of and the loss, theft,
destruction or mutilation of any Rights Certificate and (in the case of loss,
theft or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation of the mutilated Rights Certificate,
the Rights Agent shall deliver in lieu thereof a new Rights Certificate
representing an equal aggregate number of Rights. Applicants for a substitute
Rights Certificate shall also comply with such other reasonable regulations and
pay such reasonable charges as the Rights Agent may prescribe.
7. Liability of the Rights Agent. The Rights Agent shall not, by issuing
and delivering Rights Certificates or by any other act hereunder, be deemed to
make any representations as to the validity or value or authorization of the
Rights Certificates or the Rights represented thereby or of the Rights Shares or
other property delivered upon exercise of any Rights or whether the Rights
Shares are duly authorized, fully paid and nonassessable. The Rights Agent shall
not (a) be liable for any recital or statement of fact contained herein or for
any action taken, suffered or omitted by it in reliance on any Rights
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties; (b)
be responsible for any failure on the part of the Company to comply with any of
its covenants and obligations contained in this Agreement or in the Rights
Certificates; or (c) be liable to any act or omission in connection with this
Agreement except for its own negligence or willful misconduct.
<PAGE>
8. Indemnification. The Company agrees to indemnity the Rights Agent and
save it harmless from and against any and all losses, expenses and liabilities,
including, without limitation, judgments, costs and counsel fees, for anything
done or omitted by the Rights Agent in the execution of its duties hereunder
except losses, expenses and liabilities arising as a result of the Rights
Agent's negligence or willful misconduct.
9. Legal Counsel. The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in accordance with such opinion.
10. Compensation for Services. The Company agrees to pay the Rights Agent
for its services hereunder and reimburse it for its reasonable expenses
hereunder, including, without limitation, expenses for legal counsel, all in
accordance with the fee schedule attached as Exhibit B hereto and made a part
hereof by this reference.
11. Modification of Agreement. This Agreement may not be modified, in whole
or in part, except by writing executed by the parties hereto. Should any
provision or portion of this Agreement be held unenforceable or unlawful, the
remaining provisions of this Agreement shall remain in full force and effect.
<PAGE>
12. Entire Agreement. This Agreement sets forth the entire Agreement
between the parties with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings relative to such subject
matter.
13. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class, postage prepaid, or delivered to a telegraph
office of transmission; if to a Registered Holder, at the address of such holder
as shown on the registry books maintained by the Rights Agent; if to the
Company, at its Corporate Office, 1660 Lincoln Street, Suite 2400, Denver,
Colorado 80264, or at such other address as may have been furnished to the
Rights Agent in writing by the Company; and if to the Rights Agent, at its local
office, Harris Trust Company of New York, 77 Water Street, 4th Floor, New York,
NY 10005.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the state of New York.
15. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Company and the Rights Agent, and their respective successors and
assigns, and the holders from time to time of the Rights Certificates or any of
them. Nothing in this Agreement is intended or shall be construed to confer upon
any other person any right, remedy or claim or to impose upon any other person
any duty, liability or obligation.
16. Merger or Consolidation of Rights Agent. Any corporation into which the
Rights Agent or any successor Rights Agent may be merged, or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Rights Agent or any successor Rights Agent shall be a party, or any
corporation succeeding to the stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto. If at the time such successor Rights Agent
shall succeed to the agency created by this Agreement and any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned, and if at that time any of
the Rights Certificates shall not have been countersigned, any successor Rights
Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent, and in all such cases,
such Rights Certificates shall have the full force and effect as provided in the
Rights Certificates and in this Agreement.
<PAGE>
If at any time the name of the Rights Agent shall be changed and at such
time any of the Rights Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Rights Certificates so countersigned, and if at that time any of the
Rights Certificates shall not have been countersigned, the Rights Agent may
countersign such Rights Certificates either in its prior name or in its changed
name, and in all such cases such Rights Certificates shall have the full force
provided in the Rights Certificates and in this Agreement.
17. Miscellaneous. The Rights Agent shall have no duties or obligations
other than those specifically set forth in this Agreement, or as may
subsequently be agreed to in writing by the Company and the Rights Agent.
The Rights Agent shall have the right to resign as Rights Agent upon 30
days prior written notice to the Company.
The Company represents to the Rights Agent that it has and it shall
continue to solicit the advice of its counsel regarding compliance with all
applicable state and federal securities laws in connection with the transactions
contemplated by this Agreement and that it will act in accordance with such
advice.
The Company will advise the Rights Agent of special state Blue Sky
instructions, if any, by separate letter or letters.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
COLUMBUS ENERGY CORP.
By:____________________________________
Corporate Secretary
HARRIS TRUST COMPANY OF NEW YORK
By:____________________________________
Exhibit 10(a)
AMENDED RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of October 23, 1996,
is by and between COLUMBUS ENERGY CORP., a Colorado corporation (herein called
"Borrower"), and NORWEST BANK DENVER, NATIONAL ASSOCIATION, a national banking
association (herein called "Norwest").
RECITALS
A. Borrower and Norwest (f/k/a United Bank of Denver National Association)
entered into an Amended and Restated Credit Agreement dated as of July 1, 1992,
as amended (the "Prior Credit Agreement"), in order to set forth the terms upon
which Norwest would make loans to Borrower and by which the loans would be
governed.
B. Borrower and Norwest wish to enter into this Amended and Restated Credit
Agreement in order to amend and restate in their entirety the terms and
provisions of the Prior Credit Agreement and to provide for the terms upon which
Norwest will make advances to borrower and issue letters of credit upon the
request of Borrower and by which such advances and letters of credit will be
governed.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
Definitions and References
Section 1.1. Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it in this Section 1.1 or in the sections
and subsections referred to below:
"Advance" means a Prime Rate Advance or a LIBOR Advance.
"Affiliate" means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person; provided that, for
the purposes of this definition, a Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the power to
direct or control the direction of the management and policies of the other
Person, whether through the ownership of voting securities, by contract or
otherwise, and shall include, without limitation, any Person who beneficially
owns more than 50 percent of the equity of the other Person.
<PAGE>
"Agreement" means this Credit Agreement.
"Allonge" means an Allonge in the form of Exhibit A attached hereto and
made a part hereof.
"Borrower" means Columbus Energy Corp., a Colorado corporation.
"Borrowing Base" means, at any time prior to the Maturity Date, the
aggregate loan value of all Borrowing Base Properties, as determined by Lender
in its sole and absolute discretion, using such assumptions as to pricing,
discount factors, discount rates, expenses and other factors as Lender
customarily uses as to borrowing-base oil and gas loans at the time such
determination is made; provided that the agreed-upon Borrowing Base for the
Borrowing Base Period from the date of this Agreement through March 31, 1997
shall be $7,000,000.
"Borrow Base Notice" means a written notice sent to Borrower by Lender
notifying Borrower of the Borrowing Base determined by Lender for the upcoming
Borrowing Base Period or other period.
"Borrowing Base Period" means: (a) the period from the date of this
Agreement through March 31, 1997; (b) thereafter, until April 1, 1999, each
twelve-month period beginning on April 1 of each year; and (c) the period from
April 1, 1999 to July 1, 1999.
"Borrowing Base Properties" means Oil and Gas Interests covered by the
Initial Engineering Report or by an engineering report submitted by Borrower
pursuant to Sections 6.1(b)(vi-i) or 6.1(b)(vi-ii) below and any other Oil and
Gas Interests designated by Lender for inclusion in the Borrowing Base, but
excluding any such Oil and Gas Interests as to which Lender has not been granted
a first lien and/or security interest satisfactory to Lender pursuant to the
Security Documents.
"Business Day" means: (a) with respect to the making, prepaying, repaying
or issuance of, or otherwise relating to, one or more LIBOR Advances, any day
which is neither a Saturday nor a Sunday nor a legal holiday on which commercial
banks are authorized or required to be closed in Denver, Colorado and which is
also a day on which dealings are carried on in the London interbank eurocurrency
market, and (b) for all other purposes hereof, any day which is neither a
Saturday nor a Sunday nor a legal holiday on which commercial banks are
authorized or required to be closed in Denver, Colorado.
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<PAGE>
"CGSI" means Columbus Gas Services, Inc., a Delaware corporation
"Commitment" means the agreement of Norwest to make Advances to Borrower of
amounts up to the Commitment Amount on the terms and subject to the conditions
hereof.
"Commitment Amount" means, at any time, the least of: (a) $10,000,000, or
(b) the Borrowing Base at that time, or (c) the Reduced Borrowing Base, if any,
at that time.
"Commitment Expiration Date" means the date after which no further Advances
are to be made hereunder, which shall be the close of business on the earlier
of: (a) the last day of the Revolving Period, or (b) the date of any termination
of the Commitment.
"Consolidated" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated Affiliates. References herein to a
Person's Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly consolidated Affiliates.
"Consolidated Tangible Net Worth" means shareholders' equity, determined in
accordance with GAAP, on a Consolidated basis, plus the recorded value of the
stock held by Borrower's employee stock ownership plan, to the extent that the
loan secured by such stock is secured by restricted cash.
"Cumulative Net Income" means, with respect to any Person, the sum of such
Person's net income, determined in accordance with GAAP, on a Consolidated
basis, for each completed fiscal quarter after the date from which such
calculation is being made; provided that if such Person's net income is negative
for any such fiscal quarter, in computing Cumulative Net Income, such Person's
net income shall be deemed to be zero for that fiscal quarter.
"Current Ratio" means, at any time and from time to time, the ratio of: (a)
Borrower's Consolidated current assets (including, at all times during the
Revolving Period, the excess, if any, of the Commitment Amount over the
outstanding principal balance of all Advances and the face amount of all
outstanding Letters of Credit); to (b) Borrower's Consolidated current
liabilities (excluding current maturities of the Loan), all determined in
accordance with GAAP.
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<PAGE>
"Debt" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether primary or secondary, direct or indirect,
absolute or contingent.
"Default" means any Event of Default and any default, event or condition
which would, with the giving of any requisite Default Notice and/or the passage
of any requisite Grace Period, constitute an Event of Default.
"Default Notice" has the meaning given it in Section 7.1.
"Disclosure Schedule" means: (a) Schedule 2 attached hereto, and (b) any
documents listed on such schedule and expressly incorporated therein by
reference, so long as Borrower has heretofore delivered true and correct copies
of such documents to Lender.
"Distribution" means any dividend payable in cash or property with respect
to any shares of capital stock of Borrower (other than dividends payable in
shares of the same class of common, preferred or other capital stock as the
shares upon which the dividend is being paid) , any other distribution made with
respect to any shares of capital stock of Borrower, or any purchase, redemption
or retirement of, or other payment with respect to, any shares of capital stock
of Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Plan" means any pension benefit plan subject to Title IV of ERISA
maintained by any Obligated Person or any Affiliate thereof to which any
Obligated Person is required to contribute.
"Event of Default" has the meaning given it in Section 7.1.
"Fiscal Quarter" means a three-month period ending on the last day of
February, May, August or November of any year.
"Fiscal Year" means a twelve-month period ending on November 30 of any
year.
"Funded Debt" means, at any time and from time to time, all Debt for which
Borrower is liable, determined on a Consolidated basis in accordance with GAAP,
having a maturity of more than one year after the date as of which such
determination is being made.
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<PAGE>
"GAAP" means those generally accepted accounting principles and practices
which are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor) and which, in the case of Borrower and its
Consolidated Affiliates: (a) are applied for all periods after the date hereof
in a manner consistent with the manner in which such principles and practices
were applied to the Initial Financial Statements, and (b) are consistently
applied for all periods after the date hereof so as to properly reflect the
financial condition, and the results of operations and changes in financial
position, of Borrower and, on a Consolidated basis, of Borrower and its
Consolidated Affiliates.
"Grace Period" shall have the meaning given it in Section 7.1.
"Guarantor" means CGSI.
"Initial Draw" means the first draw by Borrower on the Loan, which first
draw may consist of one or more contemporaneous Advances.
"Initial Engineering Report" means the report covering the Borrowing Base
Properties, prepared as of November 30, 1995, by Reed Ferrill & Associates,
Inc., a true and correct copy of which has been furnished by Borrower to Lender.
"Initial Financial Statements" means (a) the audited annual Consolidated
financial statements of Borrower dated as of November 30, 1995, and (b) the
unaudited quarterly Consolidated financial statements of Borrower dated as of
May 31, 1996 and August 31, 1996, copies of all of which Initial Financial
Statements have heretofore been delivered by Borrower to Lender.
"Lender" means Norwest and its successors and assigns.
"Letter of Credit" means a standby letter of credit issued by Lender
pursuant to Article II below or pursuant to the Prior Credit Agreement.
"LIBOR (Adjusted)" means, with respect to each particular LIBOR Advance and
with respect to the related LIBOR Interest Period, the rate of interest per
annum (rounded upward to the nearest 1/16 of one percent) determined pursuant to
the following formula:
LIBOR (Unadjusted)
-------------------------------
LIBOR (Adjusted) = 1.00 - LIBOR Reserve Percentage
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<PAGE>
"LIBOR Advance" means an advance made pursuant to Section 2.1 below, the
interest payable with respect to which is based upon LIBOR (Adjusted).
"LIBOR Interest Period" means, with respect to each LIBOR Advance, a period
of one, two or three months, as specified in the Advance request submitted
pursuant to Section 2.1 with respect thereto, beginning an and including the
date specified in such Advance request (which must be a Business Day) and ending
on the date which corresponds numerically to such beginning date one, two or
three months thereafter (or if such month has no numerically corresponding date,
on the last Business Day of such month); provided that each LIBOR Interest
Period which would otherwise end on a day which is not a Business Day shall end
on the next succeeding Business Day unless such next succeeding Business Day is
the first Business Day of a calendar month, in which case such LIBOR Interest
Period shall end on the Business Day next preceding such numerically
corresponding day. No LIBOR Interest Period may be elected which would end after
the Maturity Date.
"LIBOR Reserve Percentage" means, with respect to any LIBOR Interest
Period, the reserve percentage (expressed as a decimal) equal to the maximum
aggregate reserve requirements (including all basic, emergency, supplemental,
marginal and other reserves and taking into account any transitional adjustments
or other scheduled changes in reserve requirements) specified under regulations
issued from time to time by the Board of Governors of the Federal Reserve System
and then applicable to assets or liabilities consisting of and including
"Eurocurrency Liabilities", as currently defined in Regulation D of the Board of
Governors of the Federal Reserve System, having a term approximately equal or
comparable to such LIBOR Interest Period.
"LIBOR (Unadjusted)" means, with respect to each LIBOR Advance and the
related LIBOR Interest Period, the rate of interest per annum (rounded upward to
the nearest 1/16 of one percent) determined by Lender, in accordance with its
customary practices, to be representative of the rates at which deposits of U.S.
dollars are offered to Lander at or about 11:00 a.m., London time, two Business
Days prior to the first day of such LIBOR Interest Period (by prime banks in the
London interbank eurocurrency market which have been selected by Lender in
accordance with its customary practices) for delivery on the first day of such
LIBOR Interest Period in an amount equal or comparable to the amount of such
LIBOR Advance and for a period of time equal or comparable to the length of such
LIBOR Interest Period. LIBOR (Unadjusted), as determined by Lender with respect
to a particular LIBOR Advance, shall be fixed at such rate for the duration of
the associated LIBOR Interest Period. If Lender is unable so to determine LIBOR
(Unadjusted) for any LIBOR Advance, or if the associated LIBOR (Adjusted) would
exceed the maximum rate of interest, if any, then permitted to be charged on the
Note under applicable law, Borrower shall be deemed not to have elected such
LIBOR Advance.
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<PAGE>
"Lien" means, with respect to any property or assets, any right or interest
therein of a creditor to secure Debt owed to him or any other arrangement with
such creditor which provides for the payment of such Debt cut of such property
or assets or which allows him to have such Debt satisfied out of such property
or assets prior to the general creditors of any owner thereof, including without
limitation any lien, mortgage, security interest, pledge, deposit, production
payment, rights of a vendor under any title retention or conditional sale
agreement or lease substantially equivalent thereto, or any other charge or
encumbrance for security purposes, whether arising by law or agreement or
otherwise, but excluding any right of offset which arises without agreement in
the ordinary course of business.
"Loan" has the meaning given it in Section 2.1.
"Loan Documents" means this Agreement, the Security Documents, the Note, a
guaranty executed by Guarantor, applications for Letters of Credit, Advance
requests and all other agreements, certificates, legal opinions and other
documents, instruments and writings heretofore or hereafter delivered in
connection herewith or therewith.
"Maturity Date" means July 1, 2003.
"Minimum Principal Payment" means 2.083333 percent of the outstanding
principal balance of the Loan as of the end of the Revolving Period.
"Note" means the Promissory Note dated as of July 1, 1992, as amended, in
the face amount of $10,000,000, made by Borrower, payable to the order of
Lender.
"Obligated Persons" means Borrower and Guarantor.
"Obligations" means all Debt from time to time owing by Borrower to Lender
under or pursuant to any of the Loan Documents. "Obligation" means any part of
the obligations.
"Oil and Gas Interests" means from time to time, all oil and gas
properties, gas plants and related interests located in the United States and
owned directly by Borrower at that time.
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<PAGE>
"Person" means an individual, corporation, partnership, association,
joint-stock company, trust or trustee thereof, estate or executor thereof,
unincorporated organization or joint venture, court or governmental unit or any
agency or subdivision thereof, or any other legally recognizable entity.
"Prime Rate" means the fluctuating interest rate per annum announced from
time to time by Norwest as its prime rate, which may not be the lowest interest
rate charged by Norwest.
"Prime Rate Advance" means an Advance made pursuant to Section 2.1 below,
the interest payable with respect to which is based upon the Prime Rate.
"Principal Payment Date" means: (a) the first Business Day of each calendar
month, commencing August 1, 1999, and (b) if all obligations due and payable on
any such date are not then paid, each succeeding day until all due and payable
Obligations are paid in full.
"Prior Credit Agreement" has the meaning given it in Recital A above.
"Prohibited Lien" means any Lien not expressly allowed under Section
6.2(d).
"Reduced Borrowing Base" means an amount determined by Borrower, of which
Borrower gives notice to Lender within five Business Days after Borrower's
receipt of a Borrowing Base Notice, which amount shall be no less than 60
percent and no more than 100 percent of the Borrowing Base of which Lender
notified Borrower in such Borrowing Base Notice.
"Revolving Period" means the time period from the date of this Agreement to
July 1, 1999.
"Security Documents" means the instruments listed in the Security Schedule
and all other security agreements, deeds of trust, mortgages, chattel mortgages,
pledges, guaranties, financing statements, continuation statements, extension
agreements and other agreements or instruments now, heretofore, or hereafter
delivered by Borrower or Guarantor to Lender in connection with this Agreement
or any transaction contemplated hereby to secure or guarantee the payment of any
part of the Obligations or the performance of any other duties and obligations
of Borrower or Guarantor under the Loan Documents, whenever made or delivered.
"Security Schedule" means Schedule 1 hereto.
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<PAGE>
"Taxes" has the meaning given it in Section 3.7.
"Termination Event" means (a) the occurrence with respect to any ERISA Plan
of (i) a reportable event described in Section 4043(b)(5) of ERISA or (ii) any
other reportable event described in Section 4043 of ERISA other than a
reportable event not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation under such regulations, or (b) the withdrawal of
any Obligated Person or of any Affiliate of any Obligated Person from an ERISA
Plan during a plan year in which it was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent to
terminate any ERISA Plan or the treatment of any ERISA Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution of proceedings
to terminate any ERISA Plan by the Pension Benefit Guaranty Corporation under
Section 4042 of ERISA, or (e) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any ERISA Plan.
Section 1.2. Incorporation of Exhibits and Schedules. All Exhibits and
Schedules attached to this Agreement are a part hereof for all purposes.
Reference is hereby made to such Exhibits and Schedules for the meaning of
certain terms defined therein and used but not defined herein, which definitions
are incorporated herein by reference.
Section 1.3. Amendment of Defined Instruments. Unless the context otherwise
requires or unless otherwise provided herein, the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions and modifications of such
agreement, instrument or document, provided that nothing contained in this
section shall be construed to authorize any such renewal, extension or
modification.
Section 1.4. References and Titles. All references in this Agreement to
Exhibits, Schedules, articles, sections, subsections and other subdivisions
refer to the Exhibits, Schedules, articles, sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any subdivisions are for convenience only and do
not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words "this
Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases "this section"
and "this subsection" and similar phrases refer only to the sections or
subsections hereof in which such phrases occur. The word "or" has the inclusive
meaning frequently identified by the phrase "and/or". Pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender, and
words in the singular form shall be construed to include the plural and vice
versa, unless the context otherwise requires.
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<PAGE>
Section 1.5. Calculations and Determinations. All interest accruing under
the Loan Documents shall be calculated on the basis of actual days elapsed
(including the first day but excluding the last) and a year of: (a) 365 or 366
days, as appropriate, with respect to Prime Rate Advances, and (b) 360 days with
respect to LIBOR Advances. Unless otherwise expressly provided herein or unless
Lender otherwise consents, all financial statements and reports furnished to
Lender hereunder shall be prepared and all financial computations and
determinations pursuant hereto shall be made in accordance with GAAP.
Section 1.6. Accounting Principles. Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
other accounting computation is required to be made for the purposes of this
Agreement, this shall be done in accordance with GAAP, except where such
principles are inconsistent with the requirements of this Agreement. If one or
more changes in GAAP after the date of this Agreement are required to be applied
to existing transactions, and a violation of one or more of the terms of this
Agreement shall have occurred which would not have occurred if no change in
accounting principles had taken place:
(a) The parties agree that such violation shall not be considered to
constitute an Event of Default for a period of 90 days;
(b) The parties agree in such event to negotiate in good faith to
attempt to draft an amendment of this Agreement which shall approximate to
the extent possible the economic effect of the original financial covenants
after taking into account such change or changes in GAAP; and
(c) If the parties are unable to negotiate such an amendment within 90
days, Borrower shall have the option of (a) prepaying the Loan in full, or
(b) submitting the drafting of such an amendment to binding arbitration. If
Borrower does not exercise either such option within said period, then as
used in this Agreement GAAP shall mean such principles in effect at the
time of determination.
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<PAGE>
ARTICLE II
The Loan
Section 2.1. The Loan. (a) Subject to the other terms and conditions of
this Agreement, Lender agrees to: (i) make Advances to Borrower from time to
time requested upon written notice to Lender from Borrower no later than noon,
Denver time, at least one Business Day prior to any Prime Rate Advance, and no
later than noon, Denver time, at least three Business Days prior to any LIBOR
Advance, and (ii) issue Letters of Credit from time to time requested upon
written notice to Lender from Borrower no later than five days prior to the date
of issuance of such Letter of Credit.
(b) Each request by Borrower for an Advance shall be in the form of
Exhibit B attached hereto and made a part hereof. Each request by Borrower
for the issuance of a Letter of Credit shall be in the form of Exhibit C
attached hereto and made a part hereof, and shall be accompanied by an
application for issuance of a letter of credit on Lender's then-standard
form, duly executed by Borrower.
(c) Lender shall not have any obligation to: make an Advance after the
Commitment Expiration Date (except an Advance made for the purpose of
repaying a prior Advance and thereby: (A) beginning a new LIBOR Interest
Period, (B) converting a prior LIBOR Advance to a Prime Rate Advance, or
(C) converting a prior Prime Rate Advance to a LIBOR Advance) , (ii) issue
or renew a Letter of Credit which does not expire prior to the Commitment
Expiration Date, (iii) make a LIBOR Advance as to which the LIBOR interest
Period does not expire prior to the Maturity Date, (iv) make a LIBOR
Advance at any time when three or more prior LIBOR Advances remain
outstanding, (v) make a Prime Rate Advance in an amount less than $50,000,
(vi) make a LIBOR Advance in an amount less than $500,000, or (vii) make an
Advance or issue a Letter of Credit which would cause the aggregate amount
of all Advances outstanding hereunder plus the face amount of all Letters
of Credit outstanding hereunder to exceed the Commitment Amount.
(d) Each payment by Lender under a Letter of Credit shall be deemed to
be a Prime Rate Advance bearing interest from the date of such payment,
shall be entitled to all benefits of the Security Documents and shall be
subject to all terms of this Agreement and any and all other applicable
Loan Documents.
(e) Within the limitation of the Commitment Amount and subject to the
other terms and provisions hereof, Borrower may borrow, repay and reborrow
hereunder. The Advances and Letters of Credit described above shall be
herein collectively referred to as the "Loan". Borrower hereby expressly
requests and irrevocably authorizes Lender to make the Loan.
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<PAGE>
Section 2.2. The Note. (a) Borrower's obligation to repay the Loan, with
interest thereon, shall be evidenced by the Note. In the event any provision
contained in the Note conflicts with a provision contained in this Agreement,
the provisions of this Agreement shall control.
(b)(i) Except as provided in (ii) below: (A) interest on each Prime
Rate Advance shall accrue at a fluctuating annual rate equal to the Prime
Rate, and (B) interest on each LIBOR Advance shall accrue at a fixed annual
rate equal to LIBOR (Adjusted) with respect to such LIBOR Advance plus one
and three-quarters percentage points per annum; provided that interest on
each LIBOR Advance made on or after September 23, 1996 shall accrue at a
fixed annual rate equal to LIBOR (Adjusted) with respect to such LIBOR
Advance plus one and one-half percentage points per annum. (ii) With
respect to any amount payable hereunder or under the Note or any of the
other Loan Documents, which is not paid when due, whether upon maturity, by
acceleration or otherwise, interest thereon shall accrue from the due date
until the date of payment at a fixed annual rate equal to the Prime Rate as
of the due date plus five percentage points per annum.
(c) Interest on Prime Rate Advances shall be payable monthly on the
first Business Day of each calendar month, commencing November 1, 1996, and
ending on the Maturity Date. Interest on each LIBOR Advance shall be
payable on the last day of the LIBOR Interest Period for such LIBOR
Advance. All accrued and unpaid interest will be due and payable not later
than the Maturity Date.
Section 2.3. Mandatory Principal Payments. (a) Borrower shall make a
principal payment on each Principal Payment Date, each such payment to be in an
amount equal to the Minimum Principal Payment; provided that any such payments
shall be in addition to any amounts payable by Borrower pursuant to the other
provisions of this Section 2.3.
(b) If for any reason the aggregate outstanding principal balance of
all Advances plus the aggregate face amount of all outstanding Letters of
Credit shall exceed the Commitment Amount, Borrower shall, not later than
30 days after written notice thereof from Lender: (i) immediately pay the
excess to Lender in a lump sum; and/or (ii) commence (and thereafter
continue) an amortization schedule under which Borrower repays the excess
in six equal monthly principal installments on the first day of each
calendar month, which amounts shall be in addition to the monthly interest
payments and any other principal payments otherwise due, such that the
entire excess is paid within six months; and/or (iii) execute and deliver
to Lender additional mortgages, supplements to mortgages or other
instruments satisfactory in form and substance satisfactory to Lender, by
which Borrower mortgages, pledges or hypothecates to Lender, or creates a
security interest in for the benefit of Lender, sufficient additional Oil
and Gas Interests to induce Lender to make a redetermination of the
Borrowing Base such that the Commitment Amount is increased to an amount no
less than the aggregate outstanding principal balance of all Advances plus
the aggregate face amount of all outstanding Letters of Credit.
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(c) The outstanding principal balance of all Advances, together with
all unpaid fees and expenses, shall be due and payable not later than the
Maturity Date.
Section 2.4. Voluntary Prepayments. Borrower shall have the right to prepay
any or all Advances at any time, in whole or in part, without penalty or premium
(except as otherwise described in Section 3.5 below) ; provided that, during the
Revolving Period, Borrower shall not at any time reduce the aggregate
outstanding principal amount of all Advances to less than $10,000.
Section 2.5. Termination of Commitment. Borrower shall have the right at
any time and from time to time, upon not less than three Business Days' prior
written or telegraphic notice to Lender, to terminate the Commitment. Upon any
termination of the Commitment, Borrower shall, at the time of such termination,
prepay the Note in full. Any such prepayment shall be without penalty or premium
(except as otherwise described in Section 3.5 below).
Section 2.6. Payments to Lender. Borrower will pay to Lender each payment
which Borrower owes under the Loan Documents not later than 1:00 p.m., Denver
time, an the due date, in lawful money of the United States of America and in
immediately available funds. Any payment received after such time will be deemed
to have been made on the next following Business Day. Should any such payment
become due and payable on a day other than a Business Day, the maturity of such
payment shall be extended to the next succeeding Business Day, and, in the case
of a payment of principal or past due interest, interest shall accrue and be
payable thereon for the period of such extension. Each payment under a Loan
Document shall be due and payable at the place provided therein or, if no
specific place of payment is provided, shall be due and payable at the place of
payment of the Note. When Lender collects or receives money on account of the
Obligations owing to it, Lender may apply such money as it elects to the various
Obligations then due and payable.
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Section 2.7. Use of Proceeds. In no event shall the Loan proceeds be used
directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing, acquiring or carrying any "margin stock" or any "margin
securities" (as such terms are defined respectively in Regulation U and
Regulation G promulgated by the Board of Governors of the Federal Reserve
System) or to extend credit to others directly or indirectly for the purpose of
purchasing or carrying any such margin stock or margin securities. Borrower
represents and warrants to Lender that Borrower is not engaged principally, or
as one of Borrower's important activities, in the business of extending credit
to others for the purpose of purchasing or carrying such margin stock or margin
securities. Borrower will use the Loan proceeds solely for general working
capital purposes of Borrower and CGSI in their U.S. operations, acquisition of
oil and gas properties and related assets and the issuance of standby letters of
credit in connection with the U.S. operations of Borrower and CGSI.
Section 2.8. Borrowing Base Procedures. The Borrowing Base will be
re-determined annually by Lender, effective as of April I of each year until the
occurrence of the Maturity Date (and Lender shall redetermine the Borrowing Base
not more than one additional time in each annual period from April 1 through the
succeeding March 31 at the request of Lender and not more than one additional
time in each such annual period at the request of Borrower), based upon the
engineering reports submitted by Borrower pursuant to Sections 6.1(b)(vii) and
6.1(b)(viii) below and upon such other information and data as Lender deems
relevant. Lender shall advise Borrower of each redetermination of the Borrowing
Base by Lender by providing to Borrower a Borrowing Base Notice by approximately
10 days prior to the effective date of any such re-determination; provided that
if, due to any failure by Borrower to submit in a timely manner any engineering
report or other information required to be submitted by Borrower hereunder or,
if requested in writing by Lender, any additional information or data needed in
connection with a redetermination of the Borrowing Base or due to any other
reason beyond the control of Lender, Lender does not provide a Borrowing Base
Notice at the time described above, then, unless Lender gives notice to the
contrary to Borrower, the Borrowing Base from the previous period shall be
carried over into the new period until a Borrowing Base Notice is sent to
Borrower by Lender and the remainder of the procedures described in this Section
2.8 have been completed. Borrower shall have the right, by giving notice to
Lender within five Business Days after its receipt of a Borrowing Base Notice
for a Borrowing Base Period, to elect to have a Reduced Borrowing Base take
effect for such Borrowing Base Period; provided that if Borrower has elected a
Reduced Borrowing Base for a Borrowing Base Period, Borrower may, at any time
prior to the end of such Borrowing Base Period, by giving five Business Days'
prior written notice to Lender, elect to increase the Borrowing Base for that
Borrowing Base Period to an amount not greater than the amount originally
included by Lender in its Borrowing Base Notice; provided further that if
Borrower so elects to increase the Borrowing Base, then all commitment fees
payable with respect to such Borrowing Base Period pursuant to Section 3.4 below
shall be calculated (or, as to any fees paid with respect to such Borrowing Base
Period prior to such election, adjusted as of the date upon which any commitment
fee is next payable) as if the increased Borrowing Base had been in effect for
the entire Borrowing Base Period.
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ARTICLE III
Security; Fees; LIBOR Provisions; Taxes; Increased Capital
Section 3.1. The Security. The Obligations will be secured by the Security
Documents listed in the Security Schedule and any additional Security Documents
hereafter delivered by Borrower and accepted by Lender.
Section 3.2. Perfection and Protection of Security Interests and Liens.
Borrower will from time to time deliver to Lender any financing statements,
continuation statements, extension agreements and other documents, properly
completed and executed (and acknowledged when required) by Borrower in form and
substance reasonably satisfactory to Lender, which Lender may request for the
purpose of perfecting, confirming or protecting Lender's Liens and other rights
in the Borrowing Base Properties.
Section 3.3. Bank Accounts and Offset. To secure the repayment of the
Obligations, Borrower hereby grants to Lender a security interest, a lien, and a
right of offset, each of which shall be upon and against (a) any and all moneys,
securities or other property (and the proceeds therefrom) of Borrower now or
hereafter held or received by or in transit to Lender from or for the account of
Borrower, whether for safekeeping, custody, pledge, transmission, collection or
otherwise (b) any and all deposits (general or special, time or demand,
provisional or final) of Borrower with Lender, and (c) any other credits and
claims of Borrower at any time existing against Lender, including without
limitation claims under certificates of deposit; provided that the foregoing
shall not apply to amounts which Borrower is holding as trustee for the benefit
of third parties. Upon the occurrence of any Event of Default, Lender is hereby
authorized to foreclose upon, offset, appropriate, and apply, at any time and
from time to time, without notice to Borrower, any and all items hereinabove
referred to against the obligations (whether or not such Obligations are then
due and payable).
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Section 3.4. Fees. (a) Borrower shall pay to Lender, within 30 days after
the end of the period from the date of this Agreement through December 31, 1996
and of each subsequent calendar quarter during the Revolving Period, a
commitment fee in an amount equal to: (i) one-quarter of one percent per annum,
times (ii) the excess of the Commitment Amount over the sum of the aggregate
outstanding principal balance of all Advances plus the face amount of all
outstanding Letters of Credit, commuted on a daily basis for such calendar
quarter or other period for which such commitment fee is being paid.
(b) Borrower shall pay to Lender with respect to each Letter of Credit
a fee in an amount equal to the greater of: (i) one percent per annum times
the face amount of such Letter of Credit, or (ii) $500.00, which fee shall
be payable at the time of issuance (and again at the time of any renewal)
of such Letter of Credit.
Section 3.5. Special LIBOR Provisions. (a) If Lender shall determine (which
determination shall, upon notice thereof to Borrower, be conclusive and binding
on Borrower and Lender) that the introduction of or any change in or in the
interpretation of any law makes it unlawful, or any central bank or other
governmental authority asserts that it is unlawful, for Lender to make, continue
or maintain any Advance as, or to convert any Advance into, a LIBOR Advance, the
obligations of Lender to make, continue, maintain or convert any such Advance
shall, upon such determination, forthwith be suspended until Lender shall notify
Borrower that the circumstances causing such suspension no longer exist, and all
LIBOR Advances shall automatically convert into Prime Rate Advances at the end
of the then-current LIBOR Interest Periods with respect thereto or sooner, if
required by such law or assertion.
(b) If Lender shall determine that:
(i) U.S. Dollar deposits in the relevant amount and for the
relevant LIBOR Interest Period are not available to Lender in its
relevant market; or
(ii) By reason of circumstances affecting Lender's relevant
market, adequate means do not exist for ascertaining the interest rate
applicable hereunder to LIBOR Advances;
then, upon notice from Lender to Borrower, the obligations of Lender under
Section 2.1 to make or continue any LIBOR Advance or to convert any prior
Advance into a LIBOR Advance shall forthwith be suspended until Lender shall
notify Borrower that the circumstances causing such suspension no longer exist.
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(c) Borrower, agrees to reimburse Lender for any increase in the cost
to Lender of, or any reduction in the amount of any sum receivable by
Lender in respect of, making, continuing, converting or maintaining (or of
its obligation to make, continue, convert or maintain) any LIBOR Advance.
Lender shall promptly notify Borrower in writing of the occurrence of any
such event, such notice to state, in reasonable detail, the reasons
therefor and the additional amount required fully to compensate Lender for
such increased cost or reduced amount. Such additional amount shall be
payable by Borrower to Lender within five days of Borrower's receipt of
such notice, and such notice shall, in the absence of manifest error, be
conclusive and binding on Borrower.
(d) In the event Lender shall incur any loss or expense (including any
loss or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by Lender to make, continue or maintain
any portion of the principal amount of any LIBOR Advance or to convert any
portion of the principal amount of any prior Advance into a LIBOR Advance)
as a result of:
(i) Any conversion or repayment or prepayment of the principal
amount of any LIBOR Advance on a date other than the scheduled last
day of the LIBOR Interest Period applicable thereto;
(ii) Any Advance not being made as a LIBOR Advance; or
(iii) Any prior Advance not being continued as, or converted
into, a LIBOR Advance in accordance with the Advance request therefor;
then, upon the written notice of Lender to Borrower, Borrower shall, within five
days of its receipt thereof, pay Lender such amount as will (in the reasonable
determination of Lender) reimburse Lender for such loss or expense. Such written
notice (which shall include calculations in reasonable detail) shall, in the
absence of manifest error, be conclusive and binding on Borrower.
Section 3.6. Increased Capital Costs. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental authority affects or would affect the amount of capital
required or expected to be maintained by Lender or any Person controlling
Lender, and Lender determines (in its sole and absolute discretion) that the
rate or return on its or such controlling Person's capital as a consequence of
the Loan is reduced to a level below that which Lender or such controlling
Person could have achieved but for the occurrence of any such circumstance,
then, in any such case upon notice from time to time by Lender to Borrower,
Borrower hereby agrees to pay immediately to Lender additional amounts
sufficient to compensate Lender or such controlling Person for such reduction in
rate of return. A statement to Borrower by Lender as to any such additional
amount or amounts (including calculations thereof in reasonable detail) shall,
in the absence of manifest error, be conclusive and binding on Borrower. In
determining such amount, Lender may use any method of averaging and attribution
that it (in its sole and absolute discretion) shall deem applicable.
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Section 3.7. Taxes. All payments by Borrower of principal of, and interest
on, the Loan and all other amounts payable hereunder shall be made free and
clear of and without deduction for any present or future income, excise, stamp
or franchise taxes and other taxes, fees, duties, withholdings or other charges
of any nature whatsoever imposed by any taxing authority, but excluding
franchise taxes and taxes imposed on or measured by Lender's net income or
receipts (such nonexcluded items being called "Taxes") . In the event that any
withholding or deduction from any payment to be made by Borrower hereunder is
required in respect of any Taxes pursuant to any applicable law, rule or
regulation, Borrower will:
(a) Pay directly to the relevant authority the full amount required to
be so withheld or deducted;
(b) Promptly forward to Lender an official receipt or other
documentation satisfactory to Lender evidencing such payment to such
authority; and
(c) Pay Lender such additional amount or amounts as may be necessary
to ensure that the net amount actually received by Lender will equal the
full amount Lender would have received had no such withholding or deduction
been required.
Moreover, if any Taxes are directly asserted against Lender with respect to any
payment received by Lender hereunder, Lender may pay such Taxes and Borrower
will promptly pay such additional amounts (including any penalties, interest or
expenses) as may be necessary in order that the net amount received by Lender
after the payment of such Taxes (including any Taxes on such additional amount)
shall equal the amount Lender would have received had not such Taxes been
asserted.
If Borrower fails to pay any Taxes when due to the appropriate taxing
authority or fail to remit to Lender the required receipts or other required
documentary evidence, Borrower shall indemnify, save and hold harmless Lender
from and against any incremental Taxes, interest or penalties that may become
payable by Lender as a result of any such failure.
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ARTICLE IV
Conditions Precedent to Loan
Section 4.1. Conditions Precedent to Loan. Lender shall have no obligation
to fund the Initial Draw unless Lender shall have received all of the following
at its office in Denver, Colorado, duly executed and delivered and in form,
substance and date satisfactory to Lender:
(a) The Allonge.
(b) An "Omnibus Certificate" of the Secretary of Borrower, which shall
contain the names and signatures of the officers of Borrower
authorized to execute Loan Documents and which shall certify to the
truth, correctness anthereto:t(i) a copy offollowing exhibits attached
resolutions duly adopted by the Board of Directors of Borrower and in
full force and effect at the time this Agreement is entered into,
authorizing the execution of this Agreement and any and all other Loan
Documents delivered or to be delivered by Borrower in connection
herewith and with the consummation of the transactions contemplated
herein and therein, and (ii) a copy of the articles of incorporation
of Borrower and all amendments thereto, certified by the appropriate
official of its state of incorporation, and (iii) a copy of the bylaws
of Borrower.
(c) An "Omnibus Certificate" of the Secretary of Guarantor, which shall
contain the names and signatures of the officers of Guarantor
authorized to execute Loan Documents and which shall certify to the
truth, correctness and completeness of the following exhibits attached
thereto: (i) a copy of resolutions duly adopted by the Board of
Directors of Guarantor and in full force and effect at the time this
Agreement is entered into, authorizing the execution of this Agreement
and any and all other Loan Documents delivered or to be delivered by
Guarantor in connection herewith and with the consummation of the
transactions contemplated heof incorporation of Guarantor of the
articles and all amendments thereto, certified by the appropriate
official of its state of incorporation, and (iii) a copy of the bylaws
of Guarantor.
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(d) A "Compliance Certificate" of an officer of Borrower and an officer of
Guarantor in which such officers certify to the satisfaction of the
conditions set out in subsections (a) , (b) , and (c) of Section 4.2.
(e) Each Security Document listed in the Security Schedule.
(f) Evidence satisfactory to Lender that contemporaneously with such
Initial Draw all indebtedness under the Prior Credit Agreement will be
repaid in full.
(g) Any and all other Loan Documents, including without limitation a
Consent of Guarantor in the form of Exhibit D attached hereto and made
a part hereof.
Section 4.2. Additional Conditions Precedent. Lender shall have no
obligation to fund the Initial Draw or to make any subsequent Advance under the
Loan unless the following conditions precedent have been satisfied:
(a) All representations and warranties made by any Obligated Person in any
Loan Document shall be true on and as of the date of such Advance as
if such representations and warranties had been made as of the date
hereof.
(b) No Default shall exist as of the date of such Advance.
(c) Each Obligated Person shall have performed and complied with all
agreements and conditions herein required to be performed or complied
with by it on or prior to the date of such Advance.
(d) The Loan shall not be prohibited by any law or any regulation or order
of any court or governmental agency or authority and shall not subject
Lender to any penalty or other onerous condition under or pursuant to
any such law, regulation or order.
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(e) Lender shall have received all documents and instruments which Lender
has then Sectionbly requested, in addition to those described in 4.1
(including without limitation opinions of legal counsel for Borrower;
corporate documents and records; documents evidencing governmental
authorizations, consents, approvals, licenses and exemptions; and
certificates of public officials and of officers and representatives
of Borrower and other persons), as to (i) the accuracy and validity of
or compliance with all representations, warranties and covenants made
by any of the Obligated Persons in this Agreement and the other Loan
Documents, (ii) the satisfaction of all conditions contained herein or
therein, and (iii) all other matters pertaining hereto and thereto.
All such additional documents and instruments shall be reasonably
satisfactory to Lender in form, substance and date.
(f) All legal matters relating to the Loan Documents and the consummation
of the transactions contemplated thereby shall be reasonably
satisfactory to Lender and its counsel.
ARTICLE V
Representations and Warranties
Section 5.1. Borrower's Representations and Warranties. To induce Lender to
enter into this Agreement and to make the Loan, Borrower represents and warrants
to Lender (which representations and warranties shall survive the delivery of
the Note and shall be deemed to be continuing representations and warranties
until repayment in full of the Note and termination of the Commitment) that:
(a) No Default. Borrower is not in default in any material respect in the
performance of any of the covenants and agreements contained herein.
No event has occurred and is continuing which constitutes a Default.
(b) Organization and Good Standing. Each Obligated Person is duly
organized, validly existing and in good standing under the laws of its
state or province of organization, having all corporate powers
required to carry on its business and enter into and carry out the
transactions contemplated hereby. Each such Obligated Person is duly
qualified, in good standing, and authorized to do business in all
other jurisdictions wherein the character ofproperties owned or held
by it or the nature of the business transacted by it makes such
qualification necessary.
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(c) Authorization. Borrower is duly authorized and empowered to create and
issue the Note and is duly authorized and empowered to execute,
deliver and perform its obligations under this Agreement and the Loan
Documents to which it is a party; each obligated Person has duly taken
all corporate and other action necessary to authorize the execution
and delivery by it of the Loan Documents to which it is a party and to
authorize the consummation of the transactions contemplated thereby
and the performance of its obligations thereunder.
(d) No Conflicts or Consents. The execution and delivery by the various
Obligated Persons of the Loan Documents to which each is a party, the
performance by each of its obligations under such Loan Documents, and
the consummation of the transactions contemplated by the various Loan
Documents, do not and will not (i) conflict with any provision of (A)
any domestic or foreign law, statute, rule or regulation, (B) the
articles or certificate of incorporation, bylaws, or charter of any
obligated Person, or (C) any agreement, judgment, license, order or
permit applicable to or binding upon any Obligated Person, (ii) result
in the acceleration of any Debt owed by any obligated Person, or (iii)
result in or require the creation of any Lien upon any assets or
properties of any Obligated Person except as expressly contemplated in
the Loan Documents. Except as expressly contemplated in the Loan
Documents, no consent, approval, authorization or order of, and no
notice to or filing with, any court or governmental authority or third
party is required in connection with the execution, delivery or
performance by any obligated Person of any Loan Document or to
consummate any transactions contemplated by the Loan Documents.
(e) Enforceable Obligations. This Agreement is, and the other Loan
Documents when duly executed and delivered will be, legal and binding
obligations of each obligated Person which is a party hereto or
thereto, enforceable in accordance with their respective terms except
as limited by bankruptcy, insolvency or similar laws of general
application relating to the enforcement of creditors' rights and as
limited by general equitable principles.
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(f) Initial Financial Statements. The Initial Financial Statements fairly
present Borrower's Consolidated financial position at the respective
dates thereof and the results of Borrower's Consolidated operations
and cash flows for the respective periods thereof. Since the date of
the annual Initial Financial Statements no material adverse change has
occurred in Borrower's Consolidated financial condition or business,
except as reflected in the quarterly Initial Financial Statements or
in the Disclosure Schedule. The Initial Financial Statements were
prepared in accordance with GAAP.
(g) Other Obligations. No Obligated Person has any outstanding Debt of any
kind (including contingent obligations, tax assessments, and unusual
forward or long-term commitments) which is, not shown in the Initial
Financial statements or disclosed in the Disclosure Schedule.
(h) Full Disclosure. No certificate, statement or other information
delivered herewith or heretofore by any Obligated Person to Lender in
connection with the negotiation of this Agreement or in connection
with any transaction contemplated hereby contains any untrue statement
of a material fact or omits to state any material fact known to any
Obligated Person necessary to make the statements contained herein or
therein not misleading in any material respect as of the date made or
deemed made. At the date of this Agreement, none of the Obligated
Persons is aware of any material fact of which Lender should not
reasonably be otherwise aware that has not been disclosed to Lender in
writing which could materially and adversely affect any of the
Obligated Persons' properties, businesses, prospects or conditions
(financial or otherwise) or Borrower's Consolidated properties,
businesses, prospects or condition (financial or otherwise). In
connection with the preparation of the Initial Engineering Report, to
the best of Borrower's knowledge, Borrower furnished to the preparer
thereof factual information that was complete and accurate in all
material respects, it being understood that the Initial Engineering
Report is necessarily based upon professional opinions, estimates and
projections and that Borrower does not warrant that such opinions,
estimates and projections will ultimately prove to have been accurate.
Borrower has heretofore delivered to Lender true, correct and complete
copies of all letters and documents listed in the Disclosure Schedule.
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(i) Litigation. Except as disclosed in the Initial Financial Statements or
in the Disclosure Schedule: (i) there are no actions, suits or legal,
equitable, arbitrative or administrative proceedings pending, or to
the knowledge of any obligated Person threatened, against any
obligated Person before any federal, state, municipal or other court,
department, commission, body, board, bureau, agency, or
instrumentality, domestic or foreign, which do or may materially and
adversely affect Borrower, Affiliates controlled by Borrower, their
ownership or use of any of their assets or properties their businesses
or financial condition or prospects, or the right or ability of any
Obligated Person to enter into the Loan Documents to which it is a
party or perform its obligations thereunder and (ii) there are no
outstanding judgments, injunctions, writs, rulings or orders by any
such governmental entity against any Obligated Person which have or
may have any such effect.
(j) ERISA Liabilities. No Termination Event has occurred with respect to
any ERISA Plan, and the Obligated Persons are in compliance with ERISA
in all material respects. No Obligated Person is required to
contribute to, or has any other absolute or contingent liability in
respect of, any "multiemployer plan" as defined in Section 4001 of
ERISA.
(k) Title to Properties. To the best of Borrower's knowledge and subject
to typical oil-industry operating agreements and product-purchase
contracts and any matters listed on the Disclosure Schedule, Borrower
has good and defensible title to the Borrowing Base Properties, free
and clear of all Prohibited Liens, except for covenants, restrictions,
rights, easements, liens, encumbrances and minor irregularities in
title which do not materially interfere with the occupation, use and
enjoyment of such properties in the normal course of business as
presently conducted or materially impair the value thereof for such
business. Borrower enjoys peaceful and undisturbed possession under
all material leases under which it operates, and all such leases are
valid and subsisting, with no material default existing thereunder.
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(l) Borrower's Affiliates. No obligated Person is a member of any general
or limited partnership, joint venture or association of any type
whatsoever except those listed in the Disclosure Schedule and except
for associations, joint ventures or other relationships (i) which are
established pursuant to a standard form oil and gas operating
agreement, (ii) which are not corporations or partnerships (or subject
to the Uniform Partnership Act) under applicable state law, and (iii)
whose businesses are limited to the exploration, development and
operation of oil, gas or mineral properties and interests owned
directly by the parties in such associations, joint ventures or
relationships. As of the date hereof Borrower owns, directly or
indirectly, the interest identified in the Disclosure Schedule in each
entity listed in the Disclosure Schedule.
(m) Names and Places of Business. No obligated Person has, during the
preceding five years, been known by or used any other partnership or
fictitious name, except as disclosed in the Disclosure Schedule.
Except as otherwise indicated in the Disclosure Schedule, the chief
executive office and principal place of business of Borrower are (and
for the preceding five years have been) located at the address of
Borrower set out in Section 8.3. Except as indicated in the Disclosure
Schedule, no Obligated Person has any other office or place of
business.
(n) Taxes. All tax returns required to be filed by Borrower in any
jurisdiction have been filed; all taxes, assessments, fees and other
governmental charges upon Borrower or upon any of its Properties,
income or franchises, which are due and payable have been paid, or
adequate reserves have been provided for payment thereof.
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(o) Use of Proceeds. Borrower is not engaged principally, or as one of its
important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulation U or X of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Loan will be used to
purchase or carry any such margin stock or to extend credit to any
Person for the purpose of purchasing or carrying any such margin
stock. Neither Borrower nor any Person acting on its behalf has taken
or will take any action which might cause this Agreement or the Note
or the application of the proceeds of any Loan to violate either of
said Regulations U or X or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities
Exchange Act of 1934, in each case as now in effect or as the same may
hereafter be in effect.
(p) Investment Company Act Not Applicable. Borrower is not an "investment
company" or a person "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(q) Public Utility Holding Company Act Not Applicable. Borrower is not a
"holding company," or a "subsidiary company" of a "holding company,"
or an "affiliate" of a "holding company," or of a "subsidiary company"
of a "holding company" as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended.
Section 5.2. Representations by Norwest. Norwest hereby represents that it
will acquire the Note for its own account in the ordinary course of its
commercial banking business; provided, however, that the disposition of
Norwest's property shall at all times be and remain within its control, and this
section does not prohibit Norwest's sale of the Note or of any participation in
the Note to any bank, financial institution or similar purchaser; provided
further that Norwest shall give notice to Borrower of any assignment or
participation granted by Norwest of any of its interest in the Loan.
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ARTICLE VI
Covenants of Borrower
Section 6.1. Affirmative Covenants. Borrower warrants, covenants and agrees
that until the full and final payment of the obligations and the termination of
this Agreement, unless Lender has previously agreed otherwise in writing:
(a) Payment and Performance. Borrower will pay all amounts due under the
Loan Documents in accordance with the terms thereof and will observe,
perform and comply with every covenant, term and condition express or
implied in the Loan Documents. Borrower will also cause Guarantor to
observe, perform and comply with every such term, covenant and
condition, to the extent applicable to Guarantor.
(b) Books, Financial Statements and Records. Borrower will at all times
maintain full and accurate books of account and records. Borrower will
maintain a system of accounting in accordance with GAAP and will
furnish the following to Lender at Borrower's expense:
(i) As soon as available, and in any event within 105 days after the
end of each Fiscal Year, complete Consolidated financial
statements of Borrower, together with all notes thereto, prepared
in reasonable detail in accordance with GAAP (containing at least
a Consolidated balance sheet as of the end of such Fiscal Year
and a Consolidated statement of earnings setting forth in
comparative form the corresponding figures for the preceding
Fiscal Year), together with an opinion, based on an audit using
generally accepted auditing standards by Coopers & Lybrand or
other independent certified public accountants reasonably
acceptable to Lender, stating that such Consolidated financial
statements have been so prepared;
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(ii) At the time of submission of the financial statements described
in (i) above, a report substantially in the form of Exhibit D
attached hereto and made a part hereof, signed by the chief
financial officer of Borrower: (A) attesting to the authenticity
of such financial statements, (B) stating that he has read this
Agreement and the security Documents, (C) stating that in
preparing and reviewing the financial statements described above
he has concluded that there did not exist any condition or event
at the end of such Fiscal Year or at the time of his report which
constituted an Event of Default or a Default, or, if he did
conclude that such condition or event existed, specifying the
nature and period of existence of any such condition or event,
and (D) showing the calculation of, and Borrower's compliance
with, all of the financial covenants contained herein;
(iii) As soon as available and in any event within 105 days after the
end of each Fiscal Year, an estimate of the revenues, expenses,
cash receipts, disbursements, cash flow and the net income of
Borrower for the ensuing year, in a form satisfactory to Lender;
(iv) As soon as available and in any event within 60 days after the
end of each Fiscal Quarter except the Fiscal Quarter ending in
November, a Consolidated and consolidating balance sheet of
Borrower and a Consolidated and consolidating statement of the
earnings of Borrower prepared in reasonable detail and in
accordance with GAAP;
(v) At the time of submission of the financial statements described
in (iv) above, a report substantially in the form of Exhibit D,
signed by the chief financial officer of Borrower: (A) attesting
to the authenticity of such financial statements, (B) stating
that he has read this Agreement and the Security Documents, (C)
stating that in preparing and reviewing the financial statements
described above he has concluded that there did not exist any
condition or event at the end of such Fiscal Quarter or at the
time of his report which constituted an Event of Default or a
Default, or, if he did conclude that such condition or event
existed, specifying the nature and period of existence of any
such condition or event, and (D) showing the calculation of, and
Borrower's compliance with, all of the financial covenants
contained herein;
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(vi) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by any
Obligated Person to its stockholders and all registration
statements, periodic reports and other statements and schedules
filed by any Obligated Person with any securities exchange, the
Securities and Exchange Commission or any similar governmental
authority;
(vii) By March 1 of each year, an engineering report and economic
evaluation prepared by Reed Ferrill & Associates, Inc. or one or
more other independent petroleum engineers chosen by Borrower and
acceptable to Lender, concerning all oil and gas properties and
interests included in the Borrowing Base Properties. This
engineering report shall be in form and substance satisfactory to
Lender, shall be prepared as of the preceding December 1 and
shall contain information and analysis comparable in scope to
that contained in the Initial Engineering Report;
(viii) By September 1 of each year, an engineering report and economic
evaluation prepared by Borrower or an independent engineer
acceptable to Lender, concerning all oil and gas properties and
interests included in the Borrowing Base Properties. This
engineering report shall be in form and substance satisfactory to
Lender, shall be prepared as of the preceding June 1 and shall
contain information and analysis comparable in scope to that
contained in the Initial Engineering Report;
(ix) As soon as available, and in any event within 60 days after the
end of each calendar month, a report describing by lease or unit
the gross volume of production and sales attributable to
production (and the prices at which such sales were made and the
revenues derived from such sales) during such calendar month from
the Borrowing Base Properties and from all other properties owned
by Borrower, and describing the related severance taxes, other
taxes, and leasehold operating expenses attributable thereto and
incurred during such calendar month; and
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(x) As soon as available, and in any event within 60 days after the
end of each Fiscal Quarter, legal descriptions in form and
substance satisfactory to Lender of any and all oil and gas
properties containing proved developed reserves owned by any
Obligated Person which have been not previously been mortgaged to
Lender.
(c) Other Information and Inspections. Each Obligated Person will
furnish to Lender any information which Lender may from time to time
request concerning any covenant, provision or condition of the Loan
Documents or any matter in connection with the Obligated Persons'
businesses and operations. Each Obligated Person will permit
representatives appointed by Lender, including independent accountants,
agents, attorneys, appraisers and any other persons, to visit and inspect,
at their sole risk, any of such Obligated Person's property, including its
books of account, other books and records, and any facilities or other
business assets, and to make extra copies therefrom and photocopies and
photographs thereof, and to write down and record any information such
representatives obtain, and each Obligated Person shall permit Lender or
its representatives to investigate and verify the accuracy of the
information furnished to Lender in connection with the Loan Documents and
to discuss all such matters with its officers, employees and
representatives.
(d) Notice of Material Events. Borrower will promptly notify Lender:
(i) of any material adverse change in the financial condition of any
Obligated Person or Borrower's consolidated financial condition, (ii) of
the occurrence of any Default, (iii) of the acceleration of the maturity of
any Debt owed by any Obligated Person or of any default by any Obligated
Person under any indenture, mortgage, agreement, contract or other
instrument to which any of them is a party or by which any of them or any
of their properties is bound, (iv) of any uninsured claim of $200,000 or
more asserted against any Obligated Person or any of its properties, (V) of
the occurrence of any Termination Event, (vi) of the filing of
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any suit or proceeding against any Obligated Person (or the occurrence of
any material development in any such suit or proceeding) in which an
adverse decision could have a material adverse effect upon any Obligated
Person's financial condition, business or operations (or could result in a
judgment not covered by insurance of $200,000 or more against Any Obligated
Person), (vii) of the merger or consolidation of Borrower or any of its
respective Affiliates with any other business entity, and (viii) of the
sale, transfer, lease, exchange or disposal by any Obligated Person of any
material assets or properties or any assets or properties with a value in
excess of $200,000, except sales of already-severed hydrocarbons and other
products in the ordinary course of an Obligated Person's business. Upon the
occurrence of any of the foregoing, the Obligated Persons will take all
necessary or appropriate steps to remedy promptly any such material adverse
change, Default, or default, to protect against any such adverse claim, to
defend any such suit or proceeding, and to resolve all controversies on
account of any of the foregoing. Borrower will also notify Lender in
writing at least twenty Business Days prior to the date that any Obligated
Person changes its name or the location of its chief executive office or
principal place of business or the place where it keeps its books and
records concerning the Borrowing Base Properties, furnishing with such
notice any necessary financing statement amendments or requesting Lender
and its counsel to prepare the same.
(e) Maintenance of Existence and Qualifications. Each Obligated Person
will maintain and preserve its corporate existence and its rights and
franchises in full force and effect and will qualify to do business as a
foreign corporation in all states or jurisdictions where required by
applicable law.
(f) Maintenance of Properties. Each Obligated Person will in maintain,
preserve, protect, and keep all property used or useful in the conduct of
its business in accordance with the standards of a reasonable and prudent
operator.
(g) Payment of Trade Debt, Taxes, etc. Each Obligated Person will (i)
timely file all required tax returns; (ii) timely pay all taxes,
assessments, and other governmental charges or levies imposed upon it or
upon its income, profits or property; (iii) pay all Debt owed by it on
ordinary trade terms to vendors, suppliers and other Persons providing
goods and services used by it in the ordinary course of its business; and
(iv) maintain appropriate accruals and reserves for all of the foregoing
Debt in accordance with GAAP. Each Obligated Person will pay and discharge
in all material respects, when due, all other Debt, taxes or assessments
now or hereafter owed by it. Each Obligated Person may, however, delay
paying or discharging any such Debt so long as it is in good faith
contesting the validity thereof by appropriate proceedings and has set
aside on its books adequate reserves therefor.
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(h) Insurance. Each Obligated Person will maintain with financially
sound and reputable insurance companies, insurance with respect to its
business, operations and properties in at least such amounts and against at
least such risks as are usually insured against in the same general area by
companies of established repute engaged in the same or a similar business,
including property insurance, public liability insurance for bodily injury
and property damage, well-control coverage insurance, workmen's
compensation insurance, insurance against loss or damage by employee
dishonesty and such other insurance as would be maintained by a prudent oil
and gas operator; will apply the proceeds of any such insurance to pay for,
or to reimburse itself for, the cost of repairing or replacing property
covered by such insurance; and will furnish to Lender, upon its written
request, full information as to the insurance carried.
(i) Payment of Expenses. Whether or not the transactions contemplated
by this Agreement are consummated, Borrower will promptly (and in any event
within 30 days after any invoice or other statement or notice) pay all
reasonable costs and expenses incurred by or on behalf of Lender (including
attorneys' fees) in connection with (i) the preparation, execution and
delivery of the Loan Documents (including without limitation any and all
future amendments or supplements thereto or restatements thereof), and any
and all consents, waivers or other documents or instruments relating
thereto, (ii) the filing, recording, refilling and re-recording of any
Security Documents and any other documents or instruments or further
assurances required to be filed or recorded or refiled or re-recorded by
the terms of any Loan Document, (iii) the enforcement, after the occurrence
of a Default or an Event of Default, of the Loan Documents.
(j) Performance on Borrower's Behalf. If any Obligated Person fails to
pay any taxes, insurance premiums or other amounts it is required to pay
under any Loan Document, Lender may pay the same. Borrower shall
immediately reimburse Lender for any such payments and each amount paid
shall constitute a part of the Obligations, shall be secured by the
Security Documents and shall bear interest at the rate described in Section
2.2(b)(ii) above, from the date such amount is paid by Lender until the
date such amount is repaid to Lender.
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(k) Compliance with Agreements and Law. Borrower will perform all
material obligations it is required to perform under the terms of each
indenture, mortgage, deed of trust, security agreement, lease, franchise,
agreement, contract or other instrument or obligation to which it is a
party or by which it or any of its properties is bound in such a way that
they result in no material adverse effect upon the Borrowing Base
Properties or Borrower's ability to perform its obligations under this
Agreement. Borrower will in all material respects conduct its business and
affairs in compliance with all laws, regulations, and orders applicable
thereto (including those relating to pollution and other environmental
matters).
(1) Certifications of Compliance. Each obligated Person will furnish
to Lender at such Obligated Person's or Borrower's expense all
certifications which Lender from time to time reasonably requests,
including but not limited to the forms of evidence and assurance described
in Section 4.2 (e) , as to the accuracy and validity of or compliance with
all representations, warranties and covenants made by any Obligated Person
in the Loan Documents, the satisfaction of all conditions contained
therein, and all other matters pertaining thereto.
(m) Additional Security Documents. Promptly after a request therefor
by Lender at any time and from time to time, Borrower will execute and
deliver to Lender such additional Security Documents and/or amendments to
existing Security Documents as Lender may reasonably deem necessary or
appropriate in order to grant to Lender a perfected lien on and security
interest in any or all oil and Gas Interests.
(n) Distributions. Make Distributions to any of its shareholders only
if, at the time of any Distribution: (i) no Default or Event of Default has
occurred and is continuing, and (ii) no mandatory prepayment under Section
2.3 (b) above is due within 90 days of the date of the Distribution.
Section 6.2. Negative Covenants. Borrower warrants, covenants and agrees
that until the full and final payment of the Obligations and the termination of
this Agreement, unless Lender has previously agreed otherwise in writing:
(a) Net Worth. The Consolidated Tangible Net Worth of Borrower shall
not at any time be less than: (i) $8,300,000, plus (ii) 50 percent of
Barrower's Cumulative Net Income after November 30, 1991.
(b) Current Ratio. The Current Ratio of Borrower, determined on a
Consolidated basis, shall not at any time be less than 1.0:1.0.
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(c) Funded Debt Ratio. The ratio of Funded Debt of Borrower to
Consolidated Tangible Net Worth of Borrower shall not at any time be
greater than 1.25:1.00.
(d) Limitation on Liens. Borrower will not (and will not permit any of
the other obligated Persons to) create, assume or permit to exist any
mortgage, deed of trust, pledge, encumbrance, lien or charge of any kind
(including any security interest in or vendor's lien on property purchased
under conditional sales or other title retention agreements and including
any lease intended as security or in the nature of a title retention
agreement) upon any of Borrower's (or any other Obligated Person's)
properties or assets, whether now owned or hereafter acquired except:
(i) Liens at any time existing in favor of Lender;
(ii) statutory Liens for taxes, statutory or contractual
mechanics' and materialmen's Liens incurred in the ordinary
course of business, and other similar Liens incurred in the
ordinary course of business, provided such Liens secure only
Debt which is not delinquent or which is being contested as
provided in Section 6. 1 (g)
(iii) any Liens expressly permitted under the terms of any
Security Documents hereafter accepted by Lender; and
(iv) Liens securing Debt owing by an Obligated Person to any
third party, if such Debt has not been incurred in violation
of this Agreement; provided that no such Lien (except any
Lien for the benefit of Lender) shall cover or affect any of
the Borrowing Base Properties.
(e) Additional Debt. Borrower will not (and will not permit any of the
other obligated Persons to) create, incur, assume or permit to exist Debt
except: (i) the Loan, (ii) trade debt owed to suppliers, pumpers,
mechanics, materialmen and others furnishing goods (other than capital
equipment financed for a period of more than one year) or services to
Borrower (or any such other obligated Person) in the ordinary course of
Borrower's (or any such other Obligated Person's) business, (iii) Debt
incurred by Borrower (or any such other obligated Person) for the purchase,
lease or other acquisition of capital equipment financed for a period of
more than one year,in an amount not in excess of $100,000 per transaction
and not in excess of $300,000 in aggregate for any Fiscal Year of Borrower
and such other Obligated Persons, and (iv) Debt disclosed in the Initial
Financial Statements.
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(f) Limitation on Sales of Property. Borrower will not (and will not
permit any of the other Obligated Persons to) sell, transfer, lease,
exchange, alienate or dispose of any of the assets of Borrower (or such
other Obligated Person) except as follows (and the following exceptions
shall be subject to any limitations contained in the Security Documents):
(i) equipment which is worthless or obsolete, which is replaced
by equipment of equal suitability and value or which is
salvaged from wells which have been plugged and abandoned by
or on behalf of Borrower (or such other Obligated Person);
(ii) property having a fair market value not to exceed $75,000,
sold in any single transaction, and not to exceed $250,000
for all such sales in any Fiscal Year;
(iii) inventory (including oil and gas sold as produced) which is
sold in the ordinary course of business; and
(iv) personal property located on oil and gas properties operated
by third parties, the sale of which personal property cannot
be prevented by Borrower (or such other Obligated Person).
(g) Limitation on Credit Extensions. Borrower will not (and will not
permit any of the other Obligated Persons to) extend credit, make advances
or make loans other than (1) normal and prudent extensions of credit to
customers buying goods and services in the ordinary course of business,
which extensions shall not be for longer periods than those extended by
similar businesses operated in a normal and prudent manner; (2) advances or
loans to CGSI in the ordinary course of business; and (3) advances to
employees of Borrower (or such other Obligated Person) in an aggregate
amount of not more than $15,000 outstanding at any time.
(h) Fiscal Year. Borrower will not (and will not permit any of the
other Obligated Persons to) change its fiscal year.
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(i) Amendment of Contracts. Borrower will not (and will not permit any
of the other Obligated Persons to) amend or permit any amendment to any
contract which could reasonably be foreseen to release, qualify, limit,
make contingent or otherwise detrimentally affect, in any material way, the
rights and benefits of Lender under or acquired pursuant to any of the
Security Documents.
(j) Limitation on Guarantees. Borrower will not (and will not permit
any of the other Obligated Persons to) assume, guarantee, endorse or be or
become secondarily liable for any Debt which is the primary obligation of
any other Person.
(k) ERISA Plans. Borrower will not (and will not permit any of the
other Obligated Persons to) incur any obligation to contribute to any
"multiemployer plan" as defined in Section 4001 of ERISA.
Section 6.3. Covenant Exception. Notwithstanding anything to the contrary
contained in Sections 6.1 and 6.2 above, to the extent that Borrower hereafter
sells preferred or common stock of Borrower and, at all times from and after
Borrower's receipt thereof, the proceeds of any such sales are kept separate
from and not commingled with any other funds of Borrower, any restrictions
contained in Sections 6.1 and 6.2 as to the use by Borrower of its funds shall
not apply to such proceeds.
ARTICLE VII
Events of Default and Remedies
Section 7.1. Events of Default. Each of the following events constitutes an
Event of Default under this Agreement:
(a) Borrower fails to pay any obligation when due and payable, whether
at a date for the payment of a fixed installment or contingent or other
payment to Lender or as a result of acceleration or otherwise, and such
failure is not remedied within the applicable Grace Period; or
(b) Any "default" or "event of default" occurs under any Loan Document
which defines either term, and the same is not remedied within the
applicable period of grace (if any) provided in such Loan Document; or
(c) Any Obligated Person fails (other than as referred to in
subsections (a) and (b) above) to duly observe, perform or comply with any
covenant, agreement, condition or provision (other than those referred to
in subsections (a) and (b) above) of any Loan Document, and such failure is
not remedied within the applicable Grace Period; or
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(d) Any representation or warranty previously, presently or hereafter
made in writing by or on behalf of any Obligated Person in connection with
any Loan Document shall prove to have been false or incorrect in any
material respect on any date on or as of which made, and the represented or
warranted state of affairs does not become true within the applicable Grace
Period; or
(e) Either,(i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1954, as amended) in excess
of $10,000 exists with respect to any ERISA Plan, whether or not waived by
the Secretary of the Treasury or his delegate, or (ii) any Termination
Event occurs with respect to any ERISA Plan and the then current value of
such ERISA Plants benefits guaranteed under Title IV of ERISA exceeds the
then current value of such ERISA Plants assets available for the payment of
such benefits by more than $10,000 (or in the case of a Termination Event
involving the withdrawal of a substantial employer, the withdrawing
employer's proportionate share of such excess exceeds such amount); or
(f) Any Obligated Person:
(i) suffers the entry against it of a judgment, decree or order
for relief by a court of competent jurisdiction in an
involuntary proceeding commenced under any applicable
bankruptcy, insolvency or other similar law of any
jurisdiction now or hereafter in effect, including the
federal Bankruptcy Code, as from time to time amended, or
has any such proceeding commenced against it which remains
undismissed for a period of 30 days; or
(ii) suffers the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for a
substantial part of its assets or for any part of the
Borrowing Base Properties in a proceeding brought against or
initiated by it, and such appointment is neither made
ineffective nor discharged within 30 days after the making
thereof, or such appointment is consented to, requested by,
or acquiesced to by it; or
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(iii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar law now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time
amended; or applies for or consents to the entry of an order
for relief in an involuntary case under any such law or to
the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or
other similar official of any substantial part of its assets
or any part of the Borrowing Base Properties; or makes a
general assignment for the benefit of creditors; or fails
generally to pay (or admits in writing its inability to pay)
its debts as such debts become due; or takes corporate or
other action in furtherance of any of the foregoing; or
(iv) suffers the entry against it of a final judgment for the
payment of money in excess of $200,000 (not covered by
insurance), unless the same is discharged within 30 days
after the date of entry thereof or an appeal or appropriate
proceeding for review thereof is taken within such period
and a stay of execution pending such appeal is obtained; or
(v) suffers the entry of an order issued by any court or
tribunal taking, seizing or apprehending all or any
substantial part of its property or any part of the
Borrowing Base Properties and bringing the same into the
custody of such Court or tribunal, and such order is not
stayed or released within thirty days after the entry
thereof; or
(g) Any default, including the expiration of any applicable period of
grace, occurs with respect to any indebtedness owed by any Obligated Person
to any Person except Lender.
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Upon the occurrence of an Event of Default described in subsection (f)(i),
(f)(ii) or (f)(iii) of this section, all of the obligations shall thereupon be
immediately due and payable, without presentment, demand, protest, notice of
protest, declaration or notice of acceleration or intention to accelerate, or
any other notice or declaration of any kind, all of which are hereby expressly
waived by Borrower and Guarantor. During the continuance of any other Event of
Default, Lender at any time and from time to time (unless all Events of Default
have theretofore been remedied) may declare any or all of the Obligations
immediately due and payable, and all such obligations shall thereupon be
immediately due and payable. The term "Grace Period," as used herein with
respect to an Event of Default for which a Grace Period is expressly provided,
means the period beginning on the date of the related Default and ending: (x) in
the case of a Default described in section 7. 1 (a) above, five Business Days
after the occurrence of the Default; (y) in the case of any Default (other than
a Default described in Section 7.1(a)) as to which Borrower does not give notice
of such Default to Lender as required in Section 6.1(d) prior to Lender's giving
notice thereof to Borrower or exercising any of its rights or remedies in
connection therewith, 15 days after written notice of such Default (a "Default
Notice") is given by Lender to Borrower; and (z) in the case of any other
Default for which a Grace Period is expressly provided, 30 days after a Default
Notice is given by Lender to Borrower.
Section 7.2. Remedies. If any Default or Event of Default shall occur and
be continuing, the obligation of Lender to make Advances under this Agreement
shall terminate immediately. if any Event of Default shall occur, Lender may
protect and enforce its rights under the Loan Documents by any appropriate
proceedings, including proceedings for specific performance of any covenant or
agreement contained in any Loan Document, and Lender may enforce the payment of
any Obligations due or enforce any other legal or equitable right. All rights,
remedies and powers conferred upon Lender under the Loan Document; shall be
deemed cumulative and not exclusive of any other rights, remedies or powers
available under the Loan Documents or at law or in equity.
Section 7.3. Indemnity. Borrower hereby agrees to indemnify, defend and
hold harmless Lender and its agents, affiliates, officers, directors, and
employees from and against any and all claims, losses, demands, actions, causes
of action, and liabilities whatsoever (including without limitation reasonable
attorney's fees and expenses, and costs and expenses reasonably incurred in
investigating, preparing or defending against any litigation or claim, action,
suit, proceeding or demand of any kind or character) arising out of or resulting
from: (a) the Loan Documents (including without limitation the enforcement
thereof), except to the extent such claims, losses, and liabilities are
proximately caused by Lender's gross negligence or willful misconduct, and (b)
the contamination of any of the Borrowing Base Properties by any hazardous
substance or environmental pollutant in violation of any federal, state or local
environmental statute, rule, regulation or ordinance, including without
limitation violation of the Comprehensive Environmental Response, Compensation
and Liability Act, as amended from time to time, or of the Resource Conservation
and Recovery Act, as amended from time to time.
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ARTICLE VIII
Miscellaneous
Section 8.1. Waiver and Amendment. No failure or delay by Lender in
exercising any right, power or remedy which it may have under any of the Loan
Documents shall operate as a waiver thereof or of any other right, power or
remedy, nor shall any single or partial exercise by Lender of any such right,
power or remedy preclude any other or further exercise thereof or of any other
right, power or remedy. No waiver of any provision of any Loan Document and no
consent to any departure therefrom shall ever be effective unless it is in
writing and signed by Lender, and then such waiver or consent shall be effective
only in the specific instances and for the purposes for which given and to the
extent specified in such writing. No notice to or demand on any obligated Person
shall in any case of itself entitle any Obligated Person to any other or further
notice or demand in similar or other circumstances. This Agreement and the other
Loan Documents set forth the entire understanding between the parties hereto,
and no modification or amendment of or supplement to this Agreement or the other
Loan Documents shall be valid or effective unless the same is in writing and
signed by the party against whom it is sought to be enforced.
Section 8.2. Survival of Agreements; Cumulative Nature. All of the
Obligated Persons' various representations, warranties, covenants and agreements
in the Loan Documents shall survive the execution and delivery of this Agreement
and the other Loan Documents and the performance hereof and thereof, including
without limitation the making or granting of the Loan and the delivery of the
Note and the other Loan Documents, and shall further survive until all of the
obligations are paid in full to Lender and all of Lender's obligations to
Borrower are terminated. All statements and agreements contained in any
certificate or other instrument delivered by any obligated Person to Lender
under any Loan Document shall be deemed representations and warranties by
Borrower to Lender and/or agreements and covenants of Borrower under this
Agreement. The representations, warranties, and covenants made by the obligated
Persons in the Loan Documents, and the rights, powers, and privileges granted to
Lender in the Loan Documents, are cumulative, and no Loan Document shall be
construed in the context of another to diminish, nullify, or otherwise reduce
the benefit to Lender of any such representation, warranty, covenant, right,
power or privilege. In particular and without limitation, no exception set out
in this Agreement to any representation, warranty or covenant herein contained
shall apply to any similar representation, warranty or covenant contained in any
other Loan Document, and each such similar representation, warranty at covenant
shall be subject only to those exceptions which are expressly made applicable to
it by the terms of the various Loan Documents.
-40-
<PAGE>
Section 8.3. Notices. All notices, requests, Consents, demands and other
communications required or permitted under any Loan Document shall be in writing
and, unless otherwise specifically provided in such Loan Document, shall be
deemed sufficiently given or furnished if delivered by personal delivery, by
telegram or telex, by expedited delivery service with proof of delivery, or by
registered or certified United States mail, return receipt requested, postage
prepaid, at the addresses specified below (unless changed by similar notice in
writing given by the particular Person whose address is to be changed). Any such
notice or communication shall be deemed to have been given either at the time of
personal delivery or, in the case of delivery service or mail, as of the date of
first attempted delivery at the address and in the manner provided herein
(provided that the notifying party promptly takes reasonable steps to effect
actual delivery if the first attempted delivery is unsuccessful), or, in the
case of telegram or telex, upon receipt. All such notices to any Obligated
Person may, at the option of Lender in each particular instance, be either
addressed and delivered to such Obligated Person or addressed and delivered to
Borrower.
Borrower's address: 1660 Lincoln Street
Suite 2400
Denver, Colorado 80264
Attention: Michael M. Logan
Lender's address: 1700 Broadway
Denver, Colorado 80274
Attention: Energy & Minerals
Group
Section 8.4. Joint and Several Liability; Parties in Interest. All
Obligations which are owed by two or more Obligated Persons shall be joint and
several, and not merely joint, obligations. All grants, covenants and agreements
contained in the Loan Documents shall bind and inure to the benefit of the
parties thereto and their respective successors and assigns; provided, however,
that no Obligated Person may assign or transfer any of its rights or delegate
any of its duties or obligations under any Loan Document without the prior
consent of Lender.
-41-
<PAGE>
Section 8.5. Governing Law. The Loan Documents shall be deemed contracts
and instruments made under the laws of the State of Colorado and shall be
construed and enforced in accordance with and governed by the laws of the State
of Colorado and the laws of the United States of America, except (a) to the
extent that the law of another jurisdiction is expressly elected in a Loan
Document, and (b) with respect to specific Liens, or the perfection thereof,
evidenced by Security Documents covering real or personal property which by the
laws applicable thereto are required to be construed under the laws of another
jurisdiction. Borrower hereby irrevocably submits itself and each other
Obligated Person to the nonexclusive jurisdiction of the state and federal
courts of the State of Colorado.
Section 8.6. Limitation on Interest. Lender and the Obligated Persons
intend to contract in strict compliance with applicable usury law from time to
time in effect. In furtherance thereof such persons stipulate and agree that
none of the terms and provisions contained in the Loan Documents shall ever be
construed to create a contract to pay, for the use, forbearance or detention of
money, interest in excess of the maximum amount of interest permitted to be
charged by applicable law from time to time in effect. Neither any Obligated
Person nor any present or future guarantors, endorsers, or other Persons
hereafter becoming liable for payment of any Obligation shall ever be liable for
unearned interest thereon or shall ever be required to pay interest thereon in
excess of the maximum amount that may be lawfully charged under applicable law
from time to time in effect, and the provisions of this section shall control
over all other provisions of the Loan Documents which may be in conflict or
apparent conflict herewith. Lender expressly disavows any intention to charge or
collect excessive unearned interest or finance charges in the event the maturity
of any obligation is accelerated. If (a) the maturity of any Obligation is
accelerated for any reason, (b) any Obligation is prepaid and as a result any
amounts held to constitute interest are determined to be in excess of the legal
maximum, or (c) Lender or any other holder of any or all of the obligations
shall otherwise collect moneys which are determined to constitute interest which
would otherwise increase the interest on any or all of the Obligations to an
amount in excess of that permitted to be charged by applicable law then in
effect, then all such sums determined to constitute interest in excess of such
legal limit shall, without penalty, be promptly applied to reduce the then
outstanding principal of the related obligations or, at Lender's option,
promptly returned to Borrower or the other payor thereof upon such
determination.
-42-
<PAGE>
Section 8.7. Severability. If any term or provision of any Loan Document
shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable law.
Section 8.8. Counterparts. This Agreement may be separately executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Agreement.
Section 8.9. Conflicts. To the extent of any irreconcilable conflicts
between the provisions of this Agreement and the provisions of any of the Loan
Documents, the provisions of this Agreement shall prevail.
Section 8.10. Entire Agreement. This Agreement, the Note, the Security
Documents and the other Loan Documents from time to time executed in connection
herewith state the entire agreement between the parties with respect to the
subject matter hereof. Upon the repayment of any and all amounts due under or in
connection with the Prior Credit Agreement, the terms and provisions of this
Agreement shall supersede the terms and provisions of the Prior Credit Agreement
in their entirety.
IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
COLUMBUS ENERGY CORP.
By: /s/ Michael M. Logan
------------------------
Michael M. Logan,
Vice President
NORWEST BANK COLORADO, NATIONAL
ASSOCIATION
By: /s/ J. Thomas Reagan
------------------------
J. Thomas Reagan,
Vice President
-43-
<PAGE>
SCHEDULE 1
SECURITY SCHEDULE
1. Mortgage, Deed of Trust, Security Agreement, Assignment, Financing
Statement and Fixture Filing dated as of July 1, 1992, as amended, from
Borrower for the benefit of Lender.
2. Financing Statement, as amended, naming Borrower as debtor and Lender as
secured party.
3. Guaranty from CGSI for the benefit of Lender.
1-1
<PAGE>
SCHEDULE 2
DISCLOSURE SCHEDULE
1. Section 5.1(f). Changes Since Initial Financial Statements.
NONE.
2. Section 5.1 (g) . Other Obligations.
NONE.
3. Section 5.1 (i) . Litigation.
NONE.
4. Section 5.1 (k) . Title Matters.
NONE.
5. Section 5.1(1). Borrower's Affiliates.
Columbus Gas Services, Inc. - 100%
6. Section 5.1(m). Names and Places of Business.
Columbus Gas Services, Inc.
1860 Lincoln Street, Suite 1100
Denver, Colorado 80295
Columbus Energy Corp.
1860 Lincoln Street, Suite 1100
Denver, Colorado 80295
2-1
<PAGE>
EXHIBIT A
ALLONGE
FOR VALUE RECEIVED, COLUMBUS ENERGY CORP., a Colorado corporation
("Columbus"), and NORWEST BANK COLORADO, NATIONAL ASSOCIATION, a national
banking association ("Norwest"), hereby agree to amend the Promissory Note dated
July 1, 1992, as previously amended (the "Note"), in the face amount of
$10,000,000, made by Columbus, payable to the order of Norwest, as follows:
1. By substituting the following for the second paragraph on page I of
the Note:
This Note is issued pursuant to, and is subject to the terms and
provisions of, the Amended and Restated Credit Agreement dated as of
October 23, 1996, between Borrower and Payee, as now in effect or as
the same may hereafter be amended, modified, extended, restated or
replaced (the "Credit Agreement"). Except as otherwise defined herein,
terms defined in the Credit Agreement shall have the same meanings
when used herein, and the definitions contained in the Credit
Agreement of all such terms used herein are hereby incorporated in
this Note by reference.
2. By substituting the following for the first sentence of the third
paragraph on page 1 of the Note:
The outstanding principal amount of this Note shall be payable as
provided in the Credit Agreement, in monthly installments due on the
first day of each calendar month, commencing August 1, 1999, as more
fully described in the Credit Agreement.
3. By substituting the following for the third sentence of the third
paragraph on page 1 of the Note:
The entire outstanding principal balance of this Note shall be due and
payable an July 1, 2003 (unless payable sooner pursuant to the terms
of the Credit Agreement).
4. By substituting the following for the fourth paragraph on page 1 of
the Note:
A-1
<PAGE>
Except as otherwise provided below with respect to amounts not
paid when due: (a) interest on each Prime Rate Advance shall accrue at
a fluctuating annual rate equal to the Prime Rate, and (b) interest on
each LIBOR Advance shall accrue at a fixed annual rate equal to LIBOR
(Adjusted) with respect to such LIBOR Advance plus one and
three-quarters percentage points per annum; provided that interest on
each LIBOR Advance made an or after September 23, 1996 shall accrue at
a fixed annual rate equal to LIBOR (Adjusted) with respect to such
LIBOR Advance plus one and one-half percentage points per annum. With
respect to any amount payable hereunder which is not paid when due,
whether upon maturity, by acceleration or otherwise, interest thereon
shall accrue from the due date until the date of payment at a fixed
annual rate equal to the Prime Rate as of the due date plus five
percentage points per annum.
5. By substituting the following for the first sentence of the fifth
paragraph on page 1 of the Note:
Interest an Prime Rate Advances shall be payable monthly on the first
Business Day of each calendar month, from the date hereof through July
1, 2003.
6. By substituting the following for the third sentence of the fifth
paragraph on page I of the Note:
All accrued and unpaid interest will be due and payable not later than
July 1, 2003.
DATED as of October 23, 1996.
COLUMBUS ENERGY CORP.
By:
Michael M. Logan,
Vice President
NORWEST BANK COLORADO, NATIONAL
ASSOCIATION
By:
J. Thomas Reagan,
Vice President
A-2
<PAGE>
EXHIBIT B
ADVANCE REQUEST
_____, 199-
Norwest Bank Colorado, National Association
1700 Broadway
Denver, Colorado 80274
Attention: Energy & Minerals Department
Gentlemen:
1. This Advance Request is delivered to you pursuant to Section 2.1 of the
Amended and Restated Credit Agreement dated as of October 23, 1996 (the "Credit
Agreement"), between Columbus Energy Corp. ("Borrower") and Norwest Bank
Colorado, National Association ("Lender"). Except as otherwise defined herein,
terms defined in the Credit Agreement shall have the same meanings when used
herein.
2. Borrower hereby requests an Advance as follows:
(a) Type of Advance:
(b) Proposed Date of Advance:
(c) Amount of Advance:
(d) Interest Period (if applicable):
3. Borrower hereby represents and warrants that as of the date hereof and
as of the date of the Advance requested hereunder, all statements contained in
Section 4.2(a), (b) and (c) of the Credit Agreement are and will be true and
correct in all material respects.
4. Borrower agrees that if, at any time prior to the date of the Advance
requested by Borrower hereunder, any representation or warranty of Borrower
contained herein is not true and correct as of such time, Borrower will
immediately so notify Lender. Except to the extent of any such notification by
Borrower, the acceptance by Borrower of any Advance requested hereunder shall be
deemed a re-certification by Borrower as of the date of such Advance of the
representations and warranties made by Borrower herein.
COLUMBUS ENERGY CORP.
By:
Title:
B-1
<PAGE>
EXHIBIT C
REQUEST FOR ISSUANCE OF LETTER OF CREDIT
________, 199_
Norwest Bank Colorado, National Association
1700 Broadway
Denver, Colorado 80274
Attention: Energy & Minerals Department
Gentlemen:
1. This Request for Issuance of Letter of Credit is delivered to you
pursuant to Section 2.1 of the Amended and Restated Credit Agreement dated as of
October 23, 1996 (the "Credit Agreement"), between Columbus Energy Corp.
("Borrower") and Norwest Bank Colorado, National Association ("Lender"). Except
as otherwise defined herein, terms defined in the Credit Agreement shall have
the same meanings when used herein.
2. Borrower hereby requests that Lender issue a Letter of Credit as
follows:
(a) Name of Beneficiary:
(b) Proposed Issuance Date:
(c) Expiration Date:
(c) Face Amount:
(d) Payment Instructions (if any):
3. Borrower hereby represents and warrants that as of the date hereof and
as of the date of issuance of the Letter of Credit requested hereunder, all
statements contained in section 4.2(a), (b) and (c) of the Credit Agreement are
and will be true and correct in all material respects.
4. Borrower agrees that if, at any time prior to the date of issuance of
the Letter of Credit requested by Borrower hereunder, any representation or
warranty of Borrower contained herein is not true and correct as of such time,
Borrower will immediately so notify Lender. Except to the extent of any such
notification by Borrower, the acceptance by Borrower of any Letter of Credit
requested hereunder shall be deemed a recertification by Borrower as of the date
of such Advance of the representations and warranties made by Borrower herein.
COLUMBUS ENERGY CORP.
By:
Title:
C-1
<PAGE>
EXHIBIT D
CONSENT OF GUARANTOR
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Columbus Gas Services, Inc. ("Guarantor"), as the
Guarantor under a Guaranty Agreement dated July 1, 1992, as amended (the
"Guaranty"), given by Guarantor to Norwest Bank Colorado, National Association
(the "Bank"), to guaranty certain obligations of Columbus Energy Corp.
("Borrower"), to the Bank, hereby consents to, and agrees with the Bank that the
Amended and Restated Credit Agreement dated as of July 1, 1992, as previously
amended (the "Prior Credit Agreement"), between Borrower and the Bank, shall be
amended and restated in its entirety pursuant to an Amended and Restated Credit
Agreement dated as of October 23, 1996 (the "Amended and Restated Credit
Agreement"), between Borrower and the Bank, including without limitation the
extension of the end of the "Revolving Period" (as defined in the Amended and
Restated Credit Agreement) to July 1, 1999 and the extension of the "Maturity
Date" (as defined in the Amended and Restated Credit Agreement) to July 1, 2003.
Guarantor hereby ratifies and adapts the Guaranty and agrees that the
Guaranty shall cover any and all indebtedness, whether for principal, interest,
fees or other amounts, incurred by Borrower to the Bank pursuant to the Amended
and Restated Credit Agreement.
Dated as of October 23, 1996.
COLUMBUS GAS SERVICES, INC.
By:
Michael M. Logan,
Executive Vice President
D-1
Exhibit 11
COLUMBUS ENERGY CORP.
Statement of Computation of Per Share Earnings
(Unaudited)
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Nine Months Ended
August 31,
----------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Primary:
Based on weighted average
shares outstanding including
the effect of common
stock equivalents:
Weighted average shares
outstanding: 3,049 3,160 3,143 3,269 3,404 3,461 3,543
Incremental shares attributable
to dilutive stock options and
warrants outstanding based on
average market price during
the period calculated using
the treasury stock method 34 18 5 37 91 47 7
------ ------ ------- ------ ------ ------ ------
Total average common and
common equivalent shares 3,083 3,178 3,148 3,306 3,495 3,508 3,550
====== ====== ======= ====== ====== ====== ======
Net earnings (loss) $1,539 $ 501 $(1,495) $2,190 $3,806 $2,415 $ 56
====== ====== ======= ====== ====== ====== ======
Earnings (loss) per share:
Net earnings (loss) $ .50 $ .16 $ (.47) $ .67 $ 1.12 $ .70 $ .02
====== ====== ======= ====== ====== ====== ======
</TABLE>
Note:Fully diluted earnings per share for the nine months ended August 31, 1996
and 1995 and in 1995, 1994, and 1993 were identical to the primary earnings
per share. Fully diluted incremental shares in 1992 and 1991 were 116,000
and 14,000 with total average common and common share equivalent shares
3,577,000 and 3,557,000, respectively. The number of shares and per share
amounts from 1991-1994 have been restated to reflect the 10% stock
dividends issued in 1994 and 1995.
Exhibit 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS AND TAX ADVISORS
We consent to the inclusion in this registration statement on Form S-2 (File
No.333-_______) of our report dated February 9, 1996 on our audits of the
consolidated financial statements of Columbus Energy Corp. as of November 30,
1995 and 1994, and for each of the three years in the period ended November 30,
1995. We consent to the reference to our Firm under the caption "Federal Income
Tax Matters Relating to the offering". We also consent to the reference to our
Firm under the caption "Experts".
COOPERS & LYBRAND L.L.P.
Denver, Colorado
January 10, 1997
<PAGE>
Exhibit 23(b)
(REED W. FERRILL & ASSOCIATES LETTERHEAD)
January 2, 1997
Columbus Energy Corp.
1660 Lincoln Street, Suite 2400
Denver, Colorado 80264
Reed W. Ferrill & Associates, Inc. consents to the use of its name and its
reports dated January 22, 1996 entitled "Columbus Energy Corp., Reserve and
Revenue Forecast as of November 30, 1995, Constant Prices and Costs" in whole or
in part, by Columbus Energy Corp. (Columbus) in this Form S-2 Report to the
Securities and Exchange Commission. We also consent to the reference to our firm
under the caption "Experts".
for and on behalf of
Reed W. Ferrill & Associates, Inc.
\s\Reed W. Ferrill
------------------
Reed W. Ferrill
President
<PAGE>
Exhibit 23(c)
(HUDDLESTON & CO., INC. LETTERHEAD)
January 2, 1997
Columbus Energy Corp.
1660 Lincoln Street, Suite 2400
Denver, Colorado 80264
Huddleston & Co., Inc. consents to the use of its name and its report dated
January 22, 1996, entitled "Columbus Energy Corp., Berry R. Cox Field, Estimated
Reserves and Revenues, as of November 30, 1995, Constant Product Prices" in
whole or in part by Columbus Energy Corp. (Columbus) in Columbus' Form S-2 to
the Securities and Exchange Commission. We also consent to the reference to our
firm under the caption "Experts".
For and On Behalf of
HUDDLESTON & CO., INC.
\s\Peter D. Huddleston
----------------------
Peter D. Huddleston, P.E.
President
