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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1999
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)
Registrant's telephone number, including area code (330) 425-2330
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
SERIES A 6% CONVERTIBLE NON-CUMULATIVE PREFERRED STOCK, $0.01 PAR VALUE
(Title of class)
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK, $0.01 PAR VALUE
(Title of class)
WARRANTS TO PURCHASE COMMON STOCK, $0.01 PAR VALUE
(Title of class)
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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 the filing
requirements for the past 90 days.
Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
---
As of June 10, 1999, the Registrant had outstanding 4,556,814 shares of Common
Stock, 73,816 shares of Series A Preferred Stock, and 232,864 shares of Series B
Preferred Stock. All shares have been restated to reflect the 1 for 5 reverse
common stock split effective June 7, 1999.
The aggregate market value of Common Stock held by non-affiliates of the
Registrant at June 10, 1999 was $4,636,818 which value has been computed on the
basis of $4.125 per share of Common Stock, the mean between the closing bid and
ask price as reported for that day on Nasdaq.
DOCUMENTS OR PARTS THEREOF INCORPORATED BY REFERENCE
Part of Form 10-K
-----------------
Part III (Items 10, 11, 12, and 13)
Document Incorporated by Reference
----------------------------------
Portions of the Registrant's definitive Proxy Statement to be used in connection
with its 1999 Annual Meeting of Stockholders.
Except as otherwise indicated, the information contained in this Report is as of
March 31, 1999.
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PART I
ITEM 1. BUSINESS.
GENERAL
North Coast Energy, Inc., a Delaware corporation, with its subsidiaries
and predecessors, ("North Coast" or the "Company"), is an independent natural
gas and oil company engaged in exploration, development and production
activities primarily in the Appalachian Basin. The Company's strategy focuses
primarily on its acquisition of proved developed and undeveloped properties and
on the enhancement, drilling and development of such properties. As used in this
Annual Report on Form 10-K, the terms "Company" and "North Coast" mean North
Coast Energy, Inc., its subsidiaries and predecessors, unless the context
otherwise requires.
As of March 31, 1999, North Coast owned interests in 1,711 wells,
operating 1,574 of these wells, 385 of which are operated for the drilling
programs ("Drilling Programs") for which North Coast serves as managing general
partner. In connection with the drilling and development of the wells it
operates, North Coast currently owns approximately 500 miles of natural gas
gathering pipelines, which transport gas from 1,251 wells. At March 31, 1999,
the Company had estimated net proved reserves of approximately 52.5 Bcf of
natural gas and 425,200 barrels of oil.
The Company began operations in 1981 with the formation of its first
Drilling Program. In 1987, the Company expanded its operations by acquiring
Capital Oil & Gas, Inc. which also operated in the Appalachian Basin. In 1990,
the Company acquired the assets and properties of 21 Drilling Programs which it
had sponsored through an exchange offer (the "Exchange Offer") through which the
Company issued publicly traded stock.
Subsidiaries. The Company's sole active subsidiary is NCE Securities,
Inc. ("NCE Securities"), a member of the NASD and a broker dealer registered
with the SEC and licensed in three states. NCE Securities' only business
activity is the performance of its responsibilities as placement agent and, to a
limited degree, the sale of partnership interests in North Coast sponsored
Drilling Programs.
EXPLORATION AND DEVELOPMENT
Exploration and development activities conducted by the Company have
primarily involved the acquisition of proved undeveloped oil and gas properties
and the drilling and development of such properties in conjunction with Drilling
Programs and joint ventures. Management has chosen to sponsor limited
partnerships and joint ventures to increase the funds available to the Company
and enable it to engage in a greater number of drilling opportunities. In
addition, the interest the Company owns in the Drilling Programs adds to the
Company's reserves and produces additional sources of income for the Company,
including revenues from serving as general contractor for drilling operations,
management services, oilfield service operations, and gas-gathering and
marketing services which are provided to the Drilling Programs.
The Company's strategy focuses on increasing its natural gas and oil
reserves, as well as production, drilling and oil field service revenues, by
acquiring undeveloped oil and gas properties in the Appalachian Basin and
financing and conducting the drilling and development of these properties in
conjunction with the Drilling Programs. The Company is pursuing a strategy of
increasing reserves through drilling and development in conjunction with the
Drilling Programs and the acquisition of other gas and oil companies, or
partnerships and producing properties.
AREAS OF OPERATION
The Appalachian Basin is located in close proximity to major natural
gas markets in the northeast United States. This proximity to a substantial
number of large commercial and industrial gas markets, coupled with the
relatively stable nature of Appalachian Basin production and the availability of
transportation facilities has resulted
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in generally higher wellhead prices for Appalachian natural gas than those
prices available in the Gulf Coast and Mid-continent regions. The Appalachian
Basin is the oldest gas and oil-producing region in the United States and
includes portions of Ohio, Pennsylvania, New York, West Virginia, Kentucky and
Tennessee. Historically, most production in the Appalachian Basin has been from
wells drilled to a number of relatively shallow blanket formations at depths of
1,000 to 7,500 feet. These formations are generally characterized as long-lived
reserves that produce for more than 20 years.
To date, the Company's drilling operations in the Appalachian Basin
have principally involved drilling to the Clinton/Medina sandstone geologic
formation. This formation is an oil and gas bearing sandstone formation, which
underlies a large section of eastern Ohio and western Pennsylvania in varying
thicknesses and at depths ranging generally from 2,800 to 7,500 feet.
Substantially all of the wells that the Company drills in this area have
estimated depths of between 3,500 and 6,700 feet.
The Company also maintains leasehold acreage in portions of Ohio and
Pennsylvania with other potential producing formations. Although there are
variances in the nature and characteristics of these producing formations, they
are generally typical of the Appalachian area.
ACQUISITIONS
Acquisition Strategy
The Company's acquisition strategy focuses on properties and other oil
and gas entities that can provide:
A. enhanced cash flow,
B. additional drilling and development opportunities,
C. synergies with North Coast properties,
D. enhancement potential of current operations, or
E. economies of scale and cost efficiencies.
Since 1994 the Company has completed the acquisition of the working
interest in approximately 1,100 wells, various gas gathering systems and
additional drilling locations. The Company has also acquired additional
interests in its prior Drilling Programs by offering investors an exit strategy
from the Drilling Programs.
Recent Acquisitions
In fiscal 1999, the Company acquired the assets of Kelt Ohio, Inc.
("Kelt") including the working interest and operations of over 900 wells located
in Ohio, well drilling, servicing and oilfield equipment, natural gas
compressors and gas gathering systems and additional drilling locations.
Additionally, the Company acquired certain oil and gas interests and operations
in 28 wells in Ohio and Pennsylvania previously owned by an employee of the
Company and 7 wells and a gas gathering system from Range Resources Corporation
(formerly Lomak Petroleum), an affiliate of the Company. During fiscal 1999, the
Company acquired additional interests in prior Drilling Programs at a cost of
approximately $450,000.
DRILLING ACTIVITY
North Coast continually evaluates undeveloped prospects originated by
its staff or other independent geologists as well as other gas and oil
companies. If review of a prospect indicates that it may be geologically and
economically attractive, the Company will attempt to obtain a lease of the
mineral rights on the acreage.
Typically, the Company will acquire the entire working interest in a
lease in consideration of paying a lease bonus and annual rentals subject to a
landowner's royalty and, where the property is acquired through a third party,
possibly an overriding royalty interest. If a prospect is selected for drilling
through a Drilling Program, the Company assigns the minimum required acreage for
a well to such entity. In such a case, the Company retains the balance of the
leasehold acreage.
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DRILLING PROGRAMS
From the Company's inception in 1981 through March 31, 1999, North
Coast has raised approximately $87,000,000 and has sponsored 49 Drilling
Programs to engage in oil and gas drilling and development operations.
Each Drilling Program has been conducted as a separate limited
partnership with the Company serving as managing general partner of each.
Currently, North Coast serves as the managing general partner of 28 Drilling
Programs. To maintain the marketability of its Drilling Programs, the Company
continually reviews program structure and performance and makes modifications
from program to program, as it deems appropriate. These modifications have
included changes to the compensation arrangements between the Company and the
Drilling Programs, including charges for its drilling and administrative
services, and changes in the Company's interest in the Drilling Programs.
The Company acts as operator and general contractor for drilling and
production operations, undertaking to drill and complete Drilling Program wells
and to serve as operator for producing wells for producing well operations. In
the Drilling Programs, typically the entire working interest in the leasehold is
acquired by the program, although only the minimum required acreage for a well
is assigned by the Company to the Drilling Program.
As managing general partner, North Coast is subject to full liability
for the obligations of the Drilling Programs although it is indemnified by each
program to the extent of the assets of the Drilling Programs under certain
circumstances. The partnership interests in the Drilling Programs constitute
securities and the Company is subject to potential liability for failure to
comply with applicable federal and state securities laws and regulations.
Typically, each Drilling Program is structured as a "functional
allocation" program whereby the non-industry investors contribute cash in an
aggregate amount equal to the intangible drilling and development costs to be
incurred for the Drilling Program's wells. The Company contributes the drill
sites to the Drilling Program and agrees to contribute all tangible equipment
necessary to drill, complete and produce each well, as well as organizational
and syndication costs of the Drilling Program. The allocation of partnership
revenues in each Drilling Program may vary depending upon the structure chosen
by the Company, with the Company's initial percentage interest ranging from 20%
to 40%.
Interests in North Coast's Drilling Programs are sold to investors
through securities dealers registered with the NASD. In each program, NCE
Securities, acts as placement agent and enters into selling agreements with a
number of broker-dealers to assist it in selling the interests.
The Drilling Programs raised $3.0 million during fiscal 1997, $2.7
million during fiscal 1998, and $3.5 million in fiscal 1999 from investors. The
Company intends to continue its efforts to market its Drilling Programs and
increase the number of wells drilled and operated.
DRILLING SERVICES
North Coast derives revenue and net income from the drilling services
it provides to the Drilling Programs. North Coast enters into turnkey (fixed
price) contracts with the Drilling Programs to drill program wells. Pursuant to
these drilling contracts, the Company is responsible for the drilling and
development of the wells. The Company subcontracts with third parties for the
performance of a substantial portion of the operations required to drill,
complete and equip these wells for production. Although the Company manages and
supervises all necessary drilling and related service and equipment operations
on these wells, there are a number of third party services to obtain, including
contract drilling, fracturing, logging and pipeline construction which are
performed by subcontractors who specialize in those operations. Since North
Coast contracts with the Drilling Programs on a turnkey basis, North Coast is
responsible for drilling and completing the wells, regardless of the actual
cost. Consequently, North Coast is subject to the risk that prices incurred in
the actual drilling and development operations could increase beyond its
contract price thereby rendering its drilling contracts less profitable or
unprofitable. Moreover, difficulties
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encountered in drilling and completion operations can substantially increase
costs, sometimes without recourse for North Coast. The Company continually
monitors the cost incurred in drilling, completion and production operations and
reviews its turnkey contract prices for each Drilling Program in order to reduce
the risk of unprofitable drilling operations. These turnkey drilling prices are
subject to change based on competition, the return sought by Drilling Programs
investors, North Coast's revenue and profit considerations and other industry
conditions.
OIL FIELD SERVICE OPERATIONS
As of March 31, 1999, North Coast operated 1,574 wells, all of which
were located in Ohio and Pennsylvania. As operator of producing wells, North
Coast is responsible for the maintenance and verification of all production
records, contracting for oil and gas sales, distribution of production proceeds
and information, and compliance with various state and federal regulations.
Generally, the Company provides the routine day-to-day production operations for
producing wells and also subcontracts certain oil field operations.
North Coast receives a monthly operating fee for each producing well it
operates for third parties and is reimbursed for most unaffiliated third party
costs associated with operations and production of the wells. The Drilling
Programs and third parties each pay North Coast their specified operating fee
based upon their aggregate interest in the wells, exclusive of North Coast's
ownership interest.
GAS-GATHERING ACTIVITIES
In connection with the drilling and development of the wells that it
operates, North Coast has constructed and owns approximately 500 miles of
gas-gathering pipelines in various counties throughout eastern Ohio and western
Pennsylvania. These pipelines carry natural gas from the wellhead to the gas
transmission systems of various utilities for sale to such utilities, to natural
gas brokers purchasing gas for resale to others or to industrial purchasers
pursuant to self-help gas purchase arrangements. These systems gathered gas from
1,251 wells as of March 31, 1999. The Company continues its construction of new
pipelines and the establishment of compressor facilities in order to expand the
number of purchasers available to the Company.
For such gas-gathering services, the Company collects certain
allowances from public utilities, end-users or other natural gas purchasers,
including natural gas brokers. These gathering fees or transportation allowances
averaged approximately $.20 per Mcf of natural gas at March 31, 1999.
MARKETS
The ability of the Company to market oil and gas depends to an extent,
on factors beyond its control. The potential effects of governmental regulation
and market factors including alternative domestic and imported energy sources,
available pipeline capacity, and general market conditions are not entirely
predictable.
Natural Gas. Natural gas is generally sold pursuant to individually
negotiated gas purchase contracts, which vary in length from spot market sales
of a single day to term agreements that may extend several years. Customers of
the Company purchasing natural gas include marketing affiliates of the major
pipeline companies, natural gas marketing companies, and a variety of
commercial/public authorities, industrial, and institutional end users who
ultimately consume the gas. Gas purchase contracts define the terms and
conditions unique to each of these sales. The price received for natural gas
sold on the spot market may vary daily reflecting changing market conditions.
As discussed, the deliverability and price of natural gas are subject
to both governmental regulation and supply/demand forces. During the past
several years, regional natural gas surpluses and shortages have occurred
resulting in wide fluctuations in the prices paid to producers.
The lengths of the contracts as defined in the "Term" provision in the
Company's gas purchase agreements vary widely. Additionally, several of the
Company's contracts provide for monthly pricing which are derived from published
NYMEX or Appalachian price indexes. The Columbia Transmission (TCO) and
Consolidated Natural
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Gas (CNG) Index prices, which create a basis for spot sales prices in the Mid
Atlantic and northeastern United States, ranged from $1.73 to $2.50 per Mcf
during fiscal 1999. As of March 31, 1999, approximately 50% of the Company's
natural gas contracts are fixed price contracts with industrial end-users. The
prices received from these contracts range between $1.97 and $4.43 per Mcf. The
remainder of the Company's natural gas contracts are with utilities and
marketers. Approximately 60% of the gas produced to fulfill the contractual
obligations to utilities and marketers during the summer months contain fixed
prices ranging from $1.75 to $2.972 per Mcf, while 40% of the gas produced to
fulfill the contractual obligations to utilities and marketers contain market
sensitive provisions during the winter months. The range of Appalachian unit
pricing during the winter of 1998/1999 was from $1.73 to $2.25 per Mcf. For the
fiscal year ended March 31, 1999, the Company received an average price of $2.57
per Mcf. During fiscal 1999, Interstate Gas Supply, Inc. purchased 52% of the
gas produced by North Coast, which comprised 26% of the Company's total revenues
for the year.
Due to the seasonality of supply and demand, prices paid by purchasers
for natural gas will continue to fluctuate. The Company has pursued a strategy
of varying the length and pricing provisions of its gas purchase contracts so as
to maintain flexibility to react to those fluctuating prices. Due to current
market conditions, the duration of recently renegotiated fixed price contracts
has been limited to a year or less. Should market trends change, the Company
will endeavor to commit a larger portion of its natural gas to longer-term
arrangements to optimize revenues derived from these sales.
During the past several years, an overabundance of natural gas supplies
and promulgation of State and Federal regulations pertaining to the sale,
transportation, and marketing of natural gas resulted in increasing competition
and declining prices. It is likely that supply and demand factors will continue
to be the driving force in the evolving marketplace.
Crude Oil. Oil produced from the Company's properties is generally sold
at the prevailing field price to one or more of a number of unaffiliated
purchasers in the area. Generally, purchase contracts for the sale of oil are
cancelable on 30 days notice. The price paid by these purchasers is generally an
established, or "posted," price that is offered to all producers. The Company
received an average price of $11.39 per barrel for its oil during fiscal 1999;
however, during the last several years prices paid for crude oil have fluctuated
substantially. The price posted for purchase contracts for the sale of oil at
March 31, 1999 was $13.75. Future oil prices are difficult to predict due to the
impact of worldwide economic trends, coupled with supply and demand variables,
and such non-economic factors as the impact of political considerations on OPEC
pricing policies and the possibility of supply interruptions. Oil production
comprised approximately 6% of North Coast's total oil and gas production
calculated on an equivalent Mcf basis for fiscal 1999. Therefore a price
increase or decrease in oil prices has a minimal affect on revenues when
compared to the affect of the price of natural gas. To the extent that the
prices, which the Company receives for its crude oil, decline from current
levels, revenues from oil production will be reduced accordingly.
COMPETITION
The gas and oil industry is highly competitive in all phases. The
Company encounters strong competition from other independent oil companies in
acquiring economically desirable properties as well as in marketing production
therefrom and obtaining external financing. Many of the Company's competitors
may have financial resources, personnel and facilities substantially greater
than those of the Company.
REGULATION
Exploration and Production. The exploration, production and sale of
natural gas and oil are subject to various types of local, state and federal
laws and regulations. Such laws and regulations govern a wide range of matters,
including the drilling and spacing of wells, allowable rates of production,
restoration of surface areas, plugging and abandonment of wells and requirements
for the operation of wells. Such regulations may adversely affect the rate at
which the Company's wells produce gas and oil. In addition, legislation and new
regulations concerning gas and oil exploration and production operations are
constantly being reviewed and proposed. Most of the states in which the Company
owns and operates properties have laws and regulations governing several of the
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matters enumerated above. Compliance with the laws and regulations affecting the
gas and oil industry generally increases the Company's cost of doing business
and consequently affects its profitability.
Environmental Matters. The discharge of oil, gas or other pollutants
into the air, soil or water may give rise to liabilities to the government and
third parties and may require the Company to incur costs to remedy the
discharge. Natural gas, oil or other pollutants (including salt water brine) may
be discharged in many ways, including from a well or drilling equipment at a
drill site, leakage from pipelines or other gathering and transportation
facilities, leakage from storage tanks and sudden discharges from damage or
explosion at natural gas facilities or gas and oil wells. Discharged
hydrocarbons may migrate through soil to water supplies or adjoining property,
giving rise to additional liabilities. A variety of federal and state laws and
regulations govern the environmental aspects of natural gas and oil production,
transportation and processing and may, in addition to other laws, impose
liability in the event of discharges (whether or not accidental), failure to
notify the proper authorities of a discharge, and other noncompliance with those
laws. Compliance with such laws and regulations may increase the cost of gas and
oil exploration, development and production although the Company does not
currently anticipate that compliance will have a material adverse effect on
capital expenditures or earnings of the Company.
The Company does not believe that its environmental risks are
materially different from those of comparable companies in the oil and gas
industry. The Company believes its present activities substantially comply, in
all material respects, with existing environmental laws and regulations.
Nevertheless, no assurance can be given that environmental laws will not, in the
future, result in a curtailment of production or material increase in the cost
of production, development or exploration or otherwise adversely affect the
Company's operations and financial condition. Although the Company maintains
liability insurance coverage for certain liabilities from pollution, such
environmental risks generally are not fully insurable; the amount of such
coverage is currently $1,000,000 and is provided on a "claims made" basis.
Marketing and Transportation. The interstate transportation and sale
for resale of natural gas is regulated by the Federal Energy Regulatory
Commission (the "FERC") under the Natural Gas Act of 1938 ("NGA"). The wellhead
price of natural gas is also regulated by FERC under the authority of the
Natural Gas Policy Act of 1978 ("NGPA"). The Natural Gas Wellhead Decontrol Act
of 1989 (the "Decontrol Act"), which was enacted on July 26, 1989, eliminated
all gas price regulation effective January 1, 1993. In addition, FERC recently
has proposed several rules or orders concerning transportation and marketing of
natural gas. The impact of these rules and other regulatory developments on the
Company cannot be predicted.
In 1992 FERC finalized Order 636, regulations pertaining to the
restructuring of the interstate transportation of natural gas. Pipelines serving
this function have since been required to "unbundle" the various components of
their service offerings, which include gathering, transportation, storage, and
balancing services. In their current capacity, pipeline companies must provide
their customers with only the specific service desired, on a non-discriminatory
basis. Although North Coast is not an interstate pipeline, the Company believes
the changes brought about by Order 636 have increased competition in the
marketplace, resulting in greater market volatility.
Various rules, regulations and orders, as well as statutory provisions
may affect the price of natural gas production and the transportation and
marketing of natural gas.
OPERATING HAZARDS AND UNINSURED RISKS
The Company's gas and oil operations are subject to all operating
hazards and risks normally incident to drilling for and producing gas and oil,
such as encountering unusual formations and pressures, blow-outs, environmental
pollution, and personal injury. The Company will maintain such insurance
coverage as it believes to be appropriate, taking into account the size of the
Company and its proposed operations. The Company currently does not maintain
insurance coverage for physical loss or damage to equipment located on the wells
or for selected properties (such as crude oil stored in tanks). The Company's
insurance policies also have standard exclusions. Losses can occur from an
uninsurable risk or in amounts more than existing insurance coverage. The
occurrence of an event, which is not insured or not fully insured, could have an
adverse impact on the Company's revenues and earnings.
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EMPLOYEES
At March 31, 1999, the Company had 81 employees, including 48 field
employees. No employees are represented by a union and the Company believes that
it maintains good relations with its employees.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements
that involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that may cause such a difference include, but are not limited to, the
competition within the oil and gas industry, the price of oil and gas in the
Appalachian Basin area, the weather in the Company's geographic region, possible
acquisitions by the Company, the cost of the locating and drilling oil and gas
wells in the Appalachian Basin area, the amount of funds raised in the fiscal
2000 Drilling Programs, equity investment, available financing and the ability
to locate productive oil and gas prospects for development by the Company.
ITEM 2. PROPERTIES.
Oil and Gas Properties
- ----------------------
In the following tables, "gross" refers to the total acres or wells in
which the Company has a working interest and "net" refers to gross acres or
wells multiplied by the Company's percentage working interests therein. Royalty
interests held by the Company will not affect the Company's working interests
(net wells) in its properties and will not be reflected in net wells.
PROVED RESERVES. The following table reflects the estimates of North
Coast's proved reserves as of March 31, 1999.
RESERVES
<TABLE>
<CAPTION>
<S> <C>
Oil Reserves (Bbls):
Proved Developed 322,700
Proved Undeveloped 102,500
----------
Total 425,200
Gas Reserves (Mcf):
Proved Developed 41,214,000
Proved Undeveloped 11,307,000
----------
Total 52,521,000
</TABLE>
PRODUCTION. The following table summarizes the net oil and gas
production (on a rounded basis), average sales prices, and average production
(operating) expenses per equivalent unit of production for the periods
indicated.
PRODUCTION
<TABLE>
<CAPTION>
Production Sales Price Average Operating
Years Ended Oil Gas Cost per Equivalent
March 31: (Bbls) (Mcf) Per Bbl Per Mcf Mcf (1)
- --------- ------ ----- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1997 16,200 1,153,000 $20.65 $2.43 $.62 (2)
1998 13,900 1,116,000 $16.18 $2.50 $.70 (3)
1999 28,100 2,688,000 $11.39 $2.57 $.91
</TABLE>
(1) For calculation of average operating cost per equivalent Mcf, the
standard ratio of 6:1 for gas to oil was used.
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(2) Includes costs of the Company's enhancement program and rework of
two wells in the Gulf Coast area of interest.
(3) Includes costs for the rework of ten wells located in Pennsylvania
and relocation of production facilities in Louisiana.
PRODUCTIVE WELLS. The following table sets forth the number of gross
and net productive oil and gas wells of the Company as of March 31, 1999. Wells
are classified as gas or oil according to their predominant product stream.
PRODUCTIVE WELLS
Gross Wells (1) Net Wells
Oil Gas Total Oil Gas Total
--- --- ----- --- --- -----
26 1,685 1,711 9.76 1,268.11 1,277.87
(1) Gross wells include 92 wells in which the Company owns a royalty
interest.
ACREAGE. The following table sets forth the Developed and Undeveloped
Acreage of the Company, on both a gross and net basis, as of March 31, 1999. The
amounts included in proved undeveloped acreage recognizes only the acreage
directly offsetting locations to wells that have indicated commercial production
in the objective formation which North Coast fully expects to drill in the near
future.
LEASEHOLD ACREAGE
Total Leasehold Acreage:
Gross Acres 155,600
Net Acres 135,500
Developed Acreage:
Gross Acres 77,900
Net Acres 57,800
Proved Undeveloped Acreage:
Gross Acres 3,300
Net Acres 3,300
DRILLING ACTIVITY. The following table sets forth the results of
drilling activities on the Company's properties. Such information and the
results of prior drilling activities should not be considered as necessarily
indicative of future performance, nor should it be assumed that there is
necessarily any correlation between the number of productive wells drilled and
the oil and gas reserves generated thereby.
All wells were drilled by March 31 of their respective years and are
reflected in the Drilling Activities table. Wells in which the Company owns only
a royalty interest are not reflected in the table below.
DRILLING ACTIVITIES
Fiscal year ended March 31,
- ---------------------------
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Exploratory Wells (1)
Productive
Gross 0 0 0
Net 0 0 0
Dry
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Gross 0 0 0
Net 0 0 0
Development Wells (2)
Productive (3)
Gross 20 16 37
Net 3.88 4.50 20.20
Dry
Gross 0 1 0
Net 0 .22 0
Total Wells (4)
Productive
Gross 20 16 37
Net 3.88 4.50 20.20
Dry
Gross 0 1 0
Net 0 .22 0
</TABLE>
(1) Exploratory Wells are those wells drilled outside the confines of a known
productive reservoir area.
(2) Development Wells are those wells drilled within the confines of a known
productive reservoir.
(3) The number of productive wells for fiscal 1999 includes 7 gross wells and
4.6 net wells as productive development wells that are awaiting pipeline
connection or well completion operations at March 31, 1999.
(4) Total Wells is the sum of the Exploratory and Development Wells.
FACILITIES
North Coast owns a 12,000 square foot building, its corporate
headquarters, in Twinsburg, Ohio. The office facility is in a centralized
location, which during fiscal 1997 allowed the Company to relocate certain
operations and its personnel from its Cleveland and Youngstown offices. The
Youngstown facility owned by North Coast is used for field operations. As part
of the Kelt acquisition, North Coast held a six-month lease on Kelt's facility
in Cambridge, Ohio, and exercised an option to purchase the property for $27,187
during fiscal 1999. The facility is used in the Company's field operations
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company is
a party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the fiscal year ended March 31, 1999,
there were no matters submitted to a vote of security holders through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock is traded on the Nasdaq SmallCap Market under the
symbol "NCEB". The following tables sets forth, for the fiscal periods indicated
the high and low bid and ask prices for the Common Stock.
9
<PAGE> 12
Common Stock
(Amounts rounded to the nearest 32nd)
<TABLE>
<CAPTION>
High Low
---- ---
Bid Ask Bid Ask
--- --- --- ---
<S> <C> <C> <C> <C>
FISCAL 1998
First Quarter..............................................$ 5 $ 5-5/32 $ 3-7/16 $ 3-3/4
Second Quarter............................................. 5-15/16 6-9/16 4-1/16 4-7/32
Third Quarter.............................................. 4-27/32 5-5/32 2-21/32 3-7/16
Fourth Quarter............................................. 5 5-5/32 2-21/32 3-1/8
FISCAL 1999
First Quarter..............................................$ 5-15/16 $ 6-1/4 $ 3-3/4 $ 4-7/32
Second Quarter............................................. 5-5/16 5-5/8 2-3/16 2-13/16
Third Quarter.............................................. 4-11/16 5 2-1/2 2-13/16
Fourth Quarter............................................. 4-3/8 4-11/16 2-1/2 2-13/16
</TABLE>
As of June 10, 1999, there were approximately 4,556,814 shares of
Common Stock outstanding, which were held by approximately 1,300 holders of
record. On June 7, 1999 a 1 for 5 reverse stock split became effective thereby
reducing the number of shares of outstanding Common Stock from 22,784,070 to
4,556,814.
Holders of Series A Preferred Stock are entitled to receive semi-annual
non-cumulative cash dividends at an annual rate of $.60 per share. Such
dividends are payable on June 1 and December 1 of each year. The Series A
Preferred Stock is convertible to 2.3 shares of Common Stock prior to the
reverse stock split and is convertible to .46 shares of Common Stock after the
reverse stock split. The holders of Series B Preferred Stock are entitled to
receive quarterly cumulative cash dividends at an annual rate of $1.00 per
share. The Series B Preferred Stock is convertible to 6.56 shares of Common
Stock prior to the reverse stock split and is convertible to 1.311 shares of
Common Stock after the stock split. For the year ended March 31, 1999, the
Company paid $201,724 in aggregate cash dividends on its Series B Preferred
Stock.
Whenever dividends on the Series B Preferred Stock have not been paid
for an amount equal to six quarterly dividend payments, the number of directors
of the Company may be increased, and the holders of the Series B will be
entitled to elect such additional directors on the Board of Directors. Such
voting right will terminate when all such distributions accrued and in default
have been paid in full or set apart of payment. The Company has dividends in
arrears on its Series B Preferred Stock of $326,010 at March 31, 1999.
The Company has never paid any cash dividends on its Common Stock and
is currently restricted from paying cash dividends on any of its common stock
under the terms of its credit facility. The Company currently intends to retain
future earnings in order to provide funds for use in the operation of its
business.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data for the Company
for each of the five fiscal years in the period ended March 31, 1999, 1998,
1997, 1996 and 1995.
<TABLE>
<CAPTION>
Years Ended March 31
(In thousands, except per share amounts)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Revenues $ 13,942 $ 8,591 $ 9,665 $ 10,860 $ 15,275
Net Income (Loss) 870 262 292 (1,254) 295
Net Income (Loss) per Share(1) .16 (.00) (.10) (1.19) (.25)
Total Assets 43,573 22,312 21,229 20,243 21,136
Long-term Debt (less current portion) 21,494 7,171 10,721 8,955 6,197
</TABLE>
(1) Net Income (Loss) per share has been restated to reflect stock dividends
and all per share amounts have been restated to give retroactive effect to
the reverse stock split effective June 7, 1999.
The following table sets forth summary unaudited financial information on a
quarterly basis for the past two years.
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
1999
----
June 30 Sept. 30 Dec. 31 Mar. 31
------- -------- ------- -------
<S> <C> <C> <C> <C>
Revenues $2,506 $2,601 $3,057 $5,778
Net Income (Loss) (97) 12 261 694
Net Income (Loss) per share (1) (0.05) (0.01) 0.04 0.14
Total Assets 40,176 42,389 43,994 43,573
Long Term Debt (less current portion) 24,641 21,672 20,734 21,494
1998
----
June 30 Sept. 30 Dec. 31 Mar. 31
------- -------- ------- -------
Revenues 1,849 1,554 1,967 3,220
Net Income (Loss) 76 (121) 63 244
Net Income (Loss) per share (1) 0.00 (0.08) (0.00) 0.01
Total Assets 20,362 20,880 23,475 22,312
Long Term Debt (less current portion) 10,624 6,581 6,565 7,171
</TABLE>
(1) Net Income (Loss) per share has been restated to reflect stock dividends
and all per share amounts have been restated to give retroactive effect to
the reverse stock split effective June 7, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
North Coast is engaged in the acquisition and enhancement of developed
properties and the exploration, development and production of undeveloped
natural gas and oil properties, primarily in conjunction with the Drilling
Programs it sponsors and manages. North Coast derives its revenues from its own
oil and gas production and turnkey drilling, well operations, gas gathering,
transportation and gas marketing services performed under contract with the
Drilling Programs.
North Coast's proved developed natural gas reserves increased to 41.2
Bcf for fiscal 1999 from 15.1 Bcf for the fiscal year ended March 31, 1998 and
proved developed oil reserves increased to 322,700 barrels from 126,700 barrels.
The increase in proved developed reserves resulted primarily from the Kelt
acquisition coupled with the purchase of the working interest in 35 wells and
the purchase of partnership interests from certain of the Company's Drilling
Program investors. The proved gas reserves (developed and undeveloped) increased
to 52.5 Bcf for fiscal 1999 from 17.8 Bcf for fiscal 1998. The increase in
proved gas reserves was due to the increases mentioned previously for the proved
developed reserves coupled with the upward revision to the proved undeveloped
reserves for drilling locations that were proved through the Company's recent
Drilling Programs. Proved oil reserves (developed and undeveloped) increased to
425,200 barrels for fiscal 1999 from 135,700 barrels for fiscal
11
<PAGE> 14
1998. North Coast recognizes as proved undeveloped reserves only the potential
oil and gas which can reasonably be expected to be recovered from drillable
locations which it owned (or had rights to) at fiscal year end which are
directly offsetting locations to wells that have indicated commercial production
in the objective formation and which North Coast fully expects to drill in the
very near future. Changes in the Standardized Measure of Discounted Future Net
Cash Flows are set forth in Note 13 of the Company's financial statements. The
above mentioned additions and sales of natural gas, coupled with the development
costs associated with undeveloped acreage, create timing differences which are
reflected in the other category of the Standardized Measure. Of the Company's
total proved reserves, approximately 78% are proved developed and approximately
22% are proved undeveloped based upon equivalent unit Mcfs. Proved undeveloped
acreage requires considerable capital expenditures to develop. Management
believes that a significant percentage of the proved undeveloped reserves should
be recovered in future years, although no assurance of such recovery can be
given.
The following table is a review of the results of operations of the
Company for the fiscal years ended March 31, 1999, 1998 and 1997. All items in
the table are calculated as a percentage of total revenues.
<TABLE>
<CAPTION>
Revenues: 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Oil and gas production 52% 35% 33%
Drilling revenues 26 35 39
Well operating, transportation and other 15 19 19
Administrative and agency fees 7 11 9
--- -- --
Total Revenues 100% 100% 100%
---- ---- ----
Expenses:
Oil and gas production expenses 19% 10% 8%
Drilling costs 21 29 30
Oil and gas operations 9 8 10
General and administrative expenses 15 26 24
Depreciation, depletion, amortization, impairment and other 18 15 14
Abandonment of oil and gas properties 0 0 1
Provision (credit) for income taxes 0 0 0
Other 12 9 10
--- -- --
Total Expenses 94% 97% 97%
--- -- --
Net Income 6% 3% 3%
=== == ==
Net Income (loss) Applicable to Common Stock(1) 5% 0% (2%)
=== == ==
</TABLE>
(1) Dividends were paid or accrued on the Series B cumulative preferred
stock in the amount of $236,654, $268,264 and $458,606 for fiscal
1999, 1998, and 1997.
The following discussion and analysis reviews the results of operations
and financial condition for the Company for the years ended March 31, 1997, 1998
and 1999. This review should be read in conjunction with the Financial
Statements and other financial data presented elsewhere herein.
COMPARISON OF FISCAL 1999 TO FISCAL 1998
REVENUES
Oil and gas production increased from 1.2 bcf equivalent in fiscal 1998
to 2.9 bcf equivalent in fiscal 1999. Oil and gas production revenues increased
$4,219,834(140%) to $7,233,763 for fiscal 1999 compared to $3,013,929 for fiscal
1998 primarily due to the increased production of which 96% is from natural gas.
This increase in oil and gas revenue and production is primarily associated with
approximately 760 producing oil and gas properties acquired from Kelt. The Kelt
acquisition wells comprised 1.56 bcf equivalent of the total production in
fiscal 1999. Gas revenues were also affected by the sale of natural gas from the
Kelt properties, which was contracted on June 15, 1998 for a
12
<PAGE> 15
period of one year at a price of approximately $2.85 per Mcf. The increase in
oil and gas production revenues also reflects approximately $320,000 in
production revenues resulting from the Company's third quarter purchase of
interests in prior Drilling Programs. The Company received an average price of
$11.39 and $16.18 per barrel of oil for fiscal 1999 and 1998, respectively, and
$2.57 and $2.50 per Mcf for natural gas for fiscal 1999 and 1998, respectively.
Drilling revenues increased by $697,787 (23%) to $3,686,158 for
fiscal 1999 compared to $2,988,371 for fiscal 1998 due to the increase in the
number of wells recognized in revenue for the comparable periods. Drilling
revenues were recognized on 23 wells for fiscal 1999 compared to 20 wells for
fiscal 1998. The Company raised $3,515,000 for its fiscal 1999 Drilling Program
compared to $2,718,000 for its fiscal 1998 Drilling Programs.
For fiscal 1999, well operating, transportation and other revenues
increased $439,605 (27%) compared to fiscal 1998. This increase was primarily
due to the increase in revenue from gas transportation and oilfield services,
which was a result of the Kelt acquisition. North Coast has utilized the
oilfield equipment from the acquisition to provide services to its oilfield
operations.
EXPENSES
Oil and gas production expense increased to $2,601,555 for fiscal 1999
from $840,346 for fiscal 1998 primarily due to the Kelt acquisition coupled with
an increase resulting from the fiscal third quarter purchase of interests in
prior Drilling Programs. The Kelt wells accounted for approximately $1.5 million
of the total oil and gas production expense for fiscal 1999. North Coast's
average operating cost per equivalent Mcf increased to $0.91 for the year ended
March 31, 1999 compared to $0.70 for the year ended March 31, 1998 primarily due
to the integration of the assets and operating staff from the Kelt acquisition
for the year ended March 31, 1999.
Drilling costs for fiscal 1999 compared to fiscal 1998 increased
$410,714 (16%). This increase between comparable periods was due to the larger
number of drilling program wells drilled and completed during the fiscal year
ended 1999 compared to the fiscal year ended 1998. North Coast's profit margin
was 21% for fiscal 1999 compared to 16% for fiscal 1998 primarily due to weather
conditions being more conducive for drilling activity in fiscal 1999 than in
fiscal 1998. In September, the Company initiated an enhancement and development
program focused on completing wells acquired from Kelt and the development of
selective proved undeveloped reserves. At March 31, 1999, the Company had
expended approximately $3.1 million on its enhancement program. The Company does
not recognize drilling revenue or expense on these drilling development
activities.
Oil and gas operations expenses increased $547,842 (84%) for fiscal
1999 compared to fiscal 1998. This increase was due to an increase in gas
purchases related to unaffiliated third party gas sales of approximately
$60,000, increased costs associated with the utilization of oil field equipment
acquired in the Kelt acquisition of approximately $170,000, and the increase in
costs due to the integration of the Kelt operations.
General and administrative expense decreased $107,013 (5%) primarily as
a result of a reallocation of overhead expenses related to integration of the
assets acquired from Kelt as well as a reduction in consulting fees in fiscal
1999 compared to fiscal 1998. As a percentage of revenues, general and
administrative expense decreased from 26% in fiscal 1998 to 15% in fiscal 1999
also due to the Kelt acquisition. Subsequent to fiscal 1999, North Coast made
certain payments to a former executive of the Company which will be reflected in
general and administrative expense in fiscal 2000.
Depreciation, depletion, amortization, impairment, and other increased
$1,237,344 (100%) for fiscal 1999 compared to fiscal 1998. The increase is
primarily due to the increased depletion associated with the wells acquired from
Kelt and the increased depreciation associated with the oilfield equipment and
saleslines also acquired from Kelt.
Interest expense increased to $1,841,108 for fiscal 1999 from $839,342
for fiscal 1998. This increase reflects the increase in the average outstanding
borrowings for the comparable periods due to the increase in debt associated
with the Kelt acquisition, the investment in the enhancement and development
activities and North Coast's contributions to the Drilling Program wells.
13
<PAGE> 16
Income from operations for fiscal 1999 increased to $2,624,437 from
$1,033,918 for fiscal 1998. The increase in income from operations was primarily
due to higher production volumes, the increased price of natural gas and
increased drilling revenues. The aforementioned increases in volumes, price, and
drilling revenue also increased the Company's net income $608,076 (232%) to
$870,214 for fiscal 1999 from $262,138 for fiscal 1998.
COMPARISON OF FISCAL 1998 TO FISCAL 1997
REVENUES
Oil and gas production revenues decreased $123,627 (4%) to $3,013,929
for fiscal 1998 compared to $3,137,556 for fiscal 1997. On an equivalent basis,
production declined to 1.20 bcf equivalent in fiscal 1998 from 1.25 bcf
equivalent in fiscal 1997. Oil revenues decreased approximately $110,000 due to
a decrease in the oil production and a decrease in the average price received
for oil by the Company. For fiscal 1998 the Company received an average price of
$16.18 per barrel of oil and $2.50 per Mcf of natural gas compared to an average
price of $20.65 per barrel of oil and $2.43 per Mcf of natural gas received
during fiscal 1997.
Drilling revenues decreased $795,259 (21%) for fiscal 1998 compared to
fiscal 1997 due to the decrease in the number of wells recognized in revenue.
The Company recognized revenues for fiscal 1998 on 20 wells as compared to 29
wells for fiscal 1997.
Revenues generated from well operating, transportation and other
decreased $237,198 (13%) for fiscal 1998 compared to fiscal 1997. This decrease
was primarily due to a decrease 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.
Revenue from administrative and agency fees, which are based on a
percentage of the total investor capital raised in all of the Drilling Programs,
increased by $81,727 (9%) for fiscal 1998 compared to fiscal 1997 due to the
formation of the Drilling Programs in fiscal 1998. The administrative fees
derived from the fiscal 1998 Drilling Programs were charged a one-time fee equal
to 4.5% of total capital raised compared to the prior years programs which are
charged an annual fee equal to 2% of total capital raised.
EXPENSES
Oil and gas production expense increased $63,183 (8%) for fiscal 1998
as compared to fiscal 1997. This increase was primarily due to additional costs
incurred with relocation of certain production facilities in the Gulf Coast area
and costs associated with reworking wells in Pennsylvania.
Drilling costs for fiscal 1998 compared to fiscal 1997 decreased
$360,027 (13%) due to the decreased number of wells completed between comparable
periods. The profit margin on drilling revenue decreased to 16% for fiscal 1998
compared to 24% for fiscal 1997. The decrease in the drilling profit margin
between comparable periods was due to actual completion costs over the estimated
accruals from wells recognized in drilling income coupled with increased general
and administrative costs allocated to drilling activities. Net drilling income
decreased approximately $435,000 between fiscal year ends due to the fewer
number of wells drilled and completed.
Oil and gas operations expense decreased $324,271 (33%) for fiscal 1998
as compared to fiscal 1997. This decrease was primarily due to reduced natural
gas purchases associated with unaffiliated third party gas sales.
Interest expense decreased to $839,342 for fiscal 1998 from $1,055,409
for fiscal 1997. This decrease was primarily due to the reduction of the
borrowings under the Company's Credit Facility and other debt by utilizing funds
received from the sale of common stock. At March 31, 1998, $6,565,265 was
outstanding under the Company's Credit Facility, as compared to $8,640,000 at
March 31, 1997.
Net income was $262,138 for fiscal 1998 compared to $291,750 for fiscal
1997. The decrease reflects the decreased drilling activity and production
revenues between comparable periods.
14
<PAGE> 17
INFLATION AND CHANGES IN PRICES
While the costs of operations have been and will continue to be
affected 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 supply of natural gas in the
United States and regionally have a more immediate effect on current pricing
than inflation. North Coast received an average price of $11.39 and $16.18 per
barrel for fiscal 1999 and 1998, respectively, and $2.57 and $2.50 per Mcf for
natural gas for fiscal 1999 and 1998, respectively. On average, Appalachian
natural gas prices decreased $0.41/Mcf from fiscal year 1998 to fiscal year
1999. However, North Coast experienced a $0.07/Mcf increase for its natural gas
during this period. For the 24 month period ending March 31, 1999, the CNG and
TCO Appalachian natural gas index pricing decreased $0.71 Mcf on average from
$2.85 to $2.14, while North Coast's average price increased $0.14 Mcf, from
$2.43 to $2.57. The increase North Coast received can be attributed to a change
in marketing strategy including (1) aggressively targeting small to medium-sized
commercial end-users, and (2) balancing the remainder of the Company's gas
prices between spot Appalachian based prices and NYMEX based prices. This
strategy allows North Coast the greatest opportunity to exceed the average
regional prices, while minimizing the effects of a negative fluctuation. The
industry-wide weakness of natural gas prices can be attributed to the effects of
a relatively mild winter, which lessened demand for natural gas. Although it is
anticipated that there will be a decline in gas prices during the summer months,
the demand for gas by storage facilities, coupled with the anticipated
nationwide hot summer, may keep gas prices above last summer's. Other variables
potentially effecting gas prices are increased competition from Canadian gas,
effects of gas storage and possibly FERC Order 636. The FERC Order 636 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.
Currently, North Coast sells natural gas under both fixed price
contracts and on the spot market. The spot market price North Coast 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, North Coast continues to construct new pipeline
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
North Coast's working capital was $2,399,000 at March 31, 1999 compared
to $782,000 at March 31, 1998. The increase of $1,617,000 in working capital
reflects the funds received from the formation of the fiscal 1999 Drilling
Program and the general increase in working capital resulting from the
additional Kelt wells. As of March 31, 1999, the Company had $20,827,635
outstanding under its Credit Facility.
The following table summarizes the Company's financial position at
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
(Amounts in Thousands) 1999 1998
- ---------------------- ---- ----
Amount % Amount %
------ - ------ -
<S> <C> <C> <C> <C>
Working capital $ 2,399 6 $ 782 4
Property and equipment 36,418 89 18,789 95
Other 1,857 5 275 1
-------- --- -------- ---
Total $ 40,674 100 $ 19,846 100
======== === ======== ===
Long-term debt $ 21,494 53 $ 7,171 36
Deferred income taxes and other liability 1,238 3 336 2
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Stockholders' equity 17,942 44 12,339 62
-------- --- -------- ---
Total $ 40,674 100 $ 19,846 100
======== === ======== ===
</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 North Coast's Statements of Cash
Flows for the years ended March 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
(Amounts in Thousands) 1999 1998 1997
---- ---- ----
Dollars % Dollars % Dollars %
------- - ------- - ------- -
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by operating activities $ 2,385 11% $ 1,186 46% $ 1,162 48%
Net cash used for investing activities (20,913) (94) (2,122) (82) (1,827) (76)
Net cash provided by financing activities 18,906 85 1,012 39 616 26
-------- -- ------- -- ------- --
Increase (decrease) in cash and cash equivalent $ 378 2% $ 76 3% $ (49) (2)%
======== == ======= == ======= ==
</TABLE>
(1) 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, North Coast's cash provided by operating
activities increased to $2,385,000 for fiscal 1999 compared to $ 1,186,000 for
fiscal 1998 primarily due to the Kelt acquisition.
Net cash used for investing activities increased to $20,913,000 for
fiscal 1999 from $2,122,000 for fiscal 1998. This increase was primarily due to
the Kelt acquisition. In the fiscal fourth quarter it was determined that the
drilling rig acquired in the Kelt acquisition was not being utilized as
effectively as initially planned and was sold to a third party. North Coast also
invested approximately $3.1 million in drilling and development activities
associated with completing wells acquired from Kelt and the development of
proved undeveloped reserves.
Net cash from financing activities increased approximately $17,894,000
for fiscal 1999 compared to fiscal 1998. This increase reflects the Company's
borrowings under its credit facility to finance the Kelt acquisition. Also
reflected is the receipt of $5 million from NUON on September 29, 1998 for the
issuance of Common Stock of the Company and the subsequent payment of a portion
of the Company's Credit Facility.
On February 9, 1998, the Company entered into an agreement with ING
(US) Capital Corporation to replace the $20 million revolving credit facility
with its previous lender. An amended credit facility dated May 29, 1998 ("Credit
Agreement") expanded the Company's $20 million revolving credit facility with
ING ("ING") to a $25 million revolving credit facility ("Credit Facility"). The
Credit Agreement also provides for a borrowing base which is determined
semiannually by the lender based upon the Company's financial position, oil and
gas reserves, as well as outstanding letters of credit ($150,000 at March 31,
1999), as defined. The Credit Agreement requires payment of an agent fee (0.75%
for Credit Agreement) on amounts available and 1/2% commitment fee on amounts
not borrowed up to the available line. At March 31, 1999, the Company's
borrowing base was $25 million subject to reduction for the outstanding letters
of credit. Available borrowings under the facility at March 31, 1999 were
$4,022,365 and may subsequently be adjusted upon the semiannual reserve study
and borrowing base determination (see Note 4 to the Company's March 31, 1999
financial statements). The Credit Facility provides that the payment of cash
dividends with respect to the Common Stock of the Company is prohibited. As of
March 31, 1999, the Company had $20,827,635 outstanding under the Credit
Facility, and was in compliance with its loan covenants. Amounts borrowed under
the Credit Facility bear interest at the prime rate of the lending bank plus
.75% or LIBOR plus 2.50%. The line of credit is reviewed semi-annually and
extended by an amendment to the current facility or converted to a term loan on
July 2, 2000. The lender has performed its September 30, 1998 semi-annual
borrowing
16
<PAGE> 19
base review and has provided a third amendment to the Credit Facility which
continues the facility without payment of principal until September 30, 2000.
The lender has indicated that, in the future, it intends to discontinue lending
in the oil and gas business in the United States and has requested that the
Company find another lender. North Coast is currently reviewing options with
several lenders that are interested in providing at least a $25 million credit
facility.
The amounts borrowed under its revolving line of credit are secured by
the Company's receivables, 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, at March 31, 1999, the Company had approximately $44,290
outstanding under a mortgage note payable for its facility in Youngstown. 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 a mortgage note on May 13,
1996 for $540,000 over a 15-year term with an interest rate of 8.58% to be
renegotiated every five years. The amount outstanding under the mortgage note at
March 31, 1999 was $487,673.
On September 29, 1998, the Company sold an additional 1,149,425 shares
of its Common Stock for $5 million to NUON International bv, a limited liability
company organized under the laws of the Netherlands ("NUON"), pursuant to the
terms of a stock purchase agreement ("Agreement") by and between the Company and
NUON dated August 1, 1997. By exercising its option to purchase additional
shares by September 30, 1998, NUON's stock ownership increased to 51% of the
Company's outstanding Common Stock. NUON also exercised the right to appoint two
directors at the Company's December 1998 Annual Meeting. The Company issued
26,800 warrants representing the right of the holders to purchase one share of
Common Stock for $4.375 per share in connection with the sale of Common Stock to
NUON. Pursuant to the terms of the Agreement and subject to the satisfaction of
certain conditions, NUON may purchase an additional 1,149,426 shares of Common
Stock by September 30, 1999. The Company is also obligated to issue 26,800
warrants if NUON purchases the additional 1,149,426 shares with 13,400 of the
potential warrants due to an officer of the Company. The additional warrants
represent the right to purchase one share of Common Stock for $4.375 per share.
The Company acquired certain assets and assumed certain obligations of
Kelt, headquartered in Cambridge, Ohio. The Kelt acquisition was made pursuant
to a Purchase and Sale Agreement dated April 8, 1998 and amended May 12, 1998.
The purchase price for the acquired assets was approximately $16 million. The
Company funded the acquisition using cash and an increase in its credit
facility.
On April 30, 1999, the Company's chief executive officer resigned and
under a separation agreement is entitled to certain payments in lieu of his
existing employment contract and payments for non-compete, a warrant to purchase
common stock. In addition, under certain conditions the Company could be
obligated to purchase this former executives stock for $4.375 a share. North
Coast would not be obligated to purchase the former executive's shares if NUON
elects to purchase his shares prior to September 30, 1999 in accordance with the
separation agreement. However, NUON would have the right to reduce its option
under the 1997 Purchase and Sale Agreement to the extent to which it purchases
the former executive's shares. NUON is not obligated to exercise its option to
acquire 1,149,426 shares or to acquire the former chief executive officer's
shares. Management of North Coast believes that general economic conditions and
various sources of available capital, including current available borrowings
under the Credit Facility, NUON's exercise of their option shares and funds
raised in Drilling Programs will be sufficient to fund the Company's
obligations, operations and meet debt service requirements through fiscal 2000.
YEAR 2000 READINESS DISCLOSURE
The Company has developed an action plan and identified the resources
required to convert its computer systems and software applications to achieve
Year 2000 compliance with no anticipated effect on its customers or disruption
of its business operations. The Company has already implemented the first three
phases of its four-phase action plan. In Phase One, the Company assessed its
information technology ("IT") and non-IT systems. The term "computer equipment
and software" includes systems that are commonly thought of as IT systems,
including accounting, data processing, telephone, scanning equipment and other
miscellaneous systems. Those items not considered IT systems include alarms, fax
machines and monitors for field operations. Both IT and non-IT systems
17
<PAGE> 20
may contain embedded technology which complicates Year 2000 identification and
assessment efforts.
In Phase Two, the Company tested existing systems and determined
whether those systems suspect to Year 2000 compliance problems should be
replaced. In Phase Three, the Company replaced systems and software because of
the Year 2000 issue and because the Kelt acquisition necessitated newer and more
compatible systems. The Company estimates that the cost to complete Phases One,
Two and Three, which primarily includes the purchase of software and hardware
upgrades under normal maintenance agreements with third party vendors, will be
approximately $60,000. To date, the Company has incurred approximately 83.0% of
these anticipated costs.
Phase Four of the Company's action plan involves the implementation of
the Company's Year 2000 compliant software and the reevaluation of all of the
Company's material systems. North Coast intends to complete this phase of its
action plan by the end of the second quarter of fiscal year 2000. The Company
may engage independent consultants to assist in completing Phase Four. The
additional cost of these independent consultants has not been determined and has
not yet been included in the Company's Year 2000 compliance cost estimates.
In addition, the Company has discussed Year 2000 compliance issues with
its vendors and customers. Although the Company has no reason to believe that
its vendors and customers will not be Year 2000 compliant, the Company is unable
to determine the extent to which Year 2000 issues will effect its vendors and
customers. The Company continues to discuss procedures necessary to address this
issue with its vendors and customers.
The Company presently does not plan to incur significant operational
problems due to the Year 2000 issue. However, there can be no assurance that the
Year 2000 issue will not materially impact the Company's financial condition or
results of operations, or adversely effect its relationship with customers,
vendors and others. Additionally, there can be no assurance that the Year 2000
issues of other entities will not have a material impact on the Company's
systems or results of operations. The Company plans to establish a contingency
plan for dealing with the most reasonably likely worse case scenario. To date
such a scenario has not been clearly identified. North Coast plans to complete
such analysis and contingency planning by the second quarter of fiscal year
2000.
ACCOUNTING STANDARDS
In June 1997, SFAS 130, "Reporting Comprehensive Income," was issued.
SFAS 130 established new standards for reporting comprehensive income and its
components and is effective for fiscal years beginning after December 15, 1997.
In June 1997, the Financial Accounting Standards Board issued SFAS 131, "
Disclosure About Segments of an Enterprise and Related Information." SFAS 131
changed the standards for reporting financial results by operating segments,
related products and services geographical areas and major customers. In
February 1998, SFAS 132, Employers' Disclosures About Pensions and Other
Postretirement Benefits, was issued. SFAS 132 standardizes the disclosure
requirements for pension and other postretirement benefit plans but does not
change the measurement or recognition of those plans. SFAS 132 is effective for
fiscal years beginning after December 15, 1997. In June 1998, SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued. SFAS
133 establishes accounting and reporting standards for derivative instruments
and hedging activities. SFAS 133 is effective for fiscal years beginning after
June 15, 1999. The effect of the adoption or anticipated adoption of the above
standards had no, or is expected to have no, material effect on the Company's
financial statements.
ITEM 7. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not have any derivative financial instruments as of March
31, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
The following pages contain the Financial Statements and supplementary data
required by Item 8 of Part II of Form 10-K.
18
<PAGE> 21
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 as to the Directors of the Company
is incorporated herein by reference to the information set forth under the
caption "Information Concerning Nominees for Directors" in the Company's
definitive Proxy Statement for the 1999 Annual Meeting of Stockholders, since
such Proxy Statement will be filed with the Securities and Exchange Commission
not later than 120 days after the end of the Company's fiscal year pursuant to
Regulation 14A. Information required by this Item 10 as to the Executive
Officers of the Company is included in Part I of this Annual Report on Form
10-K.
Executive Officers of the Registrant*
Timothy Wagers, age 39, joined North Coast in 1983 and currently is
Treasurer and Chief Financial Officer. Mr. Wagers is also responsible for
overseeing the accounting for partnership distributions, oil and gas production
and tax reporting, and for monitoring well costs. He received a Bachelor of
Science in Accounting from the University of Akron. From 1982 through 1983, Mr.
Wagers was employed by Hausser + Taylor, independent certified public
accountants, as a staff accountant auditing various entities including oil and
gas partnerships. Mr. Wagers is a certified public accountant, a member of the
Ohio Society of Certified Public Accountants, the Ohio Petroleum Accountants
Society, and the American Institute of Certified Public Accountants.
Thomas A. Hill, age 41, was elected Secretary and General Counsel of North
Coast Energy in August 1987. Mr. Hill joined Capital Oil & Gas, Inc. in 1984,
before its acquisition by North Coast. He graduated from Hiram College with a
Bachelor of Arts degree in History and Political Science and from George
Washington University National Law Center with a Juris Doctor degree. Mr. Hill
is a member of the Mahoning County Bar Association and Eastern Mineral Law
Foundation.
*The description of the Company's executive officers called for in this item
is included herein pursuant to instruction 3 to Section (b) of Item 401 of
Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 is incorporated by reference to
the information set forth under the caption "Executive Compensation" in the
Company's definitive Proxy Statement for the 1999 Annual Meeting of
Stockholders, since such Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Company's
fiscal year pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 12 is incorporated by reference to
the information set forth under the captions "Principal Shareholders" and "Share
Ownership of Directors and Officers" in the Company's definitive Proxy Statement
for the 1999 Annual Meeting of Stockholders, since such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 13 is incorporated by reference to
the information set forth under the caption "Transactions with Management" in
the Company's definitive Proxy Statement for the 1999 Annual Meeting of
Stockholders, since such Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Company's
fiscal year pursuant to Regulation 14A.
19
<PAGE> 22
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
The following Consolidated Financial Statements of the Registrant and its
subsidiaries are included in Part II, Item 8:
<TABLE>
<CAPTION>
Page(s)
<S> <C> <C>
Auditors' Reports on the Financial Statements F-3 - F-4
Consolidated balance sheets F-5 - F-6
Consolidated statements of operations F-7
Consolidated statements of stockholders' equity F-8
Consolidated statements of cash flows F-9 - F-10
Notes to consolidated financial statements F-11 - F-31
</TABLE>
(a) (2) Financial Statements Schedules
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(a) (3) Exhibits
Reference is made to the Exhibit Index.
(b) Reports on Form 8-K:
The Company's current report on Form 8-K dated April 5, 1999.
20
<PAGE> 23
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
1999 CONSOLIDATED FINANCIAL REPORT
F-1
<PAGE> 24
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONTENTS
- --------------------------------------------------------------------------------
Page
----
AUDITORS' REPORTS ON THE FINANCIAL STATEMENTS F-3 - F-4
FINANCIAL STATEMENTS
Consolidated balance sheets F-5 - F-6
Consolidated statements of operations F-7
Consolidated statements of stockholders' equity F-8
Consolidated statements of cash flows F-9 - F-10
Notes to consolidated financial statements F-11 - F-31
F-2
<PAGE> 25
Report of Independent Public Accountants
----------------------------------------
To the Board of Directors and Stockholders
North Coast Energy, Inc.
Cleveland, Ohio
We have audited the accompanying consolidated balance sheet of North
Coast Energy, Inc. (a Delaware corporation) and subsidiaries as of March 31,
1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of North
Coast Energy, Inc. and subsidiaries as of March 31, 1999, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
/s/ Hausser + Taylor LLP
Cleveland, Ohio
May 28, 1999
except for Note 5 dated
June 29, 1999
F-3
<PAGE> 26
Report of Independent Public Accountants
----------------------------------------
To the Board of Directors and Stockholders
North Coast Energy, Inc.
Cleveland, Ohio
We have audited the accompanying consolidated balance sheet of North
Coast Energy, Inc. (a Delaware corporation) and subsidiaries as of March 31,
1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the two fiscal years in the period ended March
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of North
Coast Energy, Inc. and subsidiaries as of March 31, 1998, and the consolidated
results of their operations and their cash flows for each of the two fiscal
years in the period ended March 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Cleveland, Ohio
June 4, 1998
F-4
<PAGE> 27
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 1,956,617 $ 1,578,984
Accounts receivable:
Trade, net 2,740,394 1,311,714
Affiliates 115,278 96,011
Inventories 210,556 189,223
Deferred income taxes 57,000 26,000
Refundable income taxes 38,000 38,000
Prepaid expenses 180,000 8,057
------------ ------------
Total current assets 5,297,845 3,247,989
PROPERTY AND EQUIPMENT, at cost
Land 97,822 93,437
Oil and gas properties (successful efforts) 42,964,679 25,754,748
Pipelines 6,543,928 4,380,772
Vehicles 937,613 420,026
Furniture and fixtures 588,473 508,417
Building and improvements 823,225 786,689
------------ ------------
51,955,740 31,944,089
Less accumulated depreciation, depletion, amortization and
impairment (15,537,255) (13,155,288)
------------ ------------
36,418,485 18,788,801
OTHER ASSETS
Advanced royalties 1,570,000 --
Other, net 287,137 274,726
------------ ------------
1,857,137 274,726
------------ ------------
$ 43,573,467 $ 22,311,516
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE> 28
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 97,600 $ 88,300
Accounts payable 2,355,982 1,824,740
Accrued expenses 444,808 250,073
Billings in excess of costs on uncompleted contracts -- 302,881
------------ ------------
Total current liabilities 2,898,390 2,465,994
LONG-TERM DEBT, net of current portion 21,493,922 7,171,035
ACCRUED PLUGGING LIABILITY 872,408 --
DEFERRED INCOME TAXES, net 366,200 335,200
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A, 6% Noncumulative Convertible Preferred stock, par
value $.01 per share; 563,270 shares authorized; 73,816 and
75,481 issued and outstanding (aggregate liquidation value of
$738,160 and $754,810, respectively) 738 755
Series B, Cumulative Convertible Preferred stock, par
value $.01 per share; 625,000 shares authorized; 232,864 and
268,264 issued and outstanding (aggregate liquidation value of
$2,328,640 and $2,682,640, respectively plus dividends in
arrears of $326,010 and $335,330, respectively) 2,329 2,683
Undesignated Serial Preferred stock, par value $.01 per share;
811,730 shares authorized; none issued and outstanding -- --
Common stock, par value $.01 per share; 60,000,000 shares
authorized; 4,556,814 and 3,322,586 issued and outstanding
(see Note 6G) 45,568 33,226
Additional paid-in capital 21,914,939 16,992,140
Retained deficit (4,021,027) (4,689,517)
------------ ------------
Total stockholders' equity 17,942,547 12,339,287
------------ ------------
$ 43,573,467 $ 22,311,516
============ ============
</TABLE>
The accompanying notes are an integral part of there consolidated
financial statements.
F-6
<PAGE> 29
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUE
Oil and gas production $ 7,233,763 $ 3,013,929 $ 3,137,556
Drilling revenues 3,686,158 2,988,371 3,783,630
Well operating, transportation and other 2,062,213 1,622,608 1,859,806
Administrative and agency fees 960,166 965,724 883,997
------------ ------------ ------------
13,942,300 8,590,632 9,664,989
COSTS AND EXPENSES
Oil and gas production expenses 2,601,555 840,346 777,163
Drilling costs 2,927,302 2,516,588 2,876,615
Oil and gas operations 1,200,514 652,672 976,943
General and administrative expenses 2,108,948 2,215,961 2,307,994
Depreciation, depletion, amortization, impairment
and other 2,479,544 1,242,200 1,385,570
Abandonment of oil and gas properties -- 88,947 73,528
------------ ------------ ------------
11,317,863 7,556,714 8,397,813
------------ ------------ ------------
INCOME FROM OPERATIONS 2,624,437 1,033,918 1,267,176
OTHER INCOME (EXPENSE)
Interest income 82,505 62,263 47,491
Other 4,380 5,299 32,492
Interest expense (1,841,108) (839,342) (1,055,409)
------------ ------------ ------------
(1,754,223) (771,780) (975,426)
INCOME BEFORE PROVISION (CREDIT) FOR
INCOME TAXES 870,214 262,138 291,750
PROVISION (CREDIT) FOR INCOME TAXES
Current -- 12,000 (5,100)
Deferred -- (12,000) 5,100
------------ ------------ ------------
-- -- --
------------ ------------ ------------
NET INCOME $ 870,214 $ 262,138 $ 291,750
============ ============ ============
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK
(after dividends on cumulative Preferred Stock of
$236,654, $268,264 and $458,606, respectively) $ 633,560 $ (6,126) $ (166,856)
============ ============ ============
NET INCOME (LOSS) PER SHARE (basic and diluted) $ 0.16 $ -- $ (0.10)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE> 30
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended March 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock Common Stock
--------------------------- --------------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
----------- ------------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1996,
AS PREVIOUSLY REPORTED 305,200 $ 3,052 464,665 $ 4,647 8,040,148 $ 80,402
1-for-5 reverse stock split
effective June 7, 1999 -- -- -- -- (6,432,118) (64,322)
-------- ------------ ------------ ------------ ------------ ------------
BALANCE, MARCH 31, 1996 305,200 3,052 464,665 4,647 1,608,030 16,080
Net income -- -- -- -- -- --
Shares converted (228,249) (2,282) (195,201) (1,952) 537,811 5,378
Dividends on Series A Preferred
stock ($.30 per share) -- -- -- -- -- --
Dividends on Series B Preferred
stock ($.50 per share) -- -- -- -- -- --
Issuance of stock bonus common
shares -- -- -- -- 4,938 50
-------- ------------ ------------ ------------ ------------ ------------
BALANCE, MARCH 31, 1997 76,951 770 269,464 2,695 2,150,779 21,508
Net income -- -- -- -- -- --
Shares converted (1,470) (15) (1,200) (12) 3,273 33
Dividends on Series B Preferred
stock ($.25 per share) -- -- -- -- -- --
Issuance of common stock -- -- -- -- 1,165,144 11,651
Issuance of stock bonus common
shares -- -- -- -- 3,390 34
-------- ------------ ------------ ------------ ------------ ------------
BALANCE, MARCH 31, 1998 75,481 755 268,264 2,683 3,322,586 33,226
Net income -- -- -- -- -- --
Shares converted (1,665) (17) (35,400) (354) 81,333 813
Dividends on Series B Preferred
stock ($.85 per share) -- -- -- -- -- --
Issuance of common stock -- -- -- -- 1,149,425 11,494
Issuance of stock bonus common
shares -- -- -- -- 3,470 35
-------- ------------ ------------ ------------ ------------ ------------
BALANCE, MARCH 31, 1999 73,816 $ 738 232,864 $ 2,329 4,556,814 $ 45,568
======== ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Additional Total
Paid-in Retained Stockholders'
Capital Deficit Equity
-------------- -------------- ---------------
<S> <C> <C> <C>
BALANCE, MARCH 31, 1996,
AS PREVIOUSLY REPORTED $ 12,082,969 $ (4,852,465) $ 7,318,605
1-for-5 reverse stock split
effective June 7, 1999 64,322 -- --
------------ ------------ ------------
BALANCE, MARCH 31, 1996 12,147,291 (4,852,465) 7,318,605
Net income -- 291,750 291,750
Shares converted (1,144) -- --
Dividends on Series A Preferred
stock ($.30 per share) -- (91,542) (91,542)
Dividends on Series B Preferred
stock ($.50 per share) -- (232,332) (232,332)
Issuance of stock bonus common
shares 23,080 -- 23,130
------------ ------------ ------------
BALANCE, MARCH 31, 1997 12,169,227 (4,884,589) 7,309,611
Net income -- 262,138 262,138
Shares converted (6) -- --
Dividends on Series B Preferred
stock ($.25 per share) -- (67,066) (67,066)
Issuance of common stock 4,812,322 -- 4,823,973
Issuance of stock bonus common
shares 10,597 -- 10,631
------------ ------------ ------------
BALANCE, MARCH 31, 1998 16,992,140 (4,689,517) 12,339,287
Net income -- 870,214 870,214
Shares converted (442) -- --
Dividends on Series B Preferred
stock ($.85 per share) -- (201,724) (201,724)
Issuance of common stock 4,913,506 -- 4,925,000
Issuance of stock bonus common
shares 9,735 -- 9,770
------------ ------------ ------------
BALANCE, MARCH 31, 1999 $ 21,914,939 $ (4,021,027) $ 17,942,547
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
<PAGE> 31
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 870,214 $ 262,138 $ 291,750
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, amortization, impairment
and other 2,479,544 1,242,200 1,385,570
Abandonment of oil and gas properties -- 88,947 73,528
Loss (gain) on sale of property and equipment 2,008 (1,609) 20,400
Deferred income taxes -- (12,000) 5,100
Stock bonus 9,770 10,631 --
Change in:
Accounts receivable (1,447,947) (19,692) 49,561
Inventories and other current assets (193,276) 12,179 (102,127)
Refundable income taxes -- 12,000 65,000
Other assets, net 241,701 (109,154) 23,109
Accounts payable 531,242 (62,667) (521,662)
Accrued expenses 194,735 (70,182) 39,690
Billings in excess of costs on uncompleted contracts (302,881) (166,480) (167,986)
------------ ------------ ------------
Total adjustments 1,514,896 924,173 870,183
------------ ------------ ------------
Net cash provided by operating activities 2,385,110 1,186,311 1,161,933
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (4,824,062) (2,124,052) (2,025,561)
Acquisition of net assets of Kelt Ohio, Inc. (16,488,876) -- --
Proceeds on sale of property and equipment 400,000 2,000 198,669
------------ ------------ ------------
Net cash used by investing activities (20,912,938) (2,122,052) (1,826,892)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-9
<PAGE> 32
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended March 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of accounts payable used to finance property
and equipment additions $ -- $ (87,161) $ (70,964)
Borrowings under revolving credit facility 20,062,370 6,765,265 2,080,000
(Repayments) borrowings under note payable to
stockholder -- (1,453,674) 84,883
Repayment of borrowings under revolving credit facility (5,800,000) (8,840,000) (1,000,000)
Payments on long-term debt (107,315) (106,698) (140,656)
Cash paid for deferred financing fees (150,000) (88,223) (12,900)
Proceeds from issuance of long-term debt 177,130 65,031 --
Net proceeds from issuance of common stock 4,925,000 4,823,973 --
Distributions and dividends (201,724) (67,066) (323,874)
------------ ------------ ------------
Net cash provided by financing activities 18,905,461 1,011,447 616,489
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND
EQUIVALENTS 377,633 75,706 (48,470)
CASH AND EQUIVALENTS AT BEGINNING OF
YEAR 1,578,984 1,503,278 1,551,748
------------ ------------ ------------
CASH AND EQUIVALENTS AT END OF YEAR $ 1,956,617 $ 1,578,984 $ 1,503,278
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,763,000 $ 887,000 $ 1,032,000
Income taxes 103,000 51,000 52,000
Supplemental disclosures of noncash investing and financing
activities:
Long-term debt incurred for the purchase of property
and equipment $ -- $ -- $ 638,000
Accounts payable incurred for the purchase of property
and equipment -- 22,000 87,000
Accounts payable incurred for deferred financing -- 88,000 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE> 33
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Organization - North Coast Energy, Inc. ("North Coast"), a
Delaware corporation, was formed in August 1988 to engage in
the exploration, development and production of oil and gas,
the acquisition of producing oil and gas properties, and the
organization and management of oil and gas partnerships.
B. Principles of Consolidation - The consolidated financial
statements include the accounts of North Coast Energy, Inc.
and its wholly owned subsidiaries (collectively, "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 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Capital Drilling Fund 1986-1 Limited Partnership 13.2%
North Coast Energy/Capital Appalachian Drilling Program Limited Partnership:
1987-1 51.2%
1987-2 45.1%
1988-1 43.9%
1988-2 48.6%
1989 36.0%
North Coast Energy Appalachian Drilling Program Limited Partnership:
1990-1 44.7%
1990-2 36.2%
1990-3 42.3%
1991-1 37.0%
1991-2 33.6%
1991-3 38.2%
1992-1 28.3%
1992-2 37.9%
1992-3 54.0%
1993-1 42.6%
1993-2 38.7%
1993-3 36.7%
1994-1 37.7%
1994-2 29.4%
1994-3 33.5%
1995-1 20.0%
1995-2 20.0%
1996-1 20.0%
1996-2 20.0%
1997-1 38.2%
1997-2 22.1%
1998-1 20.1%
All significant intercompany accounts and transactions have been eliminated.
</TABLE>
F-11
<PAGE> 34
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
C. Cash Equivalents - Investments having an original maturity of
90 days or less that are readily convertible into cash have
been included in, and are a significant portion of, the cash
and equivalents balances.
D. Property and Equipment - Property and equipment are stated at
cost and are depreciated or depleted principally on methods
and at rates designed to amortize their costs over their
estimated useful lives (proved oil and gas properties using
the unit-of- production method based upon estimated proved
developed oil and gas reserves, pipelines using the
straight-line method over 10 to 25 years, vehicles, furniture
and fixtures using accelerated methods over 5 to 7 years,
building and improvements using accelerated methods over 31.5
years).
E. Oil and Gas Investments and Properties - The Company uses the
successful efforts method of accounting for oil and gas
producing activities. Under successful efforts, costs to
acquire mineral interests in oil and gas properties, to drill
and equip exploratory wells that find proved reserves, and to
drill and equip developmental wells are capitalized.
Costs to drill exploratory wells that do not find proved
reserves, costs of developmental wells on properties the
Company has no further interest in, geological and geophysical
costs, and costs of carrying and retaining unproved properties
are expensed.
Unproved oil and gas properties that are significant are
periodically assessed for impairment of value and a loss is
recognized at the time of impairment by providing an
impairment allowance. Other unproved properties are expensed
when surrendered or expired.
When a property is determined to contain proved reserves, the
capitalized costs of such properties are transferred from
unproved properties to proved properties and are amortized by
the unit-of-production method based upon estimated proved
developed reserves. To the extent that capitalized costs of
groups of proved properties having similar characteristics
exceed the estimated future net cash flows, the excess
capitalized costs are written down to the present value of
such amounts. Estimated future net cash flows are determined
based primarily upon the estimated future reserves related to
the Company's current proved properties and, to a lesser
extent, certain future net cash flows related to operating and
administrative fees due the Company related to its management
of various partnerships. The Company follows SFAS No. 121
which requires a review for impairment whenever circumstances
indicate that the carrying amount of an asset may not be
recoverable. Impairment is recorded on a drilling program or
property specific basis, as applicable.
On sale or abandonment of an entire interest in an unproved
property, gain or loss is recognized, taking into
consideration the amount of any recorded impairment if the
property had been assessed. If a partial interest in an
unproved property is sold, the amount received is treated as a
reduction of the cost of the interest retained.
F-12
<PAGE> 35
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
F. Revenue Recognition - The Company recognizes revenue on
drilling contracts using the completed contract method of
accounting for both financial reporting purposes and income
tax purposes. This method is used because the typical contract
is completed in three months or less and financial position
and results of operations do not vary significantly from those
which would result from use of the percentage-of-completion
method.
Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
Billings in excess of costs on uncompleted contracts are
classified as current liabilities.
Oil and gas production revenue is recognized as income as it
is extracted and sold from the properties. Other revenue is
recognized at the time it is earned and the Company has a
contractual right to such revenue.
G. Per Share Amounts - The computation of basic and diluted
earnings per share does not assume the conversion of the
unconverted Series A (1998 and 1997) and Series B (1999, 1998
and 1997) Preferred stock or the effect of warrants and stock
options outstanding (1999, 1998 and 1997) due to either, the
average market price of the common shares being lower than the
prices of all of the options and warrants currently
outstanding, or the effect being anti-dilutive. For the year
ended March 31, 1999, the conversion of Series A stock had the
effect of increasing the denominator (average outstanding
shares) by 17,116 shares.
The average number of outstanding shares used in computing
basic (diluted) net loss per share was 3,949,818 (3,966,934),
2,821,298 (2,821,298) and 1,648,155 (1,648,155) for the years
ended March 31, 1999, 1998 and 1997, respectively.
H. Risk Factors - The Company operates in an environment with
many financial risks including, but not limited to, the
ability to acquire additional economically recoverable oil and
gas reserves, the continued ability to market drilling
programs, the inherent risks of the search for, development of
and production of oil and gas, the ability to sell oil and gas
at prices which will provide attractive rates of return, and
the highly competitive nature of the industry and worldwide
economic conditions. The Company's ability to expand its
reserve base, diversify its operations and continue its
marketing efforts for and investments in drilling programs is
also dependent upon the Company's ability to obtain the
necessary capital through operating cash flow, additional
borrowings or additional equity funds.
I. Accounting Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-13
<PAGE> 36
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
J. Financial Instruments - The Company's financial instruments
include cash and equivalents, accounts receivable, accounts
payable and debt obligations. The book value of cash and
equivalents, accounts receivable and accounts payable are
considered to be representative of fair value because of the
short maturity of these instruments. The Company believes that
the carrying value of its borrowings under its bank credit
facility and other debt obligations approximates their fair
value as they bear interest at adjustable interest rates which
change periodically to reflect market conditions. The
Company's accounts receivable are concentrated in the oil and
gas industry. The Company does not view such a concentration
as an unusual credit risk.
K. Reclassifications - Certain reclassifications were made to
prior period financial statement presentations to conform with
current period presentations.
NOTE 2. ACQUISITION OF KELT OHIO, INC.
Effective April 8, 1998, the Company acquired significantly all of
the assets and operations and assumed certain liabilities of Kelt
Ohio, Inc. ("Kelt") pursuant to a Purchase and Sale Agreement dated
April 8, 1998 (as amended May 12, 1998). The assets acquired from
Kelt, an oil and gas producer headquartered in Cambridge, Ohio,
include approximately 900 natural gas and oil wells, undeveloped
acreage, brine disposal facilities, drilling and service rigs, and
natural gas compressors and gas gathering systems. The Company
funded the acquisition primarily with borrowings under its
revolving credit facility.
The acquisition cost (which includes approximately $16,000,000 paid
to Kelt and direct acquisition costs of $488,876 incurred by the
Company) was allocated to the net assets acquired based on
estimated fair values and no goodwill was recorded. The estimated
fair value of tangible assets and liabilities acquired was
$17,488,876 and $1,000,000, respectively. The acquisition has been
accounted for as a purchase and, accordingly, the operating results
related to the acquisition are included in the Company's
consolidated statement of operations for significantly all (April
8, 1998 - March 31, 1999) of the Company's fiscal 1999 year.
The following summary presents fiscal 1998 pro forma consolidated
results of operations as if the acquisition had occurred on April
1, 1997 and includes adjustments for estimated amounts of
depreciation, depletion and amortization of fixed assets acquired
based on their estimated fair values and increased interest
expense. The pro forma amounts include Kelt's operation based on
Kelt's fiscal year ended December 31, 1997. The pro forma results
are for illustrative purposes only and do not purport to be
indicative of the actual results which would have occurred had the
transaction been consummated as of an earlier date, nor are they
indicative of results of operations which may occur in the future.
These results do not reflect any synergies that may or may not be
achieved.
F-14
<PAGE> 37
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. ACQUISITION OF KELT OHIO, INC. (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited)
Year Ended
March 31, 1998
--------------
<S> <C>
REVENUES $ 13,211,603
COSTS AND EXPENSES 10,860,061
------------
INCOME FROM OPERATIONS 2,351,542
OTHER INCOME 67,562
OTHER EXPENSE - Interest 2,448,094
------------
NET LOSS $ (28,990)
============
NET LOSS, applicable to common stock (after preferred stock
dividends of $268,264) $ (297,254)
BASIC AND DILUTED EARNINGS, per common share $ (0.11)
Weighted average number of shares outstanding 2,821,298
</TABLE>
NOTE 3. BILLINGS IN EXCESS OF COSTS ON UNCOMPLETED CONTRACTS
Billings in excess of costs on uncompleted contracts consist of the
following at March 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Billings on uncompleted contracts $ - $ 335,920
Costs incurred on uncompleted contracts - 33,039
------- ---------
$ - $ 302,881
======= =========
</TABLE>
At March 31, 1999, all contracts were completed.
NOTE 4. LEASE COMMITMENTS
Prior to the year ended March 31, 1999, the Company leased real and
personal property under operating leases. Total rental expense
under the operating leases for the years ended March 31, 1998 and
1997 amounted to approximately $6,000 and $43,000, respectively. In
1997 rent expense of approximately $34,000 was incurred pursuant to
the lease of the Company's previous corporate headquarters from one
of the Company's stockholders. There was no rental expense incurred
for any operating leases for the year ended March 31, 1999 and the
Company has no noncancelable operating leases which require future
minimum rental payments.
F-15
<PAGE> 38
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. LONG-TERM DEBT
Long-term debt consists of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revolving credit notes payable - bank $20,827,635 $ 6,565,265
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 44,290 52,571
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. Thereafter, the balance of the
note will be amortized over a ten-year period, at
an interest rate to be renegotiated every five years 487,673 507,404
Various installment notes payable in aggregate
monthly installments (including interest) of $6,984
at March 31, 1999, through 2004 231,924 134,095
----------- -----------
21,591,522 7,259,335
Less current portion 97,600 88,300
----------- -----------
$21,493,922 $ 7,171,035
=========== ===========
</TABLE>
On February 9, 1998, the Company entered into an agreement with ING
(U.S.) Capital LLC (successor in interest to ING (U.S.) Capital
Corporation) ("ING Capital") to replace the $20,000,000 revolving
credit facility with its previous lender. On May 29, 1998, the
Company entered into an amended Credit Agreement with its lender
increasing the Credit Facility from $20,000,000 to $25,000,000. The
Agreement provides for a borrowing base which is determined
semi-annually by the lender based upon the Company's financial
position, oil and gas reserves, as well as outstanding letters of
credit ($150,000 at March 31, 1999), as defined. At March 31, 1999,
the Company's borrowing base was $25,000,000 subject to reduction
for the outstanding letters of credit. Available borrowings under
the facility at March 31, 1999 were $4,022,365 and may subsequently
change based upon the semi-annual reserve study and borrowing base
determination.
In June 1999, the Company and ING Capital entered into an amended
credit agreement that extended the commitment period until and
including July 2, 2000. At the termination of the commitment
period, borrowings on the note are due and payable in 20 equal
quarterly installments beginning in September 2000. ING Capital has
indicated to the Company that sometime in the future it will
discontinue lending to the oil and gas industry. The Company is
currently in the process of reviewing its options and financing
needs with several prospective lenders.
F-16
<PAGE> 39
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. LONG-TERM DEBT (CONTINUED)
Amounts outstanding under the reducing revolving line of credit
bear interest at the lending bank's prime rate plus .75% or LIBOR
plus 2.50%, or approximately 7.65% and 8.5% at March 31, 1999 and
March 31, 1998, respectively. The weighted average interest rate on
these borrowings was 8.3%, 10.1% and 9.9% for the years ended March
31, 1999, 1998 and 1997, respectively. The agreement requires the
Company to pay a commitment fee of .5% on the unused amount of
available borrowings. The agreement contains certain restrictive
covenants, including working capital, current ratio, tangible net
worth, and EBITDA calculations, as defined. Additionally, the
Company is restricted from paying cash dividends on any of its
common stock under the terms of its credit facility. The Company
was in compliance with all covenants and restrictions at March 31,
1999.
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 interests in oil and gas wells and reserves.
Future maturities of long-term debt for the years ended March 31
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal 2000 $ 97,600
Fiscal 2001 3,226,261
Fiscal 2002 4,257,981
Fiscal 2003 4,245,190
Fiscal 2004 4,212,994
Thereafter 5,551,496
------------
$ 21,591,522
============
</TABLE>
The carrying amount of the Company's long-term debt approximates
fair value, as all of the Company's significant debt instruments
carry adjustable interest rates which change periodically to
reflect market conditions.
NOTE 6. STOCKHOLDERS' EQUITY
A. Sale of Common Stock
In September 1997, the Company sold 1,149,426 shares of its
common stock for $5 million to NUON International bv ("NUON"),
a limited liability company organized under the laws of the
Netherlands, pursuant to the terms of a stock purchase
agreement ("Agreement") by and between the Company and NUON
dated August 1, 1997. In September 1998, NUON exercised its
option under the Agreement to purchase an additional 1,149,425
shares of common stock for $5,000,000 which increased NUON's
ownership to 51% of the Company's outstanding common stock.
Pursuant to the terms of the Agreement and subject to the
satisfaction of certain conditions, including the development
of a plan of complementary business, NUON may purchase an
additional 1,149,426 shares of common stock by September 30,
1999 to bring its total ownership to 3,448,277 shares of the
Company's common stock.
F-17
<PAGE> 40
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. STOCKHOLDERS' EQUITY (CONTINUED)
A. Sale of Common Stock (Continued)
The proceeds from the sale of common stock was utilized to
reduce the amount outstanding under the Company's Credit
Facility with the remaining proceeds being used for working
capital purposes.
B. Preferred Stock
The Board of Directors of North Coast has designated 563,270
shares of the 2,000,000 shares of preferred stock authorized
as Series A, 6% Convertible Noncumulative Preferred stock
(Series A Preferred stock) and 625,000 shares of Preferred
stock as Series B, Cumulative Convertible Preferred stock
(Series B Preferred stock).
Stockholders of Series A Preferred stock are entitled to vote
such shares on any and all matters submitted to a vote of the
stockholders of the Company based upon the number of votes
such stockholders would have if the Series A Preferred stock
had been converted into shares of common stock of the Company.
Holders of shares of Series A Preferred stock are entitled to
receive, when and if declared by the Board of Directors,
noncumulative cash dividends at an annual rate of $.60 per
share. Shares of Series A Preferred stock are senior to shares
of common stock with respect to such cash dividends and junior
to shares of Series B Preferred stock.
Series A Preferred stock is convertible, at the stockholder's
option, into shares of common stock at the conversion rate of
.46 shares of common stock for each share of Series A
Preferred stock converted.
All of, but not less than all, the outstanding shares of
Series A Preferred stock shall, at the option of North Coast,
be converted into fully paid and nonassessable shares of
common stock at the conversion price, upon the consummation of
the sale of shares of common stock of North Coast pursuant to
an effective registration statement under the Securities Act
of 1933, as amended; provided that such sale yields gross
proceeds to the Corporation of not less than $5,000,000 and is
made at a public offering price per share of not less than 1.5
times the conversion price in effect on such date.
In the case where North Coast issues warrants or rights to
purchase shares of common stock of the Company, each record
holder of outstanding shares of Series A Preferred stock will
receive the kind and amount of such warrants or rights so
issued which such holder would have been entitled to upon such
issuance had all of the holders of shares of Series A
Preferred stock been converted, as defined.
The Series A Preferred stock is redeemable at the option of
North Coast at a price of $10 per share. North Coast does not
have any obligation to redeem the Series A Preferred stock.
F-18
<PAGE> 41
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. STOCKHOLDERS' EQUITY (CONTINUED)
B. Preferred Stock (Continued)
In the event of a voluntary or involuntary liquidation,
dissolution or winding up of North Coast, holders of the
Series A Preferred stock are entitled to be paid $10 per share
out of the assets of North Coast but after payment of other
indebtedness of North Coast, after payment or distribution to
the holders of Series B Preferred stock, but prior to any
distribution to holders of the common stock.
Holders of shares of Series B Preferred stock are entitled to
receive, when, as and if declared by the Board of Directors,
cash dividends at an annual rate of $1.00 per share, payable
quarterly.
In the event of any liquidation, dissolution or winding up of
the Company, holders of shares of Series B Preferred stock are
entitled to receive the liquidation preference of $10 per
share, plus an amount equal to any accrued and unpaid
dividends to the payment date, before any payment or
distribution is made to the holders of common stock and Series
A Preferred stock, as defined. After payment of the
liquidation preference, the holders of such shares will not be
entitled to any further participation in any distribution of
assets by the Company.
Generally, each outstanding share of Series B Preferred stock
has no vote, however in certain instances required by Delaware
General Corporation Law or by the certificate of designation,
each share will be entitled to one-fifth vote, excluding
shares held by the Company or any entity controlled by the
Company, which shares shall have no voting rights. So long as
any Series B Preferred stock is outstanding, the Company
cannot, without the affirmative vote of the holders of at
least 66 2/3 percent of all outstanding shares of Series B
Preferred stock, voting separately as a class, (i) amend,
alter or repeal any provision of the Company's Restated
Certificate of Incorporation or Bylaws so as to affect
adversely the relative rights, preferences, qualifications,
limitations or restrictions of the Series B Preferred stock,
(ii) authorize or issue, or increase the authorized amount of,
any additional class or series of stock of the Corporation, or
any security convertible into stock of such class or series,
having rights senior to the Series B Preferred stock as to
dividends or liquidation, or (iii) effect any reclassification
of the Series B Preferred stock. Additionally, the Series A
Preferred stock's certificate of designation restricts the
ability to significantly modify the Company's capital
structure where such modification could be at a detriment to
the Series B Preferred stockholders.
Whenever distributions on the Series B Preferred stock have
not been paid, as defined, the number of directors of the
Company may be increased, and the holders of the Series B will
be entitled to elect such additional directors to the Board of
Directors, as defined. Such voting right will terminate when
all such distributions accrued and in default have been paid
in full or set apart for payment, as defined. The amount of
dividends in arrears attributable to Series B Preferred is
$326,010 ($1.40 per share) as of March 31, 1999.
F-19
<PAGE> 42
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. STOCKHOLDERS' EQUITY (CONTINUED)
B. Preferred Stock (Continued)
Effective December 18, 1995, the Series B Preferred stock was
redeemable at the option of the Company, at $10 per share plus
any accrued and unpaid dividends, as defined.
There is no mandatory redemption or sinking fund obligation
with respect to the Series B Preferred stock. In the event
that the Company has failed to pay accrued dividends on the
Series B Preferred stock, it may not redeem any of the
outstanding shares of the Series B Preferred stock until all
such accrued and unpaid distributions have been paid in full.
The holders of Series B Preferred stock have the right,
exercisable at their option, to convert any or all of such
shares into 1.311 (1.15 per share of Preferred stock plus .161
per share related to Preferred dividends in arrears at March
31, 1999) shares of common stock.
In fiscal 1997, the Company commenced a conversion offer to
its Preferred shareholders (Series A and B) to convert their
shares into common stock with additional shares offered as an
incentive. Pursuant to the conversion offer in fiscal 1997,
228,249 shares of Preferred Series A were tendered and
exchanged for 228,249 shares of common stock and 195,201
shares of Preferred Series B were tendered and exchanged for
309,562 shares of common stock.
C. Common Stock Warrants
Warrants issued in connection with the Series B Preferred
stock entitled the holders thereof to purchase .23 shares of
common stock with each warrant at a price of $13.05 per share,
as defined. The warrants issued in connection with the Series
B Preferred stock expired on December 18, 1997. There were
2,500,000 Series B warrants outstanding at March 31, 1997.
The Company has granted Range Resources, a shareholder of the
Company, certain warrants to purchase 40,000 shares of common
stock at $6.00 per share and 60,000 shares of common stock at
$5.00 per share, as defined. These warrants were exercisable
on June 13, 1995 and expire on or have expired on June 13,
2000 and 1998, respectively. The warrants may be redeemed by
the Company for $.50 per share at its option upon 30 days
written notice.
In fiscal 1999 and 1998, in conjunction with the NUON
Agreement, the Company issued (each year) warrants to purchase
26,800 shares of common stock for $4.375 per share. The
Company is obligated to issue additional warrants to
purchase 26,800 additional shares of common stock for $4.375
per share if NUON purchases an additional 1,149,426 shares
of common stock by September 30, 1999. These warrants (half
of which are issued or issuable to a director/officer)
expire five years from date of issuance.
F-20
<PAGE> 43
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. STOCKHOLDERS' EQUITY (CONTINUED)
D. Series B Unit Warrants
In connection with the issuance of the Series B Preferred
stock, the underwriter of the issue received 50,000 warrants
to purchase Series B Units at $12.00 per unit. A Series B Unit
consists of one share of Series B Preferred stock and five
warrants to purchase .23 shares of common stock at $13.05 per
share. These warrants expired, with none being exercised, on
December 18, 1997.
E. Stock Options and Stock Appreciation Rights
North Coast has a stock option plan ("the Option Plan") to
provide incentives to stimulate interest in the development
and financial success of the Company. The Option Plan provides
for the granting of stock options to purchase common stock at
an option price determined by North Coast's Compensation
Committee ("the Committee"). Options granted during 1999, 1998
and 1997 have been at fair market value of the stock at the
date of grant. The Committee shall determine the expiration
date but no option shall be exercisable for a period of more
than 10 years. The aggregate fair market value of the common
stock exercisable for the first time during any calendar year
shall not exceed $100,000. Options granted under the Option
Plan terminate upon the employee leaving the Company. The
Company, from time to time, may issue additional options
outside the plan. The plan expires August 17, 1999.
Stock option transactions during 1999, 1998 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
Options Price
Outstanding Range
----------- -----------
<S> <C> <C>
March 31, 1996 99,966
Options exercised (20) $3.90
Options granted 3,620 $3.90
Options canceled (895) $3.90-$6.90
-------
March 31, 1997 102,671
Options exercised (50) $3.90
Options canceled (41,273) $3.90-$24.55
-------
March 31, 1998 61,348
Options granted 20,000 $4.38
Options canceled (46,428) $3.90-$8.10
-------
March 31, 1999 34,920
=======
</TABLE>
F-21
<PAGE> 44
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. STOCKHOLDERS' EQUITY (CONTINUED)
E. Stock Options and Stock Appreciation Rights (Continued)
In the year ended March 31, 1999, the Company granted 20,000
options to a Company director at $4.375 per share with 6,667
shares vesting on that date and 6,667 vesting each year after.
A summary of stock options outstanding and exercisable at
March 31, 1999 follows:
<TABLE>
<CAPTION>
Options Option
Exercisable at March 31, 1999 through: Outstanding Price
-------------------------------------- ----------- -----
<S> <C> <C>
January 18, 2000 3,500 $8.10
May 17, 2001 8,740 $4.90
March 19, 2003 920 $6.90
September 4, 2006 1,760 $3.90
April 15, 2003 6,667 $4.38
------
21,587
Non vested options 13,333 $4.38
------
Total 34,920
======
</TABLE>
Stock appreciation rights may be awarded by the Committee at
the time or subsequent to the time of the granting of options.
Stock appreciation rights awarded shall provide that the
option holder shall have the right to receive an amount equal
to 100% of the excess, if any, of the fair market value of the
shares of common stock covered by the option over the option
price payable, as defined. No stock appreciation rights have
been awarded under the plan.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation." Accordingly, no
compensation cost has been recognized for the stock option
plans. Had compensation cost for the Company's two stock
option plans been determined based on the fair value at the
grant date for awards in fiscal 1999, 1998 and 1997 consistent
with the provisions of SFAS No. 123, the Company's net income
per share would not change.
F. Stock Bonus Plan
The Company has a Key Employees Stock Bonus Plan ("the Bonus
Plan") to provide key employees, as defined, with greater
incentive to serve and promote the interests of the Company
and its shareholders. The aggregate number of shares of common
stock which may be issued as bonuses shall be 46,000 shares of
common stock, as defined. The expenses of administering the
Bonus Plan shall be borne by the Company. The Bonus Plan will
terminate on February 1, 2001. The Company issued 3,470 and
3,340 shares of common stock related to this plan during
fiscal 1999 and 1998, respectively, and 25,120 shares of
common stock since inception.
F-22
<PAGE> 45
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. STOCKHOLDERS' EQUITY (CONTINUED)
G. Reverse Stock Split
On March 17, 1999, the Company's Board of Directors authorized
a 1-for-5 reverse split of its common stock effective June 7,
1999 for stockholders of record at the close of business on
May 12, 1999. The par value of the common stock was not
changed. All share and per-share amounts in the accompanying
consolidated financial statements have been restated to give
retroactive effect to the reverse stock split.
NOTE 7. INCOME TAXES
The Company accounts for income taxes under the Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). SFAS 109 is an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been
recognized in the Company's consolidated financial statements or
tax returns.
Income taxes differed from the amount computed by applying the
federal statutory rates to pretax book income as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- ---------------------- --------------------
Amount % Amount % Amount %
----------- -------- ------------- -------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Provision based on
the statutory rate $ 296,000 34.0 $ 89,000 34.0 $ 99,000 34.0
Tax effect of:
Statutory depletion (306,000) (35.2) (132,000) (50.4) (143,000) (49.0)
Other - net 10,000 1.2 43,000 16.4 44,000 15.0
--------- ----- -------- ----- -------- -----
Total $ - - $ - - $ - -
========= ===== ======== ===== ======== =====
</TABLE>
F-23
<PAGE> 46
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INCOME TAXES (CONTINUED)
The components of the net deferred tax liability as of March 31,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
DEFERRED TAX LIABILITIES
Property and equipment $(1,322,000) $ (389,000)
Other, net - (30,200)
----------- ----------
Total deferred tax liabilities (1,322,000) (419,200)
DEFERRED TAX ASSETS
Alternative minimum tax credit carryforwards 397,000 397,000
Net operating loss carryforwards 1,181,000 640,000
Other financial reserves 57,000 30,000
Less: valuation allowance (622,200) (957,000)
----------- ----------
Total deferred tax assets 1,012,800 110,000
----------- ----------
Net deferred tax liability $ (309,200) $ (309,200)
=========== ==========
</TABLE>
As of March 31, 1999, the Company had operating loss, percentage
depletion and alternative minimum tax credit carryforwards of
approximately $3,500,000, $1,900,000 and $397,000, respectively.
The 34% tax effect of the percentage depletion carryover has been
shown as a reduction of the deferred tax liability related to
property and equipment in the above presentation. The operating
loss carryforwards begin to expire in 2012. The percentage
depletion and alternative minimum tax carryforwards can be carried
forward indefinitely. Realization of these items is subject to
certain limitations and is contingent upon future earnings.
Additionally, a significant portion of the carryforwards may be
subject to limitations imposed by Internal Revenue Code Section
382, which could further restrict the Company's utilization and
realization of such carryforwards. Due to the uncertainty of the
realization of certain tax carryforwards, the Company has
established a valuation allowance against these carryforward
benefits in the amount of $622,200.
NOTE 8. PROFIT SHARING PLAN
The Company has a profit sharing plan that provides retirement and
death benefits to participants and covers substantially all
employees. Company contributions are discretionary and are
allocated to the participants' accounts based upon their
compensation and are subject to a graded vesting schedule which
allows 20% vesting after two years of vesting service with an
additional 20% vesting for each complete year of vesting service
thereafter. Contributions of approximately $50,000, $30,000 and
$20,000 were accrued or paid for the years ended March 31, 1999,
1998 and 1997, respectively.
North Coast provides no significant post-retirement and/or
post-employment benefits other than the profit sharing plan
discussed above.
F-24
<PAGE> 47
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. OTHER COMMITMENTS AND CONTINGENCIES
North Coast Energy, Inc., as general partner of several limited
partnerships, has committed to fund certain costs (primarily
tangible well costs and saleslines additions) of the partnerships
as they are incurred. At March 31, 1999, management estimates the
commitment to fund such costs to be approximately $438,000. The
commitment is expected to be funded by September 30, 1999.
The Company shares in unlimited liability to third parties with
respect to the operations of the partnerships it has sponsored and
may be liable to limited partners for losses attributable to breach
of fiduciary obligations. In certain partnerships, certain
investors have participated as co-general partners in such
partnerships. To make such investments more acceptable to potential
investors (from a standpoint of risks to such investors), North
Coast has agreed to indemnify these investor-general partners from
any partnership liability which they may incur in excess of their
contributions.
The Company has entered into employment contracts with certain of
its officers that provide for a minimum annual salary and
incentives based on the Company's sales and profitability. The
commitment, including minimum incentives, amounts to $330,000,
$330,000 and $430,000, respectively, for the years ending March 31,
1999, 1998 and 1997 plus CPI adjustments. In addition, each
employment contract provides for: reimbursement of certain business
expenses; life insurance of $1,000,000; disability benefits for a
stated period of time as defined; and termination benefits of
between one and three years' salary.
Subsequent to March 31, 1999, Charles M. Lombardy, Jr., the Chief
Executive Officer of the Company, was paid $370,000 in lieu of
continuing his employment contract by signing a separation
agreement with the Company. Additionally, Lombardy received a ten
year warrant to purchase, at $5.00 per share, 60,000 shares of the
Company's common stock. The Company, also subsequent to year-end,
escrowed approximately $800,000 for the payment of dividend
arrearages associated with the Series B Preferred stock and the
purchase of the former Chief Executive Officer's common shares. The
Company is obligated to purchase the 107,301 common shares for
$470,000 if NUON does not exercise its option to purchase such
shares. If NUON does exercise their option to purchase these
shares, it will directly reduce the amount of common shares NUON
would be required to purchase under the NUON Agreement (see Note
6A).
NOTE 10. INDUSTRY SEGMENTS AND MAJOR CUSTOMERS
North Coast and its subsidiaries operate in a single industry
segment, the acquisition, exploration and development of oil and
gas properties. North Coast and its subsidiaries both originate and
acquire prospects and drill, or cause to be drilled, such prospects
through joint drilling arrangements with other independent oil
companies or through limited partnerships sponsored by the Company.
The Company's revenue is derived from oil and gas production and
oil and gas related activities. Gas production revenues represented
96%, 93% and 89% of total oil and gas production revenues for the
years ended March 31, 1999, 1998 and 1997, respectively. In 1999
(1998), the Company sold gas to major purchasers that accounted for
52% (32%) and 13% (21%) of its gas production revenues. In 1997,
the Company sold gas to major purchasers that accounted for 18%,
18% and 12%, respectively, of its gas production revenues. A
significant portion of trade accounts receivable at March 31, 1999
and 1998 was attributable to these purchasers.
F-25
<PAGE> 48
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. RELATED PARTY TRANSACTIONS
The Company believes that the terms of related party transactions
are as favorable to the Company as could have been obtained from
unaffiliated third parties.
Accounts receivable from affiliates consist primarily of
receivables from the partnerships managed by the Company and are
for administrative fees charged to the partnerships and to
reimburse the Company for amounts paid on behalf of the
partnerships. Significantly all of the Company's revenues, other
than oil and gas production revenue, are generated from or a result
of the organization and management of oil and gas partnerships
sponsored by the Company. During the year ended March 31, 1999, the
Company acquired limited partnership interests in oil and gas
drilling programs that it had sponsored at a cost of approximately
$450,000.
During fiscal 1999, a company owned by an employee of the Company
repaired two compressors for $51,000 and the Company paid a $37,500
finder's fee to an employee. During fiscal 1998, the Company
purchased wells and a pipeline from a shareholder for $62,000,
purchased 28 wells from an employee for $339,000 and paid a $75,000
finder's fee to an employee.
NOTE 12. ACCOUNTING STANDARDS
In June 1997, SFAS 130, "Reporting Comprehensive Income," was
issued. SFAS 130 established new standards for reporting
comprehensive income and its components and is effective for fiscal
years beginning after December 15, 1997. In June 1997, the
Financial Accounting Standards Board issued SFAS 131, "Disclosure
About Segments of an Enterprise and Related Information." SFAS 131
changed the standards for reporting financial results by operating
segments, related products and services, geographical areas and
major customers. In February 1998, SFAS 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits," was
issued. SFAS 132 standardizes the disclosure requirements for
pension and other postretirement benefit plans but does not change
the measurement or recognition of those plans. SFAS 132 is
effective for fiscal years beginning after December 15, 1997. In
June 1998, SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS 133 establishes accounting
and reporting standards for derivative instruments and hedging
activities. SFAS 133 is effective for fiscal years beginning after
June 15, 1999. The effect of the adoption or anticipated adoption
of the above standards had no, or is expected to have no, material
effect on the Company's financial statements.
F-26
<PAGE> 49
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. SUPPLEMENTAL INFORMATION RELATING TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED)
The following supplemental unaudited oil and gas information is
required by Statement of Financial Accounting Standards (SFAS) No.
69, "Disclosures About Oil and Gas Producing Activities."
The tables on the following pages set forth pertinent data with
respect to the Company's oil and gas properties, all of which are
located within the United States.
CAPITALIZED COSTS RELATING TO OIL AND GAS
PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
March 31,
------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Proved oil and gas properties $ 42,964,679 $ 25,754,748 $ 24,290,505
Accumulated depreciation, depletion,
amortization and impairment (12,742,541) (10,892,238) (10,488,719)
------------ ------------ ------------
Net capitalized costs $ 30,222,138 $ 14,862,510 $ 13,801,786
============ ============ ============
</TABLE>
COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Property acquisition costs $ 13,687,040 $ 277,742 $ 124,384
Exploration costs 110,295 194,503 121,809
Development costs 4,125,422 2,149,440 1,477,312
</TABLE>
F-27
<PAGE> 50
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. SUPPLEMENTAL INFORMATION RELATING TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
March 31,
-------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Oil and gas production $ 7,233,763 $ 3,013,929 $ 3,137,556
(Loss) gain on sale of oil and gas properties (2,008) 1,700 (26,031)
Production costs (2,601,555) (840,346) (777,163)
Exploration expenses (110,295) (194,503) (121,809)
Depreciation, depletion, amortization,
impairment and other (1,863,012) (627,636) (695,877)
Abandonment of oil and gas properties -- (88,947) (73,528)
----------- ----------- -----------
2,656,893 1,264,197 1,443,148
Provision for income taxes 561,056 278,123 347,460
----------- ----------- -----------
Results of operations for oil and gas
producing activities (excluding corporate
overhead and financing costs) $ 2,095,837 $ 986,074 $ 1,095,688
=========== =========== ===========
</TABLE>
Provision for income taxes was computed using the statutory tax
rates for the years ended March 31, 1999, 1998 and 1997 and
reflects permanent differences, including the Partnership's results
of operations for oil and gas producing activities that are
reflected in the Company's consolidated income tax provision
(credit) for the periods.
F-28
<PAGE> 51
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. SUPPLEMENTAL INFORMATION RELATING TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES
<TABLE>
<CAPTION>
Oil Gas
(BBLS) (MCF)
------- ----------
<S> <C> <C>
Balance, March 31, 1996 195,200 20,048,000
Extensions, discoveries and other additions -- 2,267,000
Production (16,200) (1,153,000)
Revision of previous estimates (58,800) (3,121,000)
Sales of minerals in place -- (1,082,000)
------- ----------
Balance, March 31, 1997 120,200 16,959,000
Extensions, discoveries and other additions 3,000 1,333,000
Production (13,900) (1,116,000)
Revision of previous estimates 26,400 1,153,000
Sales of minerals in place -- (527,000)
------- ----------
Balance, March 31, 1998 135,700 17,802,000
Extensions, discoveries and other additions 264,100 34,976,000
Production (28,100) (2,688,000)
Revision of previous estimates 53,500 2,682,000
Sales of minerals in place -- (251,000)
------- ----------
Balance, March 31, 1999 425,200 52,521,000
======= ==========
PROVED DEVELOPED RESERVES
March 31, 1996 151,800 16,303,000
March 31, 1997 120,200 14,472,000
March 31, 1998 126,700 15,087,000
March 31, 1999 322,700 41,214,000
</TABLE>
F-29
<PAGE> 52
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. SUPPLEMENTAL INFORMATION RELATING TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
<TABLE>
<CAPTION>
March 31,
----------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Future cash inflows from sales of oil
and gas $ 142,552,000 $ 46,349,000 $ 44,379,000
Future production and development
costs (58,702,000) (15,175,000) (15,442,000)
Future income tax expense (24,774,000) (8,959,000) (8,145,000)
------------- ------------ ------------
Future net cash flows 59,076,000 22,215,000 20,792,000
Effect of discounting future net cash
flows at 10% per annum (33,650,000) (11,557,000) (10,447,000)
------------- ------------ ------------
Standardized measure of discounted
future net cash flows $ 25,426,000 $ 10,658,000 $ 10,345,000
============= ============ ============
</TABLE>
CHANGES IN THE STANDARDIZED MEASURE OF
DISCOUNTED FUTURE NET CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 10,658,000 $ 10,345,000 $ 13,262,000
Extensions, discoveries and other
additions 24,948,000 728,000 1,301,000
Sales of oil and gas, net of production
costs (4,632,000) (2,173,000) (2,355,000)
Net changes in prices and production
costs (3,058,000) 26,000 (3,567,000)
Revisions of previous quantity
estimates 2,272,000 1,122,000 (1,477,000)
Sales of minerals in place (107,000) (259,000) (859,000)
Net change in income taxes (6,367,000) (246,000) 2,257,000
Accretion of discount 1,066,000 1,035,000 1,326,000
Other 646,000 80,000 457,000
------------ ------------ ------------
Balance, end of year $ 25,426,000 $ 10,658,000 $ 10,345,000
============ ============ ============
</TABLE>
F-30
<PAGE> 53
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. SUPPLEMENTAL INFORMATION RELATING TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)
Under the guidelines of SFAS No. 69, estimated future cash flows
are determined based on year-end prices for crude oil, current
allowable prices applicable to expected natural gas production,
estimated production of proved crude oil and natural gas reserves,
estimated future production and development costs of reserves based
on current economic conditions, and the estimated future income tax
expenses, based on year-end statutory tax rates (with consideration
of true tax rates already legislated) to be incurred on pretax net
cash flows less the tax basis of the properties involved. Such cash
flows are then discounted using a 10% rate.
The estimated quantities of proved oil and gas reserves and
standardized measure of discounted future net cash flows include
reserves from proved undeveloped acreage. The proved undeveloped
acreage includes only the acreage directly offsetting locations to
wells that have indicated commercial production in the objective
formation and which North Coast expects to drill in the near future
using prices, operating costs and development costs expected in the
area of interest. The quantities for fiscal 1999, 1998 and 1997
were reviewed by an independent petroleum engineering firm.
The methodology and assumptions used in calculating the
standardized measure are those required by SFAS No. 69. It is not
intended to be representative of the fair market value of the
Company's proved reserves. The valuation of revenues and costs does
not necessarily reflect the amounts to be received or expended by
the Company. In addition to the valuations used, numerous other
factors are considered in evaluating known and prospective oil and
gas reserves.
F-31
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly cased this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NORTH COAST ENERGY, INC.
<TABLE>
<CAPTION>
<S> <C> <C>
By /s/ Saul Siegel Chief Executive Officer June 21, 1999
- ------------------
Saul Siegel
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Saul Siegel Chief Executive Officer and Director June 21, 1999
- ------------------------- (principal executive officer)
Saul Siegel
/s/ Garry Regan Chairman of the Board; June 21, 1999
- ------------------------- President and Director
Garry Regan
/s/ Timothy Wagers Treasurer and Chief Financial Officer June 21, 1999
- ------------------------- (principal accounting and financial officer)
Timothy Wagers
/s/ Leo J.M.J. Blomen Director June 24, 1999
- -------------------------
Leo J.M.J. Blomen
Director June , 1999
- -------------------------
Jos J.M. Smits
/s/ Ralph L. Bradley Director June 24, 1999
- -------------------------
Ralph L. Bradley
- ------------------------- Director June __, 1999
John H. Pinkerton
/s/ C. Rand Michaels Director June 24, 1999
- -------------------------
C. Rand Michaels
/s/ Dominic A. Visconsi Director June 21, 1999
- -------------------------
Dominic A. Visconsi
/s/ Carel Kok Director June 24, 1999
- -------------------------
Carel Kok
/s/S.F.E. (Bas) Rosenbaum Director June 24, 1999
- -------------------------
S.F.E. (Bas) Rosenbaum
</TABLE>
21
<PAGE> 55
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Documents Page
- ------ ------------------------ ----
<S> <C> <C>
3.1 Certificate of Incorporation of the Registrant dated August 30, 1988. (B)
3.2 Certificate of Stock Designation of the Registrant filed September 12, 1988. (B)
3.3 Certificate of Stock Designation of the Registrant filed September 14, 1989. (B)
3.4 Certificate of Correction filed March 22, 1991. (C)
3.5 Certificate of Amendment to Certificate of Incorporation filed November 4, 1992. (A)
3.6 Certificate of Stock Designation filed December 29, 1992. (D)
3.7 Certificate of Amendment to Certificate of Incorporation filed August 29, 1994. (G)
3.8 Certificate of Amendment of Certificate of Incorporation filed December 16, 1998. (J)
10.1 1988 Stock Option Plan. (B)
10.2 Form of Profit Sharing Plan. (B)
10.3 Form of Indemnity Agreement between the Registrant and each of its Directors and (B)
executive officers.
10.4 North Coast Energy, Inc. Key Employees Stock Bonus Plan. (B)
10.5 Stock Option Agreement dated as of May 17, 1991 between Registrant and Timothy (C)
Wagers.
10.6 Stock Option Agreement dated as of May 17, 1991 between the Registrant and (C)
Thomas A. Hill.
10.7 Option Agreement dated February 22, 1994 by and between Registrant and (E)
Charles M. Lombardy, Jr.
10.8 Option Agreement dated February 22, 1994 by and between Registrant and Garry Regan. (E)
10.9 Warrant to purchase 200,000 shares of Common Stock of the Company. (G)
10.10 Warrant to purchase 300,000 shares of Common Stock of the Company. (G)
10.11 Restated Employment Agreement dated May 3, 1995 by and between Registrant and (H)
Charles M. Lombardy, Jr.
10.12 Restated Employment Agreement dated May 3, 1995 by and between Registrant and (H)
Garry Regan.
</TABLE>
22
<PAGE> 56
<TABLE>
<CAPTION>
<S> <C> <C>
10.13 Open End Mortgage and Promissory Note by and between ING Capital and -
the Company dated February 9, 1998.
</TABLE>
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Documents Page
- ----- ------------------------ ----
<S> <C> <C>
10.14 Purchase and Sale Agreement dated April 8, 1998 between Kelt Ohio, Inc., and (I)
North Coast Energy, Inc.
10.15 Ratification and Amendment to Purchase and Sale Agreement dated May 12, 1998 (I)
between Kelt Ohio, Inc., and North Coast Energy, Inc.
10.16 First Amendment to Credit Agreement and Promissory Note dated May 29, (I)
1998 between ING (U.S.) Capital Corporation and North Coast Energy, Inc.
10.17 Second Amendment to Credit Agreement and Promissory Note dated September -
2, 1998 between ING (U.S.) Capital Corporation and North Coast Energy, Inc.
10.18 Warrants to purchase 300,000 shares (pre-split) of Common Stock of the Company. -
10.19 Separation Agreement dated April 30, 1999 by and among North Coast Energy, Inc.,
NUON International, bv, Charles M. Lombardy, Jr., and Betty M. Lombardy. -
10.20 Third Amendment to Credit Agreement and Promissory Note dated June 23, 1999 -
between ING (U.S.) Capital Corporation and North Coast Energy, Inc.
21.1 List of Subsidiaries. (E)
23.1 Consent of Hausser + Taylor LLP. _
23.2 Consent of Arthur Andersen LLP. _
27.1 Financial Data Schedule *
</TABLE>
- -------------------------
(A) Incorporated herein by reference to the appropriate exhibit to
the Registrant's Registration Statement on Form S-2 (Reg. No.
33-54288).
(B) Incorporated herein by reference to the appropriate exhibits to
the Company's Registration Statement on Form S-1 (File No.
33-24656).
(C) Incorporated herein by reference to the appropriate exhibit to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1991.
(D) Incorporated herein by reference to the appropriate exhibit to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1993.
(E) Incorporated herein by reference to the appropriate exhibit to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1994.
(F) Incorporated herein by reference to the appropriate exhibit to
the Registrant's Quarterly Report on form 10-Q for the fiscal
quarter ended September 30, 1994.
24
<PAGE> 57
(G) Incorporated herein by reference to the appropriate exhibit to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1995.
(H) Incorporated herein by reference to the appropriate exhibit to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996.
(I) Incorporated herein by reference to the appropriate exhibit to
the Registrant's Report on Form 8-K dated June 12, 1998.
(J) Incorporated herein by reference to the appropriate exhibits to
the Company's Registration Statement on Form S-1 (File No.
33-71855).
*Exhibit 27.1 furnished for Securities and Exchange Commission purposes only.
24
<PAGE> 1
Exhibit 10.13
Execution Version
================================================================================
CREDIT AGREEMENT
----------------------------------------
NORTH COAST ENERGY, INC.
and
ING (U.S.) CAPITAL CORPORATION
as Agent
and CERTAIN FINANCIAL INSTITUTIONS
as Lenders
----------------------------------------
$20,000,000
February 9, 1998
================================================================================
<PAGE> 2
Exhibit 10.13
TABLE OF CONTENTS
Page
----
ARTICLE I - Definitions and References ...................................... 1
Section 1.1. Defined Terms ........................................... 1
Section 1.2. Exhibits and Schedules; Additional Definitions .......... 12
Section 1.3. Amendment of Defined Instruments ........................ 12
Section 1.4. References and Titles ................................... 12
Section 1.5. Calculations and Determinations ......................... 13
ARTICLE II - The Loans ...................................................... 13
Section 2.1. Commitments to Lend; Notes .............................. 13
Section 2.2. Requests for New Loans .................................. 13
Section 2.3. Continuations and Conversions of Existing Loans ......... 14
Section 2.4. Use of Proceeds ......................................... 15
Section 2.5. Fees .................................................... 15
Section 2.6. Optional Prepayments .................................... 16
Section 2.7. Mandatory ............................................... 16
Section 2.8. Initial Borrowing Base .................................. 16
Section 2.9. Subsequent Determinations of Borrowing Base ............. 16
Section 2.10. Borrower's Reduction of Borrowing Base .................. 17
Section 2.11. Letters of Credit ....................................... 17
Section 2.12. Requesting Letters of Credit ............................ 18
Section 2.13. Reimbursement and Participations ........................ 18
Section 2.14. Letter of Credit Fees ................................... 19
Section 2.15. No Duty to Inquire ...................................... 19
Section 2.16. LC Collateral ........................................... 20
ARTICLE III - Payments to Lenders ........................................... 21
Section 3.1. General Procedures ...................................... 21
Section 3.2. Capital Reimbursement ................................... 22
Section 3.3. Increased Cost of Eurodollar Loans or Letters of Credit . 22
Section 3.4. Availability ............................................ 23
Section 3.5. Funding Losses .......................................... 23
Section 3.6. Reimbursable Taxes ...................................... 24
Section 3.7. Change of Applicable Lending Office ..................... 25
ARTICLE IV - Conditions Precedent to Lending ................................ 25
Section 4.1. Documents to be Delivered ............................... 25
Section 4.2. Additional Conditions Precedent ......................... 27
ARTICLE V - Representations and Warranties .................................. 28
Section 5.1. No Default .............................................. 28
Section 5.2. Organization and Good Standing .......................... 28
Section 5.3. Authorization ........................................... 28
Section 5.4. No Conflicts or Consents ................................ 28
Section 5.5. Enforceable Obligations ................................. 28
Section 5.6. Initial Financial Statements ............................ 28
ii
<PAGE> 3
Exhibit 10.13
Section 5.7. Other Obligations and Restrictions ...................... 29
Section 5.8. Full Disclosure ......................................... 29
Section 5.9. Litigation .............................................. 29
Section 5.10. Labor Disputes and Acts of God .......................... 29
Section 5.11. ERISA Plans and Liabilities ............................. 29
Section 5.12. Environmental and Other Laws ............................ 30
Section 5.13. Names and Places of Business ............................ 31
Section 5.14. Borrower's Subsidiaries ................................. 32
Section 5.15. Title to Properties; Licenses ........................... 32
Section 5.16. Government Regulation ................................... 32
Section 5.17. Officers, Directors and Shareholders .................... 32
ARTICLE VI - Affirmative Covenants of Borrower .............................. 32
Section 6.1. Payment and Performance ................................. 33
Section 6.2. Books, Financial Statements and Reports ................. 33
Section 6.3. Other Information and Inspections ....................... 35
Section 6.4. Notice of Material Events and Change of Address ......... 35
Section 6.5. Maintenance of Properties ............................... 35
Section 6.6. Maintenance of Existence and Qualifications ............. 36
Section 6.7. Payment of Trade Liabilities, Taxes, etc ................ 36
Section 6.8. Insurance ............................................... 36
Section 6.9. Performance on Borrower's Behalf ........................ 36
Section 6.10. Interest ................................................ 36
Section 6.11. Compliance with Agreements and Law ...................... 36
Section 6.12. Environmental Matters; Environmental Reviews ............ 37
Section 6.13. Evidence of Compliance .................................. 37
Section 6.14. Solvency ................................................ 37
Section 6.15. Agreement to Deliver Security Documents ................. 37
Section 6.16. Perfection and Protection of Security Interests
and Liens ............................................. 38
Section 6.17. Bank Accounts; Offset ................................... 38
Section 6.18. Guaranties of Borrower's Subsidiaries ................... 38
Section 6.19. Production Proceeds ..................................... 39
ARTICLE VII - Negative Covenants of Borrower ................................ 39
Section 7.1. Indebtedness ............................................ 39
Section 7.2. Limitation on Liens ..................................... 40
Section 7.3. Hedging Contracts ....................................... 40
Section 7.4. Limitation on Mergers, Issuances of Securities,
Diminution of Interests ................................ 41
Section 7.5. Limitation on Sales of Property ......................... 41
Section 7.6. Limitation on Dividends and Redemptions ................. 42
Section 7.7. Limitation on Investments and New Businesses ............ 43
Section 7.8. Limitation on Credit Extensions ......................... 43
Section 7.9. Transactions with Affiliates ............................ 43
Section 7.10. Certain Contracts; Amendments; Multiemployer ERISA Plans 43
Section 7.11. Working Capital and Current Ratio ....................... 44
Section 7.12. Tangible Net Worth ...................................... 44
Section 7.13. EBITDA .................................................. 44
iii
<PAGE> 4
Exhibit 10.13
ARTICLE VIII - Events of Default and Remedies ............................... 44
Section 8.1. Events of Default ...................................... 44
Section 8.2. Remedies ............................................... 46
ARTICLE IX - Agent .......................................................... 47
Section 9.1. Appointment and Authority .............................. 47
Section 9.2. Exculpation, Agent's Reliance, Etc ..................... 47
Section 9.3. Credit Decisions ....................................... 47
Section 9.4. Indemnification ........................................ 48
Section 9.5. Rights as Lender ....................................... 48
Section 9.6. Sharing of Set-Offs and Other Payments ................. 48
Section 9.7. Investments ............................................ 49
Section 9.8. Benefit of Article IX .................................. 49
Section 9.9. Resignation ............................................ 49
ARTICLE X - Miscellaneous ................................................... 50
Section 10.1. Waivers and Amendments; Acknowledgments ................ 50
Section 10.2. Survival of Agreements; Cumulative Nature .............. 51
Section 10.3. Notices ................................................ 51
Section 10.4. Payment of Expenses; Indemnity ......................... 52
Section 10.5. Joint and Several Liability; Parties in
Interest; Assignments ................................. 53
Section 10.6. Confidentiality ........................................ 54
Section 10.7. Governing Law; Submission to Process ................... 55
Section 10.8. Limitation on Interest ................................. 56
Section 10.9. Termination; Limited Survival .......................... 56
Section 10.10. Severability ........................................... 56
Section 10.11. Counterparts ........................................... 56
Section 10.12. Waiver of Jury Trial, Punitive Damages, etc ............ 57
Schedules and Exhibits:
- -----------------------
Lender Schedule
Schedule 1 - Disclosure Schedule
Schedule 2 - Security Schedule
Schedule 3 - Insurance Schedule
Exhibit A - Promissory Note
Exhibit B - Borrowing Notice
Exhibit C - Continuation/Conversion Notice
Exhibit D - Certificate Accompanying Financial Statements
Exhibit E - (Intentionally Omitted)
Exhibit F - Environmental Compliance Certificate
Exhibit G - Letter of Credit Application and Agreement
Exhibit H-l - Opinion of Counsel for Restricted Persons
Exhibit H-2 - Opinions of Special Counsel
Exhibit I - Assignment and Assumption Agreement
iv
<PAGE> 5
Exhibit 10.13
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of February 9, 1998, by and among
NORTH COAST ENERGY, INC., a Delaware corporation (herein called "Borrower"), ING
(U.S.) Capital Corporation, individually and as agent (herein called "Agent")
and the Lenders referred to below. In consideration of 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:
"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. A Person shall be
deemed to be "controlled by" any other Person if such other Person possesses,
directly or indirectly, power
(a) to vote 20% or more of the securities (on a fully diluted
basis) having ordinary voting power for the election of directors or
managing general partners; or
(b) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"AGENT" means ING (U.S.) Capital Corporation, as Agent hereunder, and
its successors in such capacity; provided, however, that until such time as a
Lender other than ING (U.S.) Capital Corporation becomes a party hereto, "Agent"
shall mean ING (U.S.)Capital Corporation, individually.
"AGREEMENT" means this Credit Agreement.
"APPLICABLE LENDING OFFICE" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of Base Rate Loans and such
Lender's Eurodollar Lending Office in the case of Eurodollar Loans.
"BANK PARTIES" means Agent, LC Issuer, and all Lenders.
"BASE RATE" means the Base Rate Margin plus the higher of (a) the
Reference Rate and (b) the Federal Funds Rate plus one-half percent (0.5%) per
annum. For purposes of this definition, "Reference Rate" means the arithmetic
average of the rates of interest publicly announced by The Chase Manhattan Bank
(National Association), Citibank, N.A. and Morgan Guaranty Trust Company of New
York (or their respective successors) as their respective prime commercial
lending rates (or, as to any such bank that does not announce such a rate, such
bank's `base' or other rate determined by Agent to be the equivalent rate
announced by such bank), except that, if any such bank shall, for any period,
cease to announce publicly its prime commercial lending (or equivalent) rate,
Agent shall, during such period, determine the "Base Rate" based upon the prime
commercial lending (or equivalent) rates announced publicly by the other such
banks. The Base Rate shall in no event, however, exceed the Highest Lawful Rate.
"BASE RATE LOAN" means any Loan which bears interest at the Base Rate.
"BASE RATE MARGIN" means one percent (1%) per annum.
"BORROWER" means North Coast Energy, Inc. a Delaware corporation.
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<PAGE> 6
Exhibit 10.13
"BORROWING" means a borrowing of new Loans of a single Type pursuant to
Section 2.2 or a continuation or conversion of existing Loans into a single Type
(and, in the case of Eurodollar Loans, with the same Interest Period) pursuant
to Section 2.3.
"BORROWING BASE" means, at the particular time in question, either the
amount provided for in Section 2.8 or the amount determined by Agent in
accordance with the provisions of Section 2.9, as reduced by Borrower pursuant
to Section 2.10; provided, however, that in no event shall the Borrowing Base
ever exceed the Maximum Loan Amount.
"BORROWING BASE DEFICIENCY" has the meaning given it in Section 2.7.
"BORROWING NOTICE" means a written or telephonic request, or a written
confirmation, made by Borrower which meets the requirements of Section 2.2.
"BUSINESS DAY" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in New York, New York.
Any Business Day in any way relating to Eurodollar Loans (such as the day on
which an Interest Period begins or ends) must also be a day on which, in the
judgment of Agent, significant transactions in dollars are carried out in the
interbank eurocurrency market.
"CASH EQUIVALENTS" means investments in:
(a) marketable obligations, maturing within 12 months after acquisition
thereof, issued or unconditionally guaranteed by the United States of America or
an instrumentality or agency thereof and entitled to the full faith and credit
of the United States of America.
(b) demand deposits, and time deposits (including certificates of
deposit) maturing within 12 months from the date of deposit thereof, with any
office of any Lender or with a domestic office of any national or state bank or
trust company which is organized under the Laws of the United States of America
or any state therein, which has capital, surplus and undivided profits of at
least $500,000,000, and whose certificates of deposit have at least the third
highest credit rating given by either Rating Agency.
(c) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (a) above entered into
with any commercial bank meeting the specifications of clause (b) above.
(d) open market commercial paper, maturing within 270 days after
acquisition thereof, which has the highest or second highest credit rating given
by either Rating Agency.
(e) investments in money market or other mutual funds substantially all
of whose assets comprise securities of the types described in clauses (a)
through (d) above.
"CHANGE OF CONTROL" means the occurrence of any one or more of the
following events: (i) any Person or two or more Persons acting as a group (other
than Nuon International, b.v. or its parent NV Nuon Energy Group or Lomak
Petroleum, Inc.) shall acquire "beneficial ownership" (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities Act of
1934, as amended, and including holding proxies to vote for the election of
directors other than proxies held by Borrower's management or their designees to
be voted in favor of Persons nominated by Borrower's Board of Directors) of 35%
or more of the outstanding voting securities of Borrower, measured by voting
power (including both common stock and any preferred stock or other equity
securities entitling the holders thereof to vote with the holders of common
stock in elections for directors of Borrower) or (ii) one-third or more of the
directors of Borrower shall consist of Persons not nominated by Borrower's Board
of Directors (not including as Board nominees any directors which the Board is
obligated to nominate pursuant to shareholders agreements, voting trust
arrangements or similar arrangements) or (iii) Lomak Petroleum, Inc.
individually or with other Persons acting as a group shall acquire beneficial
ownership (as defined
2
<PAGE> 7
Exhibit 10.13
above) of either (a) 40% or more or (b) more than the percentage held by Nuon
International, b.v. and NV Nuon Energy Group, of the outstanding voting
securities of Borrower, measured by voting power (including both common stock
and any preferred stock or other equity securities entitling the holders
thereof to vote with the holders of common stock in elections for directors of
Borrower).
"COLLATERAL" means all property of any kind which is subject to a Lien
in favor of Lenders (or in favor of Agent for the benefit of Lenders) or which,
under the terms of any Security Document, is purported to be subject to such a
Lien.
"COMMITMENT PERIOD" means the period from and including the date hereof
until and including July 1, 1999 (or, if earlier, the day on which the Notes
first become due and payable in full).
"CONSOLIDATED" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated subsidiaries. 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 subsidiaries.
"CONSOLIDATED EBITDA" means, for each period of four consecutive Fiscal
Quarters, the sum of (1) the Consolidated Net Income of Borrower during such
period, plus (2) Consolidated Interest Expense during such period, plus (3) all
income taxes which were deducted in determining such Consolidated Net Income,
plus (4) all depreciation, amortization (including amortization of good will and
debt issue costs) and other non-cash charges (including any provision for the
reduction in the carrying value of assets recorded in accordance with GAAP)
which were deducted in determining such Consolidated Net Income, minus (5) all
non-cash items of income which were included in determining such Consolidated
net Income.
"CONSOLIDATED INTEREST EXPENSE" means, for any applicable period, all
interest paid or accrued during such period on Indebtedness (including
amortization of original issue discount and the interest component of any
deferred payment obligations and capital lease obligations) which was deducted
in determining Consolidated Net Income.
"CONSOLIDATED NET INCOME" means, for any applicable period on a
Consolidated basis for Borrower and its Consolidated Subsidiaries, the gross
revenues of such Persons for such period, plus any cash dividends or
distributions actually received by such Persons from any other business entity,
minus all expenses and other proper charges (including taxes on income, to the
extent imposed upon such Persons), determined on a Consolidated basis after
eliminating earnings or losses attributable to outstanding minority interests,
but excluding the net earnings of any other business entity in which such
Persons has an ownership interest.
"CONSOLIDATED TANGIBLE NET WORTH" means the remainder of all
Consolidated assets of Borrower and its Subsidiaries, other than intangible
assets (including without limitation as intangible assets such assets as
patents, copyrights, licenses, franchises, goodwill, trade names, trade secrets
and leases other than oil, gas or mineral leases or leases required to be
capitalized under GAAP), minus Consolidated liabilities of Borrower and its
Subsidiaries.
"CONTINUATION/CONVERSION NOTICE" means a written or telephonic request,
or a written confirmation, made by Borrower which meets the requirements of
Section 2.3.
"DEFAULT" means any Event of Default and any default, event or
condition which would, with the giving of any requisite notices and the passage
of any requisite periods of time, constitute an Event of Default.
"DEFAULT RATE" means, at the time in question, two percent (2.0%) per
annum plus the Base Rate then in effect; provided that, with respect to any
Eurodollar Loan with an Interest Period extending beyond the date such
Eurodollar Loan becomes due and payable, "Default Rate" shall mean two percent
(2.0%) per annum plus the related Eurodollar Rate. The Default Rate shall never
exceed the Highest Lawful Rate.
3
<PAGE> 8
Exhibit 10.13
"DETERMINATION DATE" has the meaning given it in Section 2.9.
"DISCLOSURE REPORT" means either a notice given by Borrower under
Section 6.4 or a certificate given by Borrower's chief financial officer under
Section 6.2(b).
"DISCLOSURE SCHEDULE" means Schedule 1 hereto.
"DISTRIBUTION" means (a) any dividend or other distribution made by a
Restricted Person on or in respect of any stock, partnership interest, or other
equity interest in such Restricted Person (including any option or warrant to
buy such an equity interest), or (b) any payment made by a Restricted Person to
purchase, redeem, acquire or retire any stock, partnership interest, or other
equity interest in such Restricted Person (including any such option or
warrant).
"DOMESTIC LENDING OFFICE" means, with respect to any Lender, the office
of such Lender specified as its "Domestic Lending Office" below its name on the
Lender Schedule attached hereto, or such other office as such Lender may from
time to time specify to Borrower and Agent.
"ELIGIBLE TRANSFEREE" means a Person which (a) is a Lender or (b) is
consented to as an Eligible Transferee by Agent and, so long as no Event of
Default is continuing by Borrower, which consents in each case will not be
unreasonably withheld (provided that no Person organized outside the United
States may be an Eligible Transferee if Borrower would be required to pay
withholding taxes on interest or principal owed to such Person).
"ENGINEERING REPORT" means the Initial Engineering Report and each
engineering report delivered pursuant to Section 6.2(d).
"ENVIRONMENTAL COMPLAINT" means any written or oral complaint, order,
directive, claim, citation, notice of environmental report or investigation, or
other notice by any Tribunal or any other Person with respect to (a) air
emissions, (b) spills, releases, or discharges to soils, any improvements
located thereon, surface water, groundwater, or the sewer, septic, waste
treatment, storage, or disposal systems servicing any property of any Restricted
Person or any Collateral, (c) solid or liquid waste disposal, (d) the use,
generation, storage, transportation, or disposal of any Hazardous Substance, or
(e) other environmental, health or safety matters affecting any property of any
Restricted Person or any Collateral or the business conducted thereon.
"ENVIRONMENTAL LAWS" means any and all Laws relating to the environment
or to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment including ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.
"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 AFFILIATE" means Borrower and all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated) under
common control that, together with Borrower, are treated as a single employer
under Section 414 of the Internal Revenue Code of 1986, as amended.
"ERISA PLAN" means any employee pension benefit plan subject to Title
IV of ERISA maintained by any ERISA Affiliate with respect to which any
Restricted Person has a fixed or contingent liability.
"EURODOLLAR LOAN" means a Loan which is properly designated as a
Eurodollar Loan pursuant to Section 2.2 or 2.3.
4
<PAGE> 9
Exhibit 10.13
"EURODOLLAR MARGIN" means, on each day two and three-quarters
percent (2.75%) per annum.
"EURODOLLAR LENDING OFFICE" means, with respect to any Lender,
the office of such Lender specified as its "Eurodollar Lending Office" below its
name on the Lender Schedule attached hereto (or, if no such office is specified,
its Domestic Lending Office), or such other office of such Lender as such Lender
may from time to time specify to Borrower and Agent.
"EURODOLLAR RATE" means, with respect to each particular
Eurodollar Loan and the associated LIBOR Rate and Reserve Percentage, the rate
per annum calculated by Agent (rounded upwards, if necessary, to the next higher
0.01%) determined on a daily basis pursuant to the following formula:
Eurodollar Rate =
LIBOR Rate + Eurodollar Margin
---------------------------
100.0% - Reserve Percentage
The Eurodollar Rate for any Eurodollar Loan shall change whenever the Eurodollar
Margin or the Reserve Percentage changes. No Eurodollar Rate shall ever exceed
the Highest Lawful Rate.
"EVALUATION DATE" means each of the following:
(a) March 31 and September 30 of each year, beginning with
March 31, 1998;
(b) Each date which either Borrower or Required Lenders, at
their respective options, specifies as a date as of which the Borrowing
Base is to be redetermined, provided that each such date must be the
first or last date of a current calendar month and that neither
Borrower nor Required Lenders shall be entitled to request any such
redetermination more than once during any six (6) month period.
"EVENT OF DEFAULT" has the meaning given it in Section 8.1.
"EXISTING CREDIT DOCUMENTS" means that certain Credit Agreement dated
September 20, 1993 among Borrower and Bank One, Texas, N.A., together with the
promissory notes made by Borrower thereunder.
"FACILITY USAGE" means, at the time in question, the aggregate amount
of outstanding Loans and existing LC Obligations at such time.
"FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100th of one percent) equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate quoted to Agent on such day on such transactions as determined by Agent.
"FISCAL QUARTER" means a three-month period ending on June 30,
September 30, December 31, or March 31 of any year.
"FISCAL YEAR" means a twelve-month period ending on March 31 of any
year.
"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 subsidiaries, 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 audited Initial Financial
5
<PAGE> 10
Exhibit 10.13
Statements. If any material change in any accounting principle or practice is
required by the Financial Accounting Standards Board (or any such successor) in
order for such principle or practice to continue as a generally accepted
accounting principle or practice, all reports and financial statements required
hereunder with respect to Borrower or with respect to Borrower and its
Consolidated subsidiaries may be prepared in accordance with such change, but
all calculations and determinations to be made hereunder may be made in
accordance with such change only after notice of such change is given to each
Lender and Majority Lenders agree to such change insofar as it affects the
accounting of Borrower or of Borrower and its Consolidated subsidiaries.
"GUARANTOR" means any Person who has guaranteed some or all of the
Obligations and who has been accepted by Agent as a Guarantor.
"HAZARDOUS MATERIALS" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"HEDGING CONTRACT" means (a) any agreement providing for options,
swaps, floors, caps, collars, forward sales or forward purchases involving
interest rates, commodities or commodity prices, equities, currencies, bonds, or
indexes based on any of the foregoing, (b) any option, futures or forward
contract traded on an exchange, and (c) any other derivative agreement or other
similar agreement or arrangement.
"HIGHEST LAWFUL RATE" means, with respect to each Lender, the maximum
nonusurious rate of interest that such Lender is permitted under applicable Law
to contract for, take, charge, or receive with respect to its Loan. All
determinations herein of the Highest Lawful Rate, or of any interest rate
determined by reference to the Highest Lawful Rate, shall be made separately for
each Lender as appropriate to assure that the Loan Documents are not construed
to obligate any Person to pay interest to any Lender at a rate in excess of the
Highest Lawful Rate applicable to such Lender.
"INDEBTEDNESS" of any Person means Liabilities in any of the following
categories:
(a) Liabilities for borrowed money,
(b) Liabilities constituting an obligation to pay the deferred purchase
price of property or services,
(c) Liabilities evidenced by a bond, debenture, note or similar
instrument,
(d) Liabilities which (i) would under GAAP be shown on such Person's
balance sheet as a liability, and (ii) is payable more than one year from the
date of creation thereof (other than reserves for taxes and reserves for
contingent obligations),
(e) Liabilities arising under operating leases, futures contracts,
forward contracts, swap, cap or collar contracts, option contracts, hedging
contracts, other derivative contracts, or similar agreements,
(f) Liabilities constituting principal under leases capitalized in
accordance with GAAP,
(g) Liabilities arising under conditional sales or other title
retention agreements,
(h) Liabilities owing under direct or indirect guaranties of
Liabilities of any other Person or constituting obligations to purchase or
acquire or to otherwise protect or insure a creditor against loss in respect of
Liabilities of any other Person (such as obligations under working capital
maintenance agreements, agreements to keep-well, or agreements to purchase
Liabilities, assets, goods, securities or services), but excluding endorsements
in the ordinary course of business of negotiable instruments in the course of
collection,
(i) Liabilities (for example, repurchase agreements) consisting of an
obligation to purchase securities or other property, if such Liabilities arises
out of or in connection with the sale of the same or similar securities or
property,
6
<PAGE> 11
Exhibit 10.13
(j) Liabilities with respect to letters of credit or applications or
reimbursement agreements therefor,
(k) Liabilities with respect to payments received in consideration of
oil, gas, or other minerals yet to be acquired or produced at the time of
payment (including obligations under "take-or-pay" contracts to deliver gas in
return for payments already received and the undischarged balance of any
production payment created by such Person or for the creation of which such
Person directly or indirectly received payment), OR
(1) Liabilities with respect to other obligations to deliver goods or
services in consideration of advance payments therefor;
provided, however, that the "Indebtedness" of any Person shall not include
Liabilities that were incurred by such Person on ordinary trade terms to
vendors, suppliers, or other Persons providing goods and services for use by
such Person in the ordinary course of its business, unless and until such
Liabilities are outstanding more than 120 days after the incurrence thereof.
"INITIAL ENGINEERING REPORT" means the engineering report concerning
oil and gas properties of Restricted Persons (limited, in the case of the
Partnerships, to Borrower's applicable interest prepared by S .A. Holditch and
Associates as of April 1, 1997, and the engineering report concerning such oil
and gas properties prepared by Borrower as of September 30, 1997.
"INITIAL FINANCIAL STATEMENTS" means (i) the audited annual
Consolidated financial statements of Borrower dated as of March 31, 1997, and
(ii) the unaudited quarterly Consolidated financial statements of Borrower dated
as of September 30, 1997.
"INSURANCE SCHEDULE" means Schedule 3 attached hereto.
"INTEREST PERIOD" means, with respect to each particular Eurodollar
Loan in a Borrowing, a period of 1, 2, 3 or 6 months, as specified in the
Borrowing Notice applicable thereto, beginning on and including the date
specified in such Borrowing Notice (which must be a Business Day), and ending on
but not including the same day of the month as the day on which it began (e.g.,
a period beginning on the third day of one month shall end on but not include
the third day of another month), provided that each 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 Interest Period shall end
on the immediately preceding Business Day). No Interest Period may be elected
which would extend past the date on which the associated Note is due and payable
in full or would require the repayment of the related Eurodollar Loan prior to
the end of such Interest Period in order to make a scheduled installment payment
on the Notes.
"INVESTMENT" means any investment, in cash or by delivery of
property made, directly or indirectly in any Person, whether by acquisition of
shares of capital stock, indebtedness or other obligations or securities or by
loan, advance, capital contribution or otherwise.
"LAW" means any statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof.
"LC Application" means any application for a Letter of Credit
hereafter made by Borrower to LC Issuer.
"LC COLLATERAL" has the meaning given it in Section 2.16.
"LC ISSUER" means ING Capital in its capacity as the issuer of Letters
of Credit hereunder, and its successors in such capacity. Agent may, with the
consent of Borrower and the Lender in question, appoint any Lender hereunder as
the LC Issuer in place of or in addition to ING Capital.
7
<PAGE> 12
Exhibit 10.13
"LC OBLIGATIONS" means, at the time in question, the sum of all Matured
LC Obligations plus the maximum amounts which LC Issuer might then or thereafter
be called upon to advance under all Letters of Credit then outstanding.
"LENDERS" means each signatory hereto (other than Borrower and
Restricted Persons a party hereto), including ING Capital in its capacity as a
lender hereunder rather than as Agent or LC Issuer, and the successors of each
such party as holder of a Note.
"LENDING OFFICE" means, with respect to any Lender, the office, branch,
or agency through which it funds its Eurodollar Loans; with respect to LC
Issuer, the office, branch, or agency through which it issues Letters of Credit;
and, with respect to Agent or Collateral Agent, the office, branch, or agency
through which it administers this Agreement.
"LETTER OF CREDIT" means any letter of credit issued by Issuing Bank
hereunder at the application of Borrower.
"LIABILITIES" means, as to any Person, all indebtedness, liabilities
and obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.
"LIBOR RATE" means, with respect to each particular Eurodollar Loan and
the related Interest Period, the rate per annum (rounded upwards, if necessary,
to the nearest 1/16 of 1%) reported, on the date two Business Days prior to the
first day of such Interest Period, on Telerate Access Service Page 3750 (British
Bankers Association Settlement Rate) as the London Interbank Offered Rate for
dollar deposits having a term comparable to such Interest Period and in an
amount of $1,000,000 or more (or, if such Page shall cease to be publicly
available or if the information contained on such Page, in Agent's sole
judgment, shall cease to accurately reflect such London Interbank Offered Rate,
as reported by any publicly available source of similar market data selected by
Agent that, in Agent's sole judgment, accurately reflects such London Interbank
Offered Rate).
"LIEN" means, with respect to any property or assets, any right or
interest therein of a creditor to secure Liabilities owed to him or any other
arrangement with such creditor which provides for the payment of such
Liabilities out of such property or assets or which allows him to have such
Liabilities satisfied out of such property or assets prior to the general
creditors of any owner thereof, including 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, tax lien, mechanic's or materialman's lien, 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. "Lien" also means any filed financing
statement, any registration of a pledge (such as with an issuer of
uncertificated securities), or any other arrangement or action which would serve
to perfect a Lien described in the preceding sentence, regardless of whether
such financing statement is filed, such registration is made, or such
arrangement or action is undertaken before or after such Lien exists.
"LOAN" has the meaning given it in Section 2.1.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Security
Documents, the Letters of Credit, the LC Applications, and all other agreements,
certificates, documents, instruments and writings at any time delivered in
connection herewith or therewith (exclusive of term sheets, commitment letters,
correspondence and similar documents used in the negotiation hereof, except to
the extent the same contain information about Borrower or its Affiliates,
properties, business or prospects).
"MAJORITY LENDERS" means Lenders whose aggregate Percentage Shares
equal or exceed sixty-six and two-thirds percent (66_%).
8
<PAGE> 13
Exhibit 10.13
"MATERIAL ADVERSE CHANGE" means a material and adverse change, from the
state of affairs presented in the Initial Financial Statements, to (a)
Borrower's and its Subsidiaries' Consolidated financial condition, (b) the
operations or properties of Borrower and its Subsidiaries, considered as a
whole, (c) Borrower's ability to timely pay the Obligations, or (d) the
enforceability of the material terms of any Loan Documents.
"MATURED LC OBLIGATIONS" means all amounts paid by LC Issuer on drafts
or demands for payment drawn or made under or purported to be under any Letter
of Credit and all other amounts due and owing to LC Issuer under any LC
Application for any Letter of Credit, to the extent the same have not been
repaid to LC Issuer (with the proceeds of Loans or otherwise).
"MAXIMUM DRAWING AMOUNT" means at the time in question the sum of the
maximum amounts which Agent might then or thereafter be called upon to advance
under all Letters of Credit then outstanding.
"MAXIMUM LOAN AMOUNT" means the amount of $20,000,000.
"NOTE" has the meaning given it in Section 2.1.
"OBLIGATIONS" means all Liabilities from time to time owing by any
Restricted Person to any Bank Party under or pursuant to any of the Loan
Documents, including all LC Obligations. "OBLIGATION" means any part of the
Obligations.
"PARTNERSHIPS" means the partnerships listed on the Disclosure Schedule
and any other partnership of which Borrower or one of its Subsidiary is general
partner.
"PERCENTAGE SHARE" means, with respect to any Lender (a) when used in
Sections 2.1 or 2.5, in any Borrowing Notice or when no Loans are outstanding
hereunder, the percentage set forth opposite such Lender's name on Lender
Schedule attached hereto, and (b) when used otherwise, the percentage obtained
by dividing (i) the sum of the unpaid principal balance of such Lender's Loans
at the time in question plus the Matured LC Obligations which such Lender has
funded pursuant to Section 2.13(c) plus the portion of the Maximum Drawing
Amount which such Lender might be obligated to fund under Section 2.14(c), by
(ii) the sum of the aggregate unpaid principal balance of all Loans at such time
plus the aggregate amount of LC Obligations outstanding at such time.
"PERMITTED INVESTMENTS" means (i) Cash Equivalents, (ii) Investments in
wholly-owned Subsidiaries of Borrower and (iii) the following Investments in a
Partnership: (a) transfers to a newly formed Partnership of oil and gas
properties which have no developed reserves associated therewith, (b) operating
expenses and capital contributions not in excess of the Borrower's partnership
percentage of the operating expenses and capital expenditures by the
Partnership, consistent with the terms of the applicable partnership agreement,
and (c) normal and prudent extensions of credit by Borrower to the Partnership
in connection with the incurrence of lease operating expenses and other
reimbursable expenses on behalf of the Partnership in the ordinary course of
business, which extensions shall not be for longer periods than those extended
by other similar oil and gas businesses.
"PERMITTED LIEN" has the meaning given to such term in Section 7.2.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, joint stock company, trust or trustee thereof,
estate or executor thereof, unincorporated organization or joint venture,
Tribunal, or any other legally recognizable entity.
"RATING AGENCY" means either Standard & Poor's Ratings Group (a
division of McGraw Hill, Inc.) or Moody's Investors Service, Inc., or their
respective successors.
9
<PAGE> 14
Exhibit 10.13
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect.
"RESTRICTED PERSON" means any of Borrower, each Subsidiary of Borrower,
and each Guarantor.
"RESERVE PERCENTAGE" means, on any day with respect to each particular
Eurodollar Loan, the maximum reserve requirement, as determined by Agent
(including without limitation any basic, supplemental, marginal, emergency or
similar reserves), expressed as a percentage and rounded to the next higher 0.01
%, which would then apply under Regulation D with respect to "Eurocurrency
liabilities", as such term is defined in Regulation D, of $1,000,000 or more. If
such reserve requirement shall change after the date hereof, the Reserve
Percentage shall be automatically increased or decreased, as the case may be,
from time to time as of the effective time of each such change in such reserve
requirement.
"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 any Restricted Person to Agent 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 Restricted
Person's other duties and obligations under the Loan Documents.
"SECURITY SCHEDULE" means Schedule 2 hereto.
"SUBSIDIARY" means, with respect to any Person, any corporation,
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent or more by such Person;
provided that the particular relationship (a) which is established pursuant to a
standard form operating agreement or similar agreement or which is a partnership
for purposes of federal income taxation only, (b) which is not a corporation or
partnership (or subject to the Uniform Partnership Act) under applicable state
Law and (c) whose business is limited to the exploration, development and
operation of oil, gas or mineral properties and interests owned directly by the
parties in such relationship, shall not be deemed to be "Subsidiaries" of such
Person. Notwithstanding the forgoing nor limiting the foregoing, the
Partnerships shall be deemed to be Subsidiaries of Borrower.
"TERMINATION EVENT" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA
or (ii) any other reportable event described in Section 4043(b) of ERISA other
than a reportable event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation
under Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate
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.
"TRIBUNAL" means any government, any arbitration panel, any court or
any governmental department, commission, board, bureau, agency or
instrumentality of the United States of America or any state, province,
commonwealth, nation, territory, possession, county, parish, town, township,
village or municipality, whether now or hereafter constituted and/or existing.
"TYPE" means, with respect to any Loans, the characterization of such
Loans as either Base Rate Loans or Eurodollar Loans.
Section 1.2. EXHIBITS AND SCHEDULES; ADDITIONAL DEFINITIONS. All
Exhibits and Schedules attached to this Agreement are a part hereof for all
purposes. Reference is hereby made to the Security Schedule for the meaning
10
<PAGE> 15
Exhibit 10.13
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, modifications, amendments and
restatements of such agreement, instrument or document, provided that nothing
contained in this section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement.
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" is not exclusive,
and the word "including" (in its various forms) means "including without
limitation". 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.
Section 1.5. CALCULATIONS AND DETERMINATIONS. All calculations under
the Loan Documents of interest chargeable with respect to Eurodollar Loans and
of fees shall be made on the basis of actual days elapsed (including the first
day but excluding the last) and a year of 360 days. All other calculations of
interest made under the Loan Documents shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of 365 or
366 days, as appropriate. Each determination by a Bank Party of amounts to be
paid under Sections 3.2 through 3.6 or any other matters which are to be
determined hereunder by a Bank Party (such as any Eurodollar Rate, LIBOR Rate,
Business Day, Interest Period, or Reserve Percentage) shall, in the absence of
manifest error, be conclusive and binding. Unless otherwise expressly provided
herein or unless Majority Lenders otherwise consent all financial statements and
reports furnished to any Bank Party hereunder shall be prepared and all
financial computations and determinations pursuant hereto shall be made in
accordance with GAAP.
ARTICLE II - THE LOANS AND LETTERS OF CREDIT
Section 2.1. COMMITMENTS TO LEND; NOTES. Subject to the terms and
conditions hereof, each Lender agrees to make loans to Borrower (herein called
such Lender's "Loans") upon Borrower's request from time to time during the
Commitment Period, provided that (a) subject to Sections 3.3, 3.4 and 3.6, all
Lenders are requested to make Loans of the same Type in accordance with their
respective Percentage Shares and as part of the same Borrowing, and (b) after
giving effect to such Loans, the Facility Usage does not exceed the Borrowing
Base determined as of the date on which the requested Loans are to be made. The
aggregate amount of all Loans in any Borrowing must be greater than or equal to
$100,000 or must equal the remaining availability under the Borrowing Base.
Borrower may have no more than five Borrowings of Eurodollar Loans outstanding
at any time and the amount of each Eurodollar Loan must equal $100,000 or any
higher integral multiple of $50,000. The obligation of Borrower to repay to each
Lender the aggregate amount of all Loans made by such Lender, together with
interest accruing in connection therewith, shall be evidenced by a single
promissory note (herein called such Lender's "Note") made by Borrower payable to
the order of such Lender in the form of Exhibit A with appropriate insertions.
The amount of principal owing on any Lender's Note at any given time shall be
the aggregate amount of all Loans theretofore made by such Lender minus all
payments of principal theretofore received by such Lender on such Note. Interest
on each Note shall accrue and be due and payable as provided herein and therein,
with Eurodollar Loans bearing interest at the Eurodollar Rate and Base Rate
Loans bearing interest at the Base Rate (subject to the applicability of the
Default Rate and limited by the provisions of Section 10.8). Subject to the
terms and conditions hereof, Borrower may borrow, repay, and reborrow hereunder.
11
<PAGE> 16
Exhibit 10.13
Section 2.2. REQUESTS FOR NEW LOANS. Borrower must give to Agent
written notice (or telephonic notice promptly confirmed in writing) of any
requested Borrowing of new Loans to be advanced by Lenders. Each such notice
constitutes a "Borrowing Notice" hereunder and must:
(a) specify (i) the aggregate amount of any such Borrowing of
new Base Rate Loans and the date on which such Base Rate Loans are to
be advanced, or (ii) the aggregate amount of any such Borrowing of new
Eurodollar Loans, the date on which such Eurodollar Loans are to be
advanced (which shall be the first day of the Interest Period which is
to apply thereto), and the length of the applicable Interest Period;
and
(b) be received by Agent not later than noon, New York, New
York time, on (i) the day on which any such Base Rate Loans are to be
made, or (ii) the third Business Day preceding the day on which any
such Eurodollar Loans are to be made.
Each such written request or confirmation must be made in the form and substance
of the "Borrowing Notice" attached hereto as Exhibit B, duly completed. Each
such telephonic request shall be deemed a representation, warranty,
acknowledgment and agreement by Borrower as to the matters which are required to
be set out in such written confirmation. Upon receipt of any such Borrowing
Notice, Agent shall give each Lender prompt notice of the terms thereof. If all
conditions precedent to such new Loans have been met, each Lender will on the
date requested promptly remit to Agent at Agent's office in New York, New York
the amount of such Lender's new Loan in immediately available funds, and upon
receipt of such funds, unless to its actual knowledge any conditions precedent
to such Loans have been neither met nor waived as provided herein, Agent shall
promptly make such Loans available to Borrower. Unless Agent shall have received
prompt notice from a Lender that such Lender will not make available to Agent
such Lender's new Loan, Agent may in its discretion assume that such Lender has
made such Loan available to Agent in accordance with this section and Agent may
if it chooses, in reliance upon such assumption, make such Loan available to
Borrower. If and to the extent such Lender shall not so make its new Loan
available to Agent, such Lender and Borrower severally agree to pay or repay to
Agent within three days after demand the amount of such Loan together with
interest thereon, for each day from the date such amount was made available to
Borrower until the date such amount is paid or repaid to Agent, with interest at
(i) the Federal Funds Rate, if such Lender is making such payment and (ii) the
interest rate applicable at the time to the other new Loans made on such date,
if Borrower is making such repayment. If neither such Lender nor Borrower pay or
repay to Agent such amount within such three-day period, Agent shall in addition
to such amount be entitled to recover from such Lender and from Borrower, on
demand, interest thereon at the Default Rate, calculated from the date such
amount was made available to Borrower. The failure of any Lender to make any new
Loan to be made by it hereunder shall not relieve any other Lender of its
obligation hereunder, if any, to make its new Loan, but no Lender shall be
responsible for the failure of any other Lender to make any new Loan to be made
by such other Lender.
Section 2.3. CONTINUATIONS AND CONVERSIONS OF EXISTING LOANS. Borrower
may make the following elections with respect to Loans already outstanding: to
convert Base Rate Loans to Eurodollar Loans, to convert Eurodollar Loans to Base
Rate Loans on the last day of the Interest Period applicable thereto, or to
continue Eurodollar Loans beyond the expiration of such Interest Period by
designating a new Interest Period to take effect at the time of such expiration.
In making such elections, Borrower may combine existing Loans made pursuant to
separate Borrowings into one new Borrowing or divide existing Loans made
pursuant to one Borrowing into separate new Borrowings. To make any such
election, Borrower must give to Agent written notice (or telephonic notice
promptly confirmed in writing) of any such conversion or continuation of
existing Loans, with a separate notice given for each new Borrowing. Each such
notice constitutes a "Continuation/Conversion Notice" hereunder and must:
(a) specify the existing Loans which are to be continued or
converted;
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<PAGE> 17
Exhibit 10.13
(b) specify (i) the aggregate amount of any Borrowing of Base
Rate Loans into which such existing Loans are to be continued or
converted and the date on which such continuation or conversion is to
occur, or (ii) the aggregate amount of any Borrowing of Eurodollar
Loans into which such existing Loans are to be continued or converted,
the date on which such continuation or conversion is to occur (which
shall be the first day of the Interest Period which is to apply to such
Eurodollar Loans), and the length of the applicable Interest Period;
and
(c) be received by Agent not later than 10:00 a.m., New York,
New York time, on the third Business Day preceding the day on which any
such continuation or conversion to Eurodollar Loans is to occur.
Each such written request or confirmation must be made in the form and substance
of the "Continuation/Conversion Notice" attached hereto as Exhibit C, duly
completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Upon receipt of any such
Borrowing Notice, Agent shall give each Lender prompt notice of the terms
thereof. Each Borrowing Notice shall be irrevocable and binding on Borrower.
During the continuance of any Default, Borrower may not make any election to
convert existing Loans into Eurodollar Loans or continue existing Loans as
Eurodollar Loans. If (due to the existence of a Default or for any other reason)
Borrower fails to timely and properly give any notice of continuation or
conversion with respect to a Borrowing of existing Eurodollar Loans at least
three days prior to the end of the Interest Period applicable thereto, such
Eurodollar Loans shall automatically be converted into Base Rate Loans at the
end of such Interest Period. No new funds shall be repaid by Borrower or
advanced by any Lender in connection with any continuation or conversion of
existing Loans pursuant to this section, and no such continuation or conversion
shall be deemed to be a new advance of funds for any purpose; such continuations
and conversions merely constitute a change in the interest rate applicable to
already outstanding Loans.
Section 2.4. USE OF PROCEEDS. Borrower shall use all Loans to refinance
existing indebtedness, to finance capital expenditures, to refinance Matured LC
Obligations, and provide working capital for its operations and for other
general business purposes. Borrower shall use all Letters of Credit for its
general corporate purposes. In no event shall the funds from any Loan or any
Letter of Credit be used directly or indirectly by any Person for personal,
family, household or agricultural purposes or 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 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.
Section 2.5. FEES.
(a) COMMITMENT FEES. In consideration of each Lender's commitment to
make Loans, Borrower will pay to Agent for the account of each Lender a
commitment fee determined on a daily basis by applying a rate of one-half of one
percent (0.50%) per annum to such Lender's Percentage Share of the unused
portion of the Borrowing Base on each day during the Commitment Period,
determined for each such day by deducting from the amount of the Borrowing Base
at the end of such day the Facility Usage. This commitment fee shall be due and
payable in arrears on the last day of each Fiscal Quarter and at the end of the
Commitment Period.
(b) AGENT'S FEES. In addition to all other amounts due to Agent under
the Loan Documents, Borrower will pay fees to Agent as described in a letter
agreement of even
date herewith between Agent and Borrower.
Section 2.6. OPTIONAL PREPAYMENTS. Borrower may, upon five Business
Days' notice to each Lender, from time to time and without premium or penalty
prepay the Notes, in whole or in part, so long as the aggregate amounts of all
partial prepayments of principal on the Notes is an integral multiple of
$50,000, so long as
13
<PAGE> 18
Exhibit 10.13
Borrower does not prepay any Eurodollar Loan, and so long as Borrower does not
make any prepayments which would reduce the unpaid principal balance of any Loan
to less than $100,000 without first either (a) terminating this Agreement or (b)
providing assurance satisfactory to Agent in its discretion that Lenders' legal
rights under the Loan Documents are in no way affected by such reduction. Each
partial prepayment of principal made after the end of the Commitment Period
shall be applied to the regular installments of principal due under the Notes in
the inverse order of their maturities. Each prepayment of principal under this
section shall be accompanied by all interest then accrued and unpaid on the
principal so prepaid. Any principal or interest prepaid pursuant to this section
shall be in addition to, and not in lieu of, all payments otherwise required to
be paid under the Loan Documents at the time of such prepayment.
Section 2.7. MANDATORY PREPAYMENTS. If at any time the Facility Usage
is in excess of the Borrowing Base (such excess being herein called a "Borrowing
Base Deficiency"), Borrower shall, within forty-five Business Days after Agent
gives notice of such fact to Borrower, prepay the principal amount of the Loans
in an aggregate amount at least equal to such Borrowing Base Deficiency (or, if
the Loans have been paid in full, pay to LC issuer LC Collateral as required
under Section 2.16(a)). Each prepayment of principal under this section shall be
accompanied by all interest then accrued and unpaid on the principal so prepaid.
Any principal or interest prepaid pursuant to this section shall be in addition
to, and not in lieu of, all payments otherwise required to be paid under the
Note or the other Loan Documents at the time of such prepayment.
Section 2.8. INITIAL BORROWING BASE. During the period from the date
hereof to the first Determination Date the Borrowing Base shall be $ 10,000,000.
Section 2.9. SUBSEQUENT DETERMINATIONS OF BORROWING BASE.
By May 15 and November 15 of each year, or within 30 days after notice of an
Evaluation Date, Borrower shall furnish to each Lender all information, reports
and data which Agent has then requested concerning Restricted Persons'
businesses and properties (including Borrower's oil and gas properties and
interests and the reserves and production relating thereto), together with the
Engineering Reports described in Section 6.2(d) or (e) as applicable. Within
thirty days after receiving such information, reports and data, or as promptly
thereafter as practicable, Majority Lenders shall agree upon an amount for the
Borrowing Base (provided that all Lenders must agree to any increase in the
Borrowing Base) and Agent shall by notice to Borrower designate such amount as
the new Borrowing Base available to Borrower hereunder, which designation shall
take effect immediately on the date such notice is sent (herein called a
"DETERMINATION DATE") and shall remain in effect until but not including the
next date as of which the Borrowing Base is redetermined. If Borrower does not
furnish all such information, reports and data by the date specified in the
first sentence of this section, Agent may nonetheless designate the Borrowing
Base at any amount which Majority Lenders determine and may redesignate the
Borrowing Base from time to time thereafter until each Lender receives all such
information, reports and data, whereupon Majority Lenders shall designate a new
Borrowing Base as described above. Majority Lenders shall determine the amount
of the Borrowing Base based upon the loan collateral value which they in their
sole discretion assign to the various oil and gas properties which constitute
Collateral of Restricted Persons at the time in question and based upon such
other credit factors (including without limitation the assets, liabilities, cash
flow, hedged and unhedged exposure to price, foreign exchange rate, and interest
rate changes, business, properties, prospects, management and ownership of
Borrower and its Affiliates) as they in their discretion deem significant. It is
expressly understood that Lenders and Agent have no obligation to agree upon or
designate the Borrowing Base at any particular amount, whether in relation to
the face amount of the Notes, the Maximum Loan Amount or otherwise, and that
Lenders' commitments to advance funds hereunder is determined by reference to
the Borrowing Base from time to time in effect, which Borrowing Base shall be
used for calculating commitment fees under Section 2.5 and, to the extent
permitted by Law and regulatory authorities, for the purposes of capital
adequacy determination and reimbursements under Section 3.2.
Section 2.10. BORROWER'S REDUCTION OF BORROWING BASE.
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<PAGE> 19
Exhibit 10.13
Until the termination of the Commitment Period Borrower may, during the
fifteen-day period beginning on each Determination Date (each such period being
called in this section an "Option Period"), reduce the Borrowing Base from the
amount designated by Agent to any lesser amount. To exercise such option
Borrower must within an Option Period send notice to Agent of the amount of the
Borrowing Base chosen by Borrower. If Borrower does not affirmatively exercise
this option during an Option Period the Borrowing Base shall be the amount
designated by Agent. Any choice by Borrower of a Borrowing Base shall be
effective as of the first day of the Option Period during which such choice was
made and shall continue in effect until the next date as of which the Borrowing
Base is redetermined.
Section 2.11. LETTERS OF CREDIT. Subject to the terms and conditions
hereof, Borrower may during the Commitment Period request LC Issuer to issue one
or more Letters of Credit, provided that, after taking such Letter of Credit
into account:
(a) the Facility Usage does not exceed the Borrowing Base at
such time; and
(b) the aggregate amount of LC Obligations at such time does
not exceed $2,000,000; and
(c) the expiration date of such Letter of Credit is prior to
the end of the Commitment Period; provided, however, up to $200,000 of
Letters of Credit may be outstanding at any one time with expiration
dates of up to one year after the end of the Commitment Period;
and further provided that:
(d) such Letter of Credit is to be used to satisfy state
regulatory bonding requirements and similar performance obligations of
the Restricted Persons arising in the ordinary course of business and
payment obligations under gas purchase contracts arising in the
ordinary course of the Restricted Persons' gas marketing business;
(e) such Letter of Credit is not directly or indirectly used
to assure payment of or otherwise support any Indebtedness of any
Person other than Indebtedness of any Restricted Person;
(f) the issuance of such Letter of Credit will be in
compliance with all applicable governmental restrictions, policies, and
guidelines and will not subject LC Issuer to any cost which is note
reimbursable under Article III;
(g) the form and terms of such Letter of Credit are acceptable
to LC Issuer in its sole and absolute discretion; and
(h) all other conditions in this Agreement to the issuance of
such Letter of Credit have been satisfied.
LC Issuer will honor any such request if the foregoing conditions (a) through
(h) (in the following Section 2.12 called the "LC CONDITIONS") have been met as
of the date of issuance of such Letter of Credit. LC Issuer may choose to honor
any such request for any other Letter of Credit but has no obligation to do so
and may refuse to issue any other requested Letter of Credit for any reason
which LC Issuer in its sole discretion deems relevant.
Section 2.12. REQUESTING LETTERS OF CREDIT. Borrower must make written
application for any Letter of Credit at least five Business Days before the date
on which Borrower desires for LC Issuer to issue such Letter of Credit. By
making any such written application Borrower shall be deemed to have represented
and warranted that the LC Conditions described in Section 2.11 will be met as of
the date of issuance of such Letter of Credit. Each such written application for
a Letter of Credit must be made in writing in the form and substance of Exhibit
G, the terms and provisions of which are hereby incorporated herein by reference
(or in such other form as may mutually be agreed upon by LC Issuer and
Borrower). Two Business Days after the LC Conditions for a Letter of Credit
15
<PAGE> 20
Exhibit 10.13
have been met as described in Section 2.11 (or if LC Issuer otherwise desires to
issue such Letter of Credit), LC Issuer will issue such Letter of Credit at LC
Issuer's office in New York, New York. If any provisions of any LC Application
conflict with any provisions of this Agreement, the provisions of this Agreement
shall govern and control.
Section 2.13. REIMBURSEMENT AND PARTICIPATIONS.
(a) REIMBURSEMENT BY BORROWER. Each Matured LC Obligation shall
constitute a loan by LC Issuer to Borrower. Borrower promises to pay to LC
Issuer, or to LC Issuer's order, on demand, the full amount of each Matured LC
Obligation, together with interest thereon at the Default Rate.
(b) LETTER OF CREDIT ADVANCES. If the beneficiary of any Letter of
Credit makes a draft or other demand for payment thereunder then Borrower may,
during the interval between the making thereof and the honoring thereof by LC
Issuer, request Lenders to make Loans to Borrower in the amount of such draft or
demand, which Loans shall be made concurrently with LC Issuer's payment of such
draft or demand and shall be immediately used by LC Issuer to repay the amount
of the resulting Matured LC Obligation. Such a request by Borrower shall be made
in compliance with all of the provisions hereof, provided that for the purposes
of the first sentence of Section 2.1 the amount of such Loans shall be
considered but the amount of the Matured LC Obligation to be concurrently paid
by such Loans shall not be considered.
(c) PARTICIPATION BY LENDERS. LC Issuer irrevocably agrees to grant and
hereby grants to each Lender, and -- to induce LC Issuer to issue Letters of
Credit hereunder -- each Lender irrevocably agrees to accept and purchase and
hereby accepts and purchases from LC Issuer, on the terms and conditions
hereinafter stated and for such Lender's own account and risk an undivided
interest equal to such Lender's Percentage Share of LC Issuer's obligations and
rights under each Letter of Credit issued hereunder and the amount of each
Matured LC Obligation paid by LC Issuer thereunder. Each Lender unconditionally
and irrevocably agrees with LC Issuer that, if a Matured LC Obligation is paid
under any Letter of Credit for which LC Issuer is not reimbursed in full by
Borrower in accordance with the terms of this Agreement and the related LC
Application (including any reimbursement by means of concurrent Loans or by the
application of LC Collateral), such Lender shall (in all circumstances and
without set-off or counterclaim) pay to LC Issuer on demand, in immediately
available funds at LC Issuer's address for notices hereunder, such Lender's
Percentage Share of such Matured LC Obligation (or any portion thereof which has
not been reimbursed by Borrower). Each Lender's obligation to pay LC Issuer
pursuant to the terms of this subsection is irrevocable and unconditional. If
any amount required to be paid by any Lender to LC Issuer pursuant to this
subsection is not paid by such Lender to LC Issuer within three Business Days
after the date such payment is due, LC Issuer shall in addition to such amount
be entitled to recover from such Lender, on demand, interest thereon calculated
from such due date at the Federal Funds Rate. If any amount required to be paid
by any Lender to LC Issuer pursuant to this subsection is not paid by such
Lender to LC Issuer within three Business Days after the date such payment is
due, LC Issuer shall in addition to such amount be entitled to recover from such
Lender, on demand, interest thereon calculated from such due date at the Default
Rate.
(d) DISTRIBUTIONS TO PARTICIPANTS. Whenever LC Issuer has in
accordance with this section received from any Lender payment of such Lender's
Percentage Share of any Matured LC Obligation, if LC Issuer thereafter receives
any payment of such Matured LC Obligation or any payment of interest thereon
(whether directly from Borrower or by application of LC Collateral or otherwise,
and excluding only interest for any period prior to LC Issuer's demand that such
Lender make such payment of its Percentage Share), LC Issuer will distribute to
such Lender its Percentage Share of the amounts so received by LC Issuer;
provided, however, that if any such payment received by LC Issuer must
thereafter be returned by LC Issuer, such Lender shall return to LC Issuer the
portion thereof which LC Issuer has previously distributed to it.
(e) CALCULATIONS. A written advice setting forth in reasonable detail
the amounts owing under this section, submitted by LC Issuer to Borrower or any
Lender from time to time, shall be prima facie evidence of the
amounts thereof.
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<PAGE> 21
Exhibit 10.13
Section 2.14. LETTER OF CREDIT FEES. In consideration of LC Issuer's
issuance of any Letter of Credit, Borrower agrees to pay (a) to Agent, for the
account of all Lenders in accordance with their respective Percentage Shares, a
letter of credit issuance fee at a rate equal to one and one-half percent (1.5%)
per annum. Each such fee will be calculated based on the term and face amount of
such Letter of Credit and the above applicable rate and will be payable upon
issuance. In addition, Borrower will pay to LC Issuer a minimum administrative
issuance fee of $100 for each Letter of Credit and an administrative drawing fee
of $250 upon any drawing under a Letter of Credit.
Section 2.15. NO DUTY TO INQUIRE.
(a) DRAFTS AND DEMANDS. LC Issuer is authorized and instructed to
accept and pay drafts and demands for payment under any Letter of Credit without
requiring, and without responsibility for, any determination as to the existence
of any event giving rise to said draft, either at the time of acceptance of
payment or thereafter. LC Issuer is under no duty to determine the proper
identity of anyone presenting such a draft or making such a demand (whether by
tested telex or otherwise) as the officer, representative or agent of any
beneficiary under any Letter of Credit, and payment by LC Issuer to any such
beneficiary when requested by any such purported officer, representative or
agent is hereby authorized and approved. Borrower agrees to hold LC Issuer and
each other Bank Party harmless and indemnified against any liability or claim in
connection with or arising out of the subject matter of this section, WHICH
INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY
OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION
OF ANY KIND BY ANY BANK PARTY, provided only that no Bank Party shall be
entitled to indemnification for that portion, if any, of any liability or claim
which is proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment.
(b) Extension of Maturity. If the maturity of any Letter of Credit is
extended by its terms or by Law or governmental action, or if any extension of
the maturity or time for presentation of drafts or any other modification of the
terms of any Letter of Credit is made at the request of any Restricted Person,
or if the amount of any Letter of Credit is increased at the request of any
Restricted Person, this Agreement shall be binding upon all Restricted Persons
with respect to such Letter of Credit as so extended, increased or otherwise
modified, with respect to drafts and property covered thereby, and with respect
to any action taken by LC Issuer, LC Issuer's correspondents, or any Bank Party
in accordance with such extension, increase or other modification.
(c) Transferees of Letters of Credit. If any Letter of Credit provides
that it is transferable, LC Issuer shall have no duty to determine the proper
identity of anyone appearing as transferee of such Letter of Credit, nor shall
LC Issuer be charged with responsibility of any nature or character for the
validity or correctness of any transfer or successive transfers, and payment by
LC Issuer to any purported transferee or transferees as determined by LC Issuer
is hereby authorized and approved, and Borrower further agrees to hold LC Issuer
and each other Bank Party harmless and indemnified against any liability or
claim in connection with or arising out of the foregoing, WHICH INDEMNITY SHALL
APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY EXTENT
CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY
BANK PARTY, provided only that no Bank Party shall be entitled to
indemnification for that portion, if any, of any liability or claim which is
proximately caused by its own individual gross negligence or willful misconduct,
as determined in a final judgment.
Section 2.16. LC COLLATERAL.
(a) LC OBLIGATIONS IN EXCESS OF BORROWING BASE. If, after the making of
all mandatory prepayments required under Section 2.7, the outstanding LC
Obligations will exceed the Borrowing Base, then in addition to prepayment of
the entire principal balance of the Loans Borrower will immediately pay to LC
Issuer an amount equal to such excess. LC Issuer will hold such amount as
security for the remaining LC Obligations (all such amounts held as security for
LC Obligations being herein collectively called "LC COLLATERAL") until such LC
Obligations become Matured LC Obligations, at which time such LC Collateral may
be applied to such Matured LC Obligations. Neither this subsection nor the
following subsection shall, however, limit or impair any rights
17
<PAGE> 22
Exhibit 10.13
which LC Issuer may have under any other document or agreement relating to any
Letter of Credit or LC Obligation, including any LC Application, or any rights
which any Bank Party may have to otherwise apply any payments by Borrower and
any LC Collateral under Section 3.1.
(b) ACCELERATION OF LC OBLIGATIONS. If the Obligations or any part
thereof become immediately due and payable pursuant to Section 8.1 then, unless
Majority Lenders otherwise specifically elect to the contrary (which election
may thereafter be retracted by Majority Lenders at any time), all LC Obligations
shall become immediately due and payable without regard to whether or not actual
drawings or payments on the Letters of Credit have occurred, and Borrower shall
be obligated to pay to LC Issuer immediately an amount equal to the aggregate LC
Obligations which are then outstanding. All amounts so paid shall first be
applied to Matured LC Obligations and then held by LC Issuer as LC Collateral
until such LC Obligations become Matured LC Obligations, at which time such LC
Collateral shall be applied to such Matured LC Obligations.
(c) INVESTMENT OF LC COLLATERAL. Pending application thereof, all LC
Collateral shall be invested by LC Issuer in such investments as LC Issuer may
choose in its sole discretion. All interest on such investments shall be
reinvested and constitute additional LC Collateral. To the extent
all other Obligations have been satisfied in full, including all Matured LC
Obligations and all of Borrower's reimbursement obligations in connection
therewith, as Letters of Credit expire or are terminated, LC Issuer shall
release the amount of any LC Collateral in excess of the remaining outstanding
LC Obligations. Borrower hereby assigns and grants to LC Issuer a continuing
security interest in all LC Collateral paid by it to LC Issuer, all investments
purchased with such LC Collateral, and all proceeds thereof to secure its
Matured LC Obligations and its Obligations under this Agreement, the Note, and
the other Loan Documents, and Borrower agrees that such LC Collateral and
investments shall be subject to all of the terms and conditions of the Security
Documents. Borrower further agrees that LC Issuer shall have all of the rights
and remedies of a secured party under the Uniform Commercial Code as adopted in
the State of New York with respect to such security interest and that an Event
of Default under this Agreement shall constitute a default for purposes of such
security interest.
(d) PAYMENT OF LC COLLATERAL. When Borrower is required to provide LC
Collateral for any reason and fails to do so on the day when required, LC Issuer
may without notice to Borrower or any other Restricted Person provide such LC
Collateral (whether by application of proceeds of other Collateral, by transfers
from other accounts maintained with LC Issuer, or otherwise) using any available
funds of Borrower or any other Person also liable to make such payments. Any
such amounts which are required to be provided as LC Collateral and which are
not provided on the date required shall, for purposes of each Security Document,
be considered past due Obligations owing hereunder, and LC Issuer is hereby
authorized to exercise its respective rights under each Security Document to
obtain such amounts.
ARTICLE III - PAYMENTS TO LENDERS
Section 3.1. GENERAL PROCEDURES. Borrower will make each payment which
it owes under the Loan Documents to Agent for the account of the Bank Party to
whom such payment is owed. Each such payment must be received by Agent not later
than 11:00 a.m., New York, New York time, on the date such payment becomes due
and payable, in lawful money of the United States of America, without set-off,
deduction or counterclaim, and in immediately available funds. Any payment
received by Agent 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 as provided in the Loan Document under which such payment is due.
Each payment under a Loan Document shall be due and payable at the place
provided therein and, if no specific place of payment is provided, shall be due
and payable at the place of payment of Agent's Note. When Agent collects or
receives money on account of the Obligations, Agent shall distribute all money
so collected or received, and each Bank Party shall apply all such money so
distributed, as follows:
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<PAGE> 23
Exhibit 10.13
(a) first, for the payment of all Obligations which are then
due (and if such money is insufficient to pay all such Obligations,
first to any reimbursements due Agent under Section 6.9 or 10.4 and
then to the partial payment of all other Obligations then due in
proportion to the amounts thereof, or as Bank Parties shall otherwise
agree);
(b) then for the prepayment of amounts owing under the Loan
Documents (other than principal on the Notes) if so specified by
Borrower;
(c) then for the prepayment of principal on the Notes,
together with accrued and unpaid interest on the principal so prepaid;
and
(d) last, for the payment or prepayment of any other
Obligations.
All payments applied to principal or interest on any Note shall be applied first
to any interest then due and payable, then to principal then due and payable,
and last to any prepayment of principal and interest in compliance with Sections
2.6 and 2.7. All distributions of amounts described in any of subsections (b),
(c) or (d) above shall be made by Agent pro rata to each Bank Party then owed
Obligations described in such subsection in proportion to all amounts owed to
all Bank Parties which are described in such subsection; provided that if any
Lender then owes payments to LC Issuer for the purchase of a participation under
Section 2.13 hereof, any amounts otherwise distributable under this section to
such Lender shall be deemed to belong to LC Issuer, to the extent of such unpaid
payments, and Agent shall apply such amounts to make such unpaid payments rather
than distribute such amounts to such Lender.
Section 3.2. CAPITAL REIMBURSEMENT. If either (a) the introduction or
implementation of or the compliance with or any change in or in the
interpretation of any Law, or (b) the introduction or implementation of or the
compliance with any request, directive or guideline from any central bank or
other governmental authority (whether or not having the force of Law) affects or
would affect the amount of capital required or expected to be maintained by any
Bank Party or any corporation controlling any Bank Party, then, upon demand by
such Bank Party, Borrower will pay to Agent for the benefit of such Bank Party,
from time to time as specified by such Bank Party, such additional amount or
amounts which such Bank Party shall determine to be appropriate to compensate
such Bank Party or any corporation controlling such Bank Party in light of such
circumstances, to the extent that such Bank Party reasonably determines that the
amount of any such capital would be increased or the rate of return on any such
capital would be reduced by or in whole or in part based on the existence of the
face amount of such Bank Party's Loans, Letters of Credit, participations in
Letters of Credit or commitments under this Agreement.
Section 3.3. INCREASED COST OF EURODOLLAR LOANS OR LETTERS OF CREDIT.
If any applicable Law (whether now in effect or hereinafter enacted or
promulgated, including Regulation D) or any interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof (whether or not having the force of Law):
(a) shall change the basis of taxation of payments to any Bank
Party of any principal, interest, or other amounts attributable to any
Eurodollar Loan or Letter of Credit or otherwise due under this
Agreement in respect of any Eurodollar Loan or Letter of Credit (other
than taxes imposed on the overall net income of such Bank Party or any
lending office of such Bank Party by any jurisdiction in which such
Bank Party or any such lending office is located); or
(b) shall change, impose, modify, apply or deem applicable any
reserve, special deposit or similar requirements in respect of any
Eurodollar Loan or any Letter of Credit (excluding those for which such
Bank Party is fully compensated pursuant to adjustments made in the
definition of Eurodollar Rate) or against assets of, deposits with or
for the account of, or credit extended by, such Bank Party; or
(c) shall impose on any Bank Party or the interbank
eurocurrency deposit market any other condition affecting any
Eurodollar Loan or Letter of Credit, the result of which is to increase
the cost to
19
<PAGE> 24
Exhibit 10.13
any Bank Party of funding or maintaining any Eurodollar Loan or of
issuing any Letter of Credit or to reduce the amount of any sum
receivable by any Bank Party in respect of any Eurodollar Loan or
Letter of Credit by an amount deemed by such Bank Party to be material,
then such Bank Party shall promptly notify Agent and Borrower in writing of the
happening of such event and of the amount required to compensate such Bank Party
for such event (on an after-tax basis, taking into account any taxes on such
compensation), whereupon (i) Borrower shall pay such amount to Agent for the
account of such Bank Party and (ii) Borrower may elect, by giving to Agent and
such Bank Party not less than three Business Days' notice, to convert all (but
not less than all) of any such Eurodollar Loans into Base Rate Loans.
Section 3.4. AVAILABILITY. If (a) any change in applicable Laws, or in
the interpretation or administration thereof of or in any jurisdiction
whatsoever, domestic or foreign, shall make it unlawful or impracticable for any
Bank Party to fund or maintain Eurodollar Loans or to issue or participate in
Letters of Credit, or shall materially restrict the authority of any Bank Party
to purchase or take offshore deposits of dollars (i.e., "eurodollars"), or (b)
any Bank Party determines that matching deposits appropriate to fund or maintain
any Eurodollar Loan are not available to it, or (c) any Bank Party determines
that the formula for calculating the Eurodollar Rate does not fairly reflect the
cost to such Bank Party of making or maintaining loans based on such rate, then,
upon notice by such Bank Party to Borrower and Agent, Borrower's right to elect
Eurodollar Loans from such Bank Party (or, if applicable, to obtain Letters of
Credit) shall be suspended to the extent and for the duration of such
illegality, impracticability or restriction and all Eurodollar Loans of such
Bank Party which are then outstanding or are then the subject of any Borrowing
Notice and which cannot lawfully or practicably be maintained or funded shall
immediately become or remain, or shall be funded as, Base Rate Loans of such
Bank Party. Borrower agrees to indemnify each Bank Party and hold it harmless
against all costs, expenses, claims, penalties, liabilities and damages which
may result from any such change in Law, interpretation or administration. Such
indemnification shall be on an after-tax basis, taking into account any taxes
imposed on the amounts paid as indemnity.
Section 3.5. FUNDING LOSSES. In addition to its other obligations
hereunder, Borrower will indemnify each Bank Party against, and reimburse each
Bank Party on demand for, any loss or expense incurred or sustained by such Bank
Party (including any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by a Bank Party to fund or
maintain Eurodollar Loans), as a result of (a) any payment or prepayment
(whether authorized or required hereunder or otherwise) of all or a portion of a
Eurodollar Loan on a day other than the day on which the applicable Interest
Period ends, (b) any payment or prepayment, whether required hereunder or
otherwise, of a Loan made after the delivery, but before the effective date, of
a Continuation/Conversion Notice, if such payment or prepayment prevents such
Continuation/Conversion Notice from becoming fully effective, (c) the failure of
any Loan to be made or of any Continuation/Conversion Notice to become effective
due to any condition precedent not being satisfied or due to any other action or
inaction of any Restricted Person, or (d) any conversion (whether authorized or
required hereunder or otherwise) of all or any portion of any Eurodollar Loan
into a Base Rate Loan or into a different Eurodollar Loan on a day other than
the day on which the applicable Interest Period ends. Such indemnification shall
be on an after-tax basis, taking into account any taxes imposed on the amounts
paid as indemnity.
Section 3.6. REIMBURSABLE TAXES. Borrower covenants and agrees that:
(a Borrower will indemnify each Bank Party against and
reimburse each Bank Party for all present and future income, stamp and
other taxes, levies, costs and charges whatsoever imposed, assessed,
levied or collected on or in respect of this Agreement or any
Eurodollar Loans or Letters of Credit (whether or not legally or
correctly imposed, assessed, levied or collected), excluding, however,
any taxes imposed on or measured by the overall net income of Agent or
such Bank Party or any lending office of such Bank Party by any
jurisdiction in which such Bank Party or any such lending office is
located (all such non-excluded taxes, levies, costs and charges being
collectively called "Reimbursable Taxes" in this section). Such
indemnification shall be on an after-tax basis, taking into account any
taxes imposed on the amounts paid as indemnity.
20
<PAGE> 25
Exhibit 10.13
(b All payments on account of the principal of, and interest
on, each Bank Party's Loans and Note, and all other amounts payable by
Borrower to any Bank Party hereunder, shall be made in full without
set-off or counterclaim and shall be made free and clear of and without
deductions or withholdings of any nature by reason of any Reimbursable
Taxes, all of which will be for the account of Borrower. In the event
of Borrower being compelled by Law to make any such deduction or
withholding from any payment to any Bank Party, Borrower shall pay on
the due date of such payment, by way of additional interest, such
additional amounts as are needed to cause the amount receivable by such
Bank Party after such deduction or withholding to equal the amount
which would have been receivable in the absence of such deduction or
withholding. If Borrower should make any deduction or withholding as
aforesaid, Borrower shall within 60 days thereafter forward to such
Bank Party an official receipt or other official document evidencing
payment of such deduction or withholding.
(c If Borrower is ever required to pay any Reimbursable Tax
with respect to any Eurodollar Loan, Borrower may elect, by giving to
Agent and such Bank Party not less than three Business Days' notice, to
convert all (but not less than all) of any such Eurodollar Loan into a
Base Rate Loan, but such election shall not diminish Borrower's
obligation to pay all Reimbursable Taxes .
(d Notwithstanding the foregoing provisions of this section,
Borrower shall be entitled, to the extent it is required to do so by
Law, to deduct or withhold (and not to make any indemnification or
reimbursement for) income or other similar taxes imposed by the United
States of America (other than any portion thereof attributable to a
change in federal income tax Laws effected after the date hereof) from
interest, fees or other amounts payable hereunder for the account of
any Bank Party, other than a Bank Party (i) who is a U.S. person for
Federal income tax purposes or (ii) who has the Prescribed Forms on
file with Agent (with copies provided to Borrower) for the applicable
year to the extent deduction or withholding of such taxes is not
required as a result of the filing of such Prescribed Forms, provided
that if Borrower shall so deduct or withhold any such taxes, it shall
provide a statement to Agent and such Bank Party, setting forth the
amount of such taxes so deducted or withheld, the applicable rate and
any other information or documentation which such Bank Party may
reasonably request for assisting such Bank Party to obtain any
allowable credits or deductions for the taxes so deducted or withheld
in the jurisdiction or jurisdictions in which such Bank Party is
subject to tax. As used in this section, "Prescribed Forms" means such
duly executed forms or statements, and in such number of copies, which
may, from time to time, be prescribed by Law and which, pursuant to
applicable provisions of (x) an income tax treaty between the United
States and the country of residence of the Bank Party providing the
forms or statements, (y) the Internal Revenue Code of 1986, as amended
from time to time, or (z) any applicable rules or regulations
thereunder, permit Borrower to make payments hereunder for the account
of such Bank Party free of such deduction or withholding of income or
similar taxes.
Section 3.7. CHANGE OF APPLICABLE LENDING OFFICE. Each Bank Party
agrees that, upon the occurrence of any event giving rise to the operation of
Sections 3.2 through 3.6 with respect to such Bank Party, it will, if requested
by Borrower, use reasonable efforts (subject to overall policy considerations of
such Bank Party) to designate another Lending Office, provided that such
designation is made on such terms that such Bank Party and its Lending Office
suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of any such
section. Nothing in this section shall affect or postpone any of the obligations
of Borrower or the rights of any Bank Party provided in Sections 3.2 through
3.6.
Section 3.8 PROCEEDS OF SALES OF MORTGAGED OR PLEDGED PROPERTIES. In
respect to each Partnership formed on or before December 31, 1992, and in order
to comply with Section 6.8 of the partnership agreement of each such Partnership
(pursuant to which each such Partnership shall have the authority to mortgage an
undivided percentage working interest in the Partnership's producing oil and gas
properties to secure borrowings by Borrower), if any property of such
Partnership which is subject to the Security Documents shall be sold or
otherwise disposed of for value by such Partnership, the Borrower's interest
therein shall be released from the Security Documents; provided that (i) all of
Borrower's portion of such proceeds of any such sale must be applied against the
Obligations and the Majority Lenders shall have the right to reduce the
Borrowing Base by such value
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<PAGE> 26
Exhibit 10.13
as they ascribe to Borrower's portion of such sold properties, and (ii) Borrower
will make each such payment of proceeds to Agent no later than 11:00 a.m., New
York, New York time, on the first Business Day following any such sale, in
lawful money of the United States of America, without set-off, deduction or
counterclaim, and in immediately available funds. Such payment shall be applied
to the Obligations as set forth in Section 3.1.
ARTICLE IV - CONDITIONS PRECEDENT TO LENDING
Section 4.1. DOCUMENTS TO BE DELIVERED. No Lender has any obligation to
make its first Loan, and LC Issuer has no obligation to issue the first Letter
of Credit unless Agent shall have received all of the following, at Agent's
office in New York, New York, duly executed and delivered and in form, substance
and date satisfactory to Agent:
(a This Agreement and any other documents that Lenders are to
execute in connection herewith.
(b Each Note.
(c Each Security Document listed in the Security Schedule.
(d Certain certificates of Borrower including:
(i) An "Omnibus Certificate" of the Secretary and of the
Chairman of the Board or President 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 and
completeness of the following exhibits attached thereto: (1) a copy of
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 the other Loan
Documents delivered or to be delivered in connection herewith and the
consummation of the transactions contemplated herein and therein, (2) a
copy of the charter documents of Borrower and all amendments thereto,
certified by the appropriate official of Borrower's state of
organization, and (3) a copy of any bylaws of Borrower; and
(ii) A "Compliance Certificate" of the Chairman of the Board
or President and of the chief financial officer of Borrower, of even
date with such Loan or such Letter of Credit, in which such officers
certify to the satisfaction of the conditions set out in subsections
(a), (b), (c) and (d) of Section 4.2.
(e A certificate (or certificates) of the due formation, valid
existence and good standing of Borrower in its state of organization,
issued by the appropriate authorities of such jurisdiction, and
certificates of Borrower's good standing and due qualification to do
business, issued by appropriate officials in any states in which
Borrower owns property subject to Security Documents.
(f Documents similar to those specified in subsections (d)(i)
and (e) of this section with respect to each Guarantor and the
execution by it of its guaranty of Borrower's Obligations.
(g A favorable opinion of Thomas Hill Esq., General Counsel
for Restricted Persons, substantially in the form set forth in Exhibit
H-i, and Cassidy, Kotjarapoglus & Pohland, P.C., special Pennsylvania
counsel for Agent, and Bowles, Rice, McDavid, Graff & Love, special
Ohio counsel for Agent, both substantially in the form set forth in
Exhibit H-2.
(h The Initial Engineering Report and the Initial Financial
Statements.
(i Certificates or binders evidencing Restricted Persons'
insurance in effect on the date hereof.
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Exhibit 10.13
(j A favorable report of Pilko & Associates, Inc. regarding
their environmental assessment of the material properties of Restricted
Persons, in scope and results acceptable to Agent.
(k Title review in form, substance and authorship satisfactory
to Agent.
(1 A favorable report of Agent's professional insurance
consultants regarding their assessment of the insurance maintained by
Restricted Persons, in scope and results acceptable to Agent. A
certificate signed by the chief executive officer of Borrower in form
and detail acceptable to Agent confirming the insurance that is in
effect as of the date hereof and certifying that such insurance is
customary for the businesses conducted by Restricted Persons and is in
compliance with the requirements of this Agreement.
(m Payment of all commitment, facility, agency and other fees
required to be paid to any Bank Party pursuant to any Loan Documents or
any commitment agreement heretofore entered into.
(n Documents (i) confirming the payment in full of all
Indebtedness under the Existing Credit Documents, (ii) releasing and
terminating all Liens on any Restricted Person's property securing such
Indebtedness (or assigning such Liens to Agent for the benefit of
Lenders, and (iii) terminating the credit facility under the Existing
Credit Documents.
Section 4.2. ADDITIONAL CONDITIONS PRECEDENT. No Lender has any
obligation to make any Loan (including its first), and LC Issuer has no
obligation to issue any Letter of Credit (including its first), unless the
following conditions precedent have been satisfied:
(a All representations and warranties made by any Restricted
Person in any Loan Document shall be true on and as of the date of such
Loan or the date of issuance of such Letter of Credit (except to the
extent that the facts upon which such representations are based have
been changed by the extension of credit hereunder) as if such
representations and warranties had been made as of the date of such
Loan or the date of issuance of such Letter of Credit.
(b No Default shall exist at the date of such Loan or the date
of issuance of such Letter of Credit.
(c No Material Adverse Change shall have occurred to, and no
event or circumstance shall have occurred that could cause a Material
Adverse Change to, Borrower's Consolidated financial condition or
businesses since the date of this Agreement.
(d Each Restricted Person shall have performed and complied
with all agreements and conditions required in the Loan Documents to be
performed or complied with by it on or prior to the date of such Loan
or the date of issuance of such Letter of Credit.
(e The making of such Loan or the issuance of such Letter of
Credit shall not be prohibited by any Law and shall not subject any
Lender or any LC Issuer to any penalty or other onerous condition under
or pursuant to any such Law.
(f Agent shall have received all documents and instruments
which Agent has then requested, in addition to those described in
Section 4.1 (including opinions of legal counsel for Restricted Persons
and Agent; 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 Restricted Person in this Agreement and the other
Loan Documents, (ii) the satisfaction of all conditions contained
herein or therein, and (iii) all other
23
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Exhibit 10.13
matters pertaining hereto and thereto. All such additional documents
and instruments shall be satisfactory to Agent in form, substance and
date.
ARTICLE V - REPRESENTATIONS AND WARRANTIES
To confirm each Bank Party's understanding concerning Restricted
Persons and Restricted Persons' businesses, properties and obligations and to
induce each Bank Party to enter into this Agreement and to extend credit
hereunder, Borrower represents and warrants to each Bank Party that:
Section 5.1. NO DEFAULT. No Restricted Person is in default in the
performance of any of the covenants and agreements contained in any Loan
Document. No event has occurred and is continuing which constitutes a Default.
Section 5.2. ORGANIZATION AND GOOD STANDING. Each Restricted Person is
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, having all powers required to carry on its
business and enter into and carry out the transactions contemplated hereby.
Each Restricted Person is duly qualified, in good standing, and authorized to do
business in all other jurisdictions within the United States wherein the
character of the properties owned or held by it or the nature of the business
transacted by it makes such qualification necessary. Each Restricted Person has
taken all actions and procedures customarily taken in order to enter, for the
purpose of conducting business or owning property, each jurisdiction outside the
United States wherein the character of the properties owned or held by it or the
nature of the business transacted by it makes such qualification necessary.
Section 5.3. AUTHORIZATION. Each Restricted Person has duly taken all
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. Borrower is duly authorized to borrow funds hereunder.
Section 5.4. NO CONFLICTS OR CONSENTS. The execution and delivery by
the various Restricted 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 (1) any Law, (2) the
organizational documents of any Restricted Person, or (3) any agreement,
judgment, license, order or permit applicable to or binding upon any Restricted
Person, (ii) result in the acceleration of any Indebtedness owed by any
Restricted Person, or (iii) result in or require the creation of any Lien upon
any assets or properties of any Restricted 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 Tribunal or third party is required in connection with the
execution, delivery or performance by any Restricted Person of any Loan Document
or to consummate any transactions contemplated by the Loan Documents.
Section 5.5. ENFORCEABLE OBLIGATIONS. This Agreement is, and the other
Loan Documents when duly executed and delivered will be, legal, valid and
binding obligations of each Restricted Person which is a party hereto or
thereto, enforceable in accordance with their terms except as such enforcement
may be limited by bankruptcy, insolvency or similar Laws of general application
relating to the enforcement of creditors' rights.
Section 5.6. INITIAL FINANCIAL STATEMENTS. Borrower has heretofore
delivered to each Bank Party true, correct and complete copies of the Initial
Financial Statements. The Initial Financial Statements fairly present Borrower's
Consolidated financial position at the respective dates thereof and the
Consolidated results of Borrower's operations and Borrower's Consolidated cash
flows for the respective periods thereof. Since the date of the annual Initial
Financial Statements no Material Adverse Change has occurred, except as
reflected in the quarterly Initial Financial Statements or in the Disclosure
Schedule. All Initial Financial Statements were prepared in accordance with
GAAP.
24
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Exhibit 10.13
Section 5.7. OTHER OBLIGATIONS AND RESTRICTIONS. No Restricted Person
has any outstanding Liabilities of any kind (including contingent obligations,
tax assessments, and unusual forward or long-term commitments) which is, in the
aggregate, material to Borrower or material with respect to Borrower's
Consolidated financial condition and not shown in the Initial Financial
Statements or disclosed in the Disclosure Schedule or a Disclosure Report.
Except as shown in the Initial Financial Statements or disclosed in the
Disclosure Schedule or a Disclosure Report, no Restricted Person is subject to
or restricted by any franchise, contract, deed, charter restriction, or other
instrument or restriction which could cause a Material Adverse Change.
Section 5.8. FULL DISCLOSURE. No certificate, statement or other
information delivered herewith or heretofore by any Restricted Person to any
Bank Party 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 Restricted Person
(other than industry-wide risks normally associated with the types of businesses
conducted by Restricted Persons) necessary to make the statements contained
herein or therein not misleading as of the date made or deemed made. There is
no fact known to any Restricted Person (other than industry-wide risks normally
associated with the types of businesses conducted by Restricted Persons) that
has not been disclosed to each Bank Party in writing which could cause a
Material Adverse Change. There are no statements or conclusions in any
Engineering Report which are based upon or include misleading information or
fail to take into account material information regarding the matters reported
therein, it being understood that each 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 each Bank Party true,
correct and complete copies of the Initial Engineering Report.
Section 5.9. 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 Restricted Person threatened, against any Restricted Person
before any Tribunal which could cause a Material Adverse Change, and (ii) there
are no outstanding judgments, injunctions, writs, rulings or orders by any such
Tribunal against any Restricted Person or any Restricted Person's stockholders,
partners, directors or officers which could cause a Material Adverse Change.
Section 5.10. LABOR DISPUTES AND ACTS OF GOD. Except as disclosed in
the Disclosure Schedule or a Disclosure Report, neither the business nor the
properties of any Restricted Person has been affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which could cause a Material Adverse
Change.
Section 5.11. ERISA PLANS AND LIABILITIES. All currently existing
ERISA Plans are listed in the Disclosure Schedule or a Disclosure Report. Except
as disclosed in the Initial Financial Statements or in the Disclosure Schedule
or a Disclosure Report, no Termination Event has occurred with respect to any
ERISA Plan and all ERISA Affiliates are in compliance with ERISA in all material
respects. No ERISA Affiliate 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. Except as set forth in the Disclosure Schedule
or a Disclosure Report: (i) no "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as amended) exists with
respect to any ERISA Plan, whether or not waived by the Secretary of the
Treasury or his delegate, and (ii) the current value of each ERISA Plan's
benefits does not exceed the current value of such ERISA Plan's assets available
for the payment of such benefits by more than $500,000.
SECTION 5.12. ENVIRONMENTAL AND OTHER LAWS.
As used in this section: "CERCLA" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, "CERCLIS" means
the Comprehensive Environmental Response, Compensation and Liability Information
System List of the Environmental Protection Agency, and "RELEASE" has
25
<PAGE> 30
Exhibit 10.13
the meaning given such term in 42 U.S.C. 9601(22). Except as set forth in the
Disclosure Schedule or a Disclosure Report:
(a) Restricted Persons are conducting their businesses in compliance
with all applicable Laws, including Environmental Laws, and have all permits,
licenses and authorizations required in connection with the conduct of their
businesses, except to the extent failure to have any such permit, license or
authorization could not cause a Material Adverse Change. Each Restricted Person
is in compliance with the terms and conditions of all such permits, licenses and
authorizations, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except to the extent
failure to comply could not cause a Material Adverse Change.
(b) No notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed, and no investigation or review is pending or threatened by any
Tribunal or any other Person with respect to (i) any alleged generation,
treatment, storage, recycling, transportation, disposal, or Release of any
Hazardous Materials, either by any Restricted Person or on any property owned by
any Restricted Person, (ii) any material remedial action which might be needed
to respond to any such alleged generation, treatment, storage, recycling,
transportation, disposal, or Release, or (1) any alleged failure by any
Restricted Person to have any permit, license or authorization required in
connection with the conduct of its business or with respect to any such
generation, treatment, storage, recycling, transportation, disposal, or Release.
(c) No Restricted Person otherwise has any known material contingent
liability in connection with any alleged generation, treatment, storage,
recycling, transportation, disposal, or Release of any Hazardous Materials.
(d) No Restricted Person has handled any Hazardous Materials, other
than as a generator, on any properties now or previously owned or leased by any
Restricted Person to an extent that such handling has caused, or could cause, a
Material Adverse Change; and further, except to an extent that the following has
not caused, and could not have cause, a Material Adverse Change:
(i) no PCBs are or have been present at any properties now or
previously owned or leased by any Restricted Person;
(ii) no asbestos is or has been present at any properties now or
previously owned or leased by any Restricted Person;
(iii) there are no underground storage tanks for Hazardous
Materials, active or abandoned, at any properties now or
previously owned or leased by any Restricted Person;
(iv) no Hazardous Materials have been Released, in a reportable
quantity, where such a quantity has been established by
statute, ordinance, rule, regulation or order, at, on or under
any properties now or previously owned or leased by any
Restricted Person;
(v) no Hazardous Materials have been otherwise Released at, on or
under any properties now or previously owned or leased by any
Restricted Person to an extent that such release has caused,
or could cause, a Material Adverse Change.
(e) No Restricted Person has transported or arranged for the
transportation of any Hazardous Material to any location which is listed on the
National Priorities List under CERCLA, listed for possible inclusion on the
National Priorities List by the Environmental Protection Agency in CERCLIS, or
listed on any similar state list or which is the subject of federal, state or
local enforcement actions or other investigations which may lead to claims
26
<PAGE> 31
Exhibit 10.13
against any Restricted Person for clean-up costs, remedial work, damages to
natural resources or for personal injury claims, including, but not limited to,
claims under CERCLA.
(f) No material amount of Hazardous Material generated by any
Restricted Person has been recycled, treated, stored, disposed of or released by
any Restricted Person at any location other than those listed in Disclosure
Schedule.
(g) No oral or written notification of a Release of a Hazardous
Material in any material amount has been filed by or on behalf of any Restricted
Person (and to the best knowledge of Borrower, no such notification has been
filed with respect to any Restricted Person by any other Person), and no
property now or previously owned or leased by any Restricted Person is listed or
proposed for listing on the National Priority list promulgated pursuant to
CERCLA, in CERCLIS, or on any similar state list of sites requiring
investigation or clean-up.
(h) There are no Liens arising under or pursuant to any Environmental
Laws on any of the real properties or properties owned or leased by any
Restricted Person, and no government actions have been taken or are in process
which could subject any of such properties to such Liens; nor would any
Restricted Person be required to place any notice or restriction relating to the
presence of Hazardous Materials at any properties owned by it in any deed to
such properties.
(i) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the possession of
any Restricted Person in relation to any properties or facility now or
previously owned or leased by any Restricted Person which have not been made
available to Agent.
Section 5.13. NAMES AND PLACES OF BUSINESS. No Restricted Person has,
during the preceding five years, had, been known by, or used any other trade or
fictitious name, except as disclosed in the Disclosure Schedule. Except as
otherwise indicated in the Disclosure Schedule or a Disclosure Report, the chief
executive office and principal place of business of each Restricted Person are
(and for the preceding five years have been) located at the address of Borrower
set out m Section 10.3. Except as indicated in the Disclosure Schedule or a
Disclosure Report, no Restricted Person has any other office or place of
business.
Section 5.14. BORROWER'S SUBSIDIARIES. Borrower does not presently have
any Subsidiary or own any stock in any other corporation or association except
those listed in the Disclosure Schedule or a Disclosure Report. Neither Borrower
nor any Restricted 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 or a Disclosure Report and associations, joint ventures or
other relationships (i) which are established pursuant to a standard form
operating agreement or similar agreement or which are partnerships for purposes
of federal income taxation only, (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. Except as otherwise revealed
in a Disclosure Report, Borrower owns, directly or indirectly, the equity
interest in each of its Subsidiaries which is indicated in the Disclosure
Schedule.
Section 5.15. TITLE TO PROPERTIES; LICENSES. Each Restricted Person has
good and defensible title to all of its material properties and assets, free and
clear of all Liens other than Permitted Liens and of all impediments to the use
of such properties and assets in such Restricted Person's business, except that
no representation or warranty is made with respect to any oil, gas or mineral
property or interest to which no proved oil or gas reserves are properly
attributed. Each Restricted Person possesses all licenses, permits, franchises,
patents, copyrights, trademarks and trade names, and other intellectual property
(or otherwise possesses the right to use such intellectual property without
violation of the rights of any other Person) which are necessary to carry out
its business as presently conducted and as presently proposed to be conducted
hereafter, and no Restricted Person is in violation in any material respect of
the terms under which it possesses such intellectual property or the right to
use such intellectual property.
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<PAGE> 32
Exhibit 10.13
Section 5.16. GOVERNMENT REGULATION. Neither Borrower nor any other
Restricted Person owing Obligations is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940 (as any of the preceding acts have been amended) or any
other Law which regulates the incurring by such Person of Indebtedness. Neither
Borrower nor any other Restricted Person owing Obligations is subject to
regulation under any Laws relating to common contract carriers or the sale of
electricity, gas, steam, water or other public utility services other than
reporting related to incidental gas utility supply.
Section 5.17. OFFICERS. Directors and Shareholders. The officers and
directors of Borrower are those persons disclosed in the definitive proxy
statement prepared by Borrower and filed with the Securities and Exchange
Commission in connection with Borrower's most recent annual meeting, copies of
which proxy statement have been previously furnished in connection with the
negotiation hereof.
ARTICLE VI - AFFIRMATIVE COVENANTS OF BORROWER
To conform with the terms and conditions under which each Bank Party is
willing to have credit outstanding to Borrower, and to induce each Bank Party to
enter into this Agreement and extend credit hereunder, Borrower warrants,
covenants and agrees that until the full and final payment of the Obligations
and the termination of this Agreement, unless Majority Lenders have previously
agreed otherwise:
Section 6.1. 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 expressed or implied
in the Loan Documents. Borrower will cause each other Restricted Person to
observe, perform and comply with every such term, covenant and condition.
Section 6.2. BOOKS. FINANCIAL STATEMENTS AND REPORTS. Each Restricted
Person will at all times maintain full and accurate books of account and records
. Borrower will maintain and will cause its Subsidiaries to maintain a standard
system of accounting, will maintain its Fiscal Year, and will furnish the
following statements and reports to each Bank Party at Borrower's expense:
(a As soon as available, and in any event within one hundred
(100) days after the end of each Fiscal Year, complete Consolidated and
consolidating financial statements of Borrower together with all notes
thereto, prepared in reasonable detail in accordance with GAAP,
together with an unqualified opinion, based on an audit using generally
accepted auditing standards, by Arthur Andersen or other independent
certified public accountants selected by Borrower and acceptable to
Majority Lenders, stating that such Consolidated financial statements
have been so prepared. These financial statements shall contain a
Consolidated and consolidating balance sheet as of the end of such
Fiscal Year and Consolidated and consolidating statements of earnings,
of cash flows, and of changes in owners' equity for such Fiscal Year,
each setting forth in comparative form the corresponding figures for
the preceding Fiscal Year.
(b As soon as available, and in any event within fifty-five
(55) days after the end of each Fiscal Quarter, Borrower's Consolidated
and consolidating balance sheet as of the end of such Fiscal Quarter
and Consolidated and consolidating statements of Borrower's earnings
and cash flows for the period from the beginning of the then current
Fiscal Year to the end of such Fiscal Quarter, all in reasonable detail
and prepared in accordance with GAAP, subject to changes resulting from
normal year-end adjustments. In addition Borrower will, together with
each such set of financial statements and each set of financial
statements furnished under subsection (a) of this section, furnish a
certificate in the form of Exhibit D signed by the chief financial
officer of Borrower stating that such financial statements are accurate
and complete (subject to normal year-end adjustments), stating that he
has reviewed the Loan Documents, containing calculations showing
compliance (or non-compliance) at the end of such Fiscal Quarter with
the requirements of Sections 7.11, 7.12 and 7.13 and stating that no
Default exists at the end of such Fiscal Quarter or at the time of such
certificate or specifying the nature and period of existence of any
such Default.
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Exhibit 10.13
(c Promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent by any
Restricted Person to its stockholders and all registration statements,
periodic reports and other statements and schedules filed by any
Restricted Person with any securities exchange, the Securities and
Exchange Commission or any similar governmental authority.
(d By May 31 of each year, an engineering report (as of the
March 31 Evaluation Date) prepared by S. A. Holditch and Associates, or
other independent petroleum engineers chosen by Borrower and acceptable
to Majority Lenders, concerning all oil and gas properties and
interests owned by any Restricted Person which are located in or
offshore of the United States and which have attributable to them
proved oil or gas reserves. This report shall be satisfactory to Agent,
shall contain sufficient information to enable Borrower to meet the
reporting requirements concerning oil and gas reserves contained in
Regulations S-K and S-X promulgated by the Securities and Exchange
Commission, shall take into account any "over-produced" status under
gas balancing arrangements, and shall contain information and analysis
comparable in scope to that contained in the Initial Engineering
Report. This report shall distinguish (or shall be delivered together
with a certificate from an appropriate officer of Borrower which
distinguishes) those properties treated in the report which are
Collateral from those properties treated in the report which are not
Collateral.
(e By November 30 of each year, an engineering report (as of
the September 30 Evaluation Date) prepared by petroleum engineers
employed by Borrower, concerning all oil and gas properties and
interests owned by any Restricted Person which are located in or
offshore of the United States and which have attributable to them
proved oil and gas reserves. This report shall be in form and substance
as the report delivered under Section 6.2(d) and otherwise satisfactory
to Majority Lenders.
(f As soon as available, and in any event within fifty-five
(55) days after the end of each Fiscal Quarter, a report setting forth
volumes, prices and margins for all marketing activities of Borrower
and its Restricted Subsidiaries.
(g Promptly, and in any event within 30 days following a
request by Agent but in no event more often than once during any fiscal
year unless for cause in the good faith determination of Agent or
Majority Lenders specified by Agent in such request, a list, by name
and address, of those Persons who have purchased production during such
Fiscal Year from the Mortgaged Properties, giving each such purchaser's
owner number for Borrower and each other grantor of a Lien on Mortgaged
Properties and each such purchaser's property number for each such
Mortgaged Property.
(h As soon as available, and in any event within thirty (30)
days after the end of each Fiscal Year, Borrower shall deliver to Agent
an environmental compliance certificate signed by the president or
chief executive officer of Borrower in the form attached hereto as
Exhibit F. Further, if requested by Agent for cause, Borrower shall
permit and cooperate with an environmental and safety review made in
connection with the operations of Restricted Persons' oil and gas
properties one time during each Fiscal Year beginning with the Fiscal
Year 1998, by Pilko & Associates, Inc. or other consultants selected by
Agent which review shall, if requested by Agent, be arranged and
supervised by environmental legal counsel for Agent, all at Borrower's
cost and expense. As used in this subsection 6.2(h) "cause" shall mean
an event or condition making such request appropriate in the good faith
determination of Agent or Majority Lenders, including, without
limitation, the existence of a Default or Event of Default or the
occurrence of any event of the type specified in Section 6.12. The
consultant shall render a verbal or written report, as specified by
Agent, based upon such review at Borrower's cost and expense.
(i Concurrently with the annual renewal of the Borrower's s
insurance policies, Borrower shall, if requested by Agent in writing,
cause a certificate or report to be issued by Agent's professional
insurance consultants or other insurance consultants satisfactory to
Agent certifying that Borrower's insurance for the next succeeding year
after such renewal (or for such longer period for which such insurance
is in effect) complies with the provisions of this Agreement and the
Security Documents.
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Exhibit 10.13
Section 6.3. OTHER INFORMATION AND INSPECTIONS. Each Restricted Person
will furnish to each Bank Party any information which Agent may from time to
time request in writing concerning any covenant, provision or condition of the
Loan Documents or any matter in connection with Restricted Persons' businesses
and operations. Each Restricted Person will permit representatives appointed by
Agent (including independent accountants, auditors, agents, attorneys,
appraisers and any other Persons) to visit and inspect during normal business
hours any of such Restricted 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
Restricted Person shall permit Agent or its representatives to investigate and
verify the accuracy of the information furnished to Agent or any Lender in
connection with the Loan Documents and to discuss all such matters with its
officers, employees and representatives.
Section 6.4. NOTICE OF MATERIAL EVENTS AND CHANGE OF ADDRESS. Borrower
will promptly notify each Bank Party in writing, stating that such notice is
being given pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Change,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any Indebtedness owed
by any Restricted Person or of any default by any Restricted 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, if such acceleration or default could cause a
Material Adverse Change,
(d) the occurrence of any Termination Event,
(e) any claim of $250,000 or more or any other material
adverse claim asserted against any Restricted Person or with respect to
any Restricted Person's properties, and
(f) the filing of any suit or proceeding against any
Restricted Person in which the amount involved is $250,000 or more or
in which an adverse decision could cause a Material Adverse Change.
Upon the occurrence of any of the foregoing Restricted Persons will take all
necessary or appropriate steps to remedy promptly any such Material Adverse
Change, Default, acceleration, default or Termination Event, 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
Agent and Agent's counsel in writing at least twenty Business Days prior to the
date that any Restricted 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 Collateral, furnishing with such notice any
necessary financing statement amendments or requesting Agent and its counsel to
prepare the same.
Section 6.5. MAINTENANCE OF PROPERTIES. Each Restricted Person will
maintain, preserve, protect, and keep all Collateral and all other property used
or useful in the conduct of its business in good condition and in compliance
with all applicable Laws, and will from time to time make all repairs, renewals
and replacements needed to enable the business and operations carried on in
connection therewith to be promptly and advantageously conducted at all times.
Section 6.6. MAINTENANCE OF EXISTENCE AND QUALIFICATIONS. Each
Restricted Person will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by applicable Law, except where the
failure so to qualify will not cause a Material Adverse Change.
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Exhibit 10.13
Section 6.7. PAYMENT OF TRADE LIABILITIES. Taxes. etc. Each Restricted
Person will (a) timely file all required tax returns; (b) timely pay all taxes,
assessments, and other governmental charges or levies imposed upon it or upon
its income, profits or property; (c) within one hundred twenty (120) days after
the occurrence thereof, pay all Liabilities 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; (d) pay and discharge when due all other
Liabilities now or hereafter owed by it; and (e) maintain appropriate accruals
and reserves for all of the foregoing in accordance with GAAP. Each Restricted
Person may, however, delay paying or discharging any of the foregoing 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.
Section 6.8. INSURANCE. Each Restricted Person will keep or cause to be
kept insured by financially sound and reputable insurers its property in
accordance with the Insurance Schedule. Upon demand by Agent any insurance
policies covering Collateral shall be endorsed (a) to provide for payment of
losses to Agent as its interests may appear, (b) to provide that such policies
may not be canceled or reduced or affected in any material manner for any reason
without fifteen days prior notice to Agent, (c) to provide for any other matters
specified in any applicable Security Document or which Agent may reasonably
require; and (d) to provide for insurance against fire, casualty and any other
hazards normally insured against, in the amount of the full value (less a
reasonable deductible not to exceed amounts customary in the industry for
similarly situated businesses and properties) of the property insured; provided
that Restricted Persons may maintain a self insurance program on well site
equipment losses (excluding individual assets with a replacement value in excess
of $100,000) consistent with the practices of normal prudent operators. Each
Restricted Person shall at all times maintain insurance against its liability
for injury to persons or property in accordance with the Insurance Schedule,
which insurance shall be by financially sound and reputable insurers. Without
limiting the foregoing, each Restricted Person shall at all time maintain
liability insurance in the amounts set out on the Insurance Schedule.
Section 6.9. PERFORMANCE ON BORROWER'S BEHALF. If any Restricted Person
fails to pay any taxes, insurance premiums, expenses, attorneys' fees or other
amounts it is required to pay under any Loan Document, Agent may pay the same.
Borrower shall immediately reimburse Agent for any such payments and each amount
paid by Agent shall constitute an Obligation owed hereunder which is due and
payable on the date such amount is paid by Agent.
Section 6.10. INTEREST. Borrower hereby promises to each Bank Party to
pay interest at the Default Rate on all Obligations (including Obligations to
pay fees or to reimburse or indemnify any Bank Party) which Borrower has in this
Agreement promised to pay to such Bank Party and which are not paid when due.
Such interest shall accrue from the date such Obligations become due until they
are paid.
Section 6.11. COMPLIANCE WITH AGREEMENTS AND LAW. Each Restricted
Person 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. Each Restricted Person
will conduct its business and affairs in compliance with all Laws applicable
thereto.
Section 6.12. ENVIRONMENTAL MATTERS; ENVIRONMENTAL REVIEWS.
(a) Each Restricted Person will comply in all material respects with
all Environmental Laws now or hereafter applicable to such Restricted Person and
shall obtain, at or prior to the time required by applicable Environmental Laws,
all environmental, health and safety permits, licenses and other authorizations
necessary for its operations and will maintain such authorizations in full force
and effect.
(b) Borrower will promptly furnish to Agent notice of the following:
(i) The receipt by any Restricted Person of any Environmental
Complaint other than relating to a matter where any potential fines and
costs to remedy and comply could not reasonably exceed $2,500 or
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Exhibit 10.13
any formal request from any governmental authority or other Person for
information (other than requirements for compliance reports) regarding
any Release (as defined in Section 5.12) of Hazardous Substances by any
Restricted Person or from, affecting, or related to any property of any
Restricted Person or adjacent to any property of any Restricted Person
other than relating to a matter where any potential fines and costs to
remedy and comply could not reasonably exceed $2,500.
(ii) Any actual, proposed, or threatened testing or other
investigation by any governmental authority or other Person concerning
the environmental condition of, or relating to, any property of any
Restricted Person or adjacent to any property of any Restricted Person
following any allegation of a violation of any requirement of Law,
which violation, if proved, could reasonably be expected to cause a
Material Adverse Change.
(iii) Any Release of Hazardous Substances by any Restricted
Person or from, affecting, or related to any property of any Restricted
Person or adjacent to any property of any Restricted Person except in
accordance with applicable requirements of law or the terms of a valid
permit, license, certificate, or approval of the relevant governmental
authority, or the violation of any Environmental Law, or the
revocation, suspension, or forfeiture of or failure to renew, any
permit, license, registration, approval, or authorization which could
reasonably be expected to cause a Material Adverse Change.
Section 6.13. EVIDENCE OF COMPLIANCE. Each Restricted Person will
furnish to each Bank Party at such Restricted Person's or Borrower's expense all
evidence which Agent from time to time reasonably requests in writing as to the
accuracy and validity of or compliance with all representations, warranties and
covenants made by any Restricted Person in the Loan Documents, the satisfaction
of all conditions contained therein, and all other matters pertaining thereto.
Section 6.14. SOLVENCY. Upon giving effect to the issuance of the
Notes, the execution of the Loan Documents by Borrower and the consummation of
the transactions contemplated hereby, Borrower will be solvent (as such term is
used in applicable bankruptcy, liquidation, receivership, insolvency or similar
laws).
Section 6.15. Agreement to Deliver Security Documents. Borrower agrees
to deliver and to cause each other Restricted Person to deliver, to further
secure the Obligations whenever requested by Agent in its sole and absolute
discretion, deeds of trust, mortgages, chattel mortgages, security agreements,
financing statements and other Security Documents in form and substance
satisfactory to Agent for the purpose of granting, confirming, and perfecting
first and prior liens or security interests in any real or personal property now
owned or hereafter acquired by any Restricted Person and first and prior liens
or security interests in any real or personal property which is at such time
Collateral or which was intended to be Collateral pursuant to any Security
Document previously executed and not then released by Agent. Borrower also
agrees to deliver, whenever requested by Agent in its sole and absolute
discretion, favorable title opinions (or title review letters of the type
accepted by the Borrower under its practices existing prior to the date hereof)
from legal counsel acceptable to Agent with respect to any Restricted Person's
properties and interests designated by Agent which have not previously been
subject to a title review by Agent, based upon abstract or record examinations
to dates acceptable to Agent and (a) stating that such Restricted Person has
good and defensible title to such properties and interests, free and clear of
all Liens other than Permitted Liens, (b) confirming that such properties and
interests are subject to Security Documents securing the Obligations that
constitute and create legal, valid and duly perfected first deed of trust or
mortgage liens in such properties and interests and first priority assignments
of and security interests in the oil and gas attributable to such properties and
interests and the proceeds thereof, and (c) covering such other matters as Agent
may request.
Section 6.16. Perfection and Protection of Security Interests and
Liens. Borrower will from time to time deliver, and will cause each other
Restricted Person from time to time to deliver, to Agent any financing
statements, continuation statements, extension agreements and other documents,
properly completed and executed (and acknowledged when required) by Restricted
Persons in form and substance satisfactory to Agent, which
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<PAGE> 37
Exhibit 10.13
Agent requests for the purpose of perfecting, confirming, or protecting any
Liens or other rights in Collateral securing any Obligations.
Section 6.17. BANK ACCOUNTS; OFFSET. To secure the repayment of the
Obligations Borrower hereby grants to each Bank Party a security interest, a
lien, and a right of offset, each of which shall be in addition to all other
interests, liens, and rights of any Bank Party at common law, under the Loan
Documents, or otherwise, and 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 any Bank Party
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 any Bank Party,
and (c) any other credits and claims of Borrower at any time existing against
any Bank Party, including claims under certificates of deposit. At any time and
from time to time after the occurrence of any Default, each Bank Party is hereby
authorized to foreclose upon, or to offset against the Obligations then due and
payable (in either case without notice to Borrower), any and all items
hereinabove referred to. The remedies of foreclosure and offset are separate and
cumulative, and either may be exercised independently of the other without
regard to procedures or restrictions applicable to the other.
Section 6.18. GUARANTIES OF BORROWER'S SUBSIDIARIES. Each Subsidiary of
Borrower now existing or created, acquired or coming into existence after the
date hereof (other than the Partnerships, NCE Securities, Inc. and any
Immaterial Subsidiaries) shall, promptly upon request by Agent, execute and
deliver to Agent an absolute and unconditional guaranty of the timely repayment
of the Obligations and the due and punctual performance of the obligations of
Borrower hereunder, which guaranty shall be satisfactory to Agent in form and
substance. Each Subsidiary of Borrower existing on the date hereof (other than
the Partnerships, NCE Securities, Inc. and any Immaterial Subsidiaries) shall
duly execute and deliver such a guaranty prior to the making of any Loan
hereunder. Borrower will cause each of such Subsidiaries to deliver to Agent,
simultaneously with its delivery of such a guaranty, written evidence
satisfactory to Agent and its counsel that such Subsidiary has taken all
corporate or partnership action necessary to duly approve and authorize its
execution, delivery and performance of such guaranty and any other documents
which it is required to execute. As used herein "Immaterial Subsidiary" means
any Subsidiary which has no operations and whose assets, together with the
assets of all other Subsidiaries who are not Guarantors (other than the
Partnerships or NCE Securities, Inc.) have a value (at the greater of fair
market value or book value) of less than $150,000).
Section 6.19. PRODUCTION PROCEEDS. Notwithstanding that, by the terms
of the various Security Documents, Restricted Persons are and will be assigning
to Agent and Lenders all of the "Production Proceeds" (as defined therein)
accruing to the property covered thereby, so long as no Default has occurred
Restricted Persons may continue to receive from the purchasers of production all
such Production Proceeds, subject, however, to the Liens created under the
Security Documents, which Liens are hereby affirmed and ratified. Upon the
occurrence of a Default, Agent and Lenders may exercise all rights and remedies
granted under the Security Documents, including the right to obtain possession
of all Production Proceeds then held by Restricted Persons or to receive
directly from the purchasers of production all other Production Proceeds. In no
case shall any failure, whether purposed or inadvertent, by Agent or Lenders to
collect directly any such Production Proceeds constitute in any way a waiver,
remission or release of any of their rights under the Security Documents, nor
shall any release of any Production Proceeds by Agent or Lenders to Restricted
Persons constitute a waiver, remission, or release of any other Production
Proceeds or of any rights of Agent or Lenders to collect other Production
Proceeds thereafter.
Section 6.20. MORTGAGES. Within ninety (90) days after the request by
Agent, Borrower will provide to Agent executed mortgages and property
descriptions in form and substance satisfactory to Agent covering Borrower's
interests in the properties of Borrower and the Partnerships located in Summit
County, Ohio and Lawrence and Indiana Counties, Pennsylvania.
ARTICLE VII - NEGATIVE COVENANTS OF BORROWER
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Exhibit 10.13
To conform with the terms and conditions under which each Bank Party is
willing to have credit outstanding to Borrower, and to induce each Bank Party to
enter into this Agreement and make the Loans, Borrower warrants, covenants and
agrees that until the full and final payment of the Obligations and the
termination of this Agreement, unless Majority Lenders have previously agreed
otherwise:
Section 7.1. INDEBTEDNESS. No Restricted Person will in any manner owe
or be liable for Indebtedness except:
(a) the Obligations.
(b) guaranties of Indebtedness which is the primary obligation of
Borrower.
(c) obligations under operating leases entered into in the ordinary
course of such Restricted Person's business in arm's length transactions at
competitive market rates under competitive terms and conditions in all respects,
provided that the obligations required to be paid in any Fiscal Year under any
such operating leases do not in the aggregate exceed $150,000. (d) unsecured
Indebtedness among Borrower and the Guarantors arising in the ordinary course of
business.
(e) Indebtedness outstanding under the instruments and agreements
described on the Disclosure Schedule, excluding any renewals or extensions of
such Liabilities.
(f) Indebtedness arising under futures contracts or swap contracts
permitted under Section 7.3.
(g) Indebtedness in an aggregate principal amount not to exceed
$400,000 at any time outstanding consisting of (i) Indebtedness existing on the
date hereof described on the Disclosure Schedule secured only by Liens securing
such Indebtedness on the date hereof described with Disclosure Schedule, (ii)
purchase money Indebtedness, provided that the original principal amount of any
such Indebtedness shall not be in excess of the purchase price of the asset
acquired thereby and such Indebtedness shall be secured only by the acquired
asset, or (iii) capital leases.
Section 7.2. LIMITATION ON LIENS. No Restricted Person will create,
assume or permit to exist any Lien upon any of the properties or assets which it
now owns or hereafter acquires, except, to the extent not otherwise forbidden by
the Security Documents the following ("Permitted Liens"):
(a) Liens which secure Obligations only.
(b) 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 do not secure Indebtedness and secure only obligations which are not
delinquent or which is being contested as provided in Section 6.7.
(c) Liens securing Indebtedness described in Section 7.1(g).
(d) as to property which is Collateral, any Liens expressly permitted
to encumber such Collateral under any Security Document covering such Collateral
(e) Liens on oil and gas leasehold interests of a Restricted Person
created by the owner of the surface estate prior to the creation of the oil and
gas leases: provided that reasonable efforts have been made by the Restricted
Persons to obtain a release or subordination in accordance with their customary
practices, and such lien shall secure an individual debt which is not in default
and not in excess of $50,000.
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Exhibit 10.13
Section 7.3. HEDGING CONTRACTS. No Restricted Person will be a party to
or in any manner be liable on any forward, future, swap or hedging contract,
except:
(a) contracts entered into with the purpose and effect of fixing prices
on oil or gas expected to be produced by Restricted Persons, provided that at
all times: (1) no such contract fixes a price for a term of more than twelve
(12) months; (2) the aggregate monthly production covered by all such contracts
(determined, in the case of contracts that are not settled on a monthly basis,
by a monthly proration acceptable to Agent) for any single month does not in the
aggregate exceed eighty-five percent (85%) of Restricted Persons' aggregate
Projected Oil and Gas Production anticipated to be sold in the ordinary course
of Restricted Persons' businesses for such month, (3) no such contract requires
any Restricted Person to put up money, assets, letters of credit or other
security against the event of its nonperformance prior to actual default by such
Restricted Person in performing its obligations thereunder, and (4) each such
contract is with a counterparty or has a guarantor of the obligation of the
counterparty who (unless such counterparty is a Bank Party or one of its
Affiliates) at the time the contract is made has long-term obligations rated AA
or Aa2 or better, respectively, by either Rating Agency or is an investment
grade-rated industry participant. As used in this subsection, the term
"Projected Oil and Gas Production" means the projected production of oil or gas
(measured by volume unit or BTU equivalent, not sales price) for the term of the
contracts or a particular month, as applicable, from properties and interests
owned by any Restricted Person which are located in or offshore of the United
States and which have attributable to them proved oil or gas reserves, as such
production is projected in the most recent report delivered pursuant to Section
6.2(d), after deducting projected production from any properties or interests
sold or under contract for sale that had been included in such report and after
adding projected production from any properties or interests that had not been
reflected in such report but that are reflected in a separate or supplemental
reports meeting the requirements of such Section 6.3(d) above and otherwise are
satisfactory to Agent.
(b) contracts entered into by a Restricted Person with the purpose and
effect of fixing interest rates on a principal amount of indebtedness of such
Restricted Person that is accruing interest at a variable rate, provided that
(1) the aggregate notional amount of such contracts never exceeds seventy-five
percent (75%) of the anticipated outstanding principal balance of the
indebtedness to be hedged by such contracts or an average of such principal
balances calculated using a generally accepted method of matching interest swap
contracts to declining principal balances, (2) the floating rate index of each
such contract generally matches the index used to determine the floating rates
of interest on the corresponding indebtedness to be hedged by such contract and
(3) each such contract is with a counterparty or has a guarantor of the
obligation of the counterparty who (unless such counterparty is a Bank Party or
one of its Affiliates) at the time the contract is made has long-term
obligations rated AA or Aa2 or better, respectively, by either Rating Agency or
is an investment grade-rated industry participant.
Section 7.4. LIMITATION ON MERGERS. ISSUANCES OF SECURITIES. Diminution
of Interests. Except as expressly provided in this subsection no Restricted
Person will merge or consolidate with or into any other business entity. Any
Partnership or other Subsidiary of Borrower may, however, be merged into or
consolidated with (i) another Partnership or other Subsidiary of Borrower, so
long as no diminution of Borrower's interest (direct or indirect) therein shall
occur, and if one such entity is a Guarantor, a Guarantor is the surviving
business entity, or (ii) Borrower, so long as Borrower is the surviving business
entity. Borrower may merge with another business entity in the business of
exploration, development and production of oil and gas in the same regions as
Borrower; provided that the consideration to the owners of the other business
entity shall consist solely of common stock of Borrower and/or up to $500,000 of
cash consideration, Borrower is the surviving entity from such merger, no
Default or Event of Default shall have occurred or will occur after giving
effect to such merger, all representations and warranties contained herein and
in the other Loan Documents shall be true and correct after giving effect to the
merger, and the management and directors of Borrower shall be the management and
directors of the surviving entity. Borrower will not issue any securities other
than shares of its common stock and any options or warrants giving the holders
thereof only the right to acquire such shares. Borrower shall not permit any
Partnership or other Subsidiary of Borrower to issue any additional partnership
interests or shares of capital stock or other securities or any options,
warrants or other rights to acquire such additional shares or other securities
or otherwise permit any diminution of Borrower's interest (direct or indirect)
in any Partnership, except (i) to
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<PAGE> 40
Exhibit 10.13
Borrower or (ii) sales of limited partnership interests in Partnerships for fair
consideration consistent with Borrower's practices as in effect on and prior to
the date hereof.
Section 7.5. LIMITATION ON SALES OF PROPERTY. No Restricted Person
will sell, transfer, lease, exchange, alienate or dispose of any Collateral or
any of its material assets or properties or any material interest therein
except, to the extent not otherwise forbidden under the Security Documents:
(a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value.
(b) inventory (including oil and gas sold as produced and seismic data)
which is sold in the ordinary course of business on ordinary trade terms.
(c) interests in oil and gas leases, or portions thereof (if released
or abandoned but not otherwise sold or transferred), so long as no well situated
on the property transferred, or located on any unit containing all or any part
thereof, is capable (or is subject to being made capable through commercially
feasible operations) of producing oil, gas or other hydrocarbons or minerals in
commercial quantities.
(d) interests in oil and gas properties, specified as to lands and
depths: (1) so long as there is no well which is capable (or is subject to being
made capable through commercially feasible operations) of producing oil, gas or
other hydrocarbons or minerals in commercial quantities from the transferred
lands and depths or from any part of any unit which includes the transferred
lands and depths, or (2) with respect to which one or more such wells exist,
provided that all such wells have been drilled by Persons who are not Affiliates
of the transferor pursuant to contracts entered into at a time when no such
wells existed, which contracts provided for the drilling of such wells on and to
the specified lands and depths in consideration for the transfer of interests
therein, with neither the transferor nor its Affiliates having made any material
expenditures in connection with the drilling of such wells following the
execution of such contracts.
(e) interests in oil and gas properties, or portions thereof, to which
no proved reserves of oil, gas or other liquid or gaseous hydrocarbons are
properly attributed.
(f) other property (excluding Collateral) which is sold for fair
consideration not in excess of $100,000 in the case of any single transaction
(or group of related transactions) and not in the aggregate in excess of
$250,000 in any Fiscal Year, the sale of which will not materially impair or
diminish the value of the Collateral or Borrower's Consolidated financial
condition, business or operations.
(g) permitted Investments
No Restricted Person will sell, transfer or otherwise dispose of capital stock
of or interest in any of the Restricted Persons except as permitted by Section
7.4 hereof. No Restricted Person will discount, sell, pledge or assign any notes
payable to it, accounts receivable or future income.
Section 7.6. LIMITATION ON DIVIDENDS AND REDEMPTIONS. No Restricted
Person will declare or pay any dividends on, or make any other distribution in
respect of, any class of its capital stock or any partnership or other interest
in it, nor will any Restricted Person directly or indirectly make any capital
contribution to or purchase, redeem, acquire or retire any shares of the capital
stock of or partnership interests in any Restricted Person (whether such
interests are now or hereafter issued, outstanding or created), or cause or
permit any reduction or retirement of the capital stock of any Restricted
Person, except (i) Borrower may make normal quarterly dividends on Borrower's
Class B preferred stock outstanding on the date of this Agreement so long as
both before and after giving effect to such dividend, no Event of Default shall
have occurred and be continuing, (ii) Borrower may declare and pay dividends
payable only in its common stock, (iii) Borrower may redeem Borrower's Class B
preferred stock for consideration consisting only of its common stock plus cash
consideration of up to the lesser of
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<PAGE> 41
Exhibit 10.13
(a) accumulated unpaid dividends or (b) $1.00 per share and (iii) each
Partnerships may make distributions in compliance with the applicable
partnership agreement.
Section 7.7. LIMITATION ON INVESTMENTS AND NEW BUSINESSES. No
Restricted Person will (i) make any expenditure or commitment or incur any
obligation or enter into or engage in any transaction except in the ordinary
course of business, (ii) engage directly or indirectly in any business or
conduct any operations except in connection with or incidental to its present
businesses and operations, (iii) make any acquisitions of or capital
contributions to or other investments in any Person, other than Permitted
Investments, or (iv) make any significant acquisitions or investments in any
properties other than oil and gas properties, gas pipelines, and co-generation
facilities. Notwithstanding the foregoing, Borrower may acquire all of the stock
of another business entity (including but not limited to a merger permitted
pursuant to Section 7.4) in the business of exploration, development and
production of oil and gas in the same regions as Borrower; provided that the
consideration to the owners of the other business entity shall consist solely of
common stock of Borrower and/or up to $500,000 of cash consideration, no Default
or Event of Default shall have occurred or will occur after giving effect to
such acquisition, all representations and warranties contained herein and in the
other Loan Documents shall be true and correct after giving effect to the
acquisition, and the management and directors of Borrower shall become the
management and directors of the other business entity.
Section 7.8. LIMITATION ON CREDIT EXTENSIONS. Except for Permitted
Investments, no Restricted Person will extend credit, make advances or make
loans other than (i) 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 and (ii) advances to employees for reimbursable
expenses of such employees in the ordinary course of business.
Section 7.9. TRANSACTIONS WITH AFFILIATES AND PARTNERSHIPS. No
Restricted Person will engage in any material transaction with any of its
Affiliates on terms which are less favorable to it than those which would have
been obtainable at the time in arm's-length dealing with Persons other than such
Affiliates, provided that such restriction shall not apply to (i) transactions
among Borrower and its wholly owned Subsidiaries, (ii) transactions between the
Borrower and a Partnership which are entered into in the ordinary course of
business and either (a) are not less favorable to Borrower than those which
would have been obtainable at the time in arm' s-length dealing with Persons
other than such Partnership or (b) only involve a reasonable delay in billing or
collection for costs or expenses incurred on behalf of the Partnership or (iii)
transactions between the Borrower and a Partnership which are expressly provided
for in the applicable partnership agreement.
Section 7.10. CERTAIN CONTRACTS; AMENDMENTS; MULTIEMPLOYER ERISA PLANS.
Except as expressly provided for in the Loan Documents, no Restricted Person
will, directly or indirectly, enter into, create, or otherwise allow to exist
any contract or other consensual restriction on the ability of any Subsidiary of
Borrower to: (i) pay dividends or make other distributions to Borrower, (ii) to
redeem equity interests held in it by Borrower, (iii) to repay loans and other
indebtedness owing by it to Borrower, or (iv) to transfer any of its assets to
Borrower. No Restricted Person will amend or permit any amendment to any
contract or lease which releases, qualifies, limits, makes contingent or
otherwise detrimentally affects the rights and benefits of Agent or any Lender
under or acquired pursuant to any Security Documents. No ERISA Affiliate will
incur any obligation to contribute to any "multiemployer plan" as defined in
Section 4001 of ERISA. No Restricted Person will amend the partnership agreement
with respect to any Partnership in a manner which would be adverse to Borrower
in any material respect.. With respect to each Partnership formed after the date
hereof: (i) the partnership agreement shall be not less favorable in any
material respect to Borrower than the partnership agreements entered into prior
to the date hereof, and (ii) such Partnership shall be formed, and interests
therein shall be offered, sold and issued, in compliance with applicable Law.
Section 7.11. WORKING CAPITAL AND CURRENT RATIO. The ratio of
Borrower's Consolidated current assets to Borrower's Consolidated current
liabilities will never be less than 1.0 to 1.0. For purposes of this section,
all LC Obligations shall be included as current liabilities, regardless of
whether or not contingent (but without duplication). For purposes of this
section, Borrower's Consolidated current assets will include any unused portion
37
<PAGE> 42
Exhibit 10.13
of the Borrowing Base which is then available for borrowing. For purposes of
this subsection, Borrower's Consolidated current liabilities will be calculated
without including billings in excess of cost.
Section 7.12. TANGIBLE NET WORTH. Borrower will not, at any time,
permit Consolidated Net Worth to be less than the sum of (a) $10,000,000 plus
(b) an aggregate amount equal to fifty percent (50%) of its Consolidated Net
Income for each Fiscal Quarter (but, in each case, only including such Fiscal
Quarters for which Consolidated Net Income is a positive number) from and after
December 31, 1997 to and including the date of determination thereof, computed
on a cumulative basis for such period plus (c) one hundred percent (100%) of the
net proceeds (after costs of sale) of any stock hereafter issued by Borrower.
For purposes of this section, the net proceeds of that portion of any stock
which is issued for assets other than cash shall be equal to the increase in
Borrower's Consolidated tangible assets derived from such assets.
Section 7.13. EBITDA. At the end of any Fiscal Quarter, the ratio of
(a) Borrower's Consolidated EBITDA to (b) Consolidated Interest Expense, for the
four-Fiscal Quarter period ending with such Fiscal Quarter will not be less than
2.25 to 1 for any such period ending prior to June 30, 1999 and not less than
1.5 to 1 for any such period ending after June 30, 1999.
ARTICLE VIII - EVENTS OF DEFAULT AND REMEDIES
Section 8.1. EVENTS OF DEFAULT. Each of the following events
constitutes an Event of Default under this Agreement:
(a) Any Restricted Person fails to pay the principal component of any
Obligation when due and payable, whether at a date for the payment of a fixed
installment or as a contingent or other payment becomes due and payable or as a
result of acceleration or otherwise;
(b) Any Restricted Person fails to pay any Obligation (other than the
Obligations in clause (a) above) when due and payable, whether at a date for the
payment of a fixed installment or as a contingent or other payment becomes due
and payable or as a result of acceleration or otherwise, within three Business
Days after the same becomes due;
(c) Any "default" or "event of default" occurs under any Loan Document
which defines either such term, and the same is not remedied within the
applicable period of grace (if any) provided in such Loan Document;
(d) Any Restricted Person fails to duly observe, perform or comply with
any covenant, agreement or provision of Section 6.4 or Article VII;
(e) Any Restricted Person fails (other than as referred to in
subsections (a), (b), (c) or (d) above) to duly observe, perform or comply with
any covenant, agreement, condition or provision of any Loan Document, and such
failure remains unremedied for a period of thirty (30) days after notice of such
failure is given by Agent to Borrower;
(f) Any representation or warranty previously, presently or hereafter
made in writing by or on behalf of any Restricted 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, or any Loan Document at any time
ceases to be valid, binding and enforceable as warranted in Section 5.5 for any
reason other than its release or subordination by Agent;
(g) Any Restricted Person fails to duly observe, perform or comply with
any agreement with any Person or any term or condition of any instrument, if
such agreement or instrument is materially significant to Borrower or to
Borrower and its subsidiaries on a Consolidated basis or materially significant
to any Guarantor, and such failure is not remedied within the applicable period
of grace (if any) provided in such agreement or instrument;
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Exhibit 10.13
(h) Any Restricted Person (i) fails to pay any portion, when such
portion is due, of any of its Indebtedness in excess of $50,000 (other than
Indebtedness contested in good faith by appropriate proceedings and for which
such Restricted Person has set aside on its books adequate reserves, or (ii)
breaches or defaults in the performance of any agreement or instrument by which
any such Indebtedness is issued, evidenced, governed, or secured, and any such
failure, breach or default continues beyond any applicable period of grace
provided therefor;
(i) Either (i) any "accumulated funding deficiency's' (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of
$100,000 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 Plan's
benefit liabilities exceeds the then current value of such ERISA Plan's assets
available for the payment of such benefit liabilities by more than $100,000 (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); and
(j) Any Restricted Person:
(i) suffers the entry against it of a judgment, decree or
order for relief by a Tribunal 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 thirty days; or
(ii) 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 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 to authorize any of the foregoing; or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of all or a substantial part of its assets or of any
part of the Collateral in a proceeding brought against or initiated by
it, and such appointment or taking possession is neither made
ineffective nor discharged within thirty days after the making thereof,
or such appointment or taking possession is at any time consented to,
requested by, or acquiesced to by it; or
(iv) suffers the entry against it of a final judgment for the
payment of money in excess of $150,000 (not covered by insurance
satisfactory to Agent in its discretion), unless the same is discharged
within thirty 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 a writ or warrant of attachment or any similar
process to be issued by any Tribunal against all or any substantial
part of its assets or any part of the Collateral, and such writ or
warrant of attachment or any similar process is not stayed or released
within thirty days after the entry or levy thereof or after any stay is
vacated or set aside; and
(k) Any Change in Control occurs; and
(1) Any Material Adverse Change occurs.
Upon the occurrence of an Event of Default described in subsection (j)(i),
(j)(ii) or (j)(iii) of this section with respect to Borrower, all of the
Obligations shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to
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Exhibit 10.13
accelerate, declaration or notice of acceleration, or any other notice or
declaration of any kind, all of which are hereby expressly waived by Borrower
and each Restricted Person who at any time ratifies or approves this Agreement.
Upon any such acceleration, any obligation of any Lender to make any further
Loans shall be permanently terminated. During the continuance of any other Event
of Default, Agent at any time and from time to time may (and upon written
instructions from Majority Lenders, Agent shall), without notice to Borrower or
any other Restricted Person, do either or both of the following: (1) terminate
any obligation of Lenders to make Loans hereunder, and (2) declare any or all of
the Obligations immediately due and payable, and all such Obligations shall
thereupon be immediately due and payable, without demand, presentment, notice of
demand or of dishonor and nonpayment, protest, notice of protest, notice of
intention to accelerate, declaration or notice of acceleration, or any other
notice or declaration of any kind, all of which are hereby expressly waived by
Borrower and each Restricted Person who at any time ratifies or approves this
Agreement.
Section 8.2. REMEDIES. If any Default shall occur and be continuing,
each Bank Party 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 each Bank Party
may enforce the payment of any Obligations due it or enforce any other legal or
equitable right which it may have. All rights, remedies and powers conferred
upon Bank Parties under the Loan Documents 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.
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Exhibit 10.13
ARTICLE IX - AGENT
Section 9.1. APPOINTMENT AND AUTHORITY. Each Bank Party hereby
irrevocably authorizes Agent, and Agent hereby undertakes, to receive payments
of principal, interest and other amounts due hereunder as specified herein and
to take all other actions and to exercise such powers under the Loan Documents
as are specifically delegated to Agent by the terms hereof or thereof, together
with all other powers reasonably incidental thereto. The relationship of Agent
to the other Bank Parties is only that of one commercial lender acting as
administrative agent for others, and nothing in the Loan Documents shall be
construed to constitute Agent a trustee or other fiduciary for any holder of any
of the Notes or of any participation therein nor to impose on Agent duties and
obligations other than those expressly provided for in the Loan Documents. With
respect to any matters not expressly provided for in the Loan Documents and any
matters which the Loan Documents place within the discretion of Agent, Agent
shall not be required to exercise any discretion or take any action, and it may
request instructions from Lenders with respect to any such matter, in which case
it shall be required to act or to refrain from acting (and shall be fully
protected and free from liability to all Lenders in so acting or refraining from
acting) upon the instructions of Majority Lenders (including itself), provided,
however, that Agent shall not be required to take any action which exposes it to
a risk of personal liability that it considers unreasonable or which is contrary
to the Loan Documents or to applicable Law. Upon receipt by Agent from Borrower
of any communication calling for action on the part of Lenders or upon notice
from any other Bank Party to Agent of any Default or Event of Default, Agent
shall promptly notify each other Bank Party thereof.
Section 9.2. EXCULPATION. Agent's Reliance, Etc. Neither Agent nor any
of its directors, officers, agents, attorneys, or employees shall be liable for
any action taken or omitted to be taken by any of them under or in connection
with the Loan Documents, INCLUDING THEIR NEGLIGENCE OF ANY KIND, except that
each shall be liable for its own gross negligence or willful misconduct. Without
limiting the generality of the foregoing, Agent (a) may treat the payee of any
Note as the holder thereof until Agent receives written notice of the assignment
or transfer thereof in accordance with this Agreement, signed by such payee and
in form satisfactory to Agent; (b) may consult with legal counsel (including
counsel for Borrower), independent public accountants and other experts selected
by it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants or
experts; (c) makes no warranty or representation to any other Bank Party and
shall not be responsible to any other Bank Party for any statements, warranties
or representations made in or in connection with the Loan Documents; (d) shall
not have any duty to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions of the Loan Documents on the part
of any Restricted Person or to inspect the property (including the books and
records) of any Restricted Person; (e) shall not be responsible to any other
Bank Party for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of any Loan Document or any instrument or
document furnished in connection therewith; (f) may rely upon the
representations and warranties of each Restricted Person and the Lenders in
exercising its powers hereunder; and (g) shall incur no liability under or in
respect of the Loan Documents by acting upon any notice, consent, certificate or
other instrument or writing (including any telecopy, telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper Person or Persons.
Section 9.3. Credit Decisions. Each Bank Party acknowledges that it
has, independently and without reliance upon any other Bank Party, made its own
analysis of Borrower and the transactions contemplated hereby and its own
independent decision to enter into this Agreement and the other Loan Documents.
Each Bank Party also acknowledges that it will, independently and without
reliance upon any other Bank Party and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Loan Documents.
Section 9.4. Indemnification. Each Lender agrees to indemnify Agent (to
the extent not reimbursed by Borrower within ten (10) days after demand) from
and against such Lender's Percentage Share of any and all liabilities,
obligations, claims, losses, damages, penalties, fines, actions, judgments,
suits, settlements, costs, expenses or disbursements (including reasonable fees
of attorneys, accountants, experts and advisors) of any kind or nature
whatsoever (in this section collectively called "liabilities and costs") which
to any extent (in whole or in part) may be imposed on, incurred by, or asserted
against Agent growing out of, resulting from or in any other
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<PAGE> 46
Exhibit 10.13
way associated with any of the Collateral, the Loan Documents and the
transactions and events (including the enforcement thereof) at any time
associated therewith or contemplated therein (including any violation or
noncompliance with any Environmental Laws by any Person or any liabilities or
duties of any Person with respect to Hazardous Materials found in or released
into the environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY AGENT,
provided only that no Lender shall be obligated under this section to indemnify
Agent for that portion, if any, of any liabilities and costs which is
proximately caused by Agent's own individual gross negligence or willful
misconduct, as determined in a final judgment. Cumulative of the foregoing, each
Lender agrees to reimburse Agent promptly upon demand for such Lender's
Percentage Share of any costs and expenses to be paid to Agent by Borrower under
Section 10.4(a) to the extent that Agent is not timely reimbursed for such
expenses by Borrower as provided in such section. As used in this section the
term "Agent" shall refer not only to the Person designated as such in Section
1.1 but also to each director, officer, agent, attorney, employee,
representative and Affiliate of such Person.
Section 9.5. RIGHTS AS LENDER. In its capacity as a Lender, Agent shall
have the same rights and obligations as any Lender and may exercise such rights
as though it were not Agent. Agent may accept deposits from, lend money to, act
as Trustee under indentures of, and generally engage in any kind of business
with any Restricted Person or their Affiliates, all as if it were not Agent
hereunder and without any duty to account therefor to any other Lender.
Section 9.6. SHARING OF SET-OFFS AND OTHER PAYMENTS. Each Bank Party
agrees that if it shall, whether through the exercise of rights under Security
Documents or rights of banker's lien, set off, or counterclaim against Borrower
or otherwise, obtain payment of a portion of the aggregate Obligations owed to
it which, taking into account all distributions made by Agent under Section 3.1,
causes such Bank Party to have received more than it would have received had
such payment been received by Agent and distributed pursuant to Section 3.1,
then (a) it shall be deemed to have simultaneously purchased and shall be
obligated to purchase interests in the Obligations as necessary to cause all
Bank Parties to share all payments as provided for in Section 3.1, and (b) such
other adjustments shall be made from time to time as shall be equitable to
ensure that Agent and all Lenders share all payments of Obligations as provided
in Section 3.1; provided, however, that nothing herein contained shall in any
way affect the right of any Bank Party to obtain payment (whether by exercise of
rights of banker's lien, set-off or counterclaim or otherwise) of indebtedness
other than the Obligations. Borrower expressly consents to the foregoing
arrangements and agrees that any holder of any such interest or other
participation in the Obligations, whether or not acquired pursuant to the
foregoing arrangements, may to the fullest extent permitted by Law exercise any
and all rights of banker's lien, set-off, or counterclaim as fully as if such
holder were a holder of the Obligations in the amount of such interest or other
participation. If all or any part of any funds transferred pursuant to this
section is thereafter recovered from the seller under this section which
received the same, the purchase provided for in this section shall be deemed to
have been rescinded to the extent of such recovery, together with interest, if
any, if interest is required pursuant to Tribunal order to be paid on account of
the possession of such funds prior to such recovery.
Section 9.7. INVESTMENTS. Whenever Agent in good faith determines that
it is uncertain about how to distribute to Lenders any funds which it has
received, or whenever Agent in good faith determines that there is any dispute
among Lenders about how such funds should be distributed, Agent may choose to
defer distribution of the funds which are the subject of such uncertainty or
dispute. If Agent in good faith believes that the uncertainty or dispute will
not be promptly resolved, or if Agent is otherwise required to invest funds
pending distribution to Lenders, Agent shall invest such funds pending
distribution; all interest on any such investment shall be distributed upon the
distribution of such investment and in the same proportion and to the same
Persons as such investment. All moneys received by Agent for distribution to
Lenders (other than to the Person who is Agent in its separate
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<PAGE> 47
Exhibit 10.13
capacity as a Lender) shall be held by Agent pending such distribution solely as
Agent for such Lenders, and Agent shall have no equitable title to any portion
thereof.
Section 9.8. BENEFIT OF ARTICLE IX. The provisions of this Article
(other than the following Section 9.9) are intended solely for the benefit of
Bank Parties, and no Restricted Person shall be entitled to rely on any such
provision or assert any such provision in a claim or defense against any Bank
Party. Bank Parties may waive or amend such provisions as they desire without
any notice to or consent of Borrower or any Restricted Person.
Section 9.9. RESIGNATION. Agent may resign at any time by giving
written notice thereof to Lenders and Borrower. Each such notice shall set forth
the date of such resignation. Upon any such resignation Borrower may, with the
written concurrence of Majority Lenders designate a successor Agent. If within
fifteen days after the date of such resignation Borrower makes no such
designation or such written concurrence is not given, Majority Lenders shall
have the right to appoint a successor Agent. A successor must be appointed for
any retiring Agent, and such Agent's resignation shall become effective when
such successor accepts such appointment. If, within thirty days after the date
of the retiring Agent's resignation, no successor Agent has been appointed and
has accepted such appointment, then the retiring Agent may appoint a successor
Agent, which shall be a commercial bank organized or licensed to conduct a
banking or trust business under the Laws of the United States of America or of
any state thereof. Upon the acceptance of any appointment as Agent hereunder by
a successor Agent, the retiring Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents. After any
retiring Agent's resignation hereunder the provisions of this Article IX shall
continue to inure to its benefit as to any actions taken or omitted to be taken
by it while it was Agent under the Loan Documents.
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Exhibit 10.13
ARTICLE X - MISCELLANEOUS
SECTION 10.1. WAIVERS AND AMENDMENTS; ACKNOWLEDGMENTS.
(a) WAIVERS AND AMENDMENTS. No failure or delay (whether by course of
conduct or otherwise) by any Bank Party in exercising any right, power or remedy
which such Bank Party 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 any Bank Party 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 as provided
below in this section, 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 Restricted Person shall
in any case of itself entitle any Restricted 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
with respect to the transactions contemplated herein and therein and supersede
all prior discussions and understandings with respect to the subject matter
hereof and thereof, and no waiver, consent, release, modification or amendment
of or supplement to this Agreement or the other Loan Documents shall be valid or
effective against any party hereto unless the same is in writing and signed by
(i) if such party is Borrower, by Borrower, (ii) if such party is Agent or LC
Issuer, by such party, and (iii) if such party is a Lender, by such Lender or by
Agent on behalf of Lenders with the written consent of Majority Lenders (which
consent has already been given as to the termination of the Loan Documents as
provided in Section 10.9). Notwithstanding the foregoing or anything to the
contrary herein, Agent shall not, without the prior consent of each individual
Lender, execute and deliver on behalf of such Lender any waiver or amendment
which would: (1) waive any of the conditions specified in Article IV (provided
that Agent may in its discretion withdraw any request it has made under Section
4.2(f)), (2) increase the Maximum Loan Amount of such Lender or subject such
Lender to any additional obligations, (3) reduce any fees payable to such lender
hereunder, or the principal of, or interest on, such Lender's Note, (4) postpone
any date fixed for any payment of any such fees, principal or interest, (5)
amend the definition herein of "Majority Lenders" or otherwise change the
aggregate amount of Percentage Shares which is required for Agent, Lenders or
any of them to take any particular action under the Loan Documents, or (6)
release Borrower from its obligation to pay such Lender's Note or any Guarantor
from its guaranty of such payment.
(b) ACKNOWLEDGMENTS AND ADMISSIONS. Borrower hereby represents,
warrants, acknowledges and admits that (i) it has been advised by counsel in the
negotiation, execution and delivery of the Loan Documents to which it is a
party, (ii) it has made an independent decision to enter into this Agreement and
the other Loan Documents to which it is a party, without reliance on any
representation, warranty, covenant or undertaking by Agent or any Lender,
whether written, oral or implicit, other than as expressly set out in this
Agreement or in another Loan Document delivered on or after the date hereof,
(iii) there are no representations, warranties, covenants, undertakings or
agreements by any Bank Party as to the Loan Documents except as expressly set
out in this Agreement or in another Loan Document delivered on or after the date
hereof, (iv) no Bank Party has any fiduciary obligation toward Borrower with
respect to any Loan Document or the transactions contemplated thereby, (v) the
relationship pursuant to the Loan Documents between Borrower and the other
Restricted Persons, on one hand, and each Bank Party, on the other hand, is and
shall be solely that of debtor and creditor, respectively, (vi) no partnership
or joint venture exists with respect to the Loan Documents between any
Restricted Person and any Bank Party, (vii) Agent is not Borrower's Agent, but
Agent for Lenders, (viii) should an Event of Default or Default occur or exist,
each Bank Party will determine in its sole discretion and for its own reasons
what remedies and actions it will or will not exercise or take at that time,
(ix) without limiting any of the foregoing, Borrower is not relying upon any
representation or covenant by any Bank Party, or any representative thereof, and
no such representation or covenant has been made, that any Bank Party will, at
the time of an Event of Default or Default, or at any other time, waive,
negotiate, discuss, or take or refrain from taking any action permitted under
the Loan Documents with respect to any such Event of Default or Default or any
other provision of the Loan Documents, and (x) all Bank Parties have relied upon
the truthfulness of the acknowledgments in this section in deciding to execute
and deliver this Agreement and to become obligated hereunder.
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Exhibit 10.13
(c) REPRESENTATION BY LENDERS. Each Lender hereby represents that it
will acquire its Note for its own account in the ordinary course of its
commercial lending business; however, the disposition of such Lender's property
shall at all times be and remain within its control and, in particular and
without limitation, such Lender may sell or otherwise transfer its Note, any
participation interest or other interest in its Note, or any of its other rights
and obligations under the Loan Documents.
(d) JOINT ACKNOWLEDGMENT. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT 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.
Section 10.2. SURVIVAL OF AGREEMENTS; CUMULATIVE NATURE. All of
Restricted 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 the making or granting of the Loans and the delivery of the
Notes and the other Loan Documents, and shall further survive until all of the
Obligations are paid in full to each Bank Party and all of Bank Parties'
obligations to Borrower are terminated. All statements and agreements contained
in any certificate or other instrument delivered by any Restricted Person to any
Bank Party under any Loan Document shall be deemed representations and
warranties by Borrower or agreements and covenants of Borrower under this
Agreement. The representations, warranties, indemnities, and covenants made by
Restricted Persons in the Loan Documents, and the rights, powers, and privileges
granted to Bank Parties in the Loan Documents, are cumulative, and, except for
expressly specified waivers and consents, no Loan Document shall be construed in
the context of another to diminish, nullify, or otherwise reduce the benefit to
any Bank Party of any such representation, warranty, indemnity, covenant, right,
power or privilege. In particular and without limitation, no exception set out
in this Agreement to any representation, warranty, indemnity, or covenant herein
contained shall apply to any similar representation, warranty, indemnity, or
covenant contained in any other Loan Document, and each such similar
representation, warranty, indemnity, or covenant shall be subject only to those
exceptions which are expressly made applicable to it by the terms of the various
Loan Documents.
Section 10.3. NOTICES. All notices, requests, consents, demands and
other communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document (provided
that Agent may give telephonic notices to the other Bank Parties), and shall be
deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy or telex, by delivery service with proof of delivery, or by registered
or certified United States mail, postage prepaid, to Borrower and Restricted
Persons at the address of Borrower specified on the signature pages hereto and
to each Bank Party at its address specified on the signature pages hereto
(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 (a) in the case of personal delivery or delivery
service, as of the date of first attempted delivery during normal business hours
at the address provided herein, (b) in the case of telecopy or telex, upon
receipt, or (c) in the case of registered or certified United States mail, three
days after deposit in the mail; provided, however, that no
Borrowing Notice shall become effective until actually received by Agent.
Section 10.4. PAYMENT OF EXPENSES; INDEMNITY.
(a) 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: (i) all
transfer, stamp, mortgage, documentary or other similar taxes, assessments or
charges levied by any governmental or revenue authority in respect of this
Agreement or any of the other Loan Documents or any other document referred to
herein or therein, (ii) all reasonable costs and expenses incurred by or on
behalf of Agent (including attorneys' fees, consultants' fees and engineering
fees, travel costs and miscellaneous expenses) in connection with (1) the
negotiation, preparation, execution and delivery of the Loan Documents, and any
and all consents, waivers or other documents or instruments relating thereto,
(2) the filing, recording, refiling and
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<PAGE> 50
Exhibit 10.13
re-recording of any Loan 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, (3) the borrowings hereunder and other action
reasonably required in the course of administration hereof, (4) monitoring or
confirming (or preparation or negotiation of any document related to) Borrower's
compliance with any covenants or conditions contained in this Agreement or in
any Loan Document, and (iii) all reasonable costs and expenses incurred by or on
behalf of any Bank Party (including attorneys's fees, consultants' fees and
accounting fees) in connection with the defense or enforcement of any of the
Loan Documents (including this section) or the defense of any Bank Party's
exercise of its rights thereunder. In addition to the foregoing, until all
Obligations have been paid in full, Borrower will also pay or reimburse Agent
for all reasonable out-of-pocket costs and expenses of Agent or its agents or
employees in connection with the continuing administration of the Loans and the
related due diligence of Agent, including travel and miscellaneous expenses and
fees and expenses of Agent's outside counsel, reserve engineers and consultants
engaged in connection with the Loan Documents.
(b) INDEMNITY. Borrower agrees to indemnify each Bank Party, upon
demand, from and against any and all liabilities, obligations, claims, losses,
damages, penalties, fines, actions, judgments, suits, settlements, costs,
expenses or disbursements (including reasonable fees of attorneys, accountants,
experts and advisors) of any kind or nature whatsoever (in this section
collectively called "liabilities and costs") which to any extent (in whole or in
part) may be imposed on, incurred by, or asserted against such Bank Party
growing out of, resulting from or in any other way associated with any of the
Collateral, the Loan Documents and the transactions and events (including the
enforcement or defense thereof) at any time associated therewith or contemplated
therein (including any violation or noncompliance with any Environmental Laws by
any Restricted Person or any liabilities or duties of any Restricted Person or
any Bank Party with respect to Hazardous Materials found in or released into the
environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY BANK PARTY,
provided only that no Bank Party shall be entitled under this section to receive
indemnification for that portion, if any, of any liabilities and costs which is
proximately caused by its own individual gross negligence or willful misconduct,
as determined in a final judgment. If any Person (including Borrower or any of
its Affiliates) ever alleges such gross negligence or willful misconduct by any
Bank Party, the indemnification provided for in this section shall nonetheless
be paid upon demand, subject to later adjustment or reimbursement, until such
time as a court of competent jurisdiction enters a final judgment as to the
extent and effect of the alleged gross negligence or willful misconduct. As used
in this section the term "Bank Parties" shall refer not only to the Persons
designated as such in Section 1.1 but also to each director, officer, agent,
attorney, employee, representative and Affiliate of such Persons.
Section 10.5. JOINT AND SEVERAL LIABILITY; PARTIES IN INTEREST;
ASSIGNMENTS.
(a) All Obligations which are incurred by two or more Restricted
Persons shall be their joint and several obligations and liabilities. 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 Restricted 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 Majority Lenders. Neither Borrower
nor any Affiliates of Borrower shall directly or indirectly purchase or
otherwise retire any Obligations owed to any Lender nor will any Lender accept
any offer to do so, unless each Lender shall have received substantially the
same offer with respect to the same Percentage Share of the Obligations owed to
it. If Borrower or any Affiliate of Borrower at any time purchases some but less
than all of the Obligations owed to all Bank Parties, such purchaser shall not
be entitled to any rights of any Bank Party under the Loan Documents unless and
until Borrower or its Affiliates have purchased all of the Obligations.
46
<PAGE> 51
Exhibit 10.13
(b) No Lender shall sell any participation interest in its commitment
hereunder or any of its rights under its Loans or under the Loan Documents to
any Person other than an Eligible Transferee, and then only if the agreement
between such Lender and such participant at all times provides: (i) that such
participation exists only as a result of the agreement between such participant
and such Lender and that such transfer does not give such participant any right
to vote as a Lender or any other direct claims or rights against any Person
other than such Lender, (ii) that such participant is not entitled to payment
from any Restricted Person under Sections 3.2 through 3.6 of amounts in excess
of those payable to such Lender under such sections (determined without regard
to the sale of such participation), and (iii) unless such participant is an
Affiliate of such Lender, that such participant shall not be entitled to require
such Lender to take any action under any Loan Document or to obtain the consent
of such participant prior to taking any action under any Loan Document, except
for actions which would require the consent of all Lenders under the
next-to-last sentence of subsection (a) of Section 10.1. No Lender selling such
a participation shall, as between the other parties hereto and such Lender, be
relieved of any of its obligations hereunder as a result of the sale of such
participation. Each Lender which sells any such participation to any Person
(other than an Affiliate of such Lender) shall give prompt notice thereof to
Agent and Borrower.
(c) Except for sales of participations under the immediately preceding
subsection (b), no Lender shall make any assignment or transfer of any kind of
its commitments or any of its rights under its Loans or under the Loan
Documents, except for assignments to an Eligible Transferee, and then only if
such assignment is made in accordance with the following requirements:
(i) Each such assignment shall apply to all Obligations owing
to the assignor Lender hereunder and to the unused portion of the
assignor Lender's commitments, so that after such assignment is made
the assignor Lender shall have a fixed (and not a varying) Percentage
Share in its Loans and Note and be committed to make that Percentage
Share of all future Loans, the assignee shall have a fixed Percentage
Share in such Loans and Note and be committed to make that Percentage
Share of all future Loans, and the Percentage Share of the Maximum Loan
Amount of both the assignor and assignee shall equal or exceed
$5,000,000.
(ii) The parties to each such assignment shall execute and
deliver to Agent, for its acceptance and recording in the "Register"
(as defined below in this section), an Assignment and Acceptance in the
form of Exhibit I, appropriately completed, together with the Note
subject to such assignment and a processing fee payable to Agent of
$2,500. Upon such execution, delivery, and payment and upon the
satisfaction of the conditions set out in such Assignment and
Acceptance, then (i) Borrower shall issue new Notes to such assignor
and assignee upon return of the old Notes to Borrower, and (ii) as of
the "Settlement Date's' specified in such Assignment and Acceptance the
assignee thereunder shall be a party hereto and a Lender hereunder and
Agent shall thereupon deliver to Borrower and each Lender a schedule
showing the revised Percentage Shares of such assignor Lender and such
assignee Lender and the Percentage Shares of all other Lenders.
(iii) Each assignee Lender which is not a United States person
(as such term is defined in Section 7701(a)(30) of the Internal Revenue
Code of 1986, as amended) for Federal income tax purposes, shall (to
the extent it has not already done so) provide Agent and Borrower with
the "Prescribed Forms" referred to in Section 3.6(d).
(d) Nothing contained in this section shall prevent or prohibit any
Lender from assigning or pledging all or any portion of its Loans and Note to
any Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank; provided that no such assignment or pledge
shall relieve such Lender from its obligations hereunder.
(e) By executing and delivering an Assignment and Acceptance, each
assignee Lender thereunder will be confirming to and agreeing with Borrower,
Agents and each other Lender hereunder that such assignee understands and agrees
to the terms hereof, including Article IX hereof.
47
<PAGE> 52
Exhibit 10.13
(f) Agent shall maintain a copy of each Assignment and Acceptance and a
register for the recordation of the names and addresses of Lenders and the
Percentage Shares of, and principal amount of the Loans owing to, each Lender
from time to time (in this section called the "Register"). The entries in the
Register shall be conclusive, in the absence of manifest error, and Borrower and
each Bank Party may treat each Person whose name is recorded in the Register as
a Lender hereunder for all purposes. The Register shall be available for
inspection by Borrower or any Bank Party at any reasonable time and from time to
time upon reasonable prior notice.
Section 10.6. CONFIDENTIALITY. Each Bank Party agrees that it will take
all reasonable steps to keep confidential any proprietary information given to
it by any Restricted Person, provided, however, that this restriction shall not
apply to information which (i) has at the time in question entered the public
domain, (ii) is required to be disclosed by Law (whether valid or invalid) of
any Tribunal, (iii) is disclosed to any Bank Party's Affiliates, auditors,
attorneys, or agents provided such Persons are obligated to hold such
information in confidence on the terms provided in this section), (iv) is
furnished to any other Bank Party or to any purchaser or prospective purchaser
of participations or other interests in any Loan or Loan Document (provided each
such purchaser or prospective purchaser first agrees to hold such information in
confidence on the terms provided in this section), or (v) is disclosed in the
course of enforcing its rights and remedies during the existence of an Event of
Default.
Section 10.7. GOVERNING LAW; SUBMISSION TO PROCESS.
48
<PAGE> 53
Exhibit 10.13
EXCEPT TO THE EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED
IN A LOAN DOCUMENT, THE LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS AND INSTRUMENTS
MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND THE
LAWS OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAW. BORROWER HEREBY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST
BORROWER WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OF THE LOAN DOCUMENTS
MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AS BANK PARTIES MAY ELECT, AND, BY
EXECUTION AND DELIVERY HEREOF, BORROWER ACCEPTS AND CONSENTS FOR ITSELF AND IN
RESPECT TO ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS, AND FURTHER AGREES TO A TRANSFER OF ANY SUCH PROCEEDING TO A
FEDERAL COURT SITTING IN THE STATE OF NEW YoRK TO THE EXTENT THAT IT HAS SUBJECT
MATTER JURISDICTION, AND OTHERWISE TO A STATE COURT IN NEW YORK, NEW YORK, AND
AGREES THAT SUCH JURISDICTION SHALL BE EXCLUSIVE, UNLESS WAIVED BY BANK PARTIES
IN WRITING, WITH RESPECT TO ANY ACTION OR PROCEEDING BROUGHT BY IT AGAINST BANK
PARTIES AND ANY QUESTIONS RELATING TO USURY. BORROWER AGREES THAT SECTIONS
5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL
APPLY TO THE LOAN DOCUMENTS AND WAIVES ANY RIGHT TO STAY OR TO DISMISS ANY
ACTION OR PROCEEDING BROUGHT BEFORE SAID COURTS ON THE BASIS OF FORUM NON
CONVENIENS. IN FURTHERANCE OF THE FOREGOING, BORROWER HEREBY IRREVOCABLY
DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NEW
YORK/CSC PRENTICE HALL, 375 HUDSON STREET, 11TH FLOOR, NEW YORK, NEW YORK 10014,
AS AGENT OF BORROWER TO RECEIVE SERVICE OF ALL PROCESS BROUGHT AGAINST BORROWER
WITH RESPECT TO ANY SUCH PROCEEDING IN ANY SUCH COURT IN NEW YORK, SUCH SERVICE
BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT. COPIES OF ANY SUCH PROCESS SO SERVED SHALL ALSO, IF PERMITTED BY
LAW, BE SENT BY REGISTERED MAIL TO BORROWER AT ITS ADDRESS SET FORTH BELOW AND
BY REGULAR MAIL, REGISTERED MAIL COURIER OR MESSENGER TO THOMAS HILL, BUT THE
FAILURE OF BORROWER TO RECEIVE SUCH COPIES SHALL NOT AFFECT IN ANY WAY THE
SERVICE OF SUCH PROCESS AS AFORESAID. BORROWER SHALL FURNISH TO BANK PARTIES A
CONSENT OF CT CORPORATION SYSTEM AGREEING TO ACT HEREUNDER PRIOR TO THE
EFFECTIVE DATE OF THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT OF BANK
PARTIES TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF BANK PARTIES TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY
OTHER JURISDICTION. IF FOR ANY REASON CT CORPORATION SHALL RESIGN OR OTHERWISE
CEASE TO ACT AS BORROWER'S AGENT, BORROWER HEREBY IRREVOCABLY AGREES TO (A)
IMMEDIATELY DESIGNATE AND APPOINT A NEW AGENT ACCEPTABLE TO AGENT TO SERVE IN
SUCH CAPACITY AND, IN SUCH EVENT, SUCH NEW AGENT SHALL BE DEEMED TO BE
SUBSTITUTED FOR CT CORPORATION SYSTEM FOR ALL PURPOSES HEREOF AND (B) PROMPTLY
DELIVER TO BANK PARTIES THE WRITTEN CONSENT (IN FORM AND SUBSTANCE SATISFACTORY
TO AGENT) OF SUCH NEW AGENT AGREEING TO SERVE IN SUCH CAPACITY.
Section 10.8. LIMITATION ON INTEREST. Bank Parties, Restricted Persons
and the other parties to the Loan Documents 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 provide for interest
in excess of the maximum amount of interest permitted to be charged by
applicable Law from time to time in effect. Neither any Restricted 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.
Section 10.9. TERMINATION; LIMITED SURVIVAL. In its sole and absolute
discretion Borrower may at any time that no Obligations are owing elect in a
written notice delivered to Agent to terminate this Agreement. Upon receipt by
Agent of such a notice, if no Obligations are then owing this Agreement and all
other Loan Documents shall thereupon be terminated and the parties thereto
released from all prospective obligations thereunder. Notwithstanding the
foregoing or anything herein to the contrary, any waivers or admissions made by
any
49
<PAGE> 54
Exhibit 10.13
Restricted Person in any Loan Document, any Obligations under Sections 3.2
through 3.6, and any obligations which any Person may have to indemnify or
compensate any Bank Party shall survive any termination of this Agreement or any
other Loan Document. At the request and expense of Borrower, Agent shall prepare
and execute all necessary instruments to reflect and effect such termination of
the Loan Documents. Agent is hereby authorized to execute all such instruments
on behalf of all Lenders, without the joinder of or further action by any
Lender.
Section 10.10. 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 10.11. 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 10.12. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC.
TO THE EXTENT PERMITTED BY LAW, BANK PARTIES AND BORROWER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS OF SUCH PERSONS OR BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR BANK PARTIES' ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
BORROWER AND EACH BANK PARTY HEREBY FURTHER (A) IRREVOCABLY WAIVES, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER
IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES", AS DEFINED BELOW, (B) CERTIFIES
THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY
HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (C)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
As USED IN THIS SECTION, "SPECIAL DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL,
EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE
ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR
DELIVER TO ANY OTHER PARTY HERETO.
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
NORTH COAST ENERGY, INC.
Borrower
By: /s/ Garry Regan
--------------------------
Name: Garry Regan
Title: President
Address:
1993 Case Parkway
Twinsburg, Ohio 44087-2343
Attention: Thomas Hill
Telephone: (330) 425-2330
Telecopy: (330) 405-3298
50
<PAGE> 55
Exhibit 10.13
ING (U.S.) CAPITAL CORPORATION
Agent, LC Issuer and Lender
By:
------------------------------
Name: Trond O. Rokholt
Title: Managing Director
Address:
135 East 57th Street
New York, New York 10022-2101
Attention: Frank Ferrara
Telephone: (212) 409-1733
Telecopy: (212) 832-3616
51
<PAGE> 56
Exhibit 10.13
SCHEDULE 1
DISCLOSURE SCHEDULE
-------------------
To supplement the following sections of the Agreement of which this
Schedule is a part, Borrower hereby makes the following disclosures:
1. Section 1.1 Defined Terms: "Partnerships" means the following entities:
Capital Drilling Fund 1986-1
Limited Partnership
North Coast Energy/Capital 1987-1
Appalachian Private Drilling Program L.P.
North Coast Energy/Capital 1987-2
Appalachian Private Drilling Program L.P.
North Coast Energy/Capital 1988-1
Appalachian Private Drilling Program L.P.
North Coast Energy/Capital 1988-2
Appalachian Private Drilling Program L.P.
North Coast Energy 1989 Appalachian
Public Drilling Program L.P.
North Coast Energy 1990-1
Appalachian Private Drilling Program L.P.
North Coast Energy 1990-2
Appalachian Private Drilling Program L.P.
North Coast Energy 1990-3
Appalachian Private Drilling Program L.P.
North Coast Energy 1991-I
Appalachian Private Drilling Program L.P.
North Coast Energy 199 1-2
Appalachian Private Drilling Program L.P.
North Coast Energy 199 1-3
Appalachian Private Drilling Program L.P.
North Coast Energy 1992-1
Appalachian Private Drilling Program L.P.
North Coast Energy 1992-2
Appalachian Private Drilling Program L.P.
North Coast Energy 1992-3
Appalachian Private Drilling Program L.P.
North Coast Energy 1993-1
Appalachian Private Drilling Program L.P.
1
<PAGE> 57
Exhibit 10.13
North Coast Energy 1993-2
Appalachian Private Drilling Program L.P.
North Coast Energy 1993-3
Appalachian Private Drilling Program L.P.
North Coast Energy 1994-1
Appalachian Private Drilling Program L.P.
North Coast Energy 1994-2
Appalachian Private Drilling Program L.P.
North Coast Energy 1994-3
Appalachian Private Drilling Program L.P.
North Coast Energy 1995-1
Appalachian Private Drilling Program L.P.
North Coast Energy 1995-2
Appalachian Private Drilling Program L.P.
North Coast Energy 1996-1
Appalachian Private Drilling Program L.P.
North Coast Energy 1996-2
Appalachian Private Drilling Program L.P.
North Coast Energy 1997-1
Appalachian Private Drilling Program L.P.
North Coast Energy 1997-2
Appalachian Private Drilling Program L.P.
2. Section 5.6 Initial Financial Statements:
3. Section 5.7 Other Obligations:
4. Section 5.9 Litigation:
5. Section 5.11 ERISA Liabilities:
6. Sections 5.13 Names and Places of Business:
7. Section 5.14 Borrower's Subsidiaries and Stockholdings:
2
<PAGE> 58
Exhibit 10.13
SCHEDULE 2
SECURITY SCHEDULE
-----------------
1. Open End Mortgage, Assignment, Security Agreement, Fixture Filing and
Financing Statement from Borrower to Agent to be recorded in Ohio.
2. Open End Mortgage, Assignment, Security Agreement, Fixture Filing and
Financing Statement from Borrower to Agent to be recorded in
Pennsylvania.
3. Financing Statements executed by Borrower in connection with the
Mortgages.
4. Partnership Interest Pledge Agreement executed by Borrower in favor of
Agent (the "Pledge Agreement").
5. Financing Statement executed by Borrower in connection with the Pledge
Agreement.
1
<PAGE> 59
Exhibit 10.13
SCHEDULE 3
INSURANCE SCHEDULE
------------------
1
<PAGE> 60
Exhibit 10.13
EXHIBIT A
PROMISSORY NOTE
---------------
$20,000,000 New York, New York February 9, 1998
FOR VALUE RECEIVED, the undersigned, North Coast Energy, Inc., a
Delaware (herein called "Borrower"), hereby promises to pay to the order of ING
(U.S.) Capital Corporation, (herein called "Lender"), the principal sum of
Twenty Million and No/100 Dollars ($20,000,000), or, if greater or less, the
aggregate unpaid principal amount of the Loan made under this Note by Lender to
Borrower pursuant to the terms of the Credit Agreement (as hereinafter defined),
together with interest on the unpaid principal balance thereof as hereinafter
set forth, both principal and interest payable as herein provided in lawful
money of the United States of America at the offices of the Agent under the
Credit Agreement, as from time to time may be designated by the holder of this
Note.
This Note (a) is issued and delivered under that certain Credit
Agreement of even date herewith among Borrower, Lender, as Agent, and the
lenders (including Lender) referred to therein (herein, as from time to time
supplemented, amended or restated, called the "Credit Agreement"), and is a
"Note" as defined therein, (b) is subject to the terms and provisions of the
Credit Agreement, which contains provisions for payments and prepayments
hereunder and acceleration of the maturity hereof upon the happening of certain
stated events, and (c) is secured by and entitled to the benefits of certain
Security Documents (as identified and defined in the Credit Agreement). Payments
on this Note shall be made and applied as provided herein and in the Credit
Agreement. Reference is hereby made to the Credit Agreement for a description of
certain rights, limitations of rights, obligations and duties of the parties
hereto and for the meanings assigned to terms used and not defined herein and to
the Security Documents for a description of the nature and extent of the
security thereby provided and the rights of the parties thereto.
For the purposes of this Note, the following terms have the meanings
assigned to them below:
"Base Rate Payment Date" means (i) the last day of each Fiscal Quarter,
beginning March 31, 1998, and (ii) any day on which past due interest or
principal is owed hereunder and is unpaid. If the terms hereof or of the Credit
Agreement provide that payments of interest or principal hereon shall be
deferred from one Base Rate Payment Date to another day, such other day shall
also be a Base Rate Payment Date.
"Eurodollar Rate Payment Date" means, with respect to any Eurodollar
Loan: (i) the day on which the related Interest Period ends (and, if such
Interest Period is three months or longer, the three-month anniversary of the
first day of such Interest Period), and (ii) any day on which past due interest
or past due principal is owed hereunder with respect to such Eurodollar Loan and
is unpaid. If the terms hereof or of the Credit Agreement provide that payments
of interest or principal with respect to such Eurodollar Loan shall be deferred
from one Eurodollar Rate Payment Date to another day, such other day shall also
be a Eurodollar Rate Payment Date.
The principal amount of this Note shall be due and payable in twenty
(20) quarterly installments, each of which shall be equal to one-twentieth
(1/20) of the aggregate unpaid principal balance of this Note at the end of the
Commitment Period, and shall be due and payable on the last day of each Fiscal
Quarter, beginning September 30, 1999, and continuing regularly thereafter until
June 30, 2004, at which time the unpaid principal balance of this Note and all
interest accrued hereon shall be due and payable in full.
Base Rate Loans from time to time outstanding shall bear interest on
each day outstanding at the Base Rate in effect on such day; unless the Default
Rate shall apply as provided below. On each Base Rate Payment Date Borrower
shall pay to the holder hereof all unpaid interest which has accrued on the Base
Rate Loans to but not including such Base Rate Payment Date. Each Eurodollar
Loan shall bear interest on each day during the related Interest Period at the
related Eurodollar Rate in effect on such day; unless the Default Rate shall
apply as provided below. On each Eurodollar Rate Payment Date relating to such
Eurodollar Loan, Borrower shall pay to
1
<PAGE> 61
Exhibit 10.13
the holder hereof all unpaid interest which has accrued on such Eurodollar Loan
to but not including such Eurodollar Rate Payment Date. All past due principal
of and past due interest on the Loan shall bear interest on each day outstanding
at the Default Rate in effect on such day, notwithstanding the foregoing
provisions of this paragraph, on or after ten days following the occurrence of
an Event of Default, and during the continuance thereof, each Loan shall bear
interest at the Default Rate. All interest at the Default Rate shall be due and
payable daily as it accrues. Notwithstanding the foregoing provisions of this
paragraph: (a) this Note shall never bear interest in excess of the Highest
Lawful Rate, and (b) if at any time the rate at which interest is payable on
this Note is limited by the Highest Lawful Rate (by the foregoing clause (a) or
by reference to the Highest Lawful Rate in the definitions of Base Rate,
Eurodollar Rate, and Late Payment Rate), this Note shall bear interest at the
Highest Lawful Rate and shall continue to bear interest at the Highest Lawful
Rate until such time as the total amount of interest accrued hereon equals (but
does not exceed) the total amount of interest which would have accrued hereon
had there been no Highest Lawful Rate applicable hereto.
Notwithstanding the foregoing paragraph and all other provisions of
this Note, in no event shall the interest payable hereon, whether before or
after maturity, exceed the maximum interest which, under applicable Law, may be
charged on this Note, and this Note is expressly made subject to the provisions
of the Credit Agreement which more fully set out the limitations on how interest
accrues hereon.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and guarantors of this Note jointly and severally agree to pay reasonable
attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in any
of its terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY APPLICABLE
FEDERAL LAW.
NORTH COAST ENERGY, INC.
By:
-------------------------------
Name:
Title:
2
<PAGE> 62
Exhibit 10.13
EXHIBIT B
BORROWING NOTICE
Reference is made to that certain Credit Agreement dated as of February
9, 1998 (as from time to time amended, the "Agreement"), by and among North
Coast Energy, Inc. ("Borrower"), ING (U.S.) Capital Corporation, as Agent, and
certain financial institutions ("Lenders"). Terms which are defined in the
Agreement are used herein with the meanings given them in the Agreement.
Pursuant to the terms of the Agreement Borrower hereby requests Lenders to make
Advances to Borrower in the aggregate principal amount of $ ___________ and
specifies _____________, 19__, as the date Borrower desires for Lenders to make
such Advances and for Agent to deliver to Borrower the proceeds thereof.
To induce Lenders to make such Advances, Borrower hereby represents,
warrants, acknowledges, and agrees to and with Agent and each Lender that:
(a) The officer of Borrower signing this instrument is the
duly elected, qualified and acting officer of Borrower as indicated
below such officer's signature hereto having all necessary authority to
act for Borrower in making the request herein contained.
(b) The representations and warranties of Borrower set forth
in the Agreement and the other Loan Documents are true and correct on
and as of the date hereof (except to the extent that the facts on which
such representations and warranties are based have been changed by the
extension of credit under the Agreement), with the same effect as
though such representations and warranties had been made on and as of
the date hereof.
(c) There does not exist on the date hereof any condition or
event which constitutes a Default which has not been waived in writing
as provided in Section 10.1(a) of the Agreement; nor will any such
Default exist upon Borrower's receipt and application of the Advances
requested hereby. Borrower will use the Advances hereby requested in
compliance with Section 2.4 of the Agreement.
(d) Except to the extent waived in writing as provided in
Section 10.1(a) of the Agreement, Borrower has performed and complied
with all agreements and conditions in the Agreement required to be
performed or complied with by Borrower on or prior to the date hereof,
and each of the conditions precedent to Advances contained in the
Agreement remains satisfied.
(e) The Facility Usage, after the making of the Advances
requested hereby, will not be in excess of the Borrowing Base on the
date requested for the making of such Advances.
(f) The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any
course of dealing, or by any other means not provided for in Section
10.1(a) of the Agreement. The Agreement and the other Loan Documents
are hereby ratified, approved, and confirmed in all respects.
The officer of Borrower signing this instrument hereby certifies that,
to the best of his knowledge after due inquiry, the above representations,
warranties, acknowledgments, and agreements of Borrower are true, correct and
complete.
IN WITNESS WHEREOF, this instrument is executed as of _________, 19__.
NORTH COAST ENERGY, INC.
By:
------------------------------
Name:
Title:
1
<PAGE> 63
Exhibit 10.13
EXHIBIT C
CONTINUATION/CONVERSION NOTICE
------------------------------
Reference is made to that certain Credit Agreement dated as of February
9, 1998 (as from time to time amended, the "Agreement"), by and among North
Coast Energy, Inc., as Borrower, ING (U.S.) Capital Corporation, as Agent, and
certain financial institutions, as Lenders. Terms which are defined in the
Agreement are used herein with the meanings given them in the Agreement.
Borrower hereby requests a conversion or continuation of existing Loans
into a new Borrowing pursuant to Section 2.3 of the Agreement as follows:
Existing Borrowing(s) to be continued or converted:
$_________ of Eurodollar Loans with Interest Period ending ___________
$_________ of Base Rate Loans
Aggregate amount of new Borrowing: $_________________
Type of Loans in new Borrowing: _________________
Date of continuation or conversion: _________________
Length of Interest Period for Eurodollar
Loans (1,2,3 or 6 months): _________ months
Borrower hereby represents, warrants, acknowledges, and agrees
to and with each Bank Party that:
(a) The officer of Borrower signing this instrument is the
duly elected, qualified and acting officer of Borrower as indicated
below such officer's signature hereto having all necessary authority to
act for Borrower in making the request herein contained.
(b) There does not exist on the date hereof any condition or
event which constitutes a Default which has not been waived in writing
as provided in Section 10.1(a) of the Agreement; nor will any such
Default exist upon Borrower's receipt and application of the Loans
requested hereby.
(c) The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any
course of dealing, or by any other means not provided for in Section
10.1(a) of the Agreement. The Agreement and the other Loan Documents
are hereby ratified, approved, and confirmed in all respects.
The officer of Borrower signing this instrument hereby certifies that,
to the best of his knowledge after due inquiry, the above representations,
warranties, acknowledgments, and agreements of Borrower are true, correct and
complete.
IN WITNESS WHEREOF, this instrument is executed as of , 199__.
NORTH COAST ENERGY, INC.
By:_____________________________________
Name:
Title:
1
<PAGE> 64
Exhibit 10.13
EXHIBIT D
CERTIFICATE ACCOMPANYING
FINANCIAL STATEMENTS
------------------------
Reference is made to that certain Credit Agreement dated as of February
9, 1998 (as from time to time amended, the "Agreement"), by and among North
Coast Energy, Inc. ("Borrower"), ING (U.S.) Capital Corporation, as Agent, and
certain financial institutions ("Lenders"), which Agreement is in full force and
effect on the date hereof. Terms which are defined in the Agreement are used
herein with the meanings given them in the Agreement.
This Certificate is furnished pursuant to Section 5.6 of the Agreement.
Together herewith Borrower is furnishing to Agent and each Lender Borrower's
audited financial statements (the "Financial Statements") as at _____________
(the "Reporting Date"). Borrower hereby represents, warrants, and acknowledges
to Agent and each Lender that:
(a) the officer of Borrower signing this instrument is the
duly elected, qualified and acting of Borrower and as such is
Borrower's chief financial officer;
(b) the Financial Statements are accurate and complete and
satisfy the requirements of the Agreement;
(c) attached hereto is a schedule of calculations showing
Borrower's compliance as of the Reporting Date with the requirements of
Sections ____________ of the Agreement;
(d) on the Reporting Date Borrower was, and on the date hereof
Borrower is, in full compliance with the disclosure requirements of the
Agreement, and no Default otherwise existed on the Reporting Date or
otherwise exists on the date of this.
(e) The representations and warranties of Borrower set forth
in the Agreement and the other Loan Documents are true and correct on
and as of the date hereof (except to the extent that the facts on which
such representations and warranties are based have been changed by the
extension of credit under the Agreement), with the same effect as
though such representations and warranties had been made on and as of
the date hereof.
The officer of Borrower signing this instrument hereby certifies that
he has reviewed the Loan Documents and the Financial Statements and has
otherwise undertaken such inquiry as is in his opinion necessary to enable him
to express an informed opinion with respect to the above representations,
warranties and acknowledgments of Borrower and, to the best of his knowledge,
such representations, warranties, and acknowledgments are true, correct and
complete.
IN WITNESS WHEREOF, this instrument is executed as of ___________,19__.
NORTH COAST ENERGY, INC.
By:
-----------------------------
Name:
Title:
1
<PAGE> 65
Exhibit 10.13
EXHIBIT F
ENVIRONMENTAL COMPLIANCE CERTIFICATE
Reference is made to that certain Credit Agreement dated as of February
9, 1998 (as from time to time amended, the "Agreement"), by and among North
Coast Energy, Inc. ("Borrower"), ING (U.S.) Capital Corporation as Agent, and
certain financial institutions. Terms which are defined in the Agreement are
used herein with the meanings given them in the Agreement. The undersigned,
being the President of Borrower, hereby certifies to Agent and Lenders as
follows:
1. For the Fiscal Year ending immediately prior to the date
hereof, Borrower has complied and is complying with Section 5.1 of the
Credit Agreement;
2. To the best knowledge of the undersigned after due inquiry,
Borrower is on the date hereof in compliance with all applicable
Environmental Laws, noncompliance with which could cause a Material
Adverse Change;
3. Borrower has taken (and continues to take) steps to
minimize the generation of potentially harmful effluents;
4. Borrower has established an ongoing program of conducting
an internal audit of each operating facility of Borrower to identify
actual or potential environmental liabilities which could cause a
Material Adverse Change; and
5. Borrower has established an ongoing program of training its
employees in issues of environmental, health and safety compliance, and
Borrower presently has one or more individuals in charge of
implementing such training program.
The officer of Borrower signing this instrument hereby certifies that,
to the best of his knowledge after due inquiry and consultation with the
operating officers of Borrower, the above representations, warranties,
acknowledgments , and agreements of Borrower are true , correct and complete.
IN WITNESS WHEREOF , this instrument is executed as of ________,19__.
NORTH COAST ENERGY, INC.
By: ______________________________
Name:
Title:
2
<PAGE> 66
Exhibit 10.13
EXHIBIT H-l
February 9, 1998
ING (U.S.) Capital Corporation, as Agent
135 E. 57th Street
New York, New York 10022
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 4.1(g) of
the Credit Agreement dated February 9, 1998 (the "Agreement"), by and between
North Coast Energy, Inc., a Delaware corporation ("Borrower's') and ING (U.S.)
Capital Corporation ("Agent"). Capitalized terms which are defined in the
Agreement and which are used but not defined herein shall have the meanings
given them in the Agreement. Terms defined in Schedule 1 hereto shall have the
same meanings when used in the body of this opinion.
I have acted as counsel for Borrower in connection with the
transactions provided for in the Agreement. As such counsel I have assisted in
the negotiation of the Agreement and the other Loan Documents. I have examined
executed counterparts (or, where indicated, photostatic copies of executed
counterparts) of the documents listed in Schedule 1. (The documents listed in
Section I of Schedule I are hereinafter referred to as the "Principal
Documents".) I have discussed the matters addressed in this opinion with
officers and representatives of Borrower to the extent I have deemed appropriate
to enable us to render this opinion.
In preparing this opinion I have also examined original counterparts or
photostatic or certified copies of all other instruments, agreements,
certificates, records and other documents (whether of Borrower, its officers,
directors, shareholders and representatives, public officials, or other persons)
which I have considered relevant to the opinions hereinafter expressed. In
making this examination I have assumed, with respect to all documents (other
than the Principal Documents) which I have examined: the genuineness of all
signatures thereon, the authenticity of all documents submitted to us as
originals, the conformity to the originals of all documents submitted to us as
copies, and the authenticity of the originals of such copies. As to certain
questions of fact material to such opinions I have, where such facts were not
otherwise verified or established, relied upon certificates listed in Section II
of Schedule 1 of officers of Borrower.
Based upon the foregoing, and subject to the qualifications and
limitations hereinafter set forth, I am of the opinion that:
1. Borrower is duly incorporated, validly existing and in good standing
under the laws of the State of Delaware. Each Partnership is duly organized,
validly existing, and in good standing under the laws of the State of Ohio.
2. Each Restricted Person has the corporate or partnership power and
authority to execute and deliver each Principal Document to which it is a party
and to perform its obligations thereunder. Each Principal Document has been duly
authorized, executed and delivered by Borrower and each Restricted Person.
3. Each Restricted Person is in good standing and duly authorized to do
business in each state within the United States in which such Restricted Person
(a) owns or leases any material property or (b) conducts any material business
or the failure to be qualified would have a material and adverse effect on such
Restricted Person's business, operations, property, or financial condition.
3
<PAGE> 67
Exhibit 10.13
4. Each Principal Document is enforceable against each Restricted
Person, to the extent a party thereto, in accordance with its terms. No
Principal Document constitutes a usurious contract.
5. Subject to the filing requirements described in paragraph below, the
Ohio Mortgage creates to secure the Obligations a valid, binding mortgage lien
in the "Mortgaged Properties" (as defined in the Mortgage) located in the State
of Ohio and a security interest in the "Collateral's' and proceeds of
"Collateral's' (as such term is defined in the Mortgage) with respect to which a
security interest can be created under the Uniform Commercial Code of Ohio (the
"Ohio Code") and perfected by the filing of financing statements in such state
pursuant to the Ohio Code. The Pledge Agreement creates to secure the
Obligations a valid, binding security interest in the "Collateral" and the
proceeds of "Collateral's' (as such term is defined in the Pledge Agreement).
6. A fully executed counterpart of the Mortgage is required to be filed
and recorded in the appropriate real estate records of the offices of the County
Clerks of____________________ Counties, Ohio, and fully executed counterparts of
the Ohio Financing Statements are required to be filed in the office of the
Secretary of State of Ohio. Once the Ohio Mortgage and the Ohio Financing
Statements are so filed and recorded, no further or subsequent filing or
refiling will be necessary in the State of Ohio in order to continue the
existence or perfection of the lien and security interests referred to in
paragraph 5 above except that a continuation statement with respect to each Ohio
Financing Statement must be filed under the Ohio Code in the office where each
such financing statement was filed within six months prior to the expiration of
five years from the date of such filing (or otherwise within the time permitted
by Section 1309.40 of the Ohio Code), and subsequent continuation statements
must be filed within six months prior to the end of each subsequent five-year
period, and (c) amendments or supplements to the Ohio Financing Statements or
additional financing statements may be required to be filed in the event of a
change in the name, identity, or corporate or partnership structure of any
Restricted Person or in the event the Ohio Financing Statements otherwise become
inaccurate or incomplete.
7. The acceptance of the Ohio Mortgage and the Ohio Financing
Statements by Agent, its possession and retention of its rights thereunder, and
its presentation of such instruments for filing and recording as described in
paragraph 6 hereof will not require Agent to pay or otherwise subject Agent to
any tax, fee or other charge in the State of Ohio except the customary fee
charged by each filing or recording officer on a per-page or per-instrument
basis. Agent is not required to qualify to do business in the State of Ohio or
to otherwise register or make any filing (other than those described in
paragraph 6 hereof) with any state or local official in the State of Ohio as a
result of its acceptance of such instruments, its possession and retention of
its rights thereunder, or the filing or recording thereof.
8. The execution, delivery and performance by each Restricted Person of
the Principal Documents, and the consummation of the transactions contemplated
by the Principal Documents, will not and did not
(a) violate any provision of the charter or bylaws of Borrower, or the
certificates or agreements of limited partnership of any of the Partnerships, or
(b) to my knowledge, breach or result in a default under or result in
the maturing of any indebtedness pursuant to any indenture, mortgage, deed of
trust, note or loan agreement, material license agreement, or other material
agreement or instrument to which any Restricted Person is a party or by which
any of its properties are bound, or
(c) result in a violation of any law, rule or regulation or, to the
best of my knowledge, any judgment, order, decree, determination or award of any
court or governmental authority which is now in effect and applicable to any
Restricted Person or any of its properties.
To the best of my knowledge no Restricted Person is in default under or in
violation of any law, rule, regulation, judgment, order, decree, determination,
award, indenture, mortgage, deed of trust, note, loan agreement, license
agreement or other material agreement or instrument of which I have knowledge or
in violation of its charter or bylaws or its certificate and agreement of
limited partnership as the case may be.
4
<PAGE> 68
Exhibit 10.13
9. Except for any which have been obtained or completed, to my
knowledge no consent, approval, waiver, license, authorization or action by or
filing with any court or governmental authority or any third party is or was
required for the execution and delivery by any Related Person of any of the
Principal Documents, or the consummation of the transactions contemplated
thereby.
10. Other than as revealed in the Disclosure Schedule, to my knowledge
there are no actions, suits, proceedings or investigations pending or threatened
in writing against or affecting any Related Person or any of its properties
before any court, governmental agency or arbitrator (a) seeking to affect the
enforceability or performance by any Related Person of any Principal Document,
or (b) which are otherwise required to be disclosed under Section 5.9 of the
Agreement.
11. Borrower is not an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
This opinion is limited by, subject to and based on the following:
(a) This opinion is limited in all respects to the General Corporation
Law of the State of Delaware, the laws of the State of Ohio and applicable
federal law; however, I am not a member of the bar of the State of Delaware and
my knowledge of its General Corporation Law is derived from a reading of that
statute without consideration of any judicial or administrative interpretations
thereof.
(b) In rendering this opinion I have assumed that each of the Principal
Documents in which Agent's execution is provided for has been duly authorized,
executed and delivered by Agent and that Agent is concurrently herewith
advancing funds to Borrower or otherwise "giving value" as contemplated in
Section 1309.14 of the Ohio Code.
(c) The enforceability of the Principal Documents is subject to (i)
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and (ii) general principles of equity. The
opinion expressed herein that the Principal Documents are enforceable against
each Restricted Person is also subject to the qualification that certain of the
remedial, waiver and other provisions of the Principal Documents may not be
enforceable; but such unenforceability will not, in my judgment, render the
Principal Documents invalid as a whole, or substantially interfere with the
realization of the principal legal benefits provided by the Principal Documents,
except to the extent of any procedural delay which may result therefrom.
(d) Insofar as any of the opinions herein expressed concern the
perfection of a security interest in "proceeds" (as such term is defined in the
Code) please be advised that the continuation of the existence and perfection of
such security interest are limited as provided in Section 1309.25 of the Ohio
Code.
The opinions herein expressed are for the benefit of Agent and may be
relied upon only by Agent and by Thompson & Knight, P.C. in connection with any
opinion delivered by them to Agent.
Respectfully submitted,
5
<PAGE> 69
Exhibit 10.13
SCHEDULE I
SECTION I. PRINCIPAL DOCUMENTS
1. Credit Agreement dated as of February 9, 1998 between Borrower, Agent,
and Lenders
2. Promissory Note payable by Borrower to Agent, as a Lender, in the
stated principal amount of $20,000,000 of even date with the Credit
Agreement.
3. Open End Mortgage, Assignment, Security Agreement, Fixture Filing and
Financing Statement from Borrower to Agent to be recorded in Ohio (the
"Ohio Mortgage")
4. Financing Statements executed by Borrower in connection with the Ohio
Mortgage (the "Ohio Mortgage Financing Statements's')
5. Open End Mortgage, Assignment, Security Agreement, Fixture Filing and
Financing Statement from Borrower to Agent to be recorded in
Pennsylvania (the "Pennsylvania Mortgage's')
6. Financing Statements executed by Borrower in connection with the
Pennsylvania Mortgage (the "Pennsylvania Mortgage Financing
Statements")
7. Partnership Interest Pledge Agreement executed by Borrower in favor of
Agent (the "Pledge Agreement")
8. Financing Statements executed by Borrower in connection with the Pledge
Agreement for filing with the Secretary of State of Ohio (the "Pledge
Agreement Financing Statement"s; the Ohio Mortgage Financing Statement
and the Pledge Agreement Financing Statement are collectively referred
to herein as the "Ohio Financing Statements's')
SECTION II. CORPORATE DOCUMENTS
AND PROCEEDINGS
A. Omnibus Certificate of Borrower
B. Compliance Certificate of Borrower
C. Certificate of Borrower Regarding the Partnerships
SECTION III. GOVERNMENTAL CERTIFICATES
[list certificates]
<PAGE> 70
Exhibit 10.13
EXHIBIT I
ASSIGNMENT AND ASSUMPTION AGREEMENT
-----------------------------------
Date ______________, 199
Reference is made to that certain Credit Agreement dated as of February
9, 1998 (as from time to time amended, the "Agreement"), by and among North
Coast Energy, Inc., as Borrower, ING (U.S.) Capital Corporation, as Agent, and
certain financial institutions, as Lenders, which Agreement is in full force and
effect on the date hereof. Terms which are defined in the Agreement are used
herein with the meanings given them in the Agreement.
___________________ ("Assignor's') and ___________________ ("Assignee") hereby
agree as follows:
l. Assignor hereby sells and assigns to Assignee without recourse and
without representation or warranty (other than as expressly provided herein),
and Assignee hereby purchases and assumes from Assignor, that interest in and to
all of Assignor's rights and duties under the Agreement as of the date hereof
which represents the percentage interest specified in Item 3 of Annex I hereto
(the "Assigned Share") of all of the outstanding rights and obligations of all
Lenders under the Agreement, including, without limitation, all rights and
obligations with respect to the Assigned Share in Assignor's Loans and Note.
After giving effect to such sale and assignment, Assignee's Percentage Share
(and Assignor's remaining Percentage Share) will be as set forth in Item 3 of
Annex I hereto.
2. Assignor: (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Agreement, the
other Loan Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Agreement, the other Loan Documents or
any other instrument or document furnished pursuant thereto; and (iii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of Borrower, any other Related Person or the performance or
observance by any of them of any of their respective obligations under the
Agreement, the other Loan Documents, or any other instrument or document
furnished pursuant thereto.
3. Assignee: (i) confirms that it has received a copy of the Agreement,
together with copies of the financial statements most recently delivered
thereunder and such other Loan Documents and other documents and information as
it has deemed appropriate to make its own analysis of Borrower and the
transactions contemplated by the Agreement and its own independent decision to
enter into this Assignment and Assumption Agreement; (ii) agrees that it will,
independently and without reliance upon Assignor or any other Bank Party and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Agreement; (iii) confirms that it is a an Eligible Transferee under
the Agreement; (iv) appoints and authorizes Agent and Collateral Agent to take
such action as agent on its behalf and to exercise such powers under the
Agreement and the other Loan Documents as are specifically delegated to them,
together with all other powers reasonably incidental thereto; and (v) agrees
that it will perform in accordance with their terms all of the obligations which
by the terms of the Agreement are required to be performed by it as a Lender
(including the obligation to make future Loans). [;and (vi) attaches the
"Prescribed Forms" described in Section 3.6(d) of the Agreement.]
4. Following the execution of this Assignment and Assumption Agreement
by Assignor and Assignee, an executed original hereof (together with all
attachments) will be delivered to Agent. The effective date of this Assignment
and Assumption Agreement (the "Settlement Date") shall be the date specified in
Item 4 of Annex I hereto; provided that this Assignment and Assumption Agreement
shall not be deemed to have taken effect unless (i) the consent hereto of Agent
and Borrower has been obtained (to the extent required in the Agreement),
<PAGE> 71
Exhibit 10.13
(ii) Agent has received a fully executed original hereof, and (iii) Agent has
received the processing fee referred to in Section 10.5(c)(ii) of the Agreement.
5. Upon the satisfaction of the foregoing conditions, then as of the
Settlement Date: (i) Assignee shall be a party to the Agreement and, to the
extent provided in this Assignment and Assumption Agreement, have the rights and
obligations of a Lender thereunder and under the other Loan Documents and (ii)
Assignor shall, to the extent provided in this Assignment and Assumption
Agreement, relinquish its rights and be released from its duties under the
Agreement and the other Loan Documents.
6. All interest, fees and other amounts that would otherwise accrue
pursuant to the Agreement and Assignor's Note for the account of Assignor from
and after the Settlement Date shall, instead accrue for the account of, and be
payable to, Assignor and Assignee, as the case may be, in accordance with their
respective interests as reflected in Item 3 to Annex I hereto. All payments of
principal that would otherwise be payable from and after the Settlement Date to
or for the account of Assignor pursuant to the Agreement and Assignor's Note
shall, instead, be payable to or for the account of Assignor and Assignee, as
the case may be, in accordance with their respective interests as reflected in
Item 3 to Annex I hereto. On the Settlement Date, Assignee shall pay to Assignor
an amount specified by Assignor in writing which represents the portion of
Assignor's Loans which is being assigned and which is outstanding on the
Settlement Date, net of any closing costs. Assignor and Assignee shall make all
appropriate adjustments in payments under the Agreement for periods prior to the
Settlement Date directly between themselves on the Settlement Date.
7. Each of the parties to this Assignment and Assumption Agreement
agrees that at any time and from time to time upon the written request of any
other party, it will execute and deliver such further documents and do such
further acts and things as such other party may reasonably request in order to
effect the purposes of this Assignment and Assumption Agreement.
8. This Assignment and Assumption Agreement shall be governed by, and
construed in accordance with, the Laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Assignment and Assumption
Agreement, as of the date first above written, such execution also being made on
Annex I hereto.
[NAME OF ASSIGNOR]
as Assignor
By:____________________
Title:
[NAME OF ASSIGNEE]
By:____________________
Title:
CONSENTED TO AND ACKNOWLEDGED:
ING (U.S.) CAPITAL CORPORATION
as Agent
By:________________________________
Title:
<PAGE> 1
Exhibit 10.17
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (herein called this
"Amendment") made as of September 2, 1998 by and between North Coast Energy,
Inc., a Delaware corporation ("Borrower"), and ING (U.S.) Capital Corporation,
as Agent and as a Lender (herein called "Agent"), and the other Lenders from
time to time parties to the Credit Agreement,
W I T N E S S E T H:
WHEREAS, Borrower, Agent and Lenders have entered into that certain
Credit Agreement dated as of February 9, 1998, as amended by that certain First
Amendment to Credit Amendment dated as of May 29, 1998 (as so amended, the
"Original Agreement"), for the purposes and consideration therein expressed,
pursuant to which Lenders became obligated to make loans to Borrower as therein
provided; and
WHEREAS, Borrower, Agent, and Lenders desire to amend the Original
Agreement as provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Original Agreement, in
consideration of the loans which may hereafter be made by Lenders to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS AND REFERENCES
Section 1.1 TERMS DEFINED IN THE ORIGINAL AGREEMENT. Unless the context
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
Section 1.2. OTHER DEFINED TERMS. Unless the context otherwise
requires, the following terms when used in this Amendment shall have the
meanings assigned to them in this Section 1.2.
"AMENDMENT" means this Second Amendment to Credit Agreement.
"CREDIT AGREEMENT" means the Original Agreement as amended hereby.
ARTICLE II.
<PAGE> 2
AMENDMENTS TO ORIGINAL AGREEMENT
Section 2.1. PREPAYMENTS. The first paragraph of Section 2.7(c) of the
Original Agreement is hereby amended to change the reference of "September 4,
1998" to "September 30, 1998".
Section 2.2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become
effective as of the date first above written when and only when this Amendment
has been executed by Agent, Borrower, and the Partnerships.
Section 2.3. REPRESENTATIONS AND WARRANTIES OF BORROWER. In order to
induce Agent to enter into this Amendment, Borrower represents and warrants to
Agent that the representations and warranties contained in Article V of the of
the Original Agreement are true and correct at and as of the time of the
effectiveness hereof.
ARTICLE III.
MISCELLANEOUS
Section 3.1. RATIFICATION OF AGREEMENTS. The Original Agreement as
hereby amended is hereby ratified and confirmed in all respects. Any reference
to the Credit Agreement in any Loan Document shall be deemed to refer to this
Amendment also. The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of Agent under the Credit Agreement or any other Loan
Document nor constitute a waiver of any provision of the Credit Agreement or any
other Loan Document.
Section 3.2. SURVIVAL OF AGREEMENTS. All representations, warranties,
covenants and agreements of Borrower herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loan, and shall further survive until
all of the Obligations are paid in full. All statements and agreements contained
in any certificate or instrument delivered by any Restricted Person hereunder or
under the Credit Agreement to Agent shall be deemed to constitute
representations and warranties by, or agreements and covenants of, Borrower
under this Amendment and under the Credit Agreement.
Section 3.3. LOAN DOCUMENTS. This Amendment is a Loan Document, and all
provisions in the Credit Agreement pertaining to Loan Documents apply hereto.
Section 3.4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York and any
applicable laws of the United States of America in all respects, including
construction, validity and performance.
<PAGE> 3
Section 3.5. COUNTERPARTS. This Amendment may be separately executed in
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT 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 OF THE PARTIES.
IN WITNESS WHEREOF, this Amendment is executed as of the date first
above written.
NORTH COAST ENERGY, INC.
By: /s/ Charles M. Lombardy, Jr.
-------------------------------------
Name: Charles M. Lombardy, Jr.
Title: Chief Executive Officer
ING (U.S.) CAPITAL CORPORATION
By: /s/ Frank Ferrara
-------------------------------------
Name:
Title:
<PAGE> 4
CONSENT AND AGREEMENT
North Coast Operating Company (the "Company") and each of the
partnerships party hereto (the "Partnerships") hereby consent to the provisions
of this Amendment and the transactions contemplated herein, and agrees that the
Company's and the Partnerships' obligations and covenants under the Credit
Agreement are unimpaired hereby and shall remain in full force and effect.
Date: September 2, 1998
NORTH COAST OPERATING COMPANY
By: /s/ Charles M. Lombardy, Jr.
------------------------------
Name: Charles M. Lombardy, Jr.
Title: Chief Executive Officer
Capital Drilling Fund
1986-1 Limited Partnership
North Coast Energy/Capital 1987-1
Appalachian Private Drilling
Program L.P.
North Coast Energy/Capital 1987-2
Appalachian Private Drilling
Program L.P.
North Coast Energy/Capital 1988-1
Appalachian Private Drilling
Program L.P.
North Coast Energy/Capital 1988-2
Appalachian Private Drilling
Program L.P.
1
<PAGE> 5
North Coast Energy 1989 Appalachian
Public Drilling Program L.P.
North Coast Energy 1990-1
Appalachian Private Drilling
Program L.P.
North Coast Energy 1990-2
Appalachian Private Drilling
Program L.P.
North Coast Energy 1990-3
Appalachian Private Drilling
Program L.P.
North Coast Energy 1991-1
Appalachian Private Drilling
Program L.P.
North Coast Energy 1991-2
Appalachian Private Drilling
Program L.P.
North Coast Energy 1991-3
Appalachian Private Drilling
Program L.P.
North Coast Energy 1992-1
Appalachian Private Drilling
Program L.P.
North Coast Energy 1992-2
Appalachian Private Drilling
Program L.P.
North Coast Energy 1992-3
Appalachian Private Drilling
Program L.P.
North Coast Energy 1993-1
Appalachian Private Drilling
Program L.P.
2
<PAGE> 6
North Coast Energy 1993-2
Appalachian Private Drilling
Program L.P.
North Coast Energy 1993-3
Appalachian Private Drilling
Program L.P.
North Coast Energy 1994-1
Appalachian Private Drilling
Program L.P.
North Coast Energy 1994-2
Appalachian Private Drilling
Program L.P.
North Coast Energy 1994-3
Appalachian Private Drilling
Program L.P.
North Coast Energy 1995-1
Appalachian Private Drilling
Program L.P.
North Coast Energy 1995-2
Appalachian Private Drilling
Program L.P.
North Coast Energy 1996-1
Appalachian Private Drilling
Program L.P.
North Coast Energy 1996-2
Appalachian Private Drilling
Program L.P.
3
<PAGE> 7
North Coast Energy 1997-1
Appalachian Private Drilling
Program L.P.
North Coast Energy 1997-2
Appalachian Private Drilling
Program L.P.
By: NORTH COAST ENERGY, INC., general partner
By:______________________________
Name:
Title:
4
<PAGE> 1
Exhibit 10.18
THESE WARRANTS, AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF, HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OR UNLESS THE SAME ARE REGISTERED IN
ACCORDANCE WITH SAID ACT, OR IT IS ESTABLISHED TO THE SATISFACTION OF THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m., New York, New York Time,
on April 30, 2009
WARRANTS FOR THE PURCHASE OF
300,000 SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE
OF
NORTH COAST ENERGY, INC.
This Is To Certify That, FOR VALUE RECEIVED, Charles M. Lombardy, Jr.,
or his successors and permitted assigns ("Holder"), is entitled to purchase,
subject to the provision of these Warrants, from North Coast Energy, Inc., a
Delaware corporation ("Company"), Three Hundred Thousand (300,000) duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock,
$.01 par value per share, of the Company ("Common Stock"), at One Dollar ($1.00)
per share, at any time or from time to time during the period from the date
hereof until 5:00 p.m., New York, New York time on April 30, 2009. The number of
shares of Common Stock which the Holder is entitled to purchase upon the
exercise of each Warrant and the exercise price to be paid for each share of
Common Stock may be adjusted from time to time as hereinafter set forth. The
shares of Common Stock deliverable upon such exercise, as adjusted from time to
time, are hereinafter sometimes referred to as "Warrant Shares" and the exercise
price for one (1) Warrant Share in effect at any time and as adjusted from time
to time is hereinafter sometimes referred to as the "Exercise Price".
1. EXERCISE OF WARRANTS.
If these Warrants shall be exercised on any day on which banking
institutions in the State of New York are authorized or required by law to
close, then these Warrants shall be deemed exercised on the next succeeding day
which shall not be such a day. These Warrants may be exercised by presentation
and surrender hereof to the Company at its principal office (or to the stock
transfer agent, if any, of the Company at its office), with the Purchase Form
annexed hereto duly executed and accompanied by payment of the aggregate
Exercise Price for the number of Warrant Shares specified in such Purchase Form.
The aggregate Exercise Price for such Warrant Shares may be tendered to the
Company in cash, by certified check or bank draft. Any request for exercise must
be accompanied by such investment representations as are reasonably requested by
the Company. As soon as practicable after such exercise of a Warrant, but not
later than three (3) days from the date of such exercise, the Company shall
issue and deliver to the Holder a certificate or certificates for the Warrant
Shares issuable upon such exercise, in such denomination or denominations and
registered in such name or names as the Holder shall have specified in the
Purchase Form; PROVIDED, that if a certificate or certificates for Warrants
Shares are to be registered in a name or names other than the name of the
Holder, and the transfer of such Warrant Shares is not made pursuant to a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), the Holder shall deliver to the Company a legal opinion
reasonably satisfactory to the Company to the effect that such transfer is not
required to be registered under the Securities Act. If these Warrants should be
exercised in part only, the Company shall, upon surrender of these Warrants for
cancellation, execute and deliver new Warrants substantially in the form hereof
evidencing the rights of the Holder thereof to purchase the balance of the
Warrant Shares covered by these Warrants. Upon receipt by the Company of these
Warrants at its office, or by the stock transfer agent of the Company at its
office, in proper form for exercise, the Holder or its designee shall be
<PAGE> 2
Exhibit 10.18
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Common
Stock shall not then be physically delivered to the Holder or its designee.
1A. CONVERSION OF WARRANT. In addition to, and without limiting, the
other rights of the Holder hereunder, the Holder shall have the right (the
"Conversion Right") to convert this Warrant, in whole or in part (but not as to
less than 100,000 shares), into Warrant Shares at any time during the term
hereof. Upon exercise of the Conversion Right, the Company shall deliver to the
Holder, without payment by the Holder of any exercise price or any cash or other
consideration, that number of Warrant Shares computed using the following
formula:
X = Y (A-B)
A
Where X = The number of Warrant Shares to be issued to the Holder
Y = The number of Warrant Shares purchasable pursuant
to this Warrant
A = The Fair Market Value of one share of North Coast
Common Stock as of the Conversion Date
B = The Exercise Price
The Conversion Right may be exercised by the Holder in the surrender of
this Warrant to the Company at its principal office, together with a written
notice specifying that the Holder intends to exercise the Conversion Right and
indicating the portion of the Conversion Right being exercised. Such conversion
shall be effective upon the Company's receipt of this Warrant, together with the
conversion notice (the "Conversion Date"). Certificates for the Warrant Shares
so acquired shall be delivered to the Holder within a reasonable time, not
exceeding three (3) days after the Conversion Date. If these Warrants should be
converted in part only, the Company shall, upon surrender of these Warrants for
cancellation, execute and deliver new Warrants substantially in the form hereof
evidencing the rights of the Holder thereof to purchase the balance of the
Warrant Shares covered by these Warrants.
The "Fair Market Value" of a share of North Coast Common Stock as of a
particular date means the average of the closing sales price for a share of
North Coast Common Stock for the ten (10) trading days ending on the date
preceding the particular date, and if there were no sales of shares on any one
or more of such trading days then the closing sale prices on the ten trading
days on which the securities were traded preceding the particular date.
2. RESERVATION OF SHARES. The Company shall at all times reserve and
keep available, free from preemptive rights, for issuance and/or delivery upon
exercise of these Warrants, such number of shares of its duly authorized and
unissued Common Stock, as shall be required for issuance and delivery of Warrant
Shares upon exercise in full of all outstanding Warrants. All shares of Common
Stock which are so issuable shall, when issued, be duly and validly issued,
fully paid and non-assessable and free from all taxes, liens and charges.
3. FRACTIONAL SHARES. No fractional shares of scrip representing
fractional shares shall be issued upon the exercise of these Warrants. In lieu
of issuing a fraction of a share, the number of Warrant Shares to be received
upon any exercise shall be rounded up to the next whole share.
4. ASSIGNMENT OR LOSS OF WARRANT. These Warrants are assignable without
the prior written consent of the Company; provided, however, that except in the
case of any assignment by will or the laws of descent and distribution, or gift
or transfer to an individual retirement arrangement or trust established by the
Holder or an assignment made pursuant to an effective registration statement,
any assignee of such Warrants shall provide the Company with such investment
representations as the Company may reasonably request and the Holder shall
provide the Company with a legal opinion reasonably satisfactory to the Company
that such transfer may be effected without registration under the Securities
Act. Subject to the Company's receipt of the foregoing, upon surrender of these
Warrants to the Company at its principal office or at the office of its stock
transfer agent, if any, with an Assignment
2
<PAGE> 3
Exhibit 10.18
form reasonably acceptable to the Company duly executed and funds sufficient to
pay any transfer tax, the Company shall, without charge to the assignor or the
assignee, execute and deliver a new Warrant or Warrants of like tenor as these
Warrants in the name or names of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment, and
these Warrants shall promptly be canceled. If less than all of these Warrants
are being assigned, new Warrants of like tenor as these Warrants shall be issued
and delivered to the Holder thereof for the portion of these Warrants not being
assigned. Not in limitation of the other provisions contained herein, the
assignee of these Warrants or any portion thereof shall be entitled to the
benefits of Section 7.
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of these Warrants, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of these Warrants, if mutilated, the Company will
execute and deliver new Warrants of like tenor and date exercisable for an
equivalent number of shares of Common Stock.
5. RIGHTS OF THE HOLDER. The Holder shall not by virtue hereof be
entitled to any rights as a shareholder of the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed or
incorporated in these Warrants and are not enforceable against the Company
except to the extent set forth or incorporated herein.
6. ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price shall
be adjusted, effective immediately after the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification, to a price determined by multiplying the Exercise Price in
effect immediately prior to such record date or effective date by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately before giving effect to such dividend, distribution, subdivision,
combination or reclassification, and the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to such
dividend, distribution, subdivision, combination or reclassification.
(b) Whenever the Exercise Price payable upon exercise of a
Warrant is adjusted pursuant to subparagraph (a) above, the number of Warrant
Shares purchasable upon exercise of a Warrant shall simultaneously be adjusted
by multiplying the number of Warrant Shares purchasable immediately prior to any
adjustment by the Exercise Price in effect immediately prior to any adjustment
and dividing the product so obtained by the Exercise Price as adjusted.
(c) The provisions of this Section 6 shall not apply to (i)
the issue, sale, distribution or grant of any shares of Common Stock, any
rights, warrants or options to subscribe for or purchase shares of Common Stock
or any securities convertible into or exchangeable for shares of Common Stock to
officers, directors or employees of the Company pursuant to a compensation plan
that currently exists and has been, or in the future may exist and will be,
approved by the stockholders of the Company or (ii) the issuance of shares of
Common Stock to officers, directors or employees of the Company upon any
exercise of rights, warrants or options, or any conversion or exchange of
convertible or exchangeable securities, described in clause (i) above. All
calculations under this Section 6 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be.
(d) Whenever the Exercise Price is adjusted as herein
provided, the Company shall promptly cause a notice setting forth the adjusted
Exercise Price and adjusted number of Warrant Shares issuable upon exercise of a
Warrant to be mailed to the Holder, at its last address appearing in the Warrant
Register (as hereinafter defined), and shall cause a certified copy thereof to
be mailed to the Company's stock transfer agent, if any. The Company may retain
a firm of nationally recognized independent certified public accountants
employed by the Company) to make any
3
<PAGE> 4
Exhibit 10.18
computation required by this Section 6, and a certificate signed by such firm
shall be conclusive evidence of the correctness of such adjustment.
(e) In the event that at any time, as a result of an
adjustment made pursuant to subparagraphs (a) and (b) above, the Holder of a
Warrant thereafter shall become entitled to receive any shares of the Company
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of a Warrant shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in subparagraphs (a) and
(b).
(f) Irrespective of any adjustments in the Exercise Price or
the number or kind of Warrant Shares purchasable upon exercise of a Warrant,
Warrants issued in substitution or replacement of these Warrants may continue to
express the same Exercise Price and number and kind of Warrant Shares as are
stated in such substituted or replaced Warrants.
(g) As a condition precedent to the taking of any action which
would require an adjustment pursuant to this Section 6, the Company shall take
any action which may be necessary in order that the Company may thereafter
validly and legally issue as fully paid and nonassessable all Warrant Shares
which the Holder of these Warrants is entitled to receive upon the exercise
thereof.
(h) In case of any consolidation or merger to which the
Company is a party, other than a consolidation or merger in which the Company is
a continuing corporation and which does not result in any reclassification or
conversion of, or change in, the outstanding shares of Common Stock, or any sale
or conveyance of the property of the Company as an entirety or substantially as
an entirety (any such event being called a "Capital Reorganization") the Company
shall cause effective provisions to be made so that the Holder shall have the
right thereafter by exercising these Warrants at any time prior to their
expiration, to receive (in lieu of the number of shares of Common Stock
theretofore deliverable) cash in an amount per share of Common Stock equal to
the excess, if any, of (x) the fair market value per share of Common Stock of
the consideration received in the Capital Reorganization over (y) the Exercise
Price.
7. REGISTRATION RIGHTS
(a) If at any time the Company shall file with the SEC a
registration statement under the Securities Act with respect to a public
offering by the Company or its stockholders of any equity securities, other than
a registration on Form S-4 or S-8 or any successor form to such forms or filed
in connection with an exchange offer or an offering of securities solely to the
existing stockholders or employees of the Company, and the form of such
registration statement may be used under the Securities Act with respect to a
public offering of the Warrant Shares acquired by the Holder pursuant to this
Agreement, the Company will, at least thirty (30) days prior to filing such
registration statement, notify the Holder and its assignees in writing of its
intention to make such filing. Upon the written request of the Holder or its
assignees given within twenty (20) days after mailing of such notice by the
Company in accordance with Section 8(a) hereof, the Company shall, subject to
the provisions of this Section 7 use its best efforts to cause to be registered
under the Act all the shares acquired or acquirable by the Holder or its assigns
pursuant to this Agreement that the Holder and/or its assignees have requested
to be registered. The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section 7(a) prior to the effectiveness
of such registration without any liability to the Holder or its assignees who
would have participated in such registration in the event it had not been
terminated or withdrawn by the Company; provided, however, in such event, the
Holder and its assigns shall not be deemed to have exercised their right to
require the Company to register the Warrant Shares pursuant to this Section
7(a). The Holder or its assigns, in the aggregate, are only entitled to
participate in three (3) effective registrations pursuant to this Section 7(a).
(b) Upon the receipt by the Company from the Holder(s) of a
written request for the registration of all or any portion of the Warrant Shares
(exclusive of any request made under Section 7(a)), the Company shall prepare
and file a registration statement with the SEC under the Securities Act covering
the Warrant Shares which are the subject of the request. The Holder and its
assigns, in the aggregate, shall be entitled to only two demand registrations at
the expense of the Company under this Section 7(b). In the event that the
Holders or its assigns determine for any
4
<PAGE> 5
Exhibit 10.18
reason (other than at the request or recommendation of the Company or an
underwriter) not to proceed with a registration of Warrant Shares requested
pursuant to this Section 7(b) at any time before the registration statement has
been declared effective with the SEC, and such registration statement, if
theretofore filed by the SEC, is withdrawn with respect to the Warrant Shares
covered thereby, and the Holder or such assignees agrees to reimburse the
Company for all fees, costs and expenses incurred by the Company in connection
therewith then the Holder or such assignees shall not be deemed to have
exercised its rights to require the Company to register Warrant Shares pursuant
to this Section 7(b) at the Company's expense. If the Holder or such assignees
determines not to proceed with such a registration upon the request or
recommendation of the Company or an underwriter, the Holder or its assignee
shall not be required to reimburse the Company for its fees, costs and expenses
and the Holder or its assignees shall not be deemed to have exercised its rights
to require the Company to register Warrant Shares pursuant to this Section 7(b)
at the Company's expense.
(c) If and whenever one or more Holders of these Warrants and
any Warrant Shares have requested pursuant to the provisions of subparagraph (a)
or (b) above that the Company effect the registration of all or any portion of
the Warrant Shares under the Securities Act, the Company will:
(1) prepare and file with the SEC at the
earliest practicable date after the request, but not more than 20 days
thereafter, the appropriate registration statement with respect to such Warrant
Shares and promptly notify the Holders and their assigns of such filing, and use
its best efforts to cause such Warrant Shares to be registered and such
registration statement to become effective as soon as practicable thereafter,
but not later than 60 days after the request (unless the Registration Statement
has been selected for review by the SEC), and to remain current and effective
for two (2) years or, if less, until all Warrant Shares have been sold or until
the date an exemption from registration pursuant to Rule 144(K) or successor
rule promulgated under the Securities Act is available for the offer and sale of
all of the Warrant Shares. Notwithstanding the foregoing, the Company shall be
required only to use reasonable efforts rather than best efforts to satisfy the
foregoing requirements if the use of best efforts would cause the Company to
incur any extraordinary legal, accounting or other expenses to have the
registration statement declared effective that would not be incurred were the
Company only to use reasonable efforts.
(2) As promptly as practicable, prepare and file with
the SEC such amendments and supplements to such registration statement and to
the prospectus contained therein as may be reasonably necessary to keep such
registration statement current and effective for such period set forth in
subparagraph (1) above, and to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement and
promptly notify the Holders and their assigns of such filing.
(3) use all reasonable efforts to (i) register or
qualify the Warrant Shares, concurrently with the effectiveness of the
registration statement, under the Blue Sky or securities laws of such
jurisdictions as such Holders or assigns reasonably requests, and (ii) do any
and all other acts an things which may be reasonably necessary or advisable to
enable such Holders or assigns to consummate the disposition in such
jurisdictions of the Warrant Shares in compliance with such laws; provided that
the Company will not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
subparagraph, (y) subject itself to taxation in any jurisdiction in which it is
not otherwise so subject or (z) file any general consent to service of process
in any such jurisdiction.
(4) furnish to the Holders and assigns who
participate in such registration such number of copies of the registration
statement, each amendment and supplement thereto, the preliminary prospectus,
the final prospectus and such other documents as such Holders and assigns may
reasonably request in order to facilitate the public offering of such Warrant
Shares.
(5) notify the Holders and assigns who participate
in such registration, promptly after it shall receive notice thereof, (x) of the
time when such registration statement has become effective or a supplement to
any prospectus forming a part of such registration statement has been filed; (y)
of any request by the SEC for amendments or supplements to the registration
statement, and (z) of any order issued or threatened by the SEC suspending the
effectiveness of such registration statement, or preventing or suspending the
use of the prospectus,
5
<PAGE> 6
Exhibit 10.18
provided that, Company will use all reasonable efforts to prevent the issuance
of any such order and, if any such order is issued, will use all reasonable
efforts to obtain the withdrawal of any such order as soon as practicable.
(6) promptly notify any seller or sellers of Warrant
Shares covered by such registration statement, at any time when a prospectus
relating thereto covered by such registration statement is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
and at the request of such seller or sellers, prepare and furnish to such seller
or sellers a reasonable number of copies of a supplement to or an amendment to
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of the Warrant Shares, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(7) furnish, at the request of any Holder or
assigns who participate in such registration, on the date that the registration
statement with respect to such Warrant Shares becomes effective, and if required
to be given to the underwriters by any underwriting agreement, (i) an opinion,
dated such date, of counsel representing the Company for the purpose of such
registration, in form and substance given to the underwriters, addressed to the
Holder or assigns making such request; and (ii) a copy of the letter from the
Company's independent certified public accountants addressed to the underwriters
covering such matters as such underwriters requested.
(8) use its best efforts to cause all Warrant
Shares covered by any registration statement or sold pursuant to an exemption
from registration under Rule 144(K) or successor rule promulgated under the
Securities Act to be listed on each securities exchange or Nasdaq on which
similar securities issued by the Company are then listed.
(9) to the extent permitted by the Securities
Act, upon the sale of any Warrant Shares covered by any registration statement
or pursuant to an exemption from registration under Rule 144(k) or successor
rule promulgated under the Securities Act remove all restrictive legends from
all certificates or other instruments evidencing such Warrant Shares.
(10) otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC.
(d) With respect to any of the registrations requested
pursuant to Section 7(a) or 7(b), the Company shall bear all of the following
fees, costs, and expenses (collectively "Registration Expenses"): all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel for the Company and all independent accountants for the Company
(including fees and expenses of any "comfort letters" or updates thereof),
underwriters (excluding discounts and commissions) and other persons retained by
the Company, messenger and delivery fees, transfer agent and registrar fees and
expenses, and the expenses and fees for any listing of the securities to be
registered on each securities exchange Nasdaq on which similar securities issued
by the Company are then listed; and expenses and fees incurred in connection
with registration or qualification of the Warrant Shares under Blue Sky or
securities laws of the jurisdictions specified by the holders thereof pursuant
to subparagraph (c)(3) above.
(e) (1) The Company will indemnify and hold harmless each
Holder or assignee of Warrant Shares participating in a registration pursuant to
these provisions, and each broker or any other person acting on behalf of such
Holder or assignee and each person, if any, who controls any of the foregoing
persons within the meaning of the Securities Act, from and against any and all
loss, claim, damage, liability, cost or expense to which any of the foregoing
persons may be subject under the Securities Act or other statute or common law
or otherwise, insofar as such losses, claims, damages, liabilities, costs or
expenses are caused by, are based upon, or arise out of any untrue statement or
alleged untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or supplement
thereto, or any document furnished or prepared by the Company incident to the
registration or qualification of the Warrant Shares pursuant to this Section 7,
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of the
6
<PAGE> 7
Exhibit 10.18
circumstances in which they were made, not misleading, or any violation by the
Company of the Securities Act or state securities or Blue Sky laws applicable to
the Company or relating to action or inaction required of the Company in
connection with such registration or qualification under the Securities Act such
state securities or Blue Sky laws; and shall reimburse such Holder or assignee,
such broker or other person acting on behalf of such Holder or assignee, and
each controlling person for any legal or any other expenses reasonably incurred
by any of them in connection with investigating or defending any such loss,
claim, damage, liability or action; PROVIDED, HOWEVER, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage,
liability, cost or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in strict
conformity with written information furnished by such Holder or assignee, such
broker, such other person acting on behalf of such Holder or assignee, or such
controlling person specifically for use in the preparation of such documents.
(2) Each party entitled to indemnification under
this subparagraph (e) (the "Indemnified Party") shall give notice to the party
that allegedly is obligated hereunder to indemnify the Indemnified Party (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom: PROVIDED, HOWEVER, that counsel for the Indemnifying Party,
who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have been
advised by counsel that actual or potential differing interests or defenses
exist or may exist between the Indemnifying Party and the Indemnified Party, in
which case such expenses shall be paid by the Indemnifying Party); and PROVIDED
FURTHER that the failure of any Indemnified Party to give notice as provided
therein shall not relieve the Indemnifying Party of its obligations under this
subparagraph (e). No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from any liability in respect to such claim or
litigation.
(f) Notwithstanding anything to the contrary contained herein,
the holders of Warrant Shares shall have no registration rights hereunder with
respect to any proposed sale of Warrant Shares if an exemption from registration
pursuant to Rule 144(k) or successor rule promulgated under the Securities Act
is available for the offer and sale of all of the Warrant Shares proposed to be
sold.
(g) If the total amount of Shares requested by Holder or its
assignees to be included in any registration pursuant to the provisions of
Section 7(a) hereof exceeds the amount of securities which the managing
underwriter reasonably and in writing believes to be compatible with the success
of the offering, then the Company shall be required to include in the offering
only that number of Warrant Shares which the underwriters believe will not
jeopardize the success of the offering (the securities so included to be
apportioned pro rata among all persons other than the Company in proportion to
the number of shares each such stockholder requested to be included in the
registration and underwriting or in such other proportions among the Holders and
assignees only as shall mutually be agreed to by the Holder and its assignees.
If the number of Warrant Shares included in the registration statement is less
than the number of shares requested by the Holder or its assigns, then such
registration shall not be counted among the three registrations permitted under
Section 7(a).
(h) It shall be a condition precedent to the obligations of
the Company to register the Warrant Shares pursuant to this Agreement that the
Holder or its assignees shall furnish to the Company such information regarding
themselves, the Shares held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their Shares
and such other information to the extent it is available as the Company may
reasonably request in connection with any registration, qualification or
compliance.
(i) If the Holder desires to participate in any underwritten
offering being made by the Company, the Holder shall enter into an underwriting
agreement in customary form with the representatives of the underwriter or
underwriters selected by the Company. The Holder further agrees, as a condition
to participation in the underwritten offering, to agree to a lockup of his
shares not included in the offering for such period not to exceed 120 days
following the offering as all officers and directors of the Company shall also
agree. The Holder shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties and agreements regarding the Warrant Shares owned by
the Holder and their intended method of distribution
7
<PAGE> 8
Exhibit 10.18
or any other representation required by law. If the Holder disapproves of the
terms of the underwriting he may withdraw therefrom by written notice to the
Company and the underwriter's representatives within fifteen days after the form
of the underwriting agreement is presented to the Holder and the Holder's
Warrant Shares shall be simultaneously withdrawn from registration and the
offering and, in such event, the registration shall not constitute one of the
three registration rights available to the Holder under Section 7(a).
(j) During the period any registration statement that includes
the Warrant Shares is effective, the Company may request the Holder to refrain
from any sales under the registration statement (the "Suspension") and the
Holder agrees to abide by such Suspension. The Company is not obligated to
advise the Holder of the reason for the Suspension, nor shall the Holder
disclose the existence of the Suspension to any third party. The Company may not
request or cause the number of days of any and all Suspensions to exceed 60 days
in any twelve-month period. If the Company requests a Suspension, the time
periods for registrations to remain effective specified in Section 7(c)(1) shall
be extended by a number of days equal to the Suspension period.
8. MISCELLANEOUS
(a) All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telex or cable
communication) and shall be effective (i) when personally delivered on a
business day during normal business hours at the place of receipt to the party
to be given such notice, (ii) on the third business day following the day when
deposited, if mailed by certified or registered mail with return receipt
requested and postage thereon fully prepaid, (iii) on the business day such
notice shall have been sent by telex, telegram, telecopier, cable or similar
electronic device, fully prepared. The addressees for such notice shall be:
if to the Company, to:
North Coast Energy, Inc.
1933 Case Parkway
Twinsburg, Ohio 44087
Attention: Secretary and General Counsel
if to the Holder, to:
Charles M. Lombardy, Jr.
13395 Ledgebrook Lane
Chagrin Falls, Ohio 44022
or at such other address as any of the foregoing parties shall from time to time
designate in writing to the other party in accordance herewith.
(b) No failure or delay of the Holder in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof, or any abandonment or discontinuance of
steps to enforce such a right, power or privilege, preclude any other further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies of the Holder are cumulative and not exclusive of any rights
or remedies which it would otherwise have. The provisions of these Warrants may
be amended, modified or waived if, but only if, such amendment, modification or
waiver is in writing and is signed by the Holders and/or assigns holding a
majority of the Warrant Shares and/or Warrant covering a majority of the Warrant
Shares; PROVIDED, that no amendment, modification or waiver may change the
Exercise Price or the number of Warrant Shares subject to purchase upon exercise
of each Warrant (including without limitation any adjustments or any provisions
with respect to adjustments or the manner of exercise) without the consent in
writing of all of the Holders of the Warrants outstanding.
(c) All covenants, agreements and provisions of these Warrants
by or for the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
(d) These Warrants shall be governed by and construed in
accordance with the laws of the State of Delaware.
8
<PAGE> 9
Exhibit 10.18
[THIS SPACE LEFT BLANK INTENTIONALLY.]
9
<PAGE> 10
Exhibit 10.18
IN WITNESS WHEREOF, North Coast Energy, Inc. has caused this Warrant to
be manually executed by its duly authorized President and attested by its duly
authorized Secretary this 30th day of April, 1999.
NORTH COAST ENERGY, INC.
By: _____________________________
Name:________________________
Title:_______________________
Attest:
- --------------------------------
<PAGE> 11
Exhibit 10.18
PURCHASE FORM
Dated:__________,____
The undersigned hereby irrevocably elects to exercise the within
Warrants to the extent of purchasing ____ Warrant Shares and hereby tenders
payment of the aggregate Exercise Price therefor by the following
means:________________________. Any cash payments to be made in lieu of issuing
fractional shares should be payable to the order of the undersigned and
delivered at the indicated address.
INSTRUCTIONS FOR REGISTRATION
Name________________________________________________
(Please typewrite or print in block letters)
Address______________________________________________
Signature_______________________________________
<PAGE> 1
Exhibit 10.19
AGREEMENT
This Agreement is made as of April 30, 1999, by and among North Coast
Energy, Inc., a Delaware corporation (the "Company"), Nuon International
Projects, bv (f/k/a Nuon International, bv), a limited liability company
organized under the laws of the Netherlands ("Nuon"), Charles M. Lombardy, Jr.
("Lombardy") and Betty M. Lombardy (("Betty") and, together with Lombardy, the
"Lombardys").
WHEREAS, the Company and Lombardy are parties to a Restated Employment
Agreement dated May 3, 1995, as amended by letter agreement dated September 4,
1997 among Lombardy, Nuon, and Garry Regan (the "Employment Agreement"); and
WHEREAS, the Company, Nuon and Lombardy desire to terminate the
Employment Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. TERMINATION OF EMPLOYMENT AGREEMENT. In exchange for the payments
and other benefits described herein, Lombardy and the Company hereby agree that,
except for the provisions in Section 7 of the Employment Agreement which shall
continue in effect pursuant to its terms, the Employment Agreement is hereby
terminated, and that neither the Company nor Lombardy shall have any further
obligations thereunder, except as set forth herein.
2. COMPENSATION. Upon execution of this Agreement, the Company shall
pay to Lombardy $369,870. All of the foregoing payments shall be subject to
applicable federal and state withholding and payroll taxes. Further, upon
execution of this Agreement, Lombardy will receive a ten year warrant
("Warrant") to purchase at $1.00 per share 300,000 shares of the Company's
Common Stock (the "Warrant Shares"). The warrant shall be in the form of Exhibit
A hereto and shall constitute a part of this Agreement.
3. RESIGNATION. Lombardy hereby resigns, effective as of the date
hereof, as a director and officer of the Company and of its subsidiaries, NCE
Securities, Inc. and North Coast Operating Company. Further, the parties
acknowledge that Lombardy's employment with the Company is terminated effective
April 30, 1999.
4. PURCHASE OF THE LOMBARDYS' SHARES. In the event Nuon exercises its
option to acquire 5,747,127 additional shares of North Coast Common Stock (the
"Nuon Shares") from the Company on or before September 30, 1999, then Nuon will
purchase, and the Lombardys agree to sell, their 536,505 shares (the "Lombardy
Shares") of North Coast Common Stock (the "Shares") for $0.875 per share (the
"Purchase Price"), or an aggregate of $469,441.88, on the same day as the
purchase of the Nuon Shares.
The Purchase Price and the number of the Lombardy Shares to be
purchased shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding Shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding Shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
Shares of Common Stock into a smaller number of shares (including, but not
limited to the anticipated Reverse Stock Split), the Purchase Price shall be
adjusted, effective immediately after the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification, to a price determined by multiplying the Purchase Price in
effect immediately prior to such record date or effective date by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately before giving effect to such dividend, distribution, subdivision,
combination or reclassification, and the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to such
dividend, distribution, subdivision, combination or reclassification.
7
<PAGE> 2
Exhibit 10.19
(2) Whenever the Purchase Price is adjusted pursuant to subparagraph
(a) above, the number of Shares purchased shall simultaneously be adjusted by
multiplying the number of Shares to be purchased immediately prior to any
adjustment by the Purchase Price in effect immediately prior to any adjustment
and dividing the product so obtained by the Purchase Price as adjusted.
(3) The provisions of subparagraph (a) and (b) above shall not apply to
(i) the issue, sale, distribution or grant of any shares of Common Stock, any
rights, warrants or options to subscribe for or purchase shares of Common Stock
or any securities convertible into or exchangeable for shares of Common Stock to
officers, directors or employees of the Company pursuant to a compensation plan
that currently exists and has been, or in the future may exist and will be,
approved by the stockholders of the Company or (ii) the issuance of shares of
Common Stock to officers, directors or employees of the Company upon any
exercise of rights, warrants or options, or any conversion or exchange of
convertible or exchangeable securities, described in clause (i) above. All
calculations shall be made to the nearest cent or to the nearest one-hundredth
of a share, as the case may be.
(4) Whenever the Purchase Price is adjusted as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Purchase Price
to be mailed to the Lombardys. The Company may retain a firm of nationally
recognized independent certified public accountants employed by the Company to
make any computation required by this Section, and a certificate signed by such
firm shall be conclusive evidence of the correctness of such adjustment.
(5) In the event that at any time, as a result of an adjustment made
pursuant to subparagraphs (a) and (b) above, the Lombardys thereafter shall
become entitled to receive any shares of the Company other than Common Stock,
thereafter the number of such other shares so receivable shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (a) and (b).
(6) As a condition precedent to the taking of any action which would
require an adjustment pursuant to this Section, the Company shall take any
action which may be necessary in order that the Company may thereafter validly
and legally issue as fully paid and nonassessable all Shares which the Lombardys
are entitled to receive.
Nuon shall make the payment to the Lombardys by wire transfer, in
immediate available U.S. funds, against delivery of the Lombardy Shares,
together with a duly executed stock power. In the event Nuon fails to exercise
its option to acquire the Nuon Shares and fails to acquire the Lombardy Shares,
the Company agrees to purchase the Lombardy Shares on September 30, 1999 on the
same terms as set forth above. To demonstrate its ability to effectuate the
purchase, the Company will escrow an amount equal to the sum necessary to
purchase the Lombardy Shares and to pay all accrued and unpaid dividends due on
the Company's Preferred Stock pursuant to the terms of an Escrow Agreement,
substantially in the form of Exhibit B hereto. The Company warrants and
represents to the Lombardys that, with the exception of the consent by or waiver
from the Company's institutional lender, which waiver or consent is attached
hereto as Exhibit C, no consent or approval are necessary to permit the purchase
of the Lombardy Shares in accordance with the terms of this Agreement.
The Lombardys may sell, assign, donate or otherwise transfer any or all
of the Lombardy Shares to (i) their lineal descendants ("Relatives"), (ii)
trusts which are only for the benefit of their Relatives or themselves, (iii)
corporations, partnerships, limited liability companies of which the only equity
owners are Relatives or themselves, or (iv) any charitable organization;
provided, however, that such transferee agrees, in writing, to be bound by the
terms of this Section 4.
Notwithstanding the foregoing, the Lombardys are free to sell all or
part of the Lombardy Shares in the manner provided in Rule 144 under the
Securities Act of 1933, as amended (the "Act"); provided that they may not sell
more than 25,000 shares in any 30-day period. In the event of any sale under
this paragraph, the number of Shares required to be purchased by Nuon or the
Company under this Section 4 shall be reduced by the number of shares sold by
the
2
<PAGE> 3
Exhibit 10.19
Lombardys and the aggregate purchase price for the securities purchased by
Nuon or the Company shall be appropriately reduced.
The Company agrees that any Shares purchased by Nuon from the Lombardys
shall be credited against Nuon's right to purchase an additional 5,714,286
shares from the Company pursuant to the Stock Purchase Agreement dated September
4, 1997.
The Lombardys represent and warrant that (a) they are the record owner
of the Lombardy Shares and all such Shares are duly authorized, validly issued
and fully paid and non-assessable; (b) they have, and at the time of the
transfer of the Lombardy Shares (less Shares sold in the open market or Shares
held by permitted transferees) to Nuon or the Company will have, good and
marketable title to such Shares, free and clear of all liens and encumbrances
and (c) there are no first refusal rights to purchase or otherwise acquire the
Lombardy Shares.
5. ACCRUED VACATION. Lombardy shall be entitled to receive, on May 14,
1999, together with his final paycheck, a cash amount equal to $7,557.11 (an
amount equal to his eleven (11) accrued and unused vacation days) subject to
applicable withholding and payroll taxes.
6. REGISTRATION RIGHTS. In addition to the registration rights included
in Section 7 of the Warrant, the Company shall include the Warrant Shares in
Registration Statement 333-71855 pending with the Securities & Exchange
Commission and shall use all reasonable efforts (i) to have such registration
statement declared effective and (ii) to remain effective until September 30,
2001, or such earlier date as all of the Warrant Shares have been sold or until
the date an exemption from registration pursuant to Rule 144(k) or successor
rule promulgated under the Securities Act of 1933, as amended, is available for
the offer and sale of all of the Warrant Shares. The foregoing registration
shall be in addition to the registrations available to Lombardy under the
Warrant and, except as otherwise provided above, such registration shall
otherwise be subject to the terms of the Warrant.
7. RELEASE OF CLAIMS AND COVENANT NOT TO SUE.
7.1 In further consideration for the amounts to be paid by the Company
and/or Nuon to the Lombardys hereunder, the Lombardys do hereby release and
forever discharge the Company, Nuon and each of their respective directors,
officers, employees, shareholders, agents (including, but not limited to,
accountants and attorneys) (such individuals, the Company, and Nuon are
hereunder collectively referred to as "Released Parties") from all claims,
causes of action and liabilities of every kind and description whatsoever, known
and unknown, foreseen and unforeseen, suspected and unsuspected, asserted or
unasserted, which either of the Lombardys has or may have against them or any of
them by reason of any fact, matter or thing from the beginning of the world to
the date of this Agreement, except for claims arising out of the breach of any
of Released Parties' obligations under this Agreement. Without limiting the
generality of the preceding sentence, the Lombardys do hereby release the
Released Parties from all claims, causes of action and liabilities arising from
or relating to: (i) Lombardy's employment or other association with the Company
or with any Company affiliate; (ii) any right which Lombardy has, had or may
have had to receive any sum of money of the Company or of any Company affiliate,
whether under the Employment Agreement, or otherwise; (iii) claims based on oral
or written contracts; (iv) claims arising under any federal or state statutes,
including but not limited to, claims asserting discrimination on account of age,
race, color, sex, religion, national origin or veteran or handicap status and
claims under the Age Discrimination in Employment Act of 1967 ("ADEA"), as
amended, ERISA, Title VII of the 1964 Civil Rights Act and the Older Worker
Benefit Protection Act; (v) claims for damages for breach of contract or implied
contract; (vi) claims based on personal injury, including, without limitation,
infliction of emotional distress; (vii) wrongful termination or breach of
covenant of good faith and fair dealing; and (viii) claims asserting defamation,
interference with contract or business relationships or promissory estoppel.
The Lombardys covenant and agree that they will never assert a claim or
institute any cause of action or file a charge based on claims, causes of action
and liabilities of every kind and description whatsoever, known and unknown,
foreseen and unforeseen, suspected and unsuspected, asserted or unasserted,
which the Lombardys have or may have against the Company, or any other Released
Party by reason of any fact, matter or thing from the beginning of the world to
the date of this Agreement (except for claims arising out of the breach of any
of Company's or other Released Party's obligations under this Agreement) with
any court of law or administrative tribunal, and further agrees that should they
3
<PAGE> 4
Exhibit 10.19
violate the foregoing covenant not to sue by asserting a claim, instituting an
action or filing a charge against the Company, or any other Released Party which
is prohibited under this Agreement, the Lombardys will pay all of Company's
costs and expenses (including, without limitation, attorneys' fees) of defending
against the suit incurred by the Company or any other Released Party. The
Lombardys acknowledge and agree that the monetary benefits provided in this
Agreement constitute sufficient consideration for the Release and Covenant Not
to Sue contained herein in that there are substantial benefits to the Lombardys,
and the Lombardys further acknowledge that they have voluntarily and knowingly
entered into this Agreement with the benefit of advice and counsel of their
choice and a full understanding of its terms and meanings.
Lombardy acknowledges that the Company has notified him that, under
federal law: (i) Lombardy has twenty-one (21) days from the date of execution by
Lombardy of this Agreement to consider the release and covenant not to sue
solely with respect to claims arising under the ADEA; and (ii) the release of
claims and covenant not to sue under the ADEA are not enforceable for a period
of seven (7) days following the execution by Lombardy of this Agreement and may
be revoked by Lombardy during such time. Revocation of the release of claims
under ADEA and covenant not to sue under ADEA may be effected by Lombardy solely
by notifying the Company in writing of his election to revoke and delivering
such notice to the Company within the aforesaid seven (7) day period. Such
revocation shall not affect any of the other terms and provisions of this
Agreement.
7.2 In consideration for the Lombardys' agreements, obligations and
covenants contained in this Agreement, the Company and Nuon do for themselves
and their respective subsidiaries, directors, officers, shareholders, agents and
employees, successors and assigns (the "Corporate Parties") hereby release and
forever discharge the Lombardys and their heirs, executors, administrators,
personal representatives, successors and permitted assigns, from all claims,
causes of action and liabilities of every kind and description whatsoever, known
and unknown, foreseen and unforeseen, suspected or unsuspected, asserted or
unasserted, which the Corporate Parties has or may have against the Lombardys by
reason of any fact, matter or thing from the beginning of the world to the date
of this Agreement, except for claims arising out of (i) the breach by the
Lombardys of any of their obligations, representations, warranties and covenants
under this Agreement or (ii) any breach by Lombardy of Section 7 of the
Employment Agreement (of which, as of the date hereof, the Corporate Parties
have no knowledge of such a breach). Without limiting the generality of the
preceding sentence, the Company does hereby release Lombardy from all claims,
causes of action and liabilities arising from or relating to Lombardy's previous
employment or other association as a director and officer with the Company
and/or the circumstances giving rise to the execution and delivery of this
Agreement. The Company covenants and agrees that it will never assert or
institute any cause of action or file a charge arising from or relating to
Lombardy's previous employment or other association with the Company and/or the
circumstances giving rise to the execution and delivery of this Agreement, and
further agrees that should the Company violate the foregoing covenant not to sue
by instituting an action or filing a charge against the Lombardys which is
prohibited under this Agreement, Company will pay all costs and expenses
(including, without limitation, attorneys' fees) of defending against the suit
incurred by the Lombardys.
7.3 For purposes of this Agreement, "all claims" shall include, without
limitation, all claims of any kind, whether known or unknown, anticipated or
unanticipated, past, present or future, contingent or fixed as of the date
hereof.
7.4 The Company agrees to indemnify and hold harmless Lombardy with
respect to any actions or omissions occurring prior to the date hereof, to the
same extent and to the same manner Lombardy was entitled to indemnification as
an officer, director and employee of the Company.
8. HEALTH INSURANCE. Lombardy has the right to continued health
insurance coverage for himself and his family under the Company's existing
medical plan through the Company pursuant to applicable requirements under the
Consolidated Omnibus Reconciliation Act of 1985, as amended ("COBRA"). The
Company shall provide such coverage to Lombardy, at Lombardy's cost, through the
statutory COBRA period.
9. COSTS AND ATTORNEY FEES. Each party shall be responsible for their
separate costs, expense, attorneys' fees or otherwise; provided, however that if
either party sues to enforce the terms of this Agreement and prevail on his or
its claims at trial, the losing party shall pay the attorney costs of the
prevailing party.
4
<PAGE> 5
Exhibit 10.19
10. NON-DISPARAGEMENT. The parties covenant and agree that neither
shall make any statements, written or oral, to any third party which disparages,
criticized, discredits or otherwise operates to the detriment of the Lombardys,
the Company or Nuon, or their respective business reputation and/or goodwill.
11. PRESS RELEASE. None of the parties shall issue a press release
regarding the terms of this Agreement without the consent of the other. The
Lombardys recognize, however, that this Agreement and its terms shall be
required to be disclosed by the Company in its public filings with the
Securities & Exchange Commission.
12. ENTIRE AGREEMENT. This Agreement and the Exhibits attached hereto,
together with the Supplement dated April 30, 1999, executed by Saul and Ann
Siegel, contains the entire agreement among the parties hereto, and there are no
understandings among the parties other than those specifically and expressly set
forth in this Agreement. This Agreement shall not be amended or modified in any
manner except upon written agreement by the parties.
13. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same Agreement. The signature of any party
to any counterpart, including any facsimile thereof, may be appended to any
other counterpart and when so appended shall constitute an original.
14. GOVERNING LAWS. This Agreement shall be governed and interpreted
pursuant to the laws of the State of Ohio.
15. BINDING EFFECT. This Agreement shall inure to the benefit of not
only the parties but their respective heirs, successors, assigns, subsidiaries,
affiliates, parents, officers, directors, employees, shareholders, agents,
attorneys, and representatives and shall be binding not only upon the parties
but also the aforesaid respective parties.
16. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, or twenty-four (24)
hours after being sent by confirmed facsimile transmission, with subsequent mail
delivery, or three (3) days after being mailed (by registered or certified mail,
return receipt requested), in each case to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to the Lombardys:
Charles M. Lombardy, Jr.
13395 Ledgebrook Lane
Chagrin Falls, Ohio 44022
With a copy to:
Larry Crystal, Esq.
McCarthy, Lebit, Crystal & Haiman Co.
101 Prospect Avenue, West, Suite 1800
Cleveland, Ohio 44115
(b) If to Company or Nuon:
North Coast Energy, Inc.
1933 Case Parkway
Twinsburg, Ohio 44087
Attn: General Counsel
With a copy to:
5
<PAGE> 6
Exhibit 10.19
Michael A. Ellis, Esq.
Kahn, Kleinman, Yanowitz & Arnson
1301 East Ninth Street, Suite 2600
Cleveland, Ohio 44114
6
<PAGE> 7
Exhibit 10.19
IN WITNESS WHEREOF, the parties have represented to one another that
they have carefully read the foregoing terms of this Agreement, that they know
and understand the contents of this Agreement, that they have authority to
execute this Agreement, that they have undertaken to sign the same as their own
respective free act and deed having declared their intention to be bound
contractually by all such terms and conditions, and do hereby execute and
deliver this Agreement this ___ day of May, 1999, effective as of the date set
forth above.
NORTH COAST ENERGY, INC.
By: ____________________________________
Garry Regan, President
NUON INTERNATIONAL, bv
By: ___________________________________
Dr. Leo J.M.J. Blomen, Executive
Director
-----------------------------------------
Charles M. Lombardy, Jr.
-----------------------------------------
Betty M. Lombardy
<PAGE> 1
Exhibit 10.20
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (herein called this
"Amendment") made as of June 23, 1999 by and between North Coast Energy, Inc., a
Delaware corporation ("Borrower"), and ING (U.S.) Capital LLC, successor in
interest to ING (U.S.) Capital Corporation, as Agent and as a Lender (herein
called "Agent"), and the other Lenders from time to time parties to the Credit
Agreement,
W I T N E S S E T H:
WHEREAS, Borrower, Agent and Lenders have entered into that certain
Credit Agreement dated as of February 9, 1998 (as amended, supplemented, or
restated to the date hereof, the "Original Agreement"), for the purposes and
consideration therein expressed, pursuant to which Lenders became obligated to
make loans to Borrower as therein provided; and
WHEREAS, Borrower, Agent, and Lenders desire to amend the Original
Agreement as provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Original Agreement, in
consideration of the loans which may hereafter be made by Lenders to Borrower,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and References
--------------------------
Section 1.1 TERMS DEFINED IN THE ORIGINAL AGREEMENT. Unless the
context otherwise requires or unless otherwise expressly defined herein, the
terms defined in the Original Agreement shall have the same meanings whenever
used in this Amendment.
Section 1.2. OTHER DEFINED TERMS. Unless the context otherwise
requires, the following terms when used in this Amendment shall have the
meanings assigned to them in this Section 1.2.
"AMENDMENT" means this Third Amendment to Credit Agreement.
"CREDIT AGREEMENT" means the Original Agreement as amended
hereby.
"RENEWAL NOTE" means the renewal promissory note of Borrower attached
hereto as Exhibit A.
<PAGE> 2
ARTICLE II.
AMENDMENTS TO ORIGINAL AGREEMENT
Section 2.1. DEFINITIONS. The definition of "Commitment Period" in
Section 1.1 of the Original Agreement is hereby amended in its entirety to read
as follows:
"COMMITMENT PERIOD" means the period from and including the
date hereof until and including July 2, 2000 (of, if earlier, the day
on which the Notes first become due and payable in full)."
Section 2.2. MANDATORY AND SCHEDULED PREPAYMENTS. Section 2.7(b) of the
Original Agreement is hereby amended in its entirety to read as follows:
"(b) At the termination of the Commitment Period, the
principal amount of the Note shall be due and payable in 20 quarterly
installments, each of which shall be equal to one-twentieth (1/20th) of
the aggregate unpaid principal balance of the Note at the end of the
Commitment Period and shall be due and payable on the last day of each
Fiscal Quarter, beginning September 30, 2000, and continuing regularly
thereafter until June 30, 2005, at which time the unpaid principal
balance of the Note and all accrued interest shall be due and payable."
Section 2.3. CONDITIONS OF EFFECTIVENESS. This Amendment shall become
effective as of the date first above written when and only when (i) this
Amendment has been executed by Agent, Borrower, and the Partnerships, (ii) Agent
shall have received the Renewal Note, duly authorized, executed, and delivered
by Borrower, (iii) Agent shall have received a certificate of a duly authorized
officer of Borrower dated the date of this Amendment certifying: (A) that all of
the representations and warranties set forth in Section 2.4 hereof are true and
correct at and as of the time of such effectiveness and (B) as to such other
corporate matters as Agent shall deem necessary, and (iv) Agent shall have
additionally received such other documents as Agent may reasonably request.
Section 2.4. REPRESENTATIONS AND WARRANTIES OF BORROWER. In order to
induce Agent to enter into this Amendment, Borrower represents and warrants to
Agent that:
(a) The representations and warranties contained in Article V
of the of the Original Agreement (as amended hereby) are true and
correct at and as of the time of the effectiveness hereof.
(b) Borrower is duly authorized to execute and deliver this
Amendment and the Renewal Note and is and will continue to be duly
authorized to borrow and to perform its obligations under the Credit
Agreement. Borrower has duly taken all corporate action necessary to
authorize the execution and delivery of this Amendment and the Renewal
2
<PAGE> 3
Note and to authorize the performance of the obligations of Borrower
hereunder and thereunder.
(c) The execution and delivery by Borrower of this Amendment
and Renewal Note, the performance by Borrower of its obligations
hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby do not and will not conflict with any
provision of law, statute, rule or regulation or of the articles of
incorporation and bylaws of Borrower, or of any material agreement,
judgment, license, order or permit applicable to or binding upon
Borrower, or result in the creation of any lien, charge or encumbrance
upon any assets or properties of Borrower. Except for those which have
been duly obtained, no consent, approval, authorization or order of any
court or governmental authority or third party is required in
connection with the execution and delivery by Borrower of this
Amendment and the Renewal Note, or to consummate the transactions
contemplated hereby and thereby.
(d) When duly executed and delivered, each of this Amendment,
the Credit Agreement, the Renewal Note, and the Security Documents will
be a legal and binding instrument and agreement of Borrower,
enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency and similar laws applying to creditors' rights
generally and by principles of equity applying to creditors' rights
generally.
(e) The audited annual financial statements of Borrower dated
as of December 31, 1998, fairly present the financial position at such
date and the statement of operations and the changes in financial
position for the periods ending on such date for Borrower. Copies of
such financial statements have heretofore been delivered to Agent.
Since December 31, 1998, no material adverse change has occurred in the
financial condition or businesses of Borrower.
Section 2.5. COVENANTS AND AGREEMENTS OF BORROWER. Borrower hereby (i)
covenants to execute and deliver to Agent one or more amendments to the Security
Documents in form and substance acceptable to Agent on or before July 15, 1999
reflecting the maturity date and maximum principal amount of the Loans, and (ii)
agrees that the failure to deliver to Agent such amendments on or before such
date shall constitute an Event of Default.
ARTICLE III.
MISCELLANEOUS
Section 3.1. RATIFICATION OF AGREEMENTS. The Original Agreement as
hereby amended is hereby ratified and confirmed in all respects. Any reference
to the Credit Agreement in any Loan Document shall be deemed to refer to this
Amendment also. Any reference to the Note in any Loan Document shall be deemed
to be reference to the Renewal Note. The execution, delivery and effectiveness
of this Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of Agent under the Credit Agreement or any
other Loan
3
<PAGE> 4
Document nor constitute a waiver of any provision of the Credit Agreement or any
other Loan Document.
Section 3.2. SURVIVAL OF AGREEMENTS. All representations, warranties,
covenants and agreements of Borrower herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loan, and shall further survive until
all of the Obligations are paid in full. All statements and agreements contained
in any certificate or instrument delivered by any Restricted Person hereunder or
under the Credit Agreement to Agent shall be deemed to constitute
representations and warranties by, or agreements and covenants of, Borrower
under this Amendment and under the Credit Agreement.
Section 3.3. LOAN DOCUMENTS. Each of this Amendment and the Renewal
Note is a Loan Document, and all provisions in the Credit Agreement pertaining
to Loan Documents apply hereto and thereto.
Section 3.4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York and any
applicable laws of the United States of America in all respects, including
construction, validity and performance.
Section 3.5. COUNTERPARTS. This Amendment may be separately executed
in counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Amendment.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT 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 OF THE PARTIES.
IN WITNESS WHEREOF, this Amendment is executed as of the date first
above written.
NORTH COAST ENERGY, INC.
By: /s/ Garry Regan
-----------------------------
Name: Garry Regan
Title: President
ING (U.S.) CAPITAL LLC
<PAGE> 5
By:
-----------------------------
Name:
Title:
5
<PAGE> 6
CONSENT AND AGREEMENT
North Coast Operating Company (the "Company") and each of the
partnerships party hereto (the "Partnerships") hereby consent to the provisions
of this Amendment and the transactions contemplated herein, and agrees that the
Company's and the Partnership's obligations and covenants under the Credit
Agreement are unimpaired hereby and shall remain in full force and effect.
Date: June 23, 1999
NORTH COAST OPERATING COMPANY
By: /S/ Saul Siegel
---------------------------
Name: Saul Siegel
Title: President
Capital Drilling Fund 1986-1 Limited Partnership
North Coast Energy/Capital 1987-1 Appalachian Private Drilling
Program L.P.
North Coast Energy/Capital 1987-2 Appalachian Private Drilling
Program L.P.
North Coast Energy/Capital 1988-1 Appalachian Private Drilling
Program L.P.
North Coast Energy/Capital 1988-2 Appalachian Private Drilling
Program L.P.
1
<PAGE> 7
North Coast Energy 1989 Appalachian Public Drilling
Program L.P.
North Coast Energy 1990-1 Appalachian Private Drilling
Program L.P.
North Coast Energy 1990-2 Appalachian Private Drilling
Program L.P.
North Coast Energy 1990-3 Appalachian Private Drilling
Program L.P.
North Coast Energy 1991-1 Appalachian Private Drilling
Program L.P.
North Coast Energy 1991-2 Appalachian Private Drilling
Program L.P.
North Coast Energy 1991-3 Appalachian Private Drilling
Program L.P.
North Coast Energy 1992-1 Appalachian Private Drilling
Program L.P.
North Coast Energy 1992-2 Appalachian Private Drilling
Program L.P.
North Coast Energy 1992-3 Appalachian Private Drilling
Program L.P.
North Coast Energy 1993-1 Appalachian Private Drilling
Program L.P.
North Coast Energy 1993-2 Appalachian Private Drilling
Program L.P.
North Coast Energy 1993-3 Appalachian Private Drilling
Program L.P.
North Coast Energy 1994-1 Appalachian Private Drilling
Program L.P.
North Coast Energy 1994-2 Appalachian Private Drilling
Program L.P.
2
<PAGE> 8
North Coast Energy 1994-3 Appalachian Private Drilling
Program L.P.
North Coast Energy 1995-1 Appalachian Private Drilling
Program L.P.
North Coast Energy 1995-2 Appalachian Private Drilling
Program L.P.
North Coast Energy 1996-1 Appalachian Private Drilling
Program L.P.
North Coast Energy 1996-2 Appalachian Private Drilling
Program L.P.
3
<PAGE> 9
North Coast Energy 1997-1 Appalachian Private Drilling
Program L.P.
North Coast Energy 1997-2 Appalachian Private Drilling
Program L.P.
By: NORTH COAST ENERGY, INC., general partner
By: /S/ Garry Regan
------------------------------
Name: Garry Regan
Title: President
4
<PAGE> 10
EXHIBIT A
PROMISSORY NOTE
$25,000,000 New York, New York June 23, 1999
FOR VALUE RECEIVED, the undersigned, North Coast Energy, Inc., a
Delaware (herein called "Borrower"), hereby promises to pay to the order of ING
(U.S.) Capital LLC (herein called "Lender"), the principal sum of Twenty Five
Million and No/100 Dollars ($25,000,000), or, if greater or less, the aggregate
unpaid principal amount of the Loan made under this Note by Lender to Borrower
pursuant to the terms of the Credit Agreement (as hereinafter defined), together
with interest on the unpaid principal balance thereof as hereinafter set forth,
both principal and interest payable as herein provided in lawful money of the
United States of America at the offices of the Agent under the Credit Agreement,
as from time to time may be designated by the holder of this Note.
This Note (a) is issued and delivered under that certain Credit
Agreement dated as of February 9, 1998 among Borrower, Lender, as Agent, and the
lenders (including Lender) referred to therein (herein, as from time to time
supplemented, amended or restated, called the "Credit Agreement"), and is a
"Note" as defined therein, (b) is subject to the terms and provisions of the
Credit Agreement, which contains provisions for payments and prepayments
hereunder and acceleration of the maturity hereof upon the happening of certain
stated events, and (c) is secured by and entitled to the benefits of certain
Security Documents (as identified and defined in the Credit Agreement). Payments
on this Note shall be made and applied as provided herein and in the Credit
Agreement. Reference is hereby made to the Credit Agreement for a description of
certain rights, limitations of rights, obligations and duties of the parties
hereto and for the meanings assigned to terms used and not defined herein and to
the Security Documents for a description of the nature and extent of the
security thereby provided and the rights of the parties thereto.
For the purposes of this Note, the following terms have the meanings
assigned to them below:
"Base Rate Payment Date" means (i) the last day of each Fiscal Quarter,
beginning September 30, 2000, and (ii) any day on which past due interest or
principal is owed hereunder and is unpaid. If the terms hereof or of the Credit
Agreement provide that payments of interest or principal hereon shall be
deferred from one Base Rate Payment Date to another day, such other day shall
also be a Base Rate Payment Date.
"Eurodollar Rate Payment Date" means, with respect to any Eurodollar
Loan: (i) the day on which the related Interest Period ends (and, if such
Interest Period is three months or longer, the three-month anniversary of the
first day of such Interest Period), and (ii) any day on which past due interest
or past due principal is owed hereunder with respect to such Eurodollar Loan and
is unpaid. If the terms hereof or of the Credit Agreement provide that payments
of interest
1
<PAGE> 11
or principal with respect to such Eurodollar Loan shall be deferred from one
Eurodollar Rate Payment Date to another day, such other day shall also be a
Eurodollar Rate Payment Date.
The principal amount of this Note shall be due and payable in 20
quarterly installments, each of which shall be equal to one-twentieth (1/20th)
of the aggregate unpaid principal balance of this Note at the end of the
Commitment Period and shall be due and payable on the last day of each Fiscal
Quarter, beginning September 30, 2000, and continuing regularly thereafter until
June 30, 2005, at which time the unpaid principal balance of this Note and all
accrued interest hereon shall be due and payable.
Base Rate Loans from time to time outstanding shall bear interest on
each day outstanding at the Base Rate in effect on such day; unless the Default
Rate shall apply as provided below. On each Base Rate Payment Date Borrower
shall pay to the holder hereof all unpaid interest which has accrued on the Base
Rate Loans to but not including such Base Rate Payment Date. Each Eurodollar
Loan shall bear interest on each day during the related Interest Period at the
related Eurodollar Rate in effect on such day; unless the Default Rate shall
apply as provided below. On each Eurodollar Rate Payment Date relating to such
Eurodollar Loan, Borrower shall pay to the holder hereof all unpaid interest
which has accrued on such Eurodollar Loan to but not including such Eurodollar
Rate Payment Date. All past due principal of and past due interest on the Loan
shall bear interest on each day outstanding at the Default Rate in effect on
such day, notwithstanding the foregoing provisions of this paragraph, on or
after ten days following the occurrence of an Event of Default, and during the
continuance thereof, each Loan shall bear interest at the Default Rate. All
interest at the Default Rate shall be due and payable daily as it accrues.
Notwithstanding the foregoing provisions of this paragraph: (a) this Note shall
never bear interest in excess of the Highest Lawful Rate, and (b) if at any time
the rate at which interest is payable on this Note is limited by the Highest
Lawful Rate (by the foregoing clause (a) or by reference to the Highest Lawful
Rate in the definitions of Base Rate, Eurodollar Rate, and Late Payment Rate),
this Note shall bear interest at the Highest Lawful Rate and shall continue to
bear interest at the Highest Lawful Rate until such time as the total amount of
interest accrued hereon equals (but does not exceed) the total amount of
interest which would have accrued hereon had there been no Highest Lawful Rate
applicable hereto.
Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest payable hereon, whether before or after
maturity, exceed the maximum interest which, under applicable Law, may be
charged on this Note, and this Note is expressly made subject to the provisions
of the Credit Agreement which more fully set out the limitations on how interest
accrues hereon.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and guarantors of this Note jointly and severally agree to pay reasonable
attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.
2
<PAGE> 12
Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in any
of its terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
This Note is given in renewal and extension, but not in novation or
extinguishment, of that certain Promissory Note of Borrower to the order of
Lender in the original principal amount of $25,000,000 dated as of May 29, 1998.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY APPLICABLE
FEDERAL LAW.
NORTH COAST ENERGY, INC.
By: /s/ Garry Regan
-----------------------
Name: Garry Regan
Title: President
3
<PAGE> 1
Exhibit 23.1
Consent of Hausser + Taylor LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated May 28, 1999 included (or incorporated by reference) in this Form
10-K, into the Company's previously filed registration Statements File Nos.
33-40341 and 333-71855.
/s/ Hausser + Taylor LLP
Cleveland, Ohio
June 25, 1999
<PAGE> 1
Exhibit 23.2
Consent of Arthur Andersen LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated June 4, 1998 included (or incorporated by reference) in this Form
10-K, into the Company's previously filed Registration Statements File Nos.
33-40341 and 333-71855.
/s/ Arthur Andersen LLP
Cleveland, Ohio
June 25, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000839950
<NAME> NORTH COAST ENERGY, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 1,956,617
<SECURITIES> 0
<RECEIVABLES> 2,855,672
<ALLOWANCES> 0
<INVENTORY> 210,556
<CURRENT-ASSETS> 5,297,845
<PP&E> 51,955,740
<DEPRECIATION> 15,537,255
<TOTAL-ASSETS> 43,573,467
<CURRENT-LIABILITIES> 2,898,390
<BONDS> 0
0
3,067
<COMMON> 45,568
<OTHER-SE> 17,893,912
<TOTAL-LIABILITY-AND-EQUITY> 43,573,467
<SALES> 13,942,300
<TOTAL-REVENUES> 13,942,300
<CGS> 11,317,863
<TOTAL-COSTS> 11,317,863
<OTHER-EXPENSES> (86,885)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,841,108
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 870,214
<EPS-BASIC> 0.16
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