<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
COMMISSION FILE NUMBER 0-18691
NORTH COAST ENERGY, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 34-1594000
(State of Incorporation) I.R.S. (Employer
Identification No.)
1993 CASE PARKWAY
TWINSBURG, OHIO 44087-2343
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (216) 425-2330
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date. Indicate the number of shares
outstanding of each of the issuer's classes of Common Stock as the latest
practical date.
Class Outstanding at February 13, 1997
- ----------------------------------- --------------------------------
Common Stock, $.01 par value 8,067,589
<PAGE> 2
NORTH COAST ENERGY, INC.
Page No.
---------
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets -
March 31, 1996 (Audited) and December 31, 1996 (Unaudited) 2
Unaudited Consolidated Statements of Operations -
For the Three and Nine Months Ended December 31, 1995 and 1996 4
Unaudited Consolidated Statements of Cash Flows -
For the Nine Months Ended December 31, 1995 and 1996 5
Unaudited Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II - OTHER INFORMATION 18
<PAGE> 3
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1996
(Unaudited)
March 31, December 31,
1996 1996
---- ----
ASSETS
CURRENT ASSETS
Cash and equivalents $ 1,551,748 $ 2,608,509
Accounts receivable:
Trade 1,339,601 1,388,819
Affiliates 97,993 61,975
Inventory 85,235 161,088
Deferred income taxes 41,000 41,000
Refundable income taxes 115,000 86,963
Other, net 22,097 33,210
------------ ------------
Total current assets 3,252,674 4,381,564
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Land 122,699 93,437
Oil and gas properties (successful
efforts) 23,769,853 24,522,647
Pipelines 3,696,277 4,090,449
Vehicles 427,920 473,178
Furniture and fixtures 453,718 500,849
Building and improvements 145,539 787,301
------------ ------------
28,616,006 30,467,861
Less-Accumulated depreciation, depletion,
amortization and impairment (11,879,077) (12,335,498)
------------ ------------
16,736,929 18,132,363
OTHER ASSETS, net 253,206 137,677
------------ ------------
$ 20,242,809 $ 22,651,604
============ ============
The accompanying notes are an integral part of these Balance Sheets
2
<PAGE> 4
<TABLE>
<CAPTION>
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1996
(Unaudited)
March 31, December 31,
1996 1996
---------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 213,060 $ 244,500
Accounts payable 2,481,558 1,776,307
Accrued expenses 280,565 326,976
Billings in excess of costs on
uncompleted contracts 637,347 1,864,754
------------ ------------
Total current liabilities 3,612,530 4,212,537
------------ ------------
LONG-TERM DEBT, net of current portion 8,954,574 11,594,710
DEFERRED INCOME TAXES, net 357,100 173,300
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A, 6% Non-Cumulative Convertible Preferred
stock, par value $.01 per share; 563,270 shares
authorized; 305,200 and 300,090 issued and
outstanding (aggregate liquidation value of
$3,050,200 and $3,000,900, respectively) 3,052 3,001
Series B, Cumulative Convertible Preferred stock,
par value $.01 per share; 625,000 shares autho-
rized; 464,665 issued and outstanding
(aggregate liquidation value of $4,646,650) 4,647 4,647
Undesignated Serial Preferred stock, par
value $.01 per share; 811,730 shares
authorized; none issued and outstanding -- --
Common stock, par value $.01 per share;
40,000,000 shares authorized; 8,040,148
and 8,076,589 issued and outstanding 80,402 80,766
Additional paid-in capital 12,082,969 12,105,788
Retained deficit (4,852,465) (5,523,145)
------------ ------------
Total stockholders' equity 7,318,605 6,671,057
------------ ------------
$ 20,242,809 $ 22,651,604
============ ============
</TABLE>
The accompanying notes are an integral part of these Balance Sheets
3
<PAGE> 5
<TABLE>
<CAPTION>
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Periods Ended December 31, 1995 and 1996
(Unaudited)
Three Months Ended Nine Months Ended
---------------------- --------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Oil and gas production $ 622,504 $ 767,086 $ 1,943,384 $ 2,351,219
Drilling revenues 1,729,840 -- 2,032,840 1,442,700
Well operating, transportation and other 306,769 409,914 1,175,188 1,456,699
Administrative and agency fees 275,900 245,772 707,423 670,733
----------- ----------- ----------- -----------
2,935,013 1,422,772 5,858,835 5,921,351
COSTS AND EXPENSES:
Oil and gas production expenses 144,900 193,481 556,439 601,596
Drilling costs 1,253,668 91,900 1,611,114 1,288,538
Oil and gas operations 199,549 114,468 602,984 755,934
General and administrative expenses 738,214 698,157 2,065,645 1,955,078
Depreciation, depletion, amortization, and
other 609,149 466,390 1,572,609 1,046,022
Abandonment of oil and gas properties 66,392 14,017 66,392 58,860
----------- ----------- ----------- -----------
3,011,872 1,578,413 6,475,183 5,706,028
----------- ----------- ----------- -----------
(LOSS) INCOME FROM OPERATIONS ( 76,859) (155,641) (616,348) 215,323
----------- ----------- ----------- -----------
OTHER INCOME
Interest 13,987 11,155 50,948 38,290
Other 99 24,049 7,757 48,873
Gain (loss) on sale of property and equipment 10,027 1,806 18,970 ( 8,968)
----------- ----------- ----------- -----------
24,113 37,010 77,675 78,195
----------- ----------- ----------- -----------
OTHER EXPENSE
Interest 203,556 283,219 576,420 795,323
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (256,302) (401,850) (1,115,093) (501,805)
CREDIT FOR TAXES ON INCOME
Current -- -- (61,000) --
Deferred (113,000) (131,000) (394,000) (155,000)
----------- ----------- ----------- -----------
(113,000) (131,000) (455,000) (155,000)
----------- ----------- ----------- -----------
NET LOSS $ (143,302) $ (270,850) $ (660,093) $ (346,805)
=========== =========== =========== ===========
NET LOSS PER SHARE (primary and
fully diluted) $(.04) $(.05) $(.15) $(.10)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements
4
<PAGE> 6
<TABLE>
<CAPTION>
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Nine Months Ended December 31, 1995 and 1996
(Unaudited)
December 31, December 31,
1995 1996
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (660,093) $ (346,805)
Adjustments to reconcile net loss to cash provided by
operating activities-
Depreciation, depletion, amortization and other 1,572,609 1,046,022
Abandonment of oil and gas properties 66,392 58,860
(Gain) loss on sale of property and equipment (18,970) 8,968
Deferred income taxes (394,000) (155,000)
Change in:
Accounts receivable (40,274) (13,200)
Other current assets 49,967 (87,729)
Other assets 57,492 35,209
Accounts payable (1,157,701) (655,954)
Accrued expenses (184,222) 46,411
Billings in excess of costs on uncompleted contracts 2,350,294 1,227,407
----------- -----------
Total adjustments 2,301,587 1,510,994
Net cash provided by operating activities 1,641,494 1,164,189
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,155,901) (1,905,286)
Proceeds on sale of property and equipment 12,253 171,569
----------- -----------
Net cash used for investing activities (2,143,648) (1,733,717)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of accounts payable used to finance property and
equipment additions (236,422) (70,962)
Borrowings under revolving credit facility 1,650,000 2,080,000
Borrowings under note payable to stockholder 1,000,000 63,579
Repayments of borrowings under revolving credit facility (890,003) --
Payments on long-term debt (80,529) (109,553)
Cash paid for deferred financing cost (47,353) (12,900)
Distributions and dividends (533,698) (323,875)
----------- -----------
Net cash provided by financing activities 861,995 1,626,289
INCREASE IN CASH AND EQUIVALENTS $ 359,841 $ 1,056,761
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
5
<PAGE> 7
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
For the Nine Months Ended December 31, 1995 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD $2,366,660 $ 1,551,748
---------- ---------------
CASH AND EQUIVALENTS AT END OF PERIOD $2,726,501 $ 2,608,509
=========== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 539,329 $ 721,489
Income taxes 71,135 -
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Long-term debt incurred for the purchase of property
and equipment $ 91,365 $ 637,549
Accounts payable incurred for the purchase of property
and equipment 140,501 44,797
Accounts payable from interest incurred on long term debt (44,055) -
Stock bonus given to employees - 23,132
</TABLE>
The accompanying notes are an integral part of these Financial Statements
6
<PAGE> 8
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Summary of Accounting Policies
A. General
The consolidated financial statements included herein, have been
prepared by North Coast Energy, Inc. without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position have
been made.
Information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the financial
statements and notes thereto which are incorporated in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1996.
The results of the operations for the interim periods may not
necessarily be indicative of the results to be expected for the full
year. In addition, the preparation of these financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the reported
amounts of assets and liabilities at the date of the consolidated
financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
B. Principles of Consolidation
The consolidated financial statements include the accounts of North
Coast Energy, Inc. and its wholly owned subsidiaries (the Company),
North Coast Operating Company (NCOC), and NCE Securities, Inc. (NCE
Securities). In addition, the Company's investments in oil and gas
drilling partnerships, which are accounted for under the proportional
consolidation method, are reflected in the accompanying financial
statements. The Company's ownership of revenues in these drilling
partnerships are as follows:
<TABLE>
<CAPTION>
<S> <C>
Capital Drilling Fund 1986-1 Limited Partnership 13.2%
North Coast Energy/Capital 1987-1 Appalachian Drilling Program Limited Partnership 33.7%
North Coast Energy/Capital 1987-2 Appalachian Drilling Program Limited Partnership 27.0%
North Coast Energy/Capital 1988-1 Appalachian Drilling Program Limited Partnership 25.5%
North Coast Energy/Capital 1988-2 Appalachian Drilling Program Limited Partnership 34.8%
North Coast Energy 1989 Appalachian Drilling Program Limited Partnership 30.0%
North Coast Energy 1990-1 Appalachian Drilling Program Limited Partnership 26.0%
North Coast Energy 1990-2 Appalachian Drilling Program Limited Partnership 25.7%
North Coast Energy 1990-3 Appalachian Drilling Program Limited Partnership 25.0%
North Coast Energy 1991-1 Appalachian Drilling Program Limited Partnership 26.5%
North Coast Energy 1991-2 Appalachian Drilling Program Limited Partnership 25.0%
North Coast Energy 1991-3 Appalachian Drilling Program Limited Partnership 25.3%
</TABLE>
7
<PAGE> 9
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
Note 1. Summary of Accounting Policies (Continued)
<S> <C>
North Coast Energy 1992-1 Appalachian Drilling Program Limited Partnership 25.0%
North Coast Energy 1992-2 Appalachian Drilling Program Limited Partnership 25.0%
North Coast Energy 1992-3 Appalachian Drilling Program Limited Partnership 39.5%
North Coast Energy 1993-1 Appalachian Drilling Program Limited Partnership 30.3%
North Coast Energy 1993-2 Appalachian Drilling Program Limited Partnership 31.0%
North Coast Energy 1993-3 Appalachian Drilling Program Limited Partnership 30.0%
North Coast Energy 1994-1 Appalachian Drilling Program Limited Partnership 30.0%
North Coast Energy 1994-2 Appalachian Drilling Program Limited Partnership 25.0%
North Coast Energy 1994-3 Appalachian Drilling Program Limited Partnership 25.0%
North Coast Energy 1995-1 Appalachian Drilling Program Limited Partnership 20.0%
North Coast Energy 1995-2 Appalachian Drilling Program Limited Partnership 20.0%
North Coast Energy 1996-1 Appalachian Drilling Program Limited Partnership 20.0%
North Coast Energy 1996-2 Appalachian Drilling Program Limited Partnership 20.0%
All significant intercompany accounts and transactions have been eliminated.
<CAPTION>
Note 2. Long-Term Debt
March 31, 1996 December 31, 1996
-------------- -----------------
Long-term debt consists of the following:
<S> <C> <C>
Revolving credit notes payable - bank $ 7,560,000 $ 9,640,000
Notes payable to stockholder with interest at prime
plus 1% and 8% 1,386,842 1,432,370
Mortgage note payable to a bank, secured by land and
a building, requiring monthly payments of approximately
$1,019 (including interest at 8%) through July 2003 67,842 62,052
Mortgage note payable to a bank, secured by land and a building,
requiring monthly payments of approximately $5,248 (including
interest at 8.58%) through May 2001 over a five year period,
at an interest rate to be renegotiated. -- 528,468
Various installment notes payable, in aggregate monthly
installments (including interest) of $11,012 at March 31,
1996, and $10,371 at December 31, 1996. 152,950 176,320
----------- -----------
9,167,634 11,839,210
Less current portion 213,060 244,500
----------- -----------
$ 8,954,574 $11,594,710
=========== ===========
</TABLE>
8
<PAGE> 10
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 2. Long-Term Debt (Continued)
The Company's credit agreement with its lender was amended August 30,
1996 increasing its reducing revolving line of credit to $20,000,000.
Available borrowings under this agreement are computed based on a
borrowing base determined semi-annually by the lender, based upon the
Company's financial position, and level of oil and gas and pipeline
based reserves and are further based upon the amount of outstanding
letters of credit used to support certain bonding requirements
($140,000 at December 31, 1996). The borrowing base is reduced monthly
by an amount determined by the lender at the semi-annual borrowing base
determination. On December 2, 1996, the agreement was again amended,
increasing the Company's borrowing base to $10,200,000, with required
monthly reductions of $110,000 beginning on May 1, 1997. In addition,
the amendment also provides that the payment of dividends with respect
to the Capital Stock of the Company is prohibited. Available borrowings
under the revolving line of credit were $420,000 at December 31, 1996,
and may subsequently change based on the semi-annual reserve study and
borrowing base determination. The revolving line of credit can be
renewed annually or converted to a term loan at the Company's option
prior to its expiration in fiscal 1998.
Amounts outstanding under the reducing revolving line of credit, which
were $9,640,000 at December 31, 1996, bear interest at the lending
bank's prime rate plus 1-1/2%. The agreement requires the Company to
pay a commitment fee of 1/2% on the unused amount of the available
borrowings and closing costs of 1% on any increase in borrowing
availability. The agreement contains certain restrictive covenants,
including minimum working capital, minimum shareholders' equity and a
minimum debt coverage ratio, all as defined. The Company was in
compliance with or had received waivers with respect to all covenants
as of December 31, 1996.
The revolving credit facility and the notes are collateralized by
substantially all of the Company's assets including receivables,
inventory, equipment and a first mortgage on certain of the Company's
interest in oil and gas wells and reserves.
The Company has two notes payable to a stockholder. One note is payable
out of future operating revenues, as defined. The note is subordinate
to the borrowings under the revolving credit notes payable - bank.
During fiscal 1996, the Company entered into an additional note payable
with the same stockholder for $1,000,000. This note can be repaid in
either shares of common stock or the proceeds of a public offering, as
defined. This note is also subordinated to the borrowings under the
revolving credit notes payable - bank. In connection with entering into
the Loan Agreement, the Company granted the stockholder certain
warrants to purchase 200,000 shares of common stock at $1.20 per share
and 300,000 shares of common stock at $1.00 per share, as defined. The
warrants may be redeemed by the Company for $.10 per share at its
option upon 30 days written notice.
On May 13, 1996, the Company purchased a building for its headquarters
and entered into a mortgage note for $540,000 over a 15 year term with
an interest rate of 8.58% to be renegotiated every five years.
9
<PAGE> 11
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 3. Billings in Excess of Costs on Uncompleted Contracts
Billings in excess of costs on uncompleted contracts consist of:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1996
---- ----
<S> <C> <C>
Billings on uncompleted contracts $ 1,518,486 $ 3,033,930
Costs incurred on uncompleted contracts 881,139 1,169,176
----------- ------------
$ 637,347 $ 1,864,754
=========== ============
</TABLE>
Note 4. Commitment and Contingencies
The Company and a commercial bank have issued standby letters of credit
which provide a guaranteed total amount of $140,000 in lieu of coverage
provided by insurance or road bond deposits against damage.
At December 31, 1996, the Company has committed to fund certain costs
of the North Coast Energy Appalachian Drilling Programs estimated to be
approximately $856,000 for tangible well equipment and pipeline
construction. This commitment is expected to be realized by August
1997.
Note 5. Conversion Offer
On December 20, 1996, the Company commenced a conversion offer to its
preferred shareholders (Series A and B) to convert their shares into
common stock. The Series A preferred shareholder conversion rate is 2.3
shares of common stock for each share of Series A with the Company
offering an additional 2.7 shares of common stock as an incentive for
conversion. The preferred Series B shareholder's conversion rate is
5.75 shares of common stock for each share of Series B preferred with
the Company offering an additional 2.25 shares of common stock as an
incentive for conversion.
The conversion offer will remain open to Series A and B preferred
shareholders until 5:00 p.m. Cleveland, Ohio time on February 28, 1997.
As of February 12, 1997, 61.6% of the Series A non-cumulative
convertible preferred and 39.3% of the cumulative convertible Series B
preferred holders have tendered their shares for conversion. The
holders of preferred stock may withdraw their shares up until the
expiration of the offer. For purposes of computing earnings per share
at December 31, 1996, dividends in arrears on the cumulative
convertible Series B preferred stock were $116,166 which assumes no
conversion of the Series B preferred shares.
10
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
North Coast Energy, Inc., (the "Company") a Delaware corporation, is an
independent natural gas and oil company engaged in exploration, development and
production activities primarily in the Appalachian Basin region of Ohio and
Pennsylvania. The Company's strategy focuses primarily on the acquisition of
proved undeveloped natural gas and oil properties and on the turnkey drilling
and development of such properties by the Company in conjunction with drilling
partnerships which the Company sponsors and manages (the "Drilling Programs").
The Drilling Programs are funded through the sale of partnership interests to
non-industry investors and by contributions from the Company.
Several factors may affect the amount and timing of the Company's
revenues with respect to the activities of the Drilling Programs. The amount of
funds raised for each Drilling Program determines the number of wells for which
the Company receives drilling revenues and the date at which the wells reach a
certain point in the completion process determines the timing of revenue
recognition. The Company continually monitors the cost incurred in drilling,
completion and production operations and reviews its turnkey drilling contract
prices for each Drilling Program in order to reduce the risk of unprofitable
drilling operations. The turnkey drilling contract price between the Drilling
Programs and the Company may vary from Drilling Program to Drilling Program
depending on competition, type of well drilled and other cost factors and the
returns sought by investors in the Drilling Programs. A change in the turnkey
price and the Company's percentage interest in future Drilling Programs may
affect the Company's capital availability, as well as revenues and profits.
The Company typically forms the Drilling Programs between August and
December of each year and conducts its drilling operations between September and
March. It generally requires nine months between the drilling of a well and the
generation of production revenue from that well. Drilling revenues are
predominantly recognized during the second half of the Company's fiscal year.
The following table is a review of the results of operations of the
Company for the nine months ended December 31, 1995 and 1996. All items in the
table are calculated as a percentage of total revenues.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
December 31, December 31,
------------- -----------
1995 1996 1995 1996
------------- -----------
Revenues:
- --------
<S> <C> <C> <C> <C>
Oil and gas production 21% 52% 33% 39%
Drilling revenues 59 0 34 24
Well operating, transportation and other 10 28 20 24
Administrative and agency fees 9 17 12 11
Other 1 3 1 2
-- -- -- --
Total Revenues 100% 100% 100% 100%
--- --- --- ---
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
Expenses:
<S> <C> <C> <C> <C>
Oil and gas production expenses 5% 13% 9% 10%
Drilling costs 42 6 27 21
Oil and gas operations 7 8 10 13
General and administrative expenses 25 48 35 33
Depreciation, depletion, amortization
impairment and other 21 32 27 17
Abandonment of oil and gas properties 2 1 1 1
Provision for taxes on income (4) (9) (8) (2)
Other 7 19 10 13
--- --- --- ---
Total Expenses 105% 118% 111% 106%
--- --- --- ---
Net Loss (5%) (18%) (11%) (6%)
=== === === ===
</TABLE>
The following discussion and analysis reviews the results of operations
and the financial condition for the Company for the three and nine months ended
December 31, 1996 and 1995. The review should be read in conjunction with the
financial information presented elsewhere herein.
COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1996 TO NINE MONTHS ENDED DECEMBER
31, 1995.
REVENUES
Oil and gas production revenues increased $407,835 (21%) to $2,351,219 for
the nine months ended December 31, 1996 compared to $1,943,384 for the nine
months ended December 31, 1995. The increase in production revenues were a
result of increased oil and natural gas production and prices. The average gas
price the Company received increased to $2.39 per Mcf for the nine months ended
December 30, 1996 compared to $2.06 per Mcf for the nine months ended December
31, 1995. The average oil price the Company received increased to $20.18 per
Barrel for the nine months ended December 31, 1996 compared to $16.73 per Barrel
for the nine months ended December 31, 1995.
Drilling Revenues decreased by $590,140 (29%) for the nine months ended
December 31, 1996 compared to the nine months ended December 31, 1995 due
to the decrease in the number of wells recognized in revenue for the period. The
Company recognized revenues for the nine months ended December 31, 1996 on 14
wells as compared to 17 wells for the nine months ended December 31, 1995. The
decrease in the number of wells recognized in drilling revenues was due to the
decrease in the amount of funds raised during comparable periods coupled with
weather considerations. The Company anticipated it would have less wells to
drill due to a reduction in the amount of funds raised for the fiscal 1997
Drilling Programs caused by the uncertainties arising from the purchase of North
Coast stock by Lomak Petroleum, Inc., now a principal stockholder of the Company
("Lomak"). In addition, management delayed the completion of 4 wells in progress
in the third quarter ended December 31, 1996 due to cash flow considerations
stemming from legal costs associated with the Lomak litigation and weather
conditions. Although the Company did not recognize drilling revenue on these 4
wells for the nine months ended December 31, 1996, it is expected that the
revenue on these wells in progress will be recognized in the Company's fourth
quarter. Also, the amount of funds raised in the fiscal 1997 Drilling Programs
was $3,015,000 compared to $6,460,000 for the fiscal 1996 Drilling Programs
which reduced the number of wells in work in progress from 41 at December 31,
1995 to 21 at December 31, 1996.
Revenues generated from well operating, transportation and other increased
$281,511 (24%) for the nine months ended December 31, 1996 compared to the nine
months ended December 31, 1995. This increase was primarily due to an increase
in unaffiliated third party gas sales. The unaffiliated third party gas sales
fluctuate from year to year based upon the availability of these types of
transactions and Company resources available.
12
<PAGE> 14
EXPENSES
Drilling costs for the nine months ended December 31, 1996 compared to
the nine months ended December 31, 1995 decreased $322,576 (20%) due to the
decreased number of wells completed between comparable periods. The gross profit
margin decreased from 21% for the nine months ended December 31, 1995 to 11% for
the nine months ended December 31, 1996 primarily due to additional completion
cost over the estimated accrued costs for wells recognized in revenue in prior
periods coupled with overhead expenses being allocated to drilling costs in the
third quarter without any corresponding drilling revenue.
Oil and gas operations expense increased $152,950 (25%) for the nine
months ended December 31, 1996 as compared to the nine months ended December 31,
1995. This increase was primarily due to the increase in unaffiliated third
party gas purchases related to unaffiliated third party gas sales as discussed
above. The profit margin on unaffiliated third party gas sales for the current
period was 6%.
General and administrative expenses decreased only $110,567 (5%) for
the nine months ended December 31, 1996 compared with the nine months ended
December 31, 1995 due to an increase in legal and consulting expenses of
approximately $215,000 associated with the litigation with Lomak which was
settled on November 12, 1996. This decrease in general and administrative
expenses was primarily due to costs savings derived from reduced salaries and
associated employee benefits when the Company reduced the size of its staff.
Depreciation, depletion, amortization, impairment and other decreased
$526,587 (33%) for the nine months ended December 31, 1996 compared to the nine
months ended December 31, 1995. This decrease was primarily due to the
implementation of the Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" during fiscal 1996 which decreased the basis of the
properties being depleted for future periods.
Interest expense increased to $795,323 for the nine months ended
December 31, 1996 from $576,420 for the nine months ended December 31, 1995.
This increase was primarily due to the Company's additional borrowings on its
reducing revolving credit facility. At December 31, 1996, $9,640,000 was
outstanding under the Company's Credit Facility, as compared to $6,810,000 at
December 31, 1995.
Operating income for the nine months ended December 31, 1996 increased
$831,671 to $215,323 compared to an operating loss of $616,348 for the nine
months ended December 31, 1995. The Company's net loss was $346,805 for the nine
months ended December 31, 1996 compared to a net loss of $660,093 for the nine
months ended December 31, 1995.
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1996 TO THREE MONTHS ENDED
DECEMBER 31, 1995.
REVENUES
Oil and gas production revenues for the three months ended December 31,
1996 increased $144,582 (23%) to $767,086 compared to $622,504 for the prior
corresponding period. Both oil and natural gas production increased as well as
the average price received for the period. Oil production increased 31% while
gas production increased 4% for the three months ended December 31, 1996
compared to the three months ended December 31, 1995. The average price for the
three months ended December 31, 1996 the Company received for natural gas was
$2.34 per Mcf while the average price for oil was $20.56 compared to the average
prices received for the three months ended December 31, 1995 of $2.06 per Mcf
for natural gas and $16.36 for oil.
The Company recognized revenue on the drilling of thirteen wells for
the three months ended December 31, 1995 compared to no revenue recognized for
the three months ended December 31, 1996 resulting in a decrease in drilling
revenue of $1,729,840. The decrease in wells recognized in drilling revenues was
due to the decrease in the amount of funds raised between periods caused by the
Lomak situation coupled with weather and cash flow considerations as mentioned
above for the nine months ended December 31, 1996. It is anticipated that the
revenue on the 4 wells drilled will be recognized as the wells are completed in
the quarter ending March 31, 1997.
13
<PAGE> 15
Revenues generated from well operating, transportation and other
increased $103,145 (34%) for the three months ended December 31, 1996 as
compared to the three months ended December 31, 1995. This increase was
primarily due to an increase in the number of wells operated by the Company and
an increase in the amount of gas being transported through the Company's
gathering system.
EXPENSES
Oil and gas operations expense decreased $85,081 (43%) for the three
months ended December 31, 1996 as compared to the three months ended December
31, 1995. This decrease primarily reflects reduced operating staff and cost
cutting measures relating to lease acquisition activities.
General and administrative expenses decreased only $40,057 (5%) for the
three months ended December 31, 1996 compared to the three months ended December
31, 1995 due to an increase in legal and consulting expenses of approximately
$215,000 associated with the litigation with Lomak which was settled on November
12, 1996. This decrease in general and administrative expenses was primarily due
to costs savings derived from reduced salaries and associated employee benefits
when the Company reduced the size of its staff.
Depreciation, depletion, amortization, impairment and other decreased
$142,759 (23%) for the three months ended December 31, 1996 compared to the
three months ended December 31, 1995. This decrease was primarily due to the
implementation of the Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" during fiscal 1996 which decreased the basis of the
properties being depleted for future periods.
Interest expense increased to $283,219 for the three months ended
December 31, 1996 from $203,556 for the three months ended December 31, 1995.
This increase was associated with the Company's additional borrowings on its
reducing revolving credit facility.
For the three months ended December 31, 1996 loss from operations
increased $78,782 to $155,641 compared $76,859 for the three months ended
December 31, 1995 due primarily to the decrease in revenues from drilling
activities and the increase in legal and consulting expenses relating to the
Lomak situation.
INFLATION AND CHANGES IN PRICES
While the costs of operations have been and will continue to be
effected by inflation, oil and gas prices have fluctuated during recent years
and generally have not followed the same pattern as inflation. With today's
global economy, especially in the area of oil and natural gas, Management
believes that other forces of the economy and world events, such as OPEC, the
weather, economic factors, and the effects of the supply of natural gas in the
United States and regionally have a more immediate effect on current pricing
than inflation. The Company received an average price of $20.18 and $16.73 per
barrel in the nine months ended December 31, 1996 and 1995, respectively, and
$2.39 and $2.06 per Mcf for natural gas in the nine months ended December 31,
1996 and 1995, respectively. The general market for natural gas in the
Appalachian Basin has rebounded somewhat reflecting the colder Appalachian area
weather which caused a draw-down in storage supplies of natural gas during the
1995/1996 winter. The reasons for the previously weak natural gas prices and
recent increases in the gas prices can be attributed to supply and demand
fluctuations caused by the weather sensitive nature of the industry. Although
there has been a decline in gas prices during the summer months compared to the
winter of 1995/1996, the demand for gas by storage facilities has continued to
keep gas prices above last year. Other variables potentially effecting gas
prices are increased competition from Canadian gas, effects of gas storage and
possibly Federal Energy Regulatory Commission ("FERC") Order 636. The FERC Order
may have contributed to the lower spot market prices by mandating an unbundling
of pipeline service and allowing open access to a variety of geographical
markets. Management cannot predict what long-term effects FERC Order 636 will
have on either spot market prices or longer term gas contracts.
14
<PAGE> 16
Currently, the Company sells natural gas under both fixed price
contracts and on the spot market. The spot market price the Company receives for
gas production is related to several variables, including the weather and the
effects of gas storage. The Company anticipates that spot market prices will
continue to fluctuate in response to various factors, primarily weather and
market conditions.
In an effort to position itself to take advantage of future increases
in demand for natural gas, the Company continues to construct new gas gathering
systems in the Appalachian Basin and to contract with other pipeline systems in
the region to transport natural gas production from Company wells.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was approximately $169,000 at December
31, 1996 compared to approximately negative $360,000 at March 31, 1996. The
increase of $529,000 in working capital from March 31, 1996 reflects additional
borrowings during the nine months ended December 31, 1996. An amendment to the
Credit Facility increased the Company's borrowing base from $9,500,000 at March
31, 1996 to $10,200,000 at December 2, 1996. As of December 31, 1996, the
Company had $9,640,000 outstanding under its Credit Facility. North Coast's
current ratio was 1.04 to 1.0 at December 31, 1996 and .90 to 1.0 at March 31,
1996.
The following table summarizes the Company's financial position at
March 31, 1996 and December 31, 1996:
<TABLE>
<CAPTION>
(Amounts in Thousands) March 31, 1996 December 31, 1996
-------------- -----------------
Amount % Amount %
-------- -- ------ --
<S> <C> <C> <C> <C>
Working capital $ (360) (2%) $ 169 1%
Property and equipment (net) 16,737 100% 18,132 98%
Other 253 2% 138 1%
-------- --- -------- ---
Total $ 16,630 100% $ 18,439 100%
======== === ======== ===
Long-term debt $ 8,954 54% $ 11,595 63%
Deferred income taxes 357 2% 173 1%
Stockholders' equity 7,319 44% 6,671 36%
-------- --- -------- ---
Total $ 16,630 100% $ 18,439 100%
======== === ======== ===
</TABLE>
CAPITAL RESOURCES AND REQUIREMENTS
The oil and gas exploration and development activities of North Coast
historically have been financed through the Drilling Programs, through
internally generated funds, and from bank financing.
The following table summarizes the Company's Statements of Cash Flows
for the nine months ended December 31, 1995 and 1996:
<TABLE>
<CAPTION>
Nine Months Ended December 31,
------------------------------
(Amounts in Thousands) 1995 1996
---- ----
Amount % Amount %
------ --- ------ ---
<S> <C> <C> <C> <C>
Net cash provided operating activities $ 1,642 66% $ 1,164 42%
Net cash used for investing activities (2,144) (86%) (1,733) (62%)
Net cash provided by financing activities 862 34% 1,626 58%
------- ------- ------- ----
Increase in cash and equivalents $ 360 (14%) $ 1,057 38%
======= ======= ======= ====
</TABLE>
15
<PAGE> 17
Note: All items in the previous table are calculated as a percentage of
total cash sources. Total cash sources include the following items if
positive: cash flow from operations before working capital changes,
changes in working capital, net cash provided by investing activities and
net cash provided by financing activities, plus any decrease in cash and
cash equivalents.
As the above table indicates, the Company's cash flow provided by
operating activities decreased approximately $478,000 for the nine months ended
December 31, 1996 compared to the period ended December 31, 1995. This decrease
reflects the decrease in the amount of funds raised in Drilling Programs for the
nine months ended December 31, 1996 compared to the nine months ended December
31, 1995.
Net cash used for investing activities decreased to approximately
$1,733,000 for the nine months ended December 31, 1996 from approximately
$2,144,000 for the nine months ended December 31, 1995. This decrease was offset
somewhat by the Company's acquisition of a building to house its corporate
headquarters. The decrease in the purchase of equipment reflects the Company's
ability to transfer equipment from non-productive wells it owns to wells being
drilled and completed in Drilling Programs, thereby, reducing the overall
obligation of the Company to fund the tangible equipment for these Drilling
Programs.
Net cash provided by financing activities increased approximately
$764,000 for the nine months ended December 31, 1996 compared to the prior
period. This increase reflects the increase in borrowings on the Company's
credit facilities coupled with the reduced amount of dividends paid for the nine
months ended December 31, 1996 compared to December 31, 1995.
On September 20, 1993 the Company entered into an agreement with an
affiliate of its lender to provide a reducing revolving line of credit of up to
$10,000,000, effective August 30, 1996 this amount was increased to
$20,000,000(the "Credit Facility"). The Credit Facility (as amended on December
2, 1996) provided the Company with available borrowings of $10,200,000 at
December 31, 1996 based upon the Company's financial position and level of oil
and natural gas and pipeline-based reserves, with available borrowings reducing
$110,000 at the first of each month, commencing May 1, 1997. Available
borrowings are also subject to a reduction based upon the amount of outstanding
letters of credit used to support certain bonding requirements ($140,000 as of
December 31, 1996). The Credit Facility provides that availability is subject to
adjustment based upon the Company's semi-annual reserve study and is subject to
certain covenants (see Note 4 to the Company's March 31, 1996 financial
statements). Also, the amendment of December 2, 1996 provides that the payment
of dividends with respect to the capital stock of the Company is prohibited. As
of December 31, 1996, the Company had $9,640,000 outstanding under the Credit
Facility. At December 31, 1996 the Company was in violation of its debt coverage
ratio and equity ratio, although, these violations were waived by the lender.
Amounts borrowed under the Credit Facility bear interest at the lending bank's
prime rate plus 1 1/2%. Also, at December 31, 1996, the Company had
approximately $62,052 outstanding under a mortgage note payable. The mortgage
note bears interest at the rate of 8% and requires the Company to make monthly
payments of approximately $1,019 through July 2003. The Company purchased a
building for its headquarters and entered into a mortgage note on May 13, 1996
for $540,000 over 15 year term with an interest rate of 8.58% to be renegotiated
every five years. The amount outstanding under the mortgage note at December 31,
1996 was $528,468.
The amounts borrowed under its reducing revolving line of credit are
secured by the Company's receivable, inventory, equipment and a first mortgage
on certain of the Company's interests in oil and gas wells and reserves. The
mortgage notes are secured by certain land and buildings.
In addition to bank financing, the Company has two loans with Lomak.
The first loan of $335,000 ($304,791 outstanding on December 31, 1996) bears an
interest rate at the prime rate designated by the Chemical Bank, N.A., plus 1%
(9.25% at December 31, 1996). The amounts outstanding under the terms of the
Company's financing arrangement are subordinated to the prior payment and
amounts outstanding under the Company's Credit Facility. Repayment of the loan
is in cash, based upon a percentage of the net monthly revenues received from
certain previously acquired properties.
16
<PAGE> 18
The second loan in the amount of $1,000,000 is unsecured and may be
repaid in cash plus accrued interest (with approval of the Company's senior
lender) with the proceeds of a sale of equity or may be converted into shares of
Common Stock at the rate of $1.00 per share. The loan is subordinate to the
Company's Credit Facility with its senior lender and bears interest at the rate
of 8% per annum. As of December 31, 1996, the balance of the loan and accrued
interest was $1,127,579. In connection with entering into the Loan Agreement,
the Company issued a warrant to purchase 200,000 shares of Common Stock at $1.20
per share and a warrant to purchase 300,000 shares of Common Stock at $1.00 per
share. The warrants may be redeemed by the Company for $.10 per share at its
option upon 30 days written notice.
On or about September 4, 1996 Lomak purchased approximately 47% of the
voting power of the Company from two of the Company's largest stockholders,
NAGIT, USA (NAGIT) and Bruce E. Brocker. At the Company's annual meeting of
stockholders, Lomak presented proxies representing the shares acquired from
these shareholders and indicated its intention to nominate and elect two
directors in the class whose terms were scheduled to expire at that meeting. Due
to concerns about the validity of such proxies, the annual meeting was adjourned
to a later date. On September 11, 1996, the meeting was reconvened. At the
reconvened meeting, the Company recognized the NAGIT proxy, but reserved its
rights with respect to the proxy executed by Mr. Brocker. Litigation among the
Company, Lomak and Mr. Brocker then ensued. The parties reached a settlement
with respect to that litigation on November 12, 1996.
Revenues derived from the Company's Drilling Programs provide an
important source of the Company's cash flow. Due to the uncertainties among
potential Drilling Program investors arising out of Lomak's acquisition of a
substantial ownership interest in the Company and the other matters described
above, the Company's ability to market its Drilling Programs was adversely
affected. The Company raised $6,460,000 in its fiscal 1996 Drilling Programs
compared to $3,015,500 for fiscal 1997 Drilling Programs. Consequently, demands
on the Company's capital resources have increased due to reduced cash flow
associated with lower levels of investor interest in its Drilling Programs and
increased costs associated with litigation and evaluating the Company's
strategic alternatives. This has necessitated actions by the Company to alter
its growth oriented business plan in order to conserve cash. On October 21,
1996, the Company initiated layoffs of its staff coupled with a temporary
reduction or deferment in wages to many of its remaining employees and initiated
additional cost cutting measures to increase the Company's cash flow.
Also, the Company's Board of Directors determined that payment of
dividends on preferred stock would not be made in an effort to conserve cash and
that conversion of the Company's convertible preferred stock to common stock
would allow the Company to focus on enhancing its Common Stock value. On
December 20, 1996, the Company commenced a conversion offer to its preferred
shareholders (Series A and B) to convert their shares into common stock. The
Series A preferred shareholder's conversion rate is 2.3 shares of common stock
for each share of Series A preferred with the Company offering an additional 2.7
shares of common stock as an incentive for conversion. The Series B preferred
shareholder's conversion rate is 5.75 shares of common stock for each share of
Series B preferred with the Company offering an additional 2.25 shares of common
stock as an incentive for conversion.
With the settlement of the Lomak litigation, the Company and
representatives of Lomak have begun the process of reassuring North Coast's
broker/dealer network and its Drilling Program investors that the North Coast/
Lomak alliance is positive. This process began at the beginning of December
assisting the Company in raising $2,115,000 in its second Drilling Program of
the year. Management anticipates that it will continue to meet with the
broker/dealer community while the first Drilling Program of fiscal 1998 is being
marketed.
While North Coast made a modest recovery of its fiscal 1997 Drilling
Program sales it was far short of the Company projections. With the reduction of
the Drilling Program activity and the need to conserve cash, the Company's
ability to monetize equipment it owns on productive wells and increase
profitably through the Drilling Programs has been adversely affected. It may be
necessary for the Company to secure additional sources of capital or financing
for its future projects and to fund its obligations. In the event that available
borrowings under the Credit Facility are not sufficient or additional financing
cannot be obtained, the Company would be required to continue its current
efforts to conserve cash resources. In order to accomplish this objective, the
Company believes
17
<PAGE> 1
Exhibit 10.34
SIXTH AMENDMENT TO CREDIT AGREEMENT
This SIXTH AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is
made and entered into effective as of the 2nd day of December, 1996, by and
between NORTH COAST ENERGY, INC., a Delaware corporation (the "BORROWER") and
BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national banking association (the
"Lender").
W I T N E S S E T H:
WHEREAS, the parties hereto have entered into the Credit
Agreement dated September 20, 1993, as amended by that certain First Amendment
to Credit Agreement effective as of March 16, 1994, that certain Second
Amendment to Credit Agreement effective as of January 13, 1995, that certain
Third Amendment to Credit Agreement effective as of August 8, 1995, that certain
Fourth Amendment to Credit Agreement effective as of March 31, 1996 and that
certain Fifth Amendment to Credit Agreement effective as of August 30, 1996 (as
amended, the "AGREEMENT"), pursuant to which the Lender has extended credit to
the Borrower; and
WHEREAS, the parties to the Agreement are desirous of
amending the Agreement in the particulars hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in the Agreement and this Amendment, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 TERMS DEFINED ABOVE. As used herein, each of the terms
"AGREEMENT," "AMENDMENT," "BORROWER," and "LENDER" shall have the meaning
assigned to such term hereinabove.
1.2 TERMS DEFINED IN AGREEMENT. As used herein, each term
defined in the Agreement shall have the meaning assigned thereto in the
Agreement, unless expressly provided herein to the contrary.
1.3 REFERENCES. References in this Amendment to Article or
Section numbers shall be to Articles and Sections of this Amendment, unless
expressly stated to the contrary. References in this Amendment to "hereby,"
"herein," "hereinafter," "hereinabove," "hereinbelow," "hereof," and "hereunder"
shall be to this Amendment in its entirety and not only to the particular
Article or Section in which such reference appears.
<PAGE> 2
1.4 ARTICLES AND SECTIONS. This Amendment, for convenience only,
has been divided into Articles and Sections and it is understood that the
rights, powers, privileges, duties, and other legal relations of the parties
hereto shall be determined from this Amendment as an entirety and without regard
to such division into Articles and Sections and without regard to headings
prefixed to such Articles and Sections.
1.5 NUMBER AND GENDER. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural and
likewise the plural shall be understood to include the singular. Words denoting
sex shall be construed to include the masculine, feminine, and neuter, when such
construction is appropriate, and specific enumeration shall not exclude the
general, but shall be construed as cumulative. Definitions of terms defined in
the singular and plural shall be equally applicable to the plural or singular,
as the case may be.
ARTICLE II
AMENDMENTS TO AGREEMENT
-----------------------
The Borrower and the Lender hereby amend the Agreement in the
following particulars, effective as of and after the effective date of this
Amendment:
2.1 AMENDMENT OF SECTION 1.2. The following definitions in
Section 1.2 of the Agreement are hereby amended to read as follows:
"COMMITMENT AMOUNT" shall mean the amount of $10,200,000, as such
amount is reduced pursuant to Section 2.1.
2.2 AMENDMENT OF SECTION 2.8. Section 2.8(a) of the Agreement is
hereby amended to read as follows:
"(a) The Borrowing Base as of the date of the Sixth Amendment
to this Agreement is acknowledged by the Borrower and the Lender to be
$10,200,000."
2.3 AMENDMENT OF SECTION 6.7. Section 6.7 of the Agreement is
hereby amended to read as follows:
"6.7 DIVIDENDS AND DISTRIBUTIONS Declare, pay, or make,
whether in cash or Property of the Borrower, any dividend or distribution on, or
purchase, redeem, or otherwise acquire for value, any share of any class of its
capital stock; PROVIDED, HOWEVER, the foregoing restriction shall not apply to
dividends paid in capital stock of the Borrower."
2
<PAGE> 3
ARTICLE III
CONDITIONS
----------
The obligation of the Lender to amend the Agreement as provided
herein is subject to the fulfillment of the following conditions precedent:
3.1 RECEIPT OF DOCUMENTS AND OTHER ITEMS. The Lender shall have
received, reviewed, and approved the following documents and other items,
appropriately executed when necessary and in form and substance satisfactory to
the Lender:
(a) multiple counterparts of this Amendment executed by the
Borrower, as requested by the Lender;
(b) Notice of Final Agreement; and
3.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in Article IV of the Agreement and in
any other Loan Document shall be true and correct, except as affected by the
transactions contemplated in the Agreement and this Amendment.
3.3 MATTERS SATISFACTORY TO LENDER. All matters incident to the
consummation of the transactions contemplated hereby shall be satisfactory to
the Lender.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower hereby expressly re-makes, in favor of the Lender,
all of the representations and warranties set forth in Article IV of the
Agreement and set forth in any other Loan Document to which it is a party, and
represents and warrants that all such representations and warranties remain true
and unbreached, except as affected by the transactions contemplated in the
Agreement and this Amendment.
ARTICLE V
RATIFICATION
Each of the parties hereto does hereby adopt, ratify, and confirm
the Agreement and the other Loan Documents to which it is a party, in all things
in accordance with the terms and provisions thereof, as amended by this
Amendment.
3
<PAGE> 4
ARTICLE VI
MISCELLANEOUS
6.1 SCOPE OF AMENDMENT. The scope of this Amendment is
expressly limited to the matters addressed herein and this Amendment shall not
operate as a waiver of any past, present, or future breach, Default, or Event of
Default under the Agreement, except to the extent, if any, that any such breach,
Default, or Event of Default is remedied by the effect of this Amendment.
6.2 AGREEMENT AS AMENDED. All references to the Agreement in
any document heretofore or hereafter executed in connection with the
transactions contemplated in the Agreement shall be deemed to refer to the
Agreement as amended by this Amendment.
6.3 PARTIES IN INTEREST. All provisions of this Amendment
shall be binding upon and shall inure to the benefit of the Borrower, the
Lender, and their respective successors and assigns.
6.4 RIGHTS OF THIRD PARTIES. Subject to the provisions of
Section 6.3, all provisions herein are imposed solely and exclusively for the
benefit of the Lender and the Borrower and no other Person shall have standing
to require satisfaction of such provisions in accordance with their terms and
any or all of such provisions may be freely waived in whole or in part by the
Lender at any time if in its sole discretion it deems it advisable to do so.
6.5 ENTIRE AGREEMENT. THIS AMENDMENT CONSTITUTES THE ENTIRE
AGREEMENT BETWEEN THE BORROWER AND THE LENDER WITH RESPECT TO THE SUBJECT HEREOF
AND SUPERSEDES ANY PRIOR AGREEMENT, WHETHER WRITTEN OR ORAL, BETWEEN SUCH
PARTIES REGARDING THE SUBJECT HEREOF. FURTHERMORE IN THIS REGARD, THIS
AMENDMENT, THE AGREEMENT, THE NOTE, THE SECURITY INSTRUMENTS, AND SHE OTHER
WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE
PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.
6.6 GOVERNING LAW. THIS AMENDMENT SHALL CONSTITUTE A CONTRACT
ENTERED INTO UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING
TO CONFLICTS OF LAW.
4
<PAGE> 5
6.7 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH
RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED
TO OR FROM THIS AMENDMENT, THE AGREEMENT, OR ANY OTHER LOAN DOCUMENT MAY BE
LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE LENDER, IN COURTS HAVING
SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. THE BORROWER HEREBY SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS
COUNTY, TEXAS AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE
JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE LENDER IN
ACCORDANCE WITH THIS SECTION.
6.8 WAIVER OF RIGHTS TO JURY TRIAL. THE BORROWER AND THE
LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND
UNCONDITIONALLY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT,
PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF
THIS AMENDMENT, THE AGREEMENT, OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR
OMISSIONS OF THE LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF
THIS AMENDMENT, THE AGREEMENT, OR ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH
RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT FOR
THE LENDER ENTERING INTO THIS AMENDMENT.
IN WITNESS WHEREOF, this Sixth Amendment to Credit Agreement is
executed effective as of the date first hereinabove written.
NORTH COAST ENERGY, INC.
By: /s/CHARLES M. LOMBARDY, JR.
---------------------------------
Charles M. Lombardy, Jr.
Chief Executive Officer
BANK ONE, TEXAS,
NATIONAL ASSOCIATION
By: /s/ CHRISTINE M. MACAN
---------------------------------
Name: CHRISTINE M. MACAN
-------------------------------
Title: VICE PRESIDENT
------------------------------
5
<PAGE> 6
NOTICE OF FINAL AGREEMENT
TO: North Coast Energy, Inc. ("Borrower")
1993 Case Parkway
Twinsburg, Ohio 44087-2343
As of the effective date of this Notice, Borrower and BANK ONE, TEXAS,
NATIONAL ASSOCIATION ("Bank") have consummated a transaction pursuant to which
Bank has agreed to make a loan or loans to Borrower, to renew and extend an
existing loan or loans to Borrower, and/or to otherwise extend credit or make
financial accommodations to or for the benefit of Borrower, in an aggregate
amount up to $10,000,000 (collectively, whether one or more, the "Loan").
$10,200,000 /s/CMM /s/CML
In connection with the Loan, Borrower and Bank have executed and
delivered and may hereafter execute and deliver certain agreements, instruments,
and documents (collectively hereinafter referred to as the "WRITTEN LOAN
AGREEMENT").
It is the intention of Borrower and Bank that this Notice be
incorporated by reference into each of the written agreements, instruments, and
documents comprising the Written Loan Agreement. Borrower and Bank each warrants
and represents that the entire agreement made and existing by or among Borrower
and Bank with respect to the Loan is and shall be contained within the Written
Loan Agreement, as amended and supplemented hereby, and that no agreements or
promises exist or shall exist by or among Borrower and Bank that are not
reflected in the Written Loan Agreement.
THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Effective Date: December 2, 1996.
BANK ONE, TEXAS, NATIONAL ASSOCIATION
By: /S/CHRISTINE MACAN
---------------------------------
Name: CHRISTINE MACAN
-------------------------------
Title: VICE PRESIDENT
-------------------------------
(Signatures Continued on Next Page)
6
<PAGE> 7
ACKNOWLEDGED AND AGREED:
NORTH COAST ENERGY, INC.
By: /s/CHARLES M. LOMBARDY, JR.
-------------------------------
Charles M. Lombardy, Jr.
Chief Executive Officer
7
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